What Are Inventory Metrics, and How Can They Impact the Cash Flow and Bottom Line of Your Manufacturing/Distribution Business

January 26, 2017

By: André Nel

Monitoring your inventory is a vital part of your supply chain and cash flow management, and they can be adversely impacted if not handled appropriately. Inventory metrics are a key part of managing supply chains for improved profits. Here’s what you need to know.

The Importance of Metrics

There are several benefits of knowing your  warehouse metrics, including measuring your performance, allowing you to identify and address issues, and providing forecasting and planning opportunities. A business can only be as good as its supply chain, which is the driving force behind product delivery. Thus, you must be current on operational needs and performance to make sure your warehouse is operating efficiently and effectively.

What Metrics Measure

Metrics measure several parts of supply chain management, including service, quality and operational levels. Here are a few examples of what metrics measure:

  • Abandonment rates
  • Employee turnover rates
  • Return on assets (ROA)
  • Sales velocity
  • Customer purchasing frequency
  • Customer satisfaction ratings
  • Sales order fill rates
  • Inventory ratios
  • Production efficiency

Key Metrics for Warehouses and Distribution Centers

Several inventory metrics are beneficial for keeping you current on the flow of product; however, certain key metrics should not be ignored, including warehouse capacity, on-time shipping, cycle times and order fulfillment accuracy.

  1. Warehouse Capacity

Peak seasons, such as holidays or special events, can significantly and unexpectedly raise inventory levels. This elevation can place a strain on your warehouse or operations budget if you’re searching for additional space at the last minute. While measuring inventory with Radio Frequency Identification or RFID devices may be beneficial, humans still play a vital role in making judgment calls for additional capacity needs in unique situations, such as a sudden increase in orders. You should always keep track of your warehouse capacity’s peak season and how well the distribution center space is used.

  1. Cycle Times

Cycle times, such as the dock-to-load time, the internal cycle time and the total cycle time, help improve operations via better shipping practices. For example, warehouse managers can use the dock-to-load cycle time to identify inefficiencies when organizing the shipping container loading time intervals, such as if workers take too long in picking products (versus warehouse robots). The manager can isolate the issue and create a solution to improve the agility and accuracy of operations.

  1. On-time Shipping

Keeping track of whether shipments leave the dock on time is vital for efficient operations. Avoid underutilizing workers by having them prioritize shipments rather than focus on shipping loads too early, which could otherwise take away from additional orders and cause late shipping.

  1. Order Fulfillment Accuracy

The need to swiftly fulfill orders can bring the pain point of human error: out-of-stock items, missing products and upset customers. For instance, inventories can shrink unnecessarily if an impatient employee mistakenly adds too many products to an order. Moreover, if a warehouse order processor rushes through an order and forgets to include a key product of a multi-item order, it can hinder the customer experience. However, when you use metrics to assess the accuracy of your order fulfillment, you can significantly reduce or avoid these issues altogether.

How to Measure the Metrics

Here’s a game plan to get you started on measuring your metrics:

  1. Pick metrics that matter.Select the most important metrics to improve your operations, ones that are valuable to your business.
  2. Benchmark your metrics.Measure your metrics against industry standards and competitors to assess your performance from a macro-level.
  3. Convert metrics into key performance indicators or KPIs.Use the inventory metrics that are most relevant, measurable and tangible to business goals.

Final Thoughts

Using inventory metrics and analyzing their results is vital if you want to improve business and be competitive. Measuring your inventory in your distribution center or warehouse will improve operational efficiency and your bottom-line profit, too.

For additional information on the impact of inventory metrics in manufacturing, contact Goldin Peiser & Peiser today!

Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.

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