26 Essential Inventory Management KPIs You Should Be Tracking
Retail Roulette No More: Tracking inventory KPIs helps prevent overstock or understock situations, ensuring a balanced product flow.
Cut Through the KPI Clutter: Despite numerous KPIs available, focusing on the essential ones can provide clarity and efficiency in inventory management.
KPIs as Your Best Decision-Making Buddies: Inventory management KPIs serve as essential tools for making informed decisions about stock adjustments and sales strategies.
The Essential KPI Guidebook: This guide offers a deep dive into 26 crucial inventory KPIs, elucidating how to measure and apply them effectively.
Avoid the Data Drowning Syndrome: Learn how to use KPIs smartly without being overwhelmed by excessive data, ensuring a streamlined inventory process.
Ever walked into your stockroom and felt like you’re playing retail roulette? Too much of one SKU, not enough of another, and no clue how it all happened?
Many inventory managers find themselves in that sticky situation that could’ve been avoided just by tracking the right key performance indicators (KPIs).
The problem? There are far too many inventory management KPIs. In this guide, we look at 26 of the most essential inventory management KPIs. We discuss how to measure them, why they matter, and how to use them without drowning in data.
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What Are Inventory Management KPIs?
Inventory management KPIs help you track which SKUs are selling, which ones are stalling, and how smoothly your stock is flowing.
For inventory managers, KPIs are decision-making tools.
They can be used to identify inefficiencies, optimize inventory levels, prevent stockouts, and ensure the supply chain runs smoothly.
The 26 Most Important Inventory KPIs for Retailers
Each metric in the list below has a unique purpose. Let’s look at the most important inventory KPIs, how to measure them, and what they tell you about your inventory.
Sales and revenue KPIs
Let’s start with KPIs that help assess sales, cash flow, and demand in the context of inventory.
Inventory turnover ratio
Inventory Turnover Ratio = Cost of Goods Sold (COGS) / Average Inventory
Inventory turnover tells you the number of times your stock was sold and replaced during a given period.
Suppose TeeRex, an online t-shirt brand, typically has 1,000 t-shirts in inventory and sold 3,000 units last month. TeeRex’s inventory turnover for that month would be three (3,000 / 1,000).
High turnover suggests strong sales performance and lean inventory, while low turnover indicates overstocking and high carrying costs.
While you should aim to achieve a high turnover ratio, it’s important to consider the norm for your industry when defining what’s considered “high” for your product.
Perishables and fast fashion fly off the shelves, but luxury items will likely stay longer.
If you want to take a crack at calculating your inventory turnover, try out our fancy calculator:
Days sales of inventory (DSI)
DSI = (Average Inventory / Cost of Goods Sold) x Number of Days in Period
OR
Annual DSI = 365 / Inventory Turnover Ratio
DSI tells you the average number of days it takes to sell through your current inventory.
Think of DSI as the flip side of inventory turnover, which measures how quickly you sell through your inventory.
Suppose TeeRex typically holds 1,000 units of t-shirts in inventory with a book value of $5,000, and they sell $10,000 worth during the year. TeeTex’s DSI for that year would be 183 days:
183 = ($5,000 / $10,000) x 365
A high DSI means inventory hangs around more than you’d like it to, which can cost you in storage, depreciation, and obsolescence risk.
Many retailers use DSI as a primary gauge to assess SKU performance. I spoke to Joosep Seitam, co-founder and CEO of Icecartel, a NY-based men’s jewelry ecommerce brand, about how they manage SKU performance for their high-value inventory.
He said his team uses DSI to get a sense of the duration of selling through their inventory. The inventory composition isn’t static, but gives the team a general idea.
“Jewelry is a business that is tricky to navigate—some things sell like crazy, and others are slow to sell to the right owner. If we see DSI getting too high, that indicates to us that we're overstocked or overpriced,” he explained.
However, a low DSI isn’t always good news.
If it’s too low, you’re at risk of stockouts, especially during demand spikes. The goal isn’t speed alone—it’s balance. Choose efficiency with a safety buffer.
Stock to sales ratio
Stock to Sales Ratio = Inventory on Hand / Sales for the Same Period
The stock-to-sales ratio compares the inventory units on hand to those sold during a given period. It tells you if you’re over- or understocked relative to demand.
