How can you set inventory targets and KPIs?

2 Inventory KPIs

Inventory KPIs are the metrics that measure how well you are managing your inventory in relation to your inventory targets and business objectives. They help you track your inventory performance, evaluate your inventory efficiency, and identify your inventory issues and opportunities. Common inventory KPIs include the inventory turnover ratio (the number of times you sell and replace your inventory in a given period), inventory accuracy (the percentage of agreement between your physical inventory and your inventory records), inventory days (the number of days it takes to sell your current inventory), and inventory shrinkage (the percentage of inventory that is lost, damaged, or stolen in a given period). To set these KPIs, you need to define your objectives, select relevant KPIs, establish benchmarks, and measure and analyze them regularly. For example, you may want to increase the turnover ratio by monitoring sales, levels, and costs; or improve accuracy by monitoring counts, adjustments, and variances. Additionally, benchmarks can be based on historical performance, industry averages, best practices, or competitors. By collecting accurate data using tools such as barcodes or RFID and interpreting it with trend analysis or variance analysis, you can compare results with benchmarks to identify strengths and weaknesses.

3 Inventory improvement

Inventory improvement is the process of taking actions to optimize inventory management and achieve objectives. It involves implementing changes and solutions that address issues and opportunities, enhancing performance and efficiency. To pursue inventory improvement, prioritize inventory issues and opportunities based on impact and urgency, identify and evaluate potential solutions for each one, implement and monitor chosen solutions, and review and refine inventory management. Assess how much each issue or opportunity affects KPIs and business goals, as well as how soon it needs to be resolved or exploited. Research possible ways to improve inventory management, such as adjusting targets, adopting new policies, streamlining processes, or upgrading systems. Weigh the pros and cons of each solution to determine feasibility, cost, benefit, and risk. Plan and execute actions required to implement solutions, communicate expectations, provide training, monitor results of solutions, review effectiveness/efficiency of inventory management periodically/systematically using tools such as audits/surveys/reviews. Finally, refine/update targets/KPIs/benchmarks/solutions based on review findings/changing conditions.