If you’re managing a warehouse, there are many metrics you should monitor in order to ensure your processes are running smoothly and efficiently. Here are three of the most important inventory management metrics you should be watching:
This one may sound simple, but it’s vitally important to track how much you have of a given product. Tracking your inventory levels helps you know how much inventory you should have on hand, and it helps you to calculate seasonality and to understand other important aspects of your processes.
The inventory turnover ratio tracks how quickly you are replacing inventory. It’s calculated by dividing your total sales by the average value of inventory on hand.
For example, if you sell 30 widgets in a month and you have 100 widgets in inventory, your inventory turnover ratio is 0.30. This means that in any given month you are selling 30% of your inventory of that widget. So, if you want to run a leaner operation, you could reduce the number of widgets you have on hand, say to 50, and increase your inventory turnover ratio. Your new ratio would be 30/50, or 0.60. This would mean that you wouldn’t have to store as much inventory in your warehouse, but you also wouldn’t have as much inventory on hand so you are at a higher risk of a stockout.
The cycle time is the time that it takes from when an order is first issued until it is completed. Cycle times can apply to many types of orders, including customer orders, purchase orders, manufacture orders and more.
For example, if you have a customer that requests your products, your cycle time would be from the date of the order until the time you actually deliver the order. This includes any time you may be waiting for raw goods to be delivered to you, plus assembly time, packaging and shipping time, and any other associated tasks.
If you’re interested in learning more about key inventory management metrics that you can implement in your business, check out a free trial of Fishbowl Manufacturing and Fishbowl Warehouse. Fishbowl is the #1 selling inventory management application that integrates with QuickBooks. Sign up for a free trial today!