A high ratio indicates excess inventory and vice versa.
Interpret this metric with your buying cycle in mind. A temporarily high ratio isn’t always a problem, especially if you’ve just stocked up for seasonal demand.
But if it stays high while sales stay flat, it’s time to rethink your replenishment strategy.
Sell-through rate
Sell-Through Rate = (Units Sold / Units Received) × 100
Sell-through rate is the percentage of inventory sold during a specific period.
If TeeRex orders 1,000 units of t-shirts from a supplier to sell this quarter and sells 5,000 by the end of the quarter, its sell-through rate for that quarter is 50%.
The sell-through rate is used to identify fast-moving items.
A high sell-through rate suggests strong demand and smart buying. Of course, a high sell-through rate is proof of strong performance only when you didn’t discount inventory into oblivion to get there.
Revenue per unit
Revenue Per Unit = Total Revenue / Units Sold
Revenue per unit is the average revenue generated for every unit sold.
This metric helps you understand product value and guides your pricing, bundling, and promotion decisions.
It also helps find underperformers hiding behind high sales volume.
Of course, you should also be mindful of the flip side—a high revenue per unit might look great on the surface, but paired with low sell-through or a high returns rate, it could be a pricing mismatch or customer satisfaction masquerading as a high-revenue item.
Gross margin return on investment (GMROI)
GMROI = Gross Margin / Average Inventory Cost
GMROI measures the gross profit you earn for every dollar invested in inventory.
If your gross margin is $50,000 and average inventory cost is $25,000, your GMROI is 2. This means that you generate $2 in gross profit for each dollar invested in inventory.
GMROI evaluates product performance, assortment strategy, and buying decisions. A high GMROI shows you’re earning a decent gross profit for capital tied up in inventory.
Remember that while a high GMROI is excellent, it shouldn’t be at the cost of understocking.
Also, if you’re squeezing margins through aggressive markdowns or buying too conservatively, you might see a high GMROI but miss out on sales (which means lower revenue).
Operational and warehouse KPIs
The following KPIs evaluate how effectively you hold and move inventory and the impact of inventory management on operational performance.
Inventory carrying cost
Inventory Carrying Cost (%) = (Total Annual Inventory Carrying Costs / Average Inventory Value) × 100
Inventory carrying costs (also called holding costs) represent the total costs of holding inventory over time. This includes storage, insurance, depreciation, shrinkage, and the opportunity cost of capital tied up in stock.
When expressed as a percentage, it shows total carrying costs as a percentage of the cost of the average inventory you hold over a given period.
The longer your inventory sits in your warehouse, the more it adds to your total costs.
High carrying costs eat into margins. However, remember that you’ll always have some carrying costs, especially for high-value (and high-margin) items that take longer to sell.
Inventory shrinkage
Inventory Shrinkage (%) = ((Recorded Inventory – Actual Inventory) / Recorded Inventory) × 100
Inventory shrinkage tracks the difference between what your inventory records say you should have and what’s actually on hand.
If TeeRex’s inventory system shows 1,000 t-shirts on hand, but they only have 970, that’s a 3% inventory shrinkage. Unless that’s typical for the t-shirt business, TeeRex might want to investigate further.
Shrinkage is dangerous because it often flies under the radar until customers start complaining about stockouts you thought didn’t exist.
The difference usually appears because of theft, damage, or miscounts.
Unfortunately, a small shrinkage is typical in retail. But watch that trend—if your shrinkage suddenly jumps, that’s a red flag. Shrinkage is generally more of a people or process issue than a cost issue, and it’s important to fix.
We've put together a quick and easy calculator to help you find this number super fast:
Inventory accuracy
Inventory Accuracy (%) = (Counted Inventory / Recorded Inventory) × 100
Inventory accuracy compares what your system thinks is in stock versus what’s actually there when you count it.
Low inventory accuracy is bad news—it’s a recipe for missed sales, angry customers, and over- or underordering.
Ideally, your inventory accuracy should always be 100%, with an occasional small dip considered normal.
I spoke to Eric Jozwiak, owner and founder of Keystone Business Services—a consulting company that helps small and mid-sized businesses (including retailers) with technology solutions.
I asked him how he helps his clients deal with inventory discrepancies.
