Inventory Management Metrics

Jonny Parker
September 11, 2023

If you are managing a warehouse, you want to make sure everything is running smoothly. But how can you know whether or not this happening? With hard data, that’s how. There are many metrics you can monitor in order to ensure your processes are running as efficiently as possible and that you are making the most of your resources. Here are three of the most important inventory management metrics you should be watching on a continual basis:

1. Inventory Levels

This one may sound simple, but it is vitally important to track the quantity you currently have of any given product in your warehouse. Tracking your inventory levels helps you know how much inventory you should have on hand to keep up with demand, and it helps you to calculate seasonality and to understand other important aspects of your processes. It can help you get the best deal when reordering an item because there are a lot of factors to take into account, such as discounts on high-volume orders, lead times, historical sales figures, etc.

2. Inventory Turnover

The inventory turnover ratio tracks how often you are replacing your inventory. It is calculated by dividing your total sales by the average value of inventory on hand over a specified period of time.

For example, if you sell 30 widgets in a month and you have an average of 100 widgets in stock over that time period, your inventory turnover ratio is 0.30. This means that in any given month you are selling 30 percent 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 would not have to store as much inventory in your warehouse, but you also would not have as much inventory on hand, so you are at a higher risk of a stockout. It is a delicate balancing act.

3. Cycle Time

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,