Complete Guide to Inventory KPIs & Metrics
What is a KPI? A Key Performance Indicator (KPI) is a measurable value that demonstrates how effectively a company is achieving key business objectives. In inventory management, KPIs are used to monitor, analyze, and optimize inventory processes, helping organizations make data-driven decisions to improve efficiency, reduce costs, and meet customer demand.
Inventory Management KPIs & Metrics (A-Z)
Below is a comprehensive list of 50+ key performance indicators (KPIs) and metrics used in inventory management, grouped alphabetically for easy reference. These KPIs help measure, monitor, and optimize inventory performance and supply chain efficiency.
A
- ABC Classification Accuracy: Percentage of items correctly classified in ABC analysis.
Formula: ABC Accuracy = (Correctly Classified Items / Total Items) × 100% - Average Inventory: The average value or quantity of inventory held over a period.
Formula: Average Inventory = (Beginning Inventory + Ending Inventory) / 2 - Average Lead Time: The average time taken from placing an order to receiving goods.
Formula: Average Lead Time = Total Lead Time for All Orders / Number of Orders
B
- Backorder Rate: Percentage of orders not fulfilled at the time of request.
Formula: Backorder Rate = (Number of Backordered Items / Total Ordered Items) × 100% - Batch Size: The quantity of items produced or ordered in a single batch.
Formula: Batch Size = Total Quantity Produced or Ordered / Number of Batches
C
- Carrying Cost of Inventory: Total cost of holding inventory, including storage, insurance, and opportunity costs.
Formula: Carrying Cost = Inventory Value × Carrying Cost Rate (%) - Cash-to-Cash Cycle Time: Time from cash outlay to cash collection.
Formula: Cash-to-Cash = Days Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding - Cycle Count Accuracy: Percentage of inventory records matching physical counts.
Formula: Cycle Count Accuracy = (Number of Accurate Counts / Total Counts) × 100% - Customer Order Fill Rate: Percentage of customer orders fulfilled from stock on hand.
Formula: Fill Rate = (Orders Filled from Stock / Total Orders) × 100%
D
- Days of Inventory on Hand (DOH): Number of days inventory will last based on current sales rate.
Formula: DOH = (Ending Inventory / Cost of Goods Sold) × Number of Days in Period - Days Sales Outstanding (DSO): Average number of days to collect receivables.
Formula: DSO = (Accounts Receivable / Net Credit Sales) × Number of Days - Demand Forecast Accuracy: How closely actual demand matches forecasted demand.
Formula: Forecast Accuracy = 1 - (|Actual - Forecast| / Actual) × 100% - Dead Stock Ratio: Percentage of inventory that hasn't moved in a specified period.
Formula: Dead Stock Ratio = (Dead Stock Value / Total Inventory Value) × 100%
E
- Economic Order Quantity (EOQ): Optimal order quantity minimizing total costs.
Formula: EOQ = √[(2 × Annual Demand × Order Cost) / Carrying Cost per Unit] - Excess Inventory Ratio: Percentage of inventory exceeding required levels.
Formula: Excess Inventory Ratio = (Excess Inventory / Total Inventory) × 100%
F
- Fill Rate: Percentage of customer demand met without stockouts.
Formula: Fill Rate = (Units Delivered / Units Ordered) × 100% - Forecast Bias: Systematic error in demand forecasting.
Formula: Forecast Bias = Sum(Forecast - Actual) / Number of Periods - Freight Cost as % of Sales: Transportation costs relative to sales revenue.
Formula: Freight Cost % = (Total Freight Costs / Total Sales) × 100%
G
- Gross Margin Return on Investment (GMROI): Profitability of inventory investment.
Formula: GMROI = (Gross Margin $ / Average Inventory Investment) × 100% - Gross Margin by Product: Profit margin for individual products or categories.
Formula: Gross Margin = (Sales Revenue - COGS) / Sales Revenue × 100%
H
- Holding Cost Rate: Annual cost to hold inventory as percentage of inventory value.
Formula: Holding Cost Rate = (Total Holding Costs / Average Inventory Value) × 100%
I
- Inventory Accuracy: Degree to which inventory records match actual stock.
Formula: Inventory Accuracy = (Accurate Items / Total Items) × 100% - Inventory Shrinkage: Loss of inventory due to theft, damage, or errors.
Formula: Shrinkage = (Book Inventory - Physical Inventory) / Book Inventory × 100% - Inventory Turnover: Number of times inventory is sold or used in a period.
Formula: Inventory Turnover = Cost of Goods Sold / Average Inventory - Inventory to Sales Ratio: Ratio of inventory value to sales value.
Formula: Inventory to Sales Ratio = Inventory Value / Sales Value
L
- Lead Time: Time between placing an order and receiving goods.
Formula: Lead Time = Delivery Date - Order Date - Lead Time Variability: Standard deviation of lead times.
Formula: Lead Time Variability = √[Σ(Lead Time - Average Lead Time)² / (n-1)] - Lost Sales: Revenue lost due to stockouts.
Formula: Lost Sales = Number of Unfulfilled Orders × Average Order Value
M
- Mean Absolute Deviation (MAD): Average absolute forecast error.