Even as a tech consultant, his go-to approach was strategic cycle counts. The word “strategic” here is important because mindlessly doing counts wastes time and might disrupt your day-to-day operation.
He recommends a balanced approach.
Cycle counts, performed at predetermined ABC intervals by location and SKU, is the best method for identifying and resolving inventory discrepancies.
Put simply, he recommends performing small, scheduled counts of subsets of inventory based on ABC analysis, where high-value or high-volume items are counted most often.
This way, you minimize the resource-intensiveness of cycle counts and avoid major disruptions to your operations.
Lost sales ratio
Lost Sales Ratio = (Days Out of Stock / 365) x 100
Lost sales ratio quantifies how often customers want to buy but can’t because you’re out of stock.
It’s essentially a measure of money walking out the door because your shelves are empty.
You can get the data to calculate the lost sales ratio from your POS, customer complaints, or website “out of stock” events.
But you’ll also need a bit of educated guesswork.
Since not every missed sale may be visible, the number is only as good as your ability to estimate it. Online shoppers bounce quietly, while in-store customers rarely file a report.
Dead stock rate
Dead Stock Rate (%) = (Value of Dead Stock / Total Inventory Value) × 100
Dead stock rate shows the percentage of inventory that hasn’t moved in a long time and likely never will.
Your dead stock ties up capital, clogs storage space, and is a drag on inventory performance.
If your dead stock rate is high, it’s time to investigate your buying decisions, reexamine product life cycles, and discount existing dead stock to get rid of it and free up capital.
Remember that poor demand or overbuying aren’t the only reasons for dead stock.
Poorly merchandised or underpromoted items can also look “dead,” but they just need better marketing.
Order cycle time
Order Cycle Time = Delivery Date – Order Date
Order cycle time tracks how long it takes from when a customer places an order to when they receive it.
It includes four stages—order processing, picking and packing, shipping, and delivery—and reflects how well your inventory, warehousing, and logistics are playing together.
Remember that order cycle time is an average.
It’s also important to track variability. If you deliver 80% of orders in two days but take five days for the remaining 20%, your average is 2.6 days, but 20% of your customers are probably unhappy with your delivery performance.
Receiving and supply chain KPIs
Here are a few inventory metrics to assess the performance of suppliers and other elements of your supply chain.
Lead time
Lead Time = Delivery Date – Purchase Order Date
Lead time is the amount of time between placing an order with your supplier and receiving the goods.
If your lead time is too long or unpredictable, there’s a higher risk of stockouts or overstocks.
However, like order cycle time, lead time is average. Variability in lead times can cause significant fluctuations in inventory levels.
If your lead time is unpredictable, make sure you maintain more safety stock.
Fill rate
Fill Rate (%) = (Number of Orders Fulfilled Immediately / Total Orders) × 100
Fill rate measures the percentage of customer orders you can fulfill from available stock, without delays, backorders, or substitutions.
A low fill rate is a surefire way to miss revenue and frustrate customers.
Sure, a 100% fill rate is hard to achieve, but it might require you to overstock just to cover every possible order.
Aim for balance instead—high service levels without tying too much working capital in inventory.
Backorder rate
Backorder Rate (%) = (Number of Backordered Orders / Total Orders) × 100
Backorder rate tracks the percentage of customer orders that couldn’t be filled immediately due to stockouts.
A sudden spike in backorder rate during a significant demand surge is not a bad sign.
But frequent or prolonged backorders suggest you’re doing something wrong—it could be inaccurate forecasting, misjudging supplier reliability, or poor reorder timing.
Supplier quality index (SQI)
SQI (%) = (Total Orders – Problem Orders) / Total Orders × 100
SQI evaluates suppliers' reliability and performance based on metrics such as defect rates, on-time delivery, order accuracy, and responsiveness to issues.
You can invest in the slickest tools in the world, but if your supplier keeps sending you the wrong size, color, or SKU altogether, it won’t matter.
SQI helps you separate suppliers who frequently can’t get orders right from the more reliable ones.
Time to receive
Time to Receive = Stock Available Date – Delivery Date
Time to receive tracks how long it takes your team to inspect, verify, and officially add incoming inventory to stock once it’s delivered.
Delays aren’t always on the warehouse team, though.
