When it comes to accurate inventory management, there are some errors you can’t prevent. However, it is possible to lessen the risk by sticking to the right KPIs. They give valuable insights into the effect of business operations and prompt you about what improvements should be made.
Although KPIs vary from one warehouse to another, three of them are widely used:
Days to sell inventory. Simply put, it is the time taken to convert inventory into sales. The formula for calculating it is as follows: (average inventory/cost of sales) x 365 for a year and 90 for a quarter.
Out-of-stocks. Running out of goods is a clear sign you need to enhance inventory monitoring and automate the entire inventory count cycle reducing error-prone manual work.
Return rates. Tracing the rate of goods returned along with the reasons leading to then point out the bottlenecks in the supply chain. These metrics are essential for the prevention of future returns and remaining within budget.
Setting correct KPIs is essential, but they may be of no use if you keep receiving outdated information on the inventory available. Businesses today should rely heavily on robust technology solutions to thrive and win in tough competitions. This is why an inventory management module is a must for any warehouse. It can help improve the fulfillment process, reduce operating costs, and avert frauds. On top of that, the toolkit prevents overstocking, which means extra inventory does not occupy warehouse space which could be used for high-demand goods storage.
In addition to the accurate inventory stock data, inventory management tools can help with:
Sending automatic alerts via email or mobile phones (push notifications or text messages) once sudden changes happen. They may be caused by late merchandise, inaccurate receiving quantity of goods, etc.
Making inventory predictions. This contributes greatly to accurate budget planning. The toolkit makes intelligent forecasts based on the data obtained previously and allows businesses to predict demand levels and arrange inventory management respectively.
Freight tracking is another powerful feature of the inventory management suite; however. this function can also be fulfilled by a transportation management system. When cargo is shipped from abroad, it is important to know the exact arrival time (taking into account difference in time zones) and to monitor its current shipment status.
Insightful analytics. Analytics can serve different purposes. For example, some analytics tools generate fill reports and let manufacturer and warehouse providers see if orders are filled at optimal speed or why fill rates are lower than expected. Some shows the real-time status of items being in or out of stock. Simply put, they enable businesses to stay on track.
Real-life case: software tracking Amazon inventory
Amazon started using a custom-built inventory management system. It is called the Inventory Performance Index. It monitors how well each merchant handles its inventory, removes unsold goods, and updates the listings when required. This way Amazon optimizes warehouse space since the inventory stored for too long decreases the merchant’s score and may impose further storage restrictions for all those with low scores.
Data source: www.cnbc.com