Inventory Management Statistics & Equations For Business Owners
What is inventory management?
Inventory management is the practice of overseeing and controlling of the ordering, storage and use of components that a company uses in the production of the items it sells, defined by Investopedia.
- 46% of SMBs either don’t track inventory or use a manual method (Source: Wasp Barcode)
- U.S. retailers are currently sitting on about $1.43 in inventory for every $1 of sales they make. (Source: SCDigest)
- Administrative, paperwork, and vendor errors account for 25% of shrink (Source: National Retail Federation)
- As much as $17.50 of every $100 sold is shrink. (Source: National Retail Federation)
- Days inventory outstanding” – the amount of inventory on hand based on average sales per day – has risen 8.3% over the past five years. (Source: SCDigest)
- The average inventory accuracy threshold for retail operations is only 63%. (Source: GS1 US and Auburn University’s RFID Lab)
A perpetual inventory management system tracks your stock level, so that you can take the guesswork out of how much inventory you’ll need the next time you place a purchase order. Whether you’re receiving shipments, scanning barcodes, or entering SKUs, reducing the opportunity for human error by integrating your inventory tracking into your point of sales means that you’re getting an exact account of your current stock levels.
KPIs to Measure Your Inventory Management
Inventory Turnover Ratio = Cost of Goods Sold / (Beginning Inventory + Ending Inventory)/2
A high turnover rate means your business is selling products as quickly as they come in and a low turnover rate means that product is much slower to move off the shelves.
Days Sales in Inventory = The number of days in a year (365 or 360 days) divided by the inventory turnover ratio.
This tells you the average number of days it takes for your business to sell the average inventory held over a specific time period.
Holding Costs = Multiplying average inventory level by per-unit annual holding cost, where the average inventory level equals order quantity divided by 2.
This is the cost a business incurs from storing inventory. This could include the cost of storage, depreciation, staffing, maintenance, insurance, security, and the overall cost of capital for the business.
With Revel Systems you can track current inventory at the granular level, calculate waste-loss variance, and customize low-stock thresholds and reorder reminders. Future-proof your business with Intelligent Reporting including, sales summaries, sales by hour, product mix summaries, complete order history and detailed payment summary reports.