Inventory Management KPIs and Metrics – Cheat Sheet.
Cheat Sheet Expanded Below:
1. Inventory Turnover Ratio
Formula:Inventory Turnover = Cost of Goods Sold (COGS) ÷ Average Inventory
Why It Matters:
This KPI reveals how many times inventory is sold and replaced during a set period. A high turnover rate suggests strong sales or lean inventory practices, while a low rate may indicate excess stock or poor sales.
2. Days Sales of Inventory (DSI)
Formula:DSI = 365 ÷ Inventory Turnover
Why It Matters:
DSI tells you how many days it takes to sell the entire inventory. A lower DSI means quicker inventory movement, improving cash flow and responsiveness.
3. Stockout Rate
Formula:Stockout Rate = Stockouts ÷ Total Orders × 100
Why It Matters:
This KPI measures how frequently a business is unable to fulfill customer demand due to inventory shortages. High stockout rates lead to lost sales and poor customer experience.
4. Carrying Cost of Inventory
Includes:
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Storage fees
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Insurance
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Depreciation
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Opportunity costs
Why It Matters:
Carrying inventory costs money—even if it’s not moving. Calculating this KPI helps determine the true cost of holding inventory and can highlight opportunities to reduce waste.
5. Order Accuracy Rate
Formula:Order Accuracy = Accurate Orders ÷ Total Orders × 100
Why It Matters:
This KPI measures how accurately inventory is picked, packed, and shipped. Low accuracy rates lead to returns, added costs, and unhappy customers.
6. Inventory Accuracy
Formula:Inventory Accuracy = Physical Count ÷ System Record × 100
Why It Matters:
This KPI shows how closely actual stock matches your inventory records. Inaccurate data can cause overstocking, understocking, and operational issues.
7. Backorder Rate
Formula:Backorder Rate = Backordered Items ÷ Total Ordered Items × 100
Why It Matters:
A high backorder rate signals that demand is not being met in time. This affects sales, customer loyalty, and planning accuracy.
8. Gross Margin Return on Investment (GMROI)
Formula:GMROI = Gross Profit ÷ Average Inventory Cost
Why It Matters:
This KPI tells you how much profit you’re earning for every dollar invested in inventory. It combines inventory efficiency with profitability.
9. Lead Time
Definition:
Time between placing an order and receiving it.
Why It Matters:
Shorter lead times mean quicker restocking and fewer disruptions. Long lead times can cause stockouts or require holding more safety stock.
10. Perfect Order Rate
Formula:Perfect Order = (On-Time × Complete × Damage-Free × Accurate) ÷ Total Orders
Why It Matters:
This KPI reflects the percentage of orders delivered without issues. A high perfect order rate means smooth operations and happy customers.
🧠 Final Thoughts: Why Inventory Management KPIs Matter
Mastering these inventory management KPIs empowers businesses to:
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Reduce operational costs
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Improve inventory visibility
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Enhance customer service
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Make data-driven inventory decisions
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Increase overall supply chain efficiency
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Inventory Management Quotes
- “I asked one retailer, I said, “Let me ask you, are you going to raise prices next year?” They looked at me and said, “Not only are we not going to raise prices, we’re going to have to lower prices, increase the quality of the goods, and turn the inventory quicker.” ~Ken Moelis
- “There are two ways to extend a business. Take inventory of what you’re good at and extend out from your skills. Or determine what your customers need and work backward, even if it requires learning new skills. Kindle is an example of working backward.” ~Jeff Bezos, Founder of Amazon.
- “A good rule in organizational analysis is that no meeting of the minds is really reached until we talk of specific actions or decisions. We can talk of who is responsible for budgets, or inventory, or quality, but little is settled. It is only when we get down to the action words-measure, compute, prepare, check, endorse, recommend, approve-that we can make clear who is to do what.” ~Joseph M. Juran
- “Make inventory a common enemy for your company.” ~Dave Waters
- “Converting a classic batch-and-queue production system to continuous flow with effective pull by the customer will double labor productivity all the way through the system (for direct, managerial, and technical workers, from raw materials to delivered product) while cutting production throughput times by 90 percent and reducing inventories in the system by 90 percent as well.” ~James P. Womack
