KPIs for Inventory Management: 10 Key Metrics You Should Track

Efficient inventory management is critical for a product-focused business to generate profits. Whether you’re running a webshop, working in wholesale, retail or managing production, keeping your inventory under control is essential to minimizing costs, enhancing customer experiences, and optimizing operations.

But how do you really know if your inventory management is running at its best?

Without insight into your inventory’s performance, unforeseen issues can quickly arise:

• Unexpected stockouts: Without tracking your inventory turnover, popular products can suddenly go out of stock, resulting in lost sales and frustrated customers.
• Overstocked inventory: A lack of visibility over your inventory can lead to excess stock that doesn’t sell, tying up capital and taking up valuable space.
• Unnecessary costs: Poorly managed order management can cause errors in picking and delivery, driving up costs and harming your customer service.

No matter what type of challenges you face, the most cost-effective solution is to establish and monitor specific KPIs for your inventory.

What are KPIs?
KPIs (Key Performance Indicators) are measurable metrics that provide insight into how your inventory management is performing and where improvements can be made. They help you identify inefficiencies, streamline your operations, and avoid costly errors.

In this post, we’ll walk you through 10 essential KPIs that will help you take control of your inventory and sidestep common pitfalls.

1. Inventory Turnover Rate

What it is:
This KPI measures how often your inventory is sold and replenished within a given period, typically a year. It reflects how efficiently your stock is being utilized to generate sales. A low turnover rate may indicate excess inventory or slow-moving products, while a high rate suggests healthy inventory management.

Why it’s important:
A high inventory turnover rate minimizes the risk of obsolete items and ties up less capital in inventory, freeing up space and improving liquidity.

Formula:

2. Average Days to Sell Inventory

What it is:
This metric calculates the average time it takes to sell items from your inventory. It shows how quickly products move through your supply chain, from receipt to sale.

Why it’s important:
Long holding times increase storage costs and the risk of obsolescence. Reducing this time improves cash flow and operational efficiency.

Formula:

3. Order Fill Rate

What it is:
Order fill rate measures the percentage of customer orders fulfilled directly from stock without delays or backorders.

Why it’s important:
A high order fill rate leads to happier customers and fewer lost sales. It shows you’re stocking the right items in the right quantities.

Formula:

4. Inventory Accuracy

What it is:
This KPI compares the stock levels recorded in your inventory system to the actual physical stock. It highlights the accuracy of your inventory management processes.

Why it’s important:
Accurate data minimizes order fulfillment errors, prevents overstocking or understocking, and supports better restocking decisions.

Formula:

5. Order Cycle Time

What it is:
Order cycle time tracks how long it takes to process and ship an order, from when it’s received to when it’s ready for delivery.

Why it’s important:
A shorter cycle time improves customer satisfaction and gives your business a competitive edge in meeting delivery expectations.

6. Picking Accuracy Rate

What it is:
Picking accuracy measures the percentage of orders picked correctly without errors. Errors can include picking the wrong item, quantity, or shipping to the wrong address.

Why it’s important:
Accurate picking reduces returns, improves customer satisfaction, and minimizes costs associated with correcting mistakes.

Formula:

7. Inventory Coverage Ratio

What it is:
This KPI calculates how many days your current inventory can sustain demand based on your sales velocity.

Why it’s important:
Tracking this metric helps balance stock levels and prevents overstocking or stockouts.

Formula:

8. Return Rate

What it is:
The return rate measures the percentage of sold items returned by customers. Reasons for returns may include defective products, incorrect deliveries, or customer dissatisfaction.

Why it’s important:
High return rates can highlight issues with product quality, picking accuracy, or customer expectations. Reducing this rate improves customer loyalty and reduces costs.

Formula:

9. Cost per Order

What it is:
This KPI measures the total cost of fulfilling a single customer order, including labor, packaging, and logistical expenses.

Why it’s important:
By monitoring cost per order, you can identify inefficiencies and streamline processes to reduce operating expenses.

Formula:

10. Deadstock Rate

What it is:
Deadstock rate measures the percentage of inventory that hasn’t sold within a specified period. These items tie up capital and occupy valuable storage space.

Why it’s important:
Reducing deadstock frees up resources and ensures your warehouse space is used for revenue-generating items.

Formula:

Conclusion: Avoid Pitfalls with the Right KPIs

Overlooking inventory performance can lead to lost sales, wasted resources, and dissatisfied customers. By focusing on the right KPIs, you can identify problem areas, improve efficiency, and take your operations to the next level.

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