Measuring Supply Chain Performance: The 3 KPIs You Need to Measure Inventory

The overall performance of your supply chain can be measured by examining three key questions:

1. Is the supply chain acquiring the things your organization needs?
2. Is it providing customers with the things they need?
3. And is it doing it all in the right time and for the right price?

To find the answers, the first place you need to look is your inventory. And to know what you're looking for, there are three valuable Key Performance Indicators (KPIs) you should be monitoring. Inventory ensured that businesses are able to deliver what customers want, when they want it. But how do you strike the fine balance between having enough and having too much?

Holding inventory is costly. There are opportunity costs, since that capital cannot then be invested elsewhere. Then there's the costs for warehouses, staff, electricity, and so on to store the inventory. Finally, inventory is a risky investment. If demand shifts before the entire inventory has been sold, the remaining items in stock may be drastically reduced in value and have to be sold at a discount. Or worse, not sold at all.

The right KPIs, though, will help manage this risk. Let's take a look at three you should be closely monitoring.

1. Inventory Turns or Inventory Days on Hand

This KPI measures how well an organization moves inventory. Simply put, it shows how often the organization has sold the entire value of its inventory over the course of the year. A related perspective is given by inventory days on hand, which shows how many days it would take to deplete the average inventory kept by the organization.

Obviously, the faster an organization is able to move inventory, ...