The ability to accurately analyze your inventory performance can be the difference between business success and business failure.
Yet, inaccurate inventory reporting – or lack of reporting altogether – remains a huge challenge for many online retailers.
After all, which inventory metrics should you be tracking? How can you use this data to maximize profitability and drive down costs? And perhaps more importantly, how do you even go about getting this information and working out the relevant inventory calculations?
With the ecommerce industry becoming more and more competitive, these metrics are no longer nice-to-know data, but rather they provide crucial insights that will help you successfully scale your business.
So, with this in mind, we have listed those worth focusing on below as part of your inventory analysis.
One of the most effective ways to maximize profitability is by monitoring the performance of your inventory.
After all, as your business expands and you sell across more and more channels, having an understanding of metrics such as inventory turnover and stock demand can help you identify your most profitable product lines, as well as those costing your business.
As an example, your best performing products can shed a huge amount of light on what’s selling well, helping you keep on top of product demand, while also giving you valuable insight into the opportunities you could better capitalize on.
Let’s say, for example, a certain product line is selling incredibly well.
While your inventory management system should be able to track historical sales data to establish the reorder points (you can see the reorder point formula here), it is worth also being aware of seasonal trends – for example the different points in the year that sales for individual products peak.
Unfortunately, not all your inventory will sell well – at least it’s unlikely.
The good news, however, is that by identifying your least successful products through effective inventory analysis, you can come up with a plan to shift this slow-moving stock.
You may also want to work our your Average Days To Sell Inventory by using the following formula:
Average Days To Sell Inventory=(Average Inventory ÷ Cost of Goods Sold) x 365
While we’ve already touched on stock demand, it’s worth highlighting its importance as a core inventory metric, as the ability to anticipate this demand can make a huge difference to your business’s success.
In fact, by forecasting your projected sales, you can align your stock with the anticipated demand throughout the year – something that can be achieved using reporting data extrapolated from inventory management software.
More specifically, it can help to ensure that you don’t have unnecessary excess stock during the times when demand for individual products is low, but that you are equipped to deal with expected peaks in demand.
Ultimately, this will allow you to maintain your safety stock levels, which should be high enough to cover both your supplier’s transit time and customer demand, but low enough to avoid unnecessarily high inventory carrying costs.
If you’re not already using inventory management software, it’s therefore worth researching options that can calculate daily average consumption per item and work out the reorder point based on supplier lead time.
Best and worst performing channels.
While it’s incredibly important to report on the performance of your inventory, by drilling down on which sales channels are proving to be the most and least successful, you will be able to make smarter business decisions.
This should be reviewed overall and for specific products or product categories.
Ultimately, this insight will allow you to make informed decisions into whether to invest more on certain marketplaces or sales platforms, or whether to cut your losses altogether.
Invest in the right ecommerce multichannel software.
Accurate inventory reporting does rely on having the right system in place to track these metrics.
In addition to this, when selling across multiple channels, multichannel inventory software will make the process of obtaining and comparing this data a whole lot easier.
So, there we have it.
The inventory metrics that you should not only be tracking, but that you should be drawing insights from in order to increase efficiency, cut costs and boost profitability.