Inventory management sounds simple in theory: Knowing how much stock you have on hand, when to order more, and how to keep it all in balance. In reality, as any inventory manager knows too well, inventory control is a much more complicated set of systems, processes, and procedures to maintain that delicate balance.
In fact, effective inventory management is the foundation of any product-driven business, and even many businesses that aren’t based on a constant flow of product in and out of the organization. When inventory management is out of control, the core functions of your business can falter as supply shortages bring workflows to a virtual standstill. But there’s a fine line between stock shortages and oversupply, thus the tightrope inventory control managers balance daily. The following eight metrics are the key factors in a sound inventory control program.
How much inventory is used in a given time frame? Proper inventory control requires an analysis of actual usage over time. An asset tracking system lays the foundation for gathering this data, aiding employees in quickly documenting inventory as it moves through the organization. Combined with an inventory control software application, asset tracking facilitates the rapid generation of reports for in-depth analysis of inventory usage.
Having a clear picture of actual inventory usage over time enables businesses to make more accurate projections of future usage. For example, certain products and supplies are used more often during seasonal periods or leading up to certain events or holidays throughout the year. Arming yourself with historical data allows you to accurately calculate projected usage, so you can better manage inventory and reduce unexpected supply shortages or overstock.
What is the value of your company’s current inventory? Do certain products or supplies produce more revenue for the company? Sophisticated inventory control processes use this data to allocate storage space and utilization to boost company revenue by allocating more resources to the inventory with the greatest return. Additionally, the value of your inventory comes into play for tax and regulatory reporting.
Price forecasting comes into play in a variety of ways in inventory management. Supply and demand impacts the price of goods and services, for both inbound and outbound inventory. Higher supply costs may mean a company must raise end-consumer prices for final products. End-of-season leftover stock is often sold at markdown prices. The value of available and committed inventory, future inventory price forecasting, and other variables are critical for broader revenue calculations and are essential for accurate planning and inventory control.
Available Physical Space
Of course, an inventory manager can’t just arbitrarily re-order stock that’s running low; there must be adequate physical space in which to store it. This is where overstock becomes an issue, taking up valuable storage space that’s needed for in-season product. When these variables are out of balance, companies are faced with finding ways to move unneeded inventory fast to make room for the products they need to continue the flow of business.
Inventory depletion is the process of physically removing product from stock in order to fulfill orders, generally until no stock remains. In businesses in which the age of stock is a consideration, inventory depletion may involve specifying which products should be moved first.
Economics of Scale
Economics of scale is the calculation of price-per-unit based on production volume. If more product is produced using the same raw materials, the price-per-unit is lower than production runs of less volume.
Order Cycle Time
What is the typical length of time between one order and the next? This defines order cycle time, also sometimes called order lead time. This metric is important for inventory planning purposes to ensure order fulfillment.
All eight of these metrics are crucial knowledge for inventory management. Without an asset tracking solution in place, it becomes much more complex to track down accurate data for forecasting and planning. A streamlined asset tracking system utilizing asset tags or warehouse labels, however, enables rapid data and automatic collection for reporting and analysis. Combined with inventory management software, inventory managers quickly generate reports, review data, and make forecasts for informed decision-making that maximizes revenue and drives business forward.