Sometimes it’s missing paperwork, unclear labeling, or suppliers who think packing slips are options. If your time to receive is trending upwards, look at internal operations as well as upstream (suppliers, shipping carriers, etc.) to find the culprit.
Put away time
Put Away Time = Time Inventory Is Stored – Time Inventory Is Received
Put away time tracks how long it takes from the moment inventory is received to when it’s properly stored and available for picking.
It’s typically measured in hours (or minutes if you run a tight ship).
Always remember this—put away time should be about more than speed. Accuracy is vital too. Rushing through the process of putting away inventory leads to mislabeling, misplaced items, or “phantom stock” (the stock you swear you have but can’t find).
Employee and labor KPIs
How efficient are your employees and workers? Here are some inventory metrics that can tell you.
Labor cost per hour
Labor Cost per Hour = Total Labor Costs / Total Labor Hours Worked
This KPI tells you how much you’re paying for each hour of labor, including wages, benefits, and taxes.
High labor cost isn’t necessarily bad if it comes with higher productivity, better accuracy, or lower shrinkage—it might actually be a bargain for you.
The real reason to raise eyebrows is low performance.
Receiving efficiency
Receiving Efficiency = Total Units Received / Total Labor Hours Spent Receiving
Receiving efficiency tracks how quickly and accurately income shipments are processed, from the moment they hit the dock to the time they’re ready to be put away.
If slow or error-prone receiving is throwing off your entire supply chain, tracking receiving efficiency will flag the problem before it turns into a major disaster.
But like everywhere else, it’s not just about speed here.
It’s also about efficiency. Rushing to achieve higher efficiency can backfire if it leads to miscounts or missing damaged items.
Picking cycle time
Picking Cycle Time = Time spent picking / Number of items picked
Picking cycle time tracks how long it takes to pick items from an order.
Small retailers may do fine without tracking picking cycle time. It’s the large ones with hundreds of orders rolling in every minute that need to track picking cycle time because delays can cause ripple effects in order processing and shipments.
Also, be on the lookout for monster orders. They can skew your picking cycle time on either side. To minimize the impact of monster orders, segment by order type, picker, or zone.
Internal WMS efficiency (ROI)
WMS ROI = [(Gain from WMS – WMS Costs) / WMS Costs] × 100
This KPI evaluates the ROI of your warehouse management system (WMS).
Suppose you saved $20,000 this year because of your new WMS, which costs $5,000 a year. In that case, your WMS ROI is 300%.
If you’ve recently invested in a WMS, it’s worth tracking how much you’re gaining from it in the form of reduced labor hours, fewer picking errors, faster order cycle times, and more.
Tracking this can help you evaluate efficiency as your workflows evolve and your team grows.
Customer satisfaction and fulfillment KPIs
Customer satisfaction drives revenue and growth. Measure and track with the following KPIs.
Perfect order rate
Perfect Order Rate = (Number of Perfect Orders / Total Orders) × 100
Perfect order rate tracks the percentage of orders delivered without a problem—on time, in full, with the correct items, undamaged, and with accurate documentation.
It gives you a holistic view of how well your entire ecosystem—inventory, picking, packing, and shipping—works together.
The devil’s in the definition here.
If you’re the inventory manager, ensure no one in your team or beyond can fudge the “perfect” part to boost the metric. Be strict about what perfect really means for your business.
Service level
Service Level = (Number of Orders Fulfilled from Stock / Total Customer Orders) × 100
Service level measures the percentage of customer demand you can meet directly with available stock.
No delays, no backorders.
Service level is a critical metric for all retail businesses. But even if your service level is decent, don’t let it create a false sense of security. It doesn’t tell you if you’re stocking the right things.
You can have a 99% service level for low-demand items and still miss the mark on your bestsellers.
That’s why you need to trace where you’re losing points (and sales) instead of just focusing on the overall service level percentage.
Customer satisfaction score (CSAT)
CSAT = (Number of Satisfied Customers / Number of Survey Responses) × 100
CSAT measures how satisfied your customers are with a specific interaction, product, or service.
That usually means asking customers questions such as:
- Was the item in stock when the customer was looking for it?
- Did the product arrive on time?
- Was the product in good condition?
