Turn Inventory into Sales by Tracking These Warehouse KPIs

How long does inventory sit in your warehouse? What does idle stock cost your company? Are you struggling to fill orders due to stockouts?

If you want to answer these questions, then you must track warehouse inventory. Otherwise, mismanagement can create financial turmoil that negatively impacts company health.

Controlling stock can help you upgrade efficiency and productivity, keep up with customer demand, boost cash flow and make better inventory-related decisions.

Warehouse KPIs for Decision-Making

A good example of the power of inventory management can be found in this story of a warehouse that was storing its own finished goods. Because its production area lacked accurate and timely information about inventory, it often dealt with excess stock. The warehouse also battled product deterioration because items sat so long.

To better observe and manage inventory, as well as control the quantity of the products stored in the warehouse, the company developed its own warehouse KPIs (key performance indicators) and assigned a rating system for evaluation purposes:

• Green = expected performance
• Yellow = worrying performance
• Red = unacceptable performance

This enabled the managers who made decisions about inventory to have accurate, useful data at their disposal.

By tracking the right inventory metrics, the company discovered that it was far from its expected performance levels—and could see why (and then take action to improve the situation).

Inventory Trouble? Get Answers by Measuring the Right KPIs

Tracking inventory KPIs helps you understand the effectiveness of your inventory-management workflows and the cost associated with keeping inventory in stock for your pickers.

It also gives you visibility into what’s happening with the products in your warehouse or distribution center: how products move, turnover, sales, consumer demand and more.

If your warehouse or distribution center struggles with inventory problems like those listed below, then measuring inventory KPIs becomes especially critical:

• Costly overstocking
• Lack of visibility into what products you have and where they are
• Inability to locate inventory stock
• Difficulty tracking obsolete inventory
• Increasing expenses associated with inventory carrying

The ability to view KPI progress as it occurs—so you can see exactly what’s happening with warehouse inventory at any point—makes it easy to notice when a certain warehouse KPI falls outside pre-defined parameters so it can be fixed.

2 Warehouse KPIs to Better Manage Inventory

Tracking warehouse KPIs helps you measure your organization’s health and inventory efforts so you can reduce error rates, optimize stock flow, manage shrinkage and reduce waste while cultivating profitability.

Here are some of the warehouse KPIs you should consider monitoring to improve inventory management.

1. Inventory Accuracy

What it is:

This KPI measures the accuracy of your inventory counts so you know what’s on hand. Having this information means you don’t have to stop production or dedicate staff resources to conducting a physical inventory count.

Average range:  

The KPI range for inventory accuracy is between 98% and 100% (the higher, the better).

What it allows you to do:

• Optimize inventory management processes and determine whether better inventory management is needed
• Identify and address potential inventory shrinkage
• Manage product turnover
• Create more accurate demand forecasts and financial reports

2. Inventory Carrying Cost

What it is:

This KPI measures the costs associated with holding unsold inventory, including storage, labor, insurance and damaged or expired products.

Average range:

The KPI range for inventory carrying costs is between 15% and 20% (the lower, the better).

What it allows you to do:

• Determine how long you can keep inventory before losing money
• Reduce costs associated with storing and maintaining inventory
• Establish how much can be earned based on current inventory
• Decide whether to store more or less to maintain a desired revenue stream

We Can Help You Track and Apply Your Inventory KPIs

If you’re ready to find out what you’re doing right—and where your warehouse needs to improve— then we can help you start by tracking the right warehouse KPIs.

Belden’s in-house team of automation and solutions consultants has decades of combined experience in industrial automation and warehouse and inventory management.

We know which KPIs matter, how to gather information to support them and what you need in order to acquire, transmit, orchestrate and manage your data so you can act on it quickly.

Related resources:

• Why and How You Should Track Warehouse Safety KPIs
• Why Warehouses Now Need Dedicated Warehouse Automation Networks
• Planning an OT Network for Your Warehouse? Here’s Where to Start