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5 Inventory Management KPIs for Scalable Growth

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If you have a quick look at the upcoming business strategies, then growth hacking will be more of a familiar term to you. It is a buzz word in the business sector across industries. Hence, growth hacking can be very well-referred to as the data-driven growth mechanism.

The fastest-growing brands in the retail sector leverage the power of data to make their creative initiatives successful in the best way possible. Brands that work towards an innovative approach embrace the idea of being data-driven retail when it comes to the operations. This eventually helps them explore fresh opportunities, deliver a top-quality customer experience, and adapt quickly to the dynamic retail landscape. So, you must pay special attention to all the elements when you start scaling your brand. There might be instances when growth happens so fast that the business ends up struggling to keep up with it.

Here is our take on some of the top-rated key-performance indicators (KPIs) to scale your business’s growth ratio.

5 Inventory Management-Related KPIs to Track for Your Growth Hacking Strategies

a. Stock-to-sales ratio

Stock-to-sales ratio = beginning of the month (BOM) stock/month’s sales

This is used to compare the stocks in hand and the units sold out. This offers a greater picture of the purchasing trait of the consumers. Thus, new trends can be explored, which in turn facilitates data-driven decision-making. It is always the principal goal of the growth hacking retailers to decrease the stock-to-sales ratio and at the same time not to lose out on the sales figure. The availability of less stock lets the customers look for the item somewhere else, which is not desired if considered from the business perspective. It is also a great idea to examine the quality of the inventory rather than the quantity. This offers a big hint on the customer psyche and their shopping preferences.

b. Sell through rate

Sell through rate = sales / BOM stock on hand x 100

It compares the stock amount received from the suppliers to the quantity being sold to the customers. Brands dealing in seasonal goods such as apparel or fashion items consider the sell-through rate to be vital. This helps them to detect how fresh their inventory tends to be. It also helps to measure the demand for the seasonal products at the customer’s end. That’s not the end either, as the metrics are also used in comparing different products against one another.  Sell-through also helps towards the assessment of return on investment (ROI). A high rate of sell-through percentage reflects the inventory opportunity on one hand and on the other, the lower rate indicates overinvestment.

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c. Forward weeks of supply

Forward weeks of supply (FWOS) consider planned sales, and weeks on hand imply the time frame to sell off the entire existing inventory.  These metrics are mainly based on inventory planning and are in no way associated with the level of stock. These are more of mathematical functionalities and must be calculated carefully.  FWOS can be used in a more effective method of dealing with some particular products or product category.  If seen holistically, then it can be said that they don’t add up considerable insight to the proponents of growth hacking.

d. Shrinkage

Inventory shrink is one of the data points offering the most straight forward inputs. In layman’s terms, it is the inventory which is accounted for during inventory tracking but doesn’t exist in your physical possession. There are a few common factors that lead to shrinkage in stock. They are as follows:

  • Human error
  • Tracking discrepancies
  • Mislabeling
  • Theft on account of customers and employees

These factors are not essentials in case of growth hacking in inventory management, but they indeed have a great deal of significance in judging the state of inventory connected with the business. They generally offer valuable insight about the level and control of the operational mechanism followed by the business. It indicates how smoothly your business is being run and it has much to do with the data-driven retail growth.

e. Average inventory

Average inventory = (current inventory + previous inventory) / 2

This metric indicates the amount of merchandise available in the stock over a specific time frame.  It helps you calculate the average inventory for a particular quarter or the entire fiscal year.

So, the above pointers must have offered you with significant insights on the KPIs to gauge the amount of inventory you have carried on with for a given time frame. This is undoubtedly an excellent opportunity for the retailer as if they gain the ability to ascertain the average inventory. It empowers them with the ability to join the missing link between the inventories, which will aid in forming open-to-buy budgets and buying plans. The data-driven procedure will set them free from the old-school practice of depending on mere gut feelings.

How Inventory Management Set the Limit of Your Business Free to Grow?

It is necessary to look at these metrics individually, but you must also consider the bigger picture at the same time. You must understand how you and your data points are connected. You must also have the ability to understand if all the data is pointing to the same conclusion or it is only a few isolated cases or changes in numbers you are relying on. A small business might consider practices like manual data entry, accounting, merchandising, and inventory. When it is about a retailer looking forward to scalable growth, it is essential to opt for tools to facilitate automation of data management procedures.

Have you decided to plan your growth? Are you curious to understand where you stand or have identified some issues which may hamper the expansion of your brand? These KPIs will surely help you out with significant insights on scaling your operations with a healthy, successful approach.

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