When making strategic decisions, remember that CSAT measures short-term trends in customer satisfaction. It captures a customer’s immediate emotional reaction to a recent interaction, such as receiving an order or contacting support.
Stock availability rate
Stock Availability Rate = (Units available / Total SKUs) × 100
Stock availability rate tracks the percentage of time a product is available for sale when customers want to buy it.
For example, if you sell 20 coffee flavors and currently have 18 of them in stock, your stock availability rate is 90%.
Combine stock availability with carrying costs for a more thorough analysis. It’s easy to pat yourself on the back for high availability until you realize it’s high because you were stocking too much and spent thousands on carrying costs.
Inventory Management KPI Cheat Sheet
| KPI | Formula | What It Tells You | Ideal Trend |
|---|---|---|---|
| Inventory turnover | COGS / Avg Inventory | How often you sell and replace inventory | Higher (with sufficient stock) |
| Days sales of inventory (DSI) | (Avg Inventory / COGS) × 365 | Avg days to sell through current stock | Lower |
| Stock-to-sales ratio | Inventory on Hand / Sales | Inventory levels relative to demand | Balanced |
| Sell-through rate | (Units Sold / Units Received) × 100 | % of inventory sold over a period | Higher |
| Revenue per unit | Total Revenue / Units Sold | Avg revenue per item sold | Higher (w/ low return rate) |
| GMROI | Gross Margin / Avg Inventory Cost | Profit per dollar invested in inventory | Higher |
| Inventory carrying cost | (Carrying Costs / Avg Inventory) × 100 | % cost of holding inventory | Lower |
| Shrinkage | (Recorded – Actual) / Recorded × 100 | Inventory loss due to error or theft | Lower |
| Inventory accuracy | Counted / Recorded × 100 | Match between physical count and records | Closer to 100% |
| Lost sales ratio | (Days OOS / 365) × 100 | Frequency of stockouts and missed sales | Lower |
| Dead stock rate | Dead Stock / Total Inventory × 100 | % of inventory that doesn’t sell | Lower |
| Order cycle time | Delivery Date – Order Date | Time from customer order to delivery | Shorter |
| Lead time | Delivery Date – PO Date | Supplier fulfillment speed | Shorter and consistent |
| Fill rate | Orders Filled Immediately / Total Orders × 100 | % of orders fulfilled from stock | Higher |
| Backorder rate | Backordered Orders / Total Orders × 100 | % of orders not immediately filled | Lower |
| Supplier quality index (SQI) | (Total – Problem Orders) / Total Orders × 100 | Reliability and accuracy of suppliers | Higher |
| Time to receive | Stock Available – Delivery Date | Time to inspect and stock inventory | Shorter |
| Put away time | Storage Time – Received Time | Time from receiving to shelving stock | Shorter (with accuracy) |
| Labor cost per hour | Total Labor Cost / Labor Hours Worked | Cost efficiency of warehouse labor | Balanced with productivity |
| Receiving efficiency | Units Received / Hours Receiving | Efficiency of processing incoming stock | Higher |
| Picking cycle time | Time Picking / Items Picked | Avg time to pick each order item | Lower |
| WMS ROI | (Gain – Cost) / Cost × 100 | Return on warehouse management software | Higher |
| Perfect order rate | Perfect Orders / Total Orders × 100 | % of error-free, on-time orders | Higher |
| Service level | Orders Fulfilled from Stock / Total Orders × 100 | % of demand met from available stock | Higher |
| CSAT (Customer Satisfaction) | Satisfied Responses / Total Responses × 100 | Customer satisfaction with service | Higher |
| Stock availability rate | Units Available / Total SKUs × 100 | % of SKUs available for purchase | Higher (but balanced with cost) |
How to Choose the Right KPIs for Your Brand
Tracking dozens of KPIs is a recipe for confusion.
Imagine looking at 20-odd KPIs on your dashboard, trying to assess each one’s impact when making decisions.
KPIs are supposed to make business easier by giving you quick insights, so instead of building a web of KPIs on a dashboard, focus on the most impactful ones.
Each business has different priorities, so there’s no one specific list of impactful KPIs, but let’s look at a few ways to narrow down your list from dozens of KPIs to a handful.
