For any Wholesaler, or for that matter, even for a Retailer, Warehouse/Inventory Management is an important function. Efficient Warehouse Management not only drives profitability and margins, but it also helps in managing Working Capital requirements optimally.
While it can be particularly challenging to collate all the data that would be required to monitor Inventory movement and analyze Warehouse Performance, thanks to modern-day software-driven data management and analytics solution, businesses can now get all necessary real-time insights, right on their system dashboard, from all the data they generate. This enables businesses to not just keep their Warehouse/Inventory effectively managed, but could also identify areas of improvement in current practices.
Said above, it is of extreme importance to identify the Key Performance Indices (KPIs) or Metrics necessary to monitor Warehouse Performance for your business. Keeping product wholesalers and retailers at the forefront, Ordercircle has collated a list of 10 specific Warehouse KPIs or Warehouse Performance Metrics that matter the most in your journey to efficient and effective inventory management.
Here you go,
1) Inventory Turnover Ratio
Inventory turnover ratio is the number of times your company has managed to ‘turn over’ the value of inventory in a year. The formula for calculating the inventory turnover ratio is (Sales/Average Inventory). It is easy to see that the higher the value of this ratio, the better is the level of business activity. A low-value inventory turnover ratio may imply that you are overstocking your warehouse or will require way too big warehouse to need regular replenishment. A lower inventory turnover ratio also indicates that individual items are staying in the inventory for a long time. This could be problematic and would require serious rethinking on your sales and inventory stocking strategy.
2) Cash to Cash Cycle Time
This is an important indicator to track right after your Inventory turnover ratio. Cash to Cash cycle time is a measure of days between paying for your inventory on stocking and receiving payment on sales. While this has a lot to do with the nature of business, if your cash to cash cycle time is high, there is no benefit in having a high turnover ratio. High cycle time will have bearing on heightened Working Capital Requirements. Time to tighten screws on your revenue assurance/cash collection team in that case.
3) Supply Chain Cycle Time
A measure that helps you determine how long it takes to fill your order when your shelf/warehouse is out of inventory. Shorter the cycle time, better it is for your business as well as the customer.
4) Customer Order Cycle Time
Your customer order cycle time examines how often a customer orders a particular product and how quickly a customer gets delivery of the order. Quick and timely deliveries will establish trust and generate repeat business. Handle on this parameter eventually also helps in forecasting demand and delivery time.
5) Inventory Count
Inventory count accuracy is how accurate (or updated) your inventory records are at any given period of time. This has a heavy bearing on the quality of customer servicing and experience. If your accuracy is not high, your records may be showing some products in stock while they are not available. Then, when you are required to service orders for those products, you would discover their absence in stock. So, either you would have to send customers away, or the order delivery lead time would be high, which would end up frustrating the customer.
6) Perfect Order Rate
The perfect order rate shows the percentage of orders that you have managed to ship without any adverse incident. An order would qualify as a perfect order if the customer receives the order in good condition within a pre-specified number of days from the time of order placement. Adverse incident would mean delivery of damaged products or delivery beyond the promised number of days. The wrong product being delivered to a customer would also count as an adverse order. Thus, the simple formula for calculating the perfect order rate would be (Orders Delivered without Adverse Incident/Total Orders Delivered).
It is essential to aim for a perfect order rate as close to 100% as possible. This is because if the wrong or damaged product is delivered, the customer would return the product/ask for its replacement, which means you have to incur additional transportation costs. If the product is delivered after the promised number of days, it would result in customer dissatisfaction.
7) Fill Rate
Fill Rate is the percentage of product orders that can be met immediately by the available inventory stock without causing back-orders and stock-outs or losing out on sales. Fill rate is an important determinant of lead time, as a low fill rate means that you would have to wait for fresh product stock to arrive at your warehouse before you can service existing orders. This would either mean a higher lead time (causing customer dissatisfaction) or your customers canceling orders/going to your competition (lost business).
8) Average Warehouse Capacity Utilization
Warehouse capacity utilization refers to the percentage of warehouse space that is utilized (i.e., stocked with products) on an average. Ideally, this should be as high as possible, but with some wiggle room to accommodate a heightened requirement for product stocking when demand spikes are expected.
However, if this number is low, your warehouse space is under-utilized. This would not pose problems when it comes to order servicing, but it means you have leased a warehouse space larger than what is necessary. This means, you are paying higher-than-ideal rental costs. This would hurt the economics of your supply chain operations.
Your Inventory turnover ratio would ideally help you in deciding the size of your warehouse space requirement. To quantify the performance on capacity utilization, it would be ideal to fix an expectation that is certain percentage points below peak requirement and a mighty percentage points above your floor requirement.
Monitoring each of the above mentioned KPIs/metrics will play a key role in determining the overall efficiency of the warehouse space/inventory shelf. To maximize your warehouse/inventory performance, it is essential to optimize your sales forecast, stock planning, supply chain, and cash cycle.
The wide range of software products offered by OrderCircle can help you effectively monitor Warehouse/Inventory Performance on your system dashboard even from a remote location. The different software products could be integrated into a customizable combination to suit your specific business requirements. The products also allow you to leverage the power of predictive analytics, so as to intelligently plan your supply chain and overall business operations.