What are the most effective inventory management KPIs for the retail industry?

1 Inventory Turnover Ratio

The inventory turnover ratio is a measure of how often you sell and replace your inventory in a given period. It indicates how well you are managing your inventory levels and how efficiently you are using your capital. A high inventory turnover ratio means that you are selling your inventory quickly and not holding too much stock, which reduces storage costs and the risk of obsolescence. A low inventory turnover ratio means that you are selling your inventory slowly and holding too much stock, which increases storage costs and the risk of spoilage or markdowns. You can calculate your inventory turnover ratio by dividing your cost of goods sold by your average inventory value.

2 Stock-Out Rate

The stock-out rate is a measure of how often you run out of inventory for a product or a category. It indicates how well you are meeting customer demand and how effectively you are forecasting your sales. A high stock-out rate means that you are losing sales opportunities and customer satisfaction, as customers may switch to competitors or alternative products. A low stock-out rate means that you are fulfilling customer demand and maximizing your sales potential, as customers can find what they are looking for and buy from you. You can calculate your stock-out rate by dividing the number of times you run out of stock by the total number of sales transactions.

3 Gross Margin Return on Investment

The gross margin return on investment (GMROI) is a measure of how much profit you are generating from your inventory investment. It indicates how well you are pricing your products and how profitable your inventory mix is. A high GMROI means that you are earning a high return on your inventory investment, as you are selling your products at a high margin and turning over your inventory frequently. A low GMROI means that you are earning a low return on your inventory investment, as you are selling your products at a low margin and turning over your inventory slowly. You can calculate your GMROI by multiplying your gross margin percentage by your inventory turnover ratio.

4 Inventory Accuracy

The inventory accuracy is a measure of how closely your physical inventory matches your recorded inventory in your system. It indicates how well you are tracking your inventory movements and how reliable your inventory data is. A high inventory accuracy means that you have a clear and accurate picture of your inventory levels and locations, which enables you to make better decisions and avoid errors. A low inventory accuracy means that you have a distorted and inaccurate picture of your inventory levels and locations, which leads to confusion and mistakes. You can calculate your inventory accuracy by dividing the number of items that match your system records by the total number of items counted.

5 Sell-Through Rate

The sell-through rate is a measure of how much of your inventory you are selling in a given period. It indicates how well you are matching your inventory supply to your customer demand and how fast you are moving your inventory. A high sell-through rate means that you are selling a large percentage of your inventory in a short time, which shows that your products are in high demand and that you are managing your inventory efficiently. A low sell-through rate means that you are selling a small percentage of your inventory in a long time, which shows that your products are in low demand and that you are managing your inventory poorly. You can calculate your sell-through rate by dividing the number of units sold by the number of units available at the beginning of the period.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?