Formula: MAD = Σ|Actual - Forecast| / Number of Periods - Mean Absolute Percentage Error (MAPE): Average percentage forecast error.
Formula: MAPE = (Σ|Actual - Forecast|/Actual) / Number of Periods × 100%
N
- Net Working Capital: Current assets minus current liabilities.
Formula: Net Working Capital = Current Assets - Current Liabilities
O
- Obsolete Inventory Ratio: Percentage of inventory that's obsolete.
Formula: Obsolete Inventory Ratio = (Obsolete Inventory Value / Total Inventory Value) × 100% - Order Accuracy: Percentage of orders fulfilled without errors.
Formula: Order Accuracy = (Error-Free Orders / Total Orders) × 100% - Order Cycle Time: Time taken to process and deliver an order.
Formula: Order Cycle Time = Delivery Date - Order Placement Date
P
- Perfect Order Rate: Percentage of orders delivered on time, complete, and damage-free.
Formula: Perfect Order Rate = (Perfect Orders / Total Orders) × 100% - Purchase Price Variance: Difference between actual and standard purchase prices.
Formula: PPV = (Actual Price - Standard Price) × Quantity Purchased
R
- Reorder Point: Inventory level at which a new order is placed.
Formula: Reorder Point = (Average Daily Usage × Lead Time) + Safety Stock - Return Rate: Percentage of goods returned by customers.
Formula: Return Rate = (Number of Returned Items / Total Sold Items) × 100% - Revenue per Employee: Sales revenue generated per employee.
Formula: Revenue per Employee = Total Revenue / Number of Employees
S
- Safety Stock: Extra inventory held to guard against uncertainties.
Formula: Safety Stock = Z × σL × √Lead Time
Where Z = Service Level Factor, σL = Demand Std. Dev. - Stockout Rate: Frequency of inventory running out of stock.
Formula: Stockout Rate = (Number of Stockouts / Total Demand Occasions) × 100% - Service Level: Percentage of demand met without delay.
Formula: Service Level = (Orders Fulfilled Immediately / Total Orders) × 100% - Slow-Moving Inventory Ratio: Percentage of inventory with low turnover.
Formula: Slow-Moving Ratio = (Slow-Moving Inventory Value / Total Inventory Value) × 100%
T
- Total Inventory Cost: Sum of all costs associated with inventory.
Formula: Total Inventory Cost = Ordering Cost + Carrying Cost + Shortage Cost - Turnover Ratio: Frequency of inventory replacement.
Formula: Turnover Ratio = Cost of Goods Sold / Average Inventory - Total Cost of Ownership (TCO): Complete cost of acquiring and maintaining inventory.
Formula: TCO = Purchase Cost + Ordering Cost + Carrying Cost + Disposal Cost
V
- Vendor Performance Score: Overall rating of supplier performance.
Formula: Vendor Score = (Quality % + Delivery % + Cost % + Service %) / 4 - Velocity (Inventory): Rate at which inventory moves through the supply chain.
Formula: Velocity = Units Sold / Average Units on Hand
W
- Write-off Rate: Percentage of inventory written off due to damage, theft, or obsolescence.
Formula: Write-off Rate = (Write-off Value / Total Inventory Value) × 100% - Working Capital Turnover: How efficiently working capital generates sales.
Formula: Working Capital Turnover = Net Sales / Average Working Capital
Frequently Asked Questions: Best Practices for Using Inventory KPIs
Establish achievable benchmarks based on industry standards and your company's historical performance. Start by researching industry averages for your specific sector, then analyze your past 2-3 years of data to identify trends and baseline performance. Set targets that are challenging but attainable, typically 5-15% improvement over current performance.
Track KPIs consistently with different frequencies for different types of metrics: daily for operational metrics (like stockouts and fill rates), weekly for tactical metrics (like turnover and cycle counts), and monthly for strategic metrics (like carrying costs and ROI). This ensures you catch issues early while maintaining strategic oversight.
Never rely on single KPIs. Combine financial, operational, and customer service metrics for complete visibility. For example, high inventory turnover might look good financially, but if it leads to frequent stockouts (poor fill rate), your customer satisfaction will suffer. Use a balanced scorecard approach with 5-8 key metrics across different categories.
Make KPI data accessible to relevant stakeholders through dashboards, regular reports, and team meetings. Create role-specific dashboards (executives see strategic KPIs, operations see tactical metrics). Hold monthly KPI review meetings to discuss trends, root causes of issues, and action plans. Ensure everyone understands how their actions impact the metrics.
Recognize that KPIs often have trade-offs. Use optimization techniques like ABC analysis to balance service levels with costs - maintain higher safety stock for A-items (critical/high-value) and lower stock for C-items (low-value). Set different target service levels by product category and regularly review the cost-benefit of your choices.
Start with what you have - Excel can handle basic KPI tracking for smaller operations. For larger organizations, consider business intelligence tools like Power BI, Tableau, or specialized inventory management software with built-in analytics. The key is consistency in data collection and regular analysis, regardless of the tool.