Good inventory management makes it possible to regulate the flow of consumption and ensure the availability of products to meet orders. The performance of a company depends on this quality of management. Despite this imperative, managing inventory remains particularly difficult, especially for small businesses with limited management resources. Managing inventory differs depending on the size of the warehouse and to optimize the monitoring of this management, several performance indicators or KPIs should be considered. What are they ? The details.
How important is good warehouse inventory management in the supply chain?
Managing inventory, considering key indicators, is a fundamental need for a business. In general, this amounts to regulating the flow of consumption, the availability of goods in order to meet customer demand. However, although this process occupies a prominent place in the supply chain, many still make the mistake of not giving it the importance it deserves. However, poor stock management is often the cause of many problems that can affect the operation and turnover of the company.
Avoid problems with taking inventory
Poor inventory management in your warehouse inevitably leads to inventory errors. This usually results in loss of products and incorrect accounting. To avoid problems like this, you should regularly take inventory to keep stock data up-to-date. Besides, carrying out an inventory once a year is a legal obligation.
Prevent out of stock
Except in exceptional circumstances, such as an exponential increase in orders and consumption, stock shortages represent one of the many consequences of poor management. It usually results from a just-in-time inventory management to optimize the company’s ability to quickly liquidate its storage. This way of managing inventory can impact the entire supply chain and the company’s ability to deliver orders within the timeframe agreed with the customer due to stock shortages.
Manage inventory to avoid accumulation
To avoid the risk of out of stock, a company may tend to opt for over-stocking. This method consists of accumulating a high quantity of stock compared to normal. However, like the understocking method, having more than enough items causes many problems. Indeed, this generates an increase in the cost related to logistics, such as transport and warehousing. Adding to these problems are other risks related to degradation, if the company fails to liquidate the items for a certain period of time.
How to improve the efficiency of stock management in a warehouse?
Faced with these recurring management problems, a company should implement an effective strategy to manage inventory. Ideally, this allows on the one hand to reduce storage costse, and to satisfy the customer within a reasonable time.
Because of these issues, the search for an effective means of inventory management is essential. The reorder point method is one of the many possibilities for improving inventory management. It consists in constituting a minimum stock to reduce the cost of storage while supplying the articles in accordance with the orders of the customers.
Another method consists of restocking according to fixed deadlines with an invariable quantity. This strategy facilitates inventory management, due to regularity. However, out of stock represents the major risk in this replenishment method.
What are the performance indicators or KPIs to take into account in inventory management?
Forecast management is essential in a logistics operation, and more specifically in inventory management. It consists of find the necessary balance between sales and product supply. To do this, it is necessary to regularly carry out the inventory of products, to assess the liquidation capacity and to monitor the rotation of goods. To manage all this, it is necessary to consider several key performance indicators or KPIs and also to use software for data collection and calculation according to the objective.
Average, optimal stock and stock shrinkage
The average stock represents the quantity of stock held by a warehouse during a defined period. It differs from optimal stock which refers to the exact amount of stock needed to meet customer demand and to avoid out of stock. These indicators show the total volume of inventory required to optimize sales profitability while ensuring the security of the inventory level.
Inventory shrinkage is a metric that denotes the difference between the storage data recorded in the software and the actual stock available. This KPI makes it possible to report the delay which is usually due to many reasons: inventory, handling, damage to certain items, unforeseen costs, etc.
The stock turnover rate
The stock turnover rate is an indicator that allows you to determine how quickly an item has gone through the entire trade process, following a defined categorization and period. This indicator also makes it possible to measure the demand for a particular product to define the need for restocking. It can be used to categorize products, to rearrange the warehouse or to set a general trend.
The stock return rate
The stock return rate indicator is expressed as a percentage and allows you to determine the number of items consumers returned after the sale. Also referred to as reverse logistics. A high return rate reported by this indicator suggests poor order management that leads to an unnecessary increase in logistics costs.
The direct sales rate
The direct sales rate or sales-through rate is the indicator that gives the percentage of inventory sold versus inventory received. By analyzing this indicator, it is possible to deduce trends in customer demand and change product rotation.
The level of service
The level of service is a percentage indicator to know the level of stock allowing to satisfy the orders concerning one or more specific products. A high service level percentage often indicates good management of a warehouse, thanks to the ability to meet a particular demand.