![]() ![]() Inventory risk costs – costs that cover the risk of items losing value whilst stored, shrinkage, or becoming obsolete. Inventory service costs – these include insurance, security, IT hardware and the cost of physically handling the goods. ![]() Storage space costs – a combination of the warehouse rent or mortgage and maintenance costs, such as lighting, heating and air conditioning. These costs include:Ĭapital costs – all costs related to the investment in buying stock, e.g the cost of the stock, the interest on working capital and the opportunity cost of the money invested. The inventory carrying costs include all the overheads (many hidden) you incur by stocking items in your warehouse. If your orders often include multiple lines and shipments, you can also drill down into the actual line orders for more accuracy. It shows the percentage of orders that cannot be filled at the time a customer places them.Ī high backorder rate can indicate poor demand forecasting and planning and can obviously affect customer satisfaction. This inventory KPI keeps track of the number of delayed orders due to stockouts. An inventory optimisation ERP plug-in will not only dynamically forecast your demand, but also provide data on the accuracy of your forecasts and adapt them for future. Whilst an enterprise resource planning system may include some forecasting functionality, consider investing in inventory optimisation software. There are many formulas for calculating demand accuracy, or demand error, including the Mean Absolute Percent Error (MAPE) and Mean Absolute Deviation (MAD) – see our blog post on calculating forecast error for the specific calculations. The more accurate your demand forecasts are, the better your inventory turnover rates and the lower your carrying costs. The less of a gap between what was forecasted and what was sold indicates that your demand forecasting is strong. This KPI analyses how accurate your forecast was against actual sales. Demand forecast accuracyĪiming to get your demand forecasting as accurate as possible is critical to ensure stock availability so you can maximise sales and keep customers happy, whilst preventing excess stock. Read our whitepaper on How to Fix Inventory turnover challenges for more tips. However, be careful not to simply lower inventory levels across the whole warehouse to improve your turnover rate, as this could be at the expense of order fulfilment. A higher turnover generally means greater efficiency. Inventory turnover is a good indicator of the efficiency of your inventory management processes. Inventory turnover ratio measures how quickly stock is sold and replaced, or turned over, in a predefined time period, usually a year.Ī common way to calculate an inventory turnover ratio is: Offer praise when you’re performing well and feedback when performance needs to improve to keep everyone motivated towards the same goal. Employees need to understand their importance and how they’ve individually impacted performance.
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