1.3. Terms and KPIs in Inventory Management#

  • Stock===Inventory

COGS

  • Cost of goods sold

  • Includes direct cost(transportation,packaging)

  • Doesn’t include indirect cost(advertisement)

  • Safety Stock - Over ordering to cover the unexpected demand

  • Dead Stock - Inventory that doesn’t sell

  • Pipeline Stock - Inventory in Transit

  • Anticipation Stock - Over ordering due to expected demand like seasoning or promotions

  • Stockouts - OOS

  • Available Inventory - Total inventory present in warehouse

  • On hand Inventory - Out of total inventory,some of the inventory could have been allready ordered by customers but haven’t been picked out from Warehouse yet. So Total - this = On Hand

  • Customer Order - Orders which customers have placed in your company

  • Purchase Order - Orders which you have allready placed to your supplier

  • Sales Order - Created by a supplier to confirm that they can supply the goods

  • Invoice - Created by a business to request a payment that’s due from someone who purchased goods from them

Inventory Turns

  • Also called Inventory Turnover or Velocity

  • How much quantity company is buying and replacing the inventory

  • The higher the better

  • Formulae - Sales/Avg Qty or or COGS/Avg Qty or No. of Items sold or /Avg Qty held

Days on Hand

  • 365/Turns per Year

  • Turns and Days on hand are related

Shrinkage - Ending Inventory Count - Pysically counted Inventory

  • When you find that inventory is more than counted inventory

  • Shrinkage happens due to theft,admin counting errors,supplier fraud or unreported loss

  • Shrinkage % = Shrinkage/COGS

Sell through rate

  • Percentage of how much you bought vs how much you sold

  • Tells you how accurately yu judged your order quantity

  • Formulae - Quantity sold/Quantity bought

Lost Sales - Time you were OOS(Out of Stock) * Expected rate of sales

  • Lost Sales depends on type of products:

    • High demand products - Runners

    • Repetative demand - Repeaters

    • Rarely Ordered - Strangers

Replenishment Time or Lead Time - Time between you placed an order and time you received the order

Thoughtput Time

  • Time it takes for the order to be processed in the system

  • Goods bought at shelf to Goods received to customer

    • 0 in offline stores

Churn - Rate at which customers stop doing business with a company

ATV

  • Average Transaction Value

  • Total order value/Number of transactions

UPT

  • Units per Transaction

  • Average number of items that customers are purchasing in one order