Inventory Management – Top 3 Metrics to Reduce Cost

Inventory management is perhaps the most important aspect of any business selling goods to customers.

Product quality is important. Shipping and fulfillment are important. But without a proper system for managing inventory, you won’t even get that far. Not to mention the costs you will incur for failing to accurately forecast demand.

That’s why proper inventory management not only helps a business to operate more efficiently, it can also drastically reduce costs.

Here are the top 3 inventory metrics that are most important in reducing costs.

 

1. Current inventory levels

Current inventory levels are extremely important to know and to know with complete certainty and accuracy. This is because if you do not know what is in your inventory, then you cannot guarantee that orders will be fulfilled on time. If an order is not fulfilled on time, then it can cost your company money. This is because you may lose the customer, possibly lose the inventory (if it is perishable), and you will have to spend more money gaining new replacement clients. So, knowing current inventory levels is crucial.

2. Product procurement cycle

Product procurement cycle refers to the amount of time that it takes the suppliers of your inventory to get the materials to you. This metric is extremely important because it lets you know how long after you order materials that they will arrive at your warehouses or retail locations. You need to know this information so that you can guarantee that you have the products available for delivery once they are purchased by your customers. If they are not available for delivery when they need to be, then you can face major problems with your business. Not only can it harm your company’s reputation, but it can cause you to lose customers, both of which can force you to lose money.

3. Inventory turnover rate

Inventory turnover rate is the rate at which your company sells its inventory. There are several different reasons why this is an extremely important metric. First, it lets you know what profits you can expect to make from your inventory in a given amount of time. Second, it lets you know how frequently you will need to reorder inventory. Having as accurate information as possible about inventory turnover rate is crucial for reducing costs.

This is because knowing your inventory turnover rate can prevent you from ordering too much or too little inventory in a given amount of time. Doing either one of these things can potentially cause your company to lose money. This could either be through wasted inventory if your materials are perishable or through failing to deliver orders on time. Inventory turnover rate also allows you to carefully monitor how well your company is selling its products.

Optimizing profitability

If you use all three of these metrics, then it can help your company to manage its inventory in an optimum way. As with most other aspects of a business, if you maximize efficiency for inventory management, it can help your company to reduce costs and to increase profitability. Keeping track of current inventory levels, product procurement cycles, and inventory turnover rates can all be easily done with inventory management software.

If your company does not currently use inventory management software, then you could be missing out on a significant amount of inventory-related savings for your company. If you decide to use inventory management software and keep a close eye on all three of these metrics, then you could soon witness your company reduce savings and increase profitability significantly.