Set SMART goals before choosing KPIs
The SMART framework is an easy first step. It says that your goals should be:
- Specific
- Measurable
- Achievable
- Relevant
- Time-bound
Suppose you’ve seen an uptick in customers requesting a refund because you delivered the wrong item. Your goal is to “fix this problem.”
But that’s as good as setting a goal to hit the target at a shooting range with a blindfold.
Here’s how you can convert it into a SMART goal: Increase the perfect order rate to 95% from the current 80% by the end of the next quarter.
When working on this goal, you can track KPIs like perfect order rate and CSAT, but you may do fine without actively monitoring your inventory carrying costs unless you see a major increase.
Avoid vanity metrics that don't drive action
Modern inventory management software can track hundreds of metrics. But there’s no need to track the inventory metrics that don’t matter to you.
If you’re proudly tracking the total SKUs available across all stores, but 30% of those SKUs haven’t moved in six months, you’re not really offering choice to consumers. You’re funding a product museum.
That bloated SKU metric can mask stockouts of high-demand items and inflate carrying costs. A more actionable metric to track would be the sell-through rate by SKU or dead stock rate.
If you’re not sure how to find vanity metrics, ask yourself: Does this metric lead to a decision? If not, remove it from your dashboard.
Prioritize KPIs that answer key business questions
Don’t start with the metric. Start with the problem.
Think of KPIs in terms of questions you need answers to during day-to-day business. For example:
- Track GMROI if your question is, “Are we making enough margin per SKU to justify stocking it?”
- Track WMS ROI if you’re wondering, “Is our investment in the WMS ROI-positive?”
- Track CSAT if you’re asking yourself, “Are customers happy with us?”
When you ask the questions, the KPI picks itself.
This way, you can track metrics that matter to you instead of every metric available on your inventory management software.
Align KPIs with your inventory strategy stage
Your dashboard doesn’t have to be carved in stone. The KPIs in your dashboard can change as your inventory strategy evolves.
The inventory management metrics you track while scaling are wildly different from those you need when optimizing for margin or prepping for expansion.
Here’s an example of what metrics you might track based on the current inventory strategy stage:
- Just getting started: This is when you focus on operational hygiene. Track the following to plug holes in your process:
- Inventory accuracy
- Receiving efficiency
- Put away time
- Growth mode: During this stage, it’s all about availability and speed. Monitor these KPIs to ensure demand doesn’t outpace supply:
- Fill rate
- Order cycle time
- Stock availability rate
- Profit optimization: In this stage, you’re focused on eliminating inefficiencies. Track the following KPIs to boost cash flow and cut inventory fat:
- Inventory turnover
- Carrying cost
- Dead stock rate
- Strategic expansion: Here, you’re managing complexity. Use these KPIs to make strategic inventory management decisions:
- Supplier quality index
- Lead time
- WMS ROI
Start small, then expand as you master measurement
You don’t need a KPI buffet. You just need a well-balanced plate.
Start with a handful of high-impact KPIs per department. That’s it. Any more, and you risk creating a data swamp.
The goal isn’t to measure everything. It’s to measure what moves the needle.
For example, your warehouse team might focus on picking accuracy, put away time, and receiving efficiency, while your planning team monitors inventory turnover, dead stock rate, and stock availability.
Get the idea? Simple. Focused. Actionable.
Once your teams are actually using these metrics to make smarter decisions, you can layer in more sophisticated KPIs tied to strategy, profitability, or growth, based on operational maturity.
How to Improve Your Inventory KPIs
Let’s talk about some general steps you can take to improve some of the KPIs we discussed in this guide.
Leverage real-time inventory tracking technology
All metrics require inventory data. You need an accurate, real-time data count to track inventory management metrics, and that’s why you need an inventory management system.
An inventory management system tracks what you have in inventory and how much of it.
Check out the top inventory management systems if you’re looking for better inventory visibility:
On the other hand, a warehouse management system is all about how inventory is stored, moved, and fulfilled within the warehouse.
If you want to streamline and automate workflows in your warehouse, take a look at the best warehouse management systems on the market:
The effect of your investment in these tools will typically appear in various inventory metrics. For example, better inventory visibility will help you track dead stock rate, carrying costs, and inventory turnover.
Tighten demand forecasting
Stock levels are central to many inventory metrics, whether it’s inventory turnover, DSI, or carrying costs.
