Inventory is one of the most significant costs for many businesses so ensuring its optimization is often a key company objective.

A Key Performance Indicator (KPI*) in inventory management^ may be defined as information associated with a target (objective) in order to provide an assessment of the performance in relation to the target, the target being defined within the scope of an overall strategy. Such assessment should be associated with (modulated by) the resource variables (human and technical)

Commonly used KPI’s:

Inventory Turn over
Inventory Turn tells you how many times inventory has been sold and replaced in a given period.

 

Stockouts 
Stockouts indicate where a demand cannot be met due to the absence of the required inventory – monitoring these will tell you if you have the right mix of stock type and quantity.

Service_LevelService Level KPI is to measure the level of service performed by Inventory or Stock Control in fulfilling their customer (user) requirement.

It is reflected by the percentage of quantity or value fulfilled toward total quantity or value requested (demand) during the period of reporting.

Service Level in Qty = (Total qty fulfilled / Total qty requested) * 100 %

Service Level in Value = (Total value of qty fulfilled / Total value of qty requested) * 100 %

The higher the service level, the more satisfied the user/customer will be. It could be also ensured that the operation will not be disturbed due to the shortage of supporting materials.

Lead_TimeLead time is the length of time it takes to obtain inventory from suppliers – Long lead times can result in holding excess inventory (impacting cost and service level)

Stock_CoverStock cover is the length of time that inventory will last if current usage continues – this is an important indicator as it helps appraise the impact of changes in lead time or the potential for running out of stock.

Operating_Expenses_directly_tied_to_the_InventoryInclude freight costs, warehouse operating costs related to receiving/put away, purchasing costs, accounts payable costs, taxes, insurance, warehousing space. If you are able to calculate all of these costs and divide them by number of line items you have purchased throughout the year, that would be the "R" cost or Replenishment cost representing how much it costs your company each time you add a line item to a PO.

By keeping the above KPIs in place we can do
Inventory Plan – Matching Optimum level of inventory and business process
Inventory Control – Control on raw materials and finished goods in the warehouse
Inventory Balance – Matching supply to demand (Finished goods and semi-finished goods)

Inventory Management KPI Dashboard~

To view information about inventory value and turns, and cycle count accuracy:

• View total inventory value, which includes inventory that is on hand (for example, in the store), WIP value (including material issues and resource charges), and inventory in transit between organizations.
• View inventory turns by organization, including the change in an organization’s inventory turns over time.
• View cycle count accuracy, including hit/miss accuracy and adjustment rate.

• Hit/Miss Accuracy: (Total Hit Entries / Total No. of Entries) * 100
Hit/Miss Accuracy is the percentage of the total number of cycle count entries that fall within the hit/miss tolerance as compared to the total number of cycle count entries made.
• Gross Adjustments Rate: (Total Gross Adjustment Value / Total System Inventory Value) * 100 
Gross Adjustment Rate is the gross value of the adjustments made during cycle counting to the total system inventory value of the counted items at the time of completion of the cycle count entries.
• Exact Matches Rate: (Total Match Entries / Total Number of Entries) * 100 
The exact match rate is number of exact match entries as a percentage of the total number of cycle count entries. An exact match entry is an entry where the counted quantity entered is the same as the system quantity.

Some examples of performance indicator associated to inventory management are as follows:

Performance Indicator	Details/Comments
ü  Value of stock	Value of stock at the end of the month. May be detailed in stock per Division or per class of equipment
ü  Value of surplus stock	Value of surplus stock at the end of the month.
ü  Number of surplus items	Number of surplus items at the end of the month.
ü  Value of obsolete stock	Value of obsolete stock at the end of the month.
ü  Number of obsolete items	Number of obsolete items at the end of the month.
ü  Number of stock items	Number of stock items at the end of the month.
ü  Number of created stock items	Number of stock items created during the month.
ü  Number of reviewed/analysed items	Number of reviewed/analysed items (generating possible changes to management parameters) during the month.
ü  Number of removed stock items	Number of stock items removed during the month.
ü  Stock at third parties (Number of items and value)	Stock at third parties (Number of items and value) at the end of the month.
ü  Reception in stock (Number of movements and items, and value)	Reception in stock (Number of movements and items, and value) during the month.
ü  Exits from stock (Number of movements and items, and value)	Exits from stock (Number of movements and items, and value) during the month.
ü  Return to stock (Number of movements and items, and value)	Returns to stock (Number of movements and items, and value) during the month.
ü  Number of inventoried items	Number of inventoried items during the month.
ü  Consumption value	Consumption value during the month.
ü  Rotation of stock	Rotation of stock (in consumption months). May be detailed per Division or per class of equipment.

Glossary:

* KPI: A Key Performance Indicator (KPI) is a measurable value that demonstrates how effectively a company is achieving key business objectives. Organizations use KPIs or Key Success Indicator (KSI) to evaluate their success at reaching targets.

^Inventory Management: Combination of...Overseeing and controlling of the ordering, storage and use of components that a company will use in the production of the items it will sell.
Overseeing and controlling of quantities of finished and semi-finished products for sale.

~ Dashboard: A dashboard is an easy to read, often single page, real-time user interface, showing a graphical presentation of the current status (and historical trends of an organization.