In our last post, we looked at the importance of keeping your carrying costs down, and how it contributes to your inventory management success. But can you put a number to your inventory management success?
We’ve put together a list of crucial metrics that you should keep a close eye on over the course of the year. These metrics can help you make decision about scaling your business and identifying areas of improvement.
1. Inventory Turnover
Your inventory turnover is the amount of times your inventory is sold and replaced over a certain time period (like a year), letting you know how your business is performing.
Generally, a higher inventory turnover rate means you’re enjoying brisk sales. However, a low inventory turnover means that you could be ordering too much and it may be time to revise your business strategy. With the help of business intelligence, you’ll be able to pinpoint the problem right down to the specifics.
2. Average Days to Sell Inventory
The average days to sell inventory lets you put a number to your inventory turnover. You’ll know how long it takes for you to sell your monthly inventory, and it’ll also keep you updated on how many day’s worth of sales you have in your inventory at any time.
If your average days needed to sell inventory is low, you may be running the risk of going out of stock. On the other hand, if you’re taking a long time to sell your inventory, you could be carrying too much slow-moving stock that are on the verge of turning into dead stock.
3. Return on investment
Calculating your return on investment is an easy way to know how well your business is doing. You’ll know if you’re turning a profit, and how much it is. And once you know how well your business is doing, you’ll be able to decide how much of your profits should be reinvested into the business to boost future growth.
Your cost of investment doesn’t just cover how much you’ve spent purchasing inventory, but also includes your inventory costs and the carrying costs attached to your inventory.
4. Carrying costs
We talked about this last week, so here’s a short recap on carrying costs.
Carrying costs include:
- Opportunity costs of investing in inventory
- Storage costs for facility maintenance, a variety of
- Inventory service costs covering insurance and software applications
- Inventory risks costs when shrinkage and obsolescence happen
You need to keep your carrying costs at about 25% of your inventory value. If you want to reduce your expenditure on carrying costs, you can start by reducing the size of your inventory.
When it comes to keeping track of your costs and your sales, inventory management software can be a great help. With inventory management software, you’ll be able to generate sales reports, which can offer useful insights when you’re calculating key success metrics.
At some point in your inventory management journey, you’ll realize it’s time to make the move to a scalable inventory management solution. If you’re wondering about when’s the right time, we’ll have tips for you next week on how to identify when it’s time to move!
All images by TradeGecko Designer Joyce Lee