To improve any of these metrics, you need better forecasts.
Everyone and their grandma knows that demands are based on historical sales data and market trends. But don’t underestimate the power of experience—if you’ve been in business for years, you might be able to introduce factors or risks that others don’t see yet.
Bake historical data and your insights into a forecast to build better forecasts.
When you tighten demand forecasts and are able to maintain optimal inventory levels, you’ll see an improvement in various metrics, such as inventory turnover, DSI, and sell-through rate.
However, you should always be prepared for a stockout. When your stockout rate suddenly starts to climb, how will you tackle it?
I asked Joosep of Icecartel this question, and here’s what he had to say:
I remember this one time. It was the holiday season, and we ran out of some of our best-selling rings unexpectedly.
To deal with this, we paid our supplier a premium for faster deliveries and started restocking. We also shifted the advertising campaigns to endorse products we had in stock.
That’s why you need a contingency plan.
You need to manage inventory as well as a backup plan. But remember, backup plans can’t entirely negate the impact of stockouts on revenue. They’re meant for damage control.
Optimize order replenishment cycles
Large orders may come with discounts, but smaller, more frequent orders may cost less in the long run because you save on carrying costs.
There’s also a risk of obsolescence in various product categories.
If you’re in a position to optimize your replenishment cycle by reducing the order size, you can be more responsive to demand, reduce waste, and minimize dead stock.
Just-in-time (JIT) inventory is the leanest model, but it’s not practical for most retail businesses. Find what works for you while maintaining a lean inventory.
If you want to automate workflows, receive real-time inventory updates, and generate insightful inventory reports, consider investing in inventory replenishment software.
Check out our top picks:
Strengthen supplier relationships
Think of suppliers as strategic partners instead of just vendors. Strong relationships lead to faster turnaround times and better pricing.
So pick up the phone. Set up regular check-ins. Share demand forecasts.
The more aligned you are, the less likely you are to be blindsided by delays, shortages, or “surprise” cost hikes.
And let’s be honest.
When your supplier has to choose who gets the last lot of a hot-selling item, they’ll give it to buyers they have a strong relationship with, not the ones who only call when there’s a problem.If you want a tool to help you create great rapport with your suppliers, check out our supplier relationship management software roundup:
Train and incentivize warehouse staff
KPIs don’t matter if your team isn’t dialed in.
Invest in training your warehouse staff to receive, store, and pick inventory with speed and precision.
Gamify the performance assessment process to get buy-in by tying performance to rewards. Create recognition boards, schedule monthly shoutouts, or offer bonuses to engage your team.
When your team has more motivation than just increasing a number on your dashboard, they’ll put in more effort and strive for success.
Ready to Go From Counting to Clarity?
KPIs are many things—an early warning system, your performance report card, and your profitability crystal ball.
But they only work when you’re tracking the right ones, at the right time, for the right reasons.
Pick a handful of KPIs that align with your business goals. And remember that tracking is just the beginning. Real value comes from acting on insights from the metrics you track.
So pick your metrics. Watch them like a hawk. And let them guide your next move.In the meantime, subscribe to our newsletter for the latest insights, strategies, and career resources from top retail leaders shaping the industry.
Inventory Management KPI FAQs
Below, we answer some common questions on inventory management KPIs:
What is the most important inventory KPI for retailers to track first?
Inventory turnover. It’s a relevant metric no matter which phase of business you’re in.
How often should I review and update my inventory KPIs?
Quarterly at a minimum. But if you’re a fast-moving retail business, monthly is ideal.
What’s the difference between inventory turnover rate and days sales of inventory (DSI)?
They’re two sides of the same coin. Inventory turnover rate tells you how many times you sell and replace your inventory in a given period. DSI tells you how many days, on average, it takes to sell that inventory.
How do I fix inaccurate inventory records?
Start with cycle counting. Do small, frequent counts of high-value or fast-moving items to catch errors early and fix records.
Then, tighten up your receiving and put-away processes. Most inaccuracies start there. Ensure all inventory items are scanned, labeled, and stored in the right location before being placed on shelves.
As a final step, audit your tech and team. Are people bypassing systems? Are barcode scanners glitching? Fix the root cause.
