To properly assess your inventory and any changes you make to the management process, there are certain metrics you need to be tracking. Some metrics you need to be tracking all of the time, while other metrics will depend on your current goals. And you may also need to track certain metrics so that other departments can properly analyze and report for their team.
To help you get started, here are some of the metrics you should be monitoring …
- Inventory Turnover
Inventory turnover tells you how many times your SKUs are sold and replaced over time. This ratio will tell how well your parts are moving so that you can make the best possible decisions when it comes to ordering.
Inventory Turnover = COGS / Average Inventory Value
Average Inventory Value = (Beginning Inventory + Ending Inventory) / 2
The higher the ratio, the faster your inventory moves.
- Days On Hand
Another valuable metric is days on hand, which tells you the average number of days you carry each item (or how long it takes to sell it).
The lower the number of days, weeks or months, the better. It means you have a quick turnaround and less capital is caught up in inventory that doesn’t move.
Days On Hand = 365 / Inventory Turnover
This formula can be adjusted for weeks or months by replacing 365 by 52 (for weeks) or 12 (for months).
- Sell-Through Rate
This metric will tell your parts department how efficient the supply chain is internally.
Sell-Through Rate = (Units Sold / Units Received) x 100
- Return On Investment (ROI)
The ROI tells you how much money you made on an investment in stock. It is calculated as follows:
ROI = ((Profits – Cost Of Inventory) / Cost Of Inventory) x 100
The higher the percentage the better your gains.
- Cost Of Being Out Of Stock
This metric tells you how much it will cost you in sales if you are out of stock on a specific item.
Cost Of Being Out Of Stock = Number Of Days Out Of Stock x Average Units Sold Per Day x Profit Per Unit
The higher the value, the more consideration you should give to keeping more stock of that item.
- Perfect Order Rate
Perfect Order Rate can help you measure customer satisfaction. T determines what percentage of your orders were delivered without issues such as damage, inaccurate records or delays.
Perfect Order Rate = (% Orders Delivered On Time) x (% Orders Delivered Complete) x (% Orders Without Damage) x (% Orders With Proper Records) x 100
The higher the final percentage, the better.
- Inventory Shrinkage
Inventory shrinkage is inventory that is in your records but is no longer physically on site. This can be due to poor record keeping, internal theft, evaporation or many other reasons.
Inventory Shrinkage = Ending Inventory – Value Of Physical Inventory
- Inventory Carrying Cost
Keeping items in inventory comes at a cost. You have to pay for storage space, insurance, and labor. You also have to take into consideration obsolescence.
Inventory Carrying Costs = ((Inventory Service Cost + Inventory Risk Cost + Capital Cost + Storage Cost) / Total Value Of Inventory) x 100
These are just some of the many metrics you should be tracking, and they all depend on accurate physical inventory counts and inventory records. For help getting your parts department set up so that you can depend on your metric calculations to make decisions, contact us today!
Tags: Auto Parts Inventory