Business management software is often used to analyze how well your inventory is performing. By using a range of insightful reporting features, managers can make smart business decisions to optimize sales and customer satisfaction.
The challenge is identifying which metrics are most appropriate for your type of business. For instance, a manufacturing company will likely gauge its performance much differently than one in the retail sector.
Some of the questions you’ll want to ask yourself include:
- What are your business goals for the particular process you’re measuring?
- Who is using the data?
- Is there more than one way to measure success of a given process?
1. Inventory vs Targets
Understanding you actual inventory levels and how they correspond to your target levels is important for keeping your costs in check. If you have too much of a certain product, it means you’re tying up capital unnecessarily. If you have too little, you run the risk of out-of-stock items. This will lead to customer dissatisfaction.
Your inventory control software should allow you to identify specific product segments, including:
The better you understand this, the better equipped you are to optimize inventory levels to keep up with ever-changing buying trends.
2. Customer Service Level vs Targets
If there’s one thing business management software should enable you to do, it’s serve your customers effectively. There is a direct correlation between your stock levels and customer service levels. By fulfilling customer orders at a consistently high level, you give yourself the best chance of:
- Developing a loyal customer base (i.e. repeat sales)
- Earning word-of-mouth recommendations
- Increasing sales volumes
Measuring stock-out performance is another metric closely related to customer service.
3. Inventory Turnover Ratio
The inventory turnover ratio is a good indicator of how efficiently a company is turning its inventory into sales. It typically depicts how much inventory is sold over a given time period. It is usually calculated using:
- Cost of goods sold, divided by the average inventory
In most instances, the higher the inventory turnover ratio, the better. However, an inflated ratio could also indicate insufficient inventory levels.
4. Total Inventory Cost
Total inventory cost not only includes the cost of the goods or materials, but also the costs associated with:
The trick is to find that balance where your inventory levels are low enough to keep your costs at acceptable levels, but high enough to deliver the products your customers need.
There are several strategies that can help keep inventory levels low, but can inflate your total inventory cost if you’re not careful. These include:
- Store transfers
- Small lot sizes
- Short supply orders
To learn more about how you can use business management software to effectively control your inventory, read: Inventory Management Software: 3 Practices Successful Companies Use.
If you’re looking for a business management software system with a powerful inventory control module, call Windward Software. Windward System Five is a fully integrated program capable of helping you manage all aspects of your business.