How often does your company deliver a perfect order free of missing, broken, or otherwise defective inventory? As inventory management becomes more difficult—larger scale, faster speed, higher expectations, more complexity—perfect fulfillment gets harder, and failure has bigger consequences. Tracking the percentage of orders that arrive without problems reveals something fundamental about whether inventory management is working.

Every producer forecasts demand, then builds quotas around those projected figures. Tracking the accuracy of those forecasts is the first step toward aligning actual production and expected demand. Better forecast accuracy leads to lower carrying costs, which is another good indicator of inventory management performance.

While there is no standard acceptable forecast accuracy percentage due to the huge number of variables involved including the demand pattern of the items being forecasted, the ways of measuring forecast errors, and the consistency of measurement, it is clear that planning at a more granular level, or driver-based planning, that comes from capturing data from the front lines and aggregating it leads to more accurate forecasting.

Similar to the perfect order frequency, this metric tracks how often requests for products or materials from specific production locations ​​​get fulfilled as required. The fill rate effectiveness helps you understand how well your supply chain partners are performing. If there are weak links in the chain, it’s apparent in this metric.

Another way to track the performance of individual production locations is to examine how much each one contributes to gross revenues. You can take this analysis a step further by monitoring the gross contribution for specific products or business units, thereby understanding where and how inventory brings revenue into the organization.

The amount of time it takes between when a customer places an order and when they receive it reveals how well the constituent parts of inventory ​management work together. Like many metrics on this list, the figure at any given time matters less than knowing whether the cycle time is slowing down or speeding up and to what degree.

Some aspects of inventory management also relate to broader business performance. Turnover, or the number of times the entire turnover gets sold and replaced within a specified period, ​​​speaks to your company’s overall effectiveness.

Another way to track turnover is with the sell-through rate, or the comparison between how much inventory a company sells versus how much it receives over the same period. ​​​When inventory management works correctly, the amount sold versus received will be close in size.

Supplier quality can make or break a supply chain. Find a consistent way to gauge supplier performance—rate of on-time delivery, consistency of perfect order, etc.—and use that to distinguish good suppliers from bad. The index is usually based on the percentage of materials received meeting specified quality requirements.

How much of the inventory never gets sold because it breaks, spoils, ​​​or otherwise misses a window after which it can’t convert into revenue? Companies that excel at inventory management have processes so finely tuned that preventable mistakes don’t result in dead stock.

This metric measures how likely a customer is to recommend a company’s products. It’s a reliable indicator of customer satisfaction levels. If the net promoter score begins to rise or fall, it suggests that customer sentiment is changing around how your company distributes or sells products. The net promoter score provides a telling (if incomplete) look at the overall effectiveness of inventory management.

Tracking inventory KPIs, even just 10 of them, is still a time-consuming undertaking. You will need to collect, contextualize, and analyze massive amounts of data continuously to prevent metrics from growing old and irrelevant. Realistically, doing it manually isn’t an option for most finance teams.

That’s why forward-thinking organizations rely on technology to do the work at a faster pace and on a larger scale than humans ever could. With tools from Insightsoftware, the metrics outlined above track themselves. Explore how this works hands-on. Contact with NaviWorld Vietnam to get a free inventory management dashboard that brings key metrics to life before your eyes.

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By: Insightsoftware