The first step in managing your inventory effectively is making a commitment to use a modern point of sale solution to gather data. Next, it's time to determine the right set of KPI’s for your business. Lastly, retailers must build the right reports, ones that hold them and their team accountable daily, weekly, monthly and annually. The intelligence gained from these reports is the basis for all strategic inventory decisions. So, how do you determine the right inventory KPIs for your retail business?
Using retail inventory management software to track inventory requires that retailers focus on both detail and accuracy when adding item data. In addition, being able to create custom fields plays a key role. Adding fields for things like “season” or “style” can help with a more detailed inventory analysis. When item details are entered thoroughly into a POS system, you can harness the data collected from purchasing through sales to pull customized reports that help you look for both opportunities and issues such as;
• Dead stock and cash tied up in merchandise that is not moving
• Excess inventory, overhead (carrying costs) that are too high
• Low inventory for high performing stock
• Out of balance inventory or too much inventory in one channel that is moving in another
Working with the retail experts at Management One, we have identified 3 essential retail inventory reporting KPI’s to use as a framework for inventory assessment — sell-through, freshness and sales performance. Let's take a look at each!
This metric works well for most retailers and is defined as, “a calculation, expressed as a percentage, comparing the amount of inventory a retailer receives from a supplier against what is actually sold [in a specific time period] to the customer.” The reporting time period can be weekly or monthly and is key when comparing categories, vendors or styles against one another.
Sell-through = units sold / stock on hand x 100
Sell-through helps assess if your investment is performing well. Depending upon the time period, a low sell-through percentage, say less than 10% per month might indicate your price is too high or you overbought and need to take an action to move the merchandise; a higher percentage of 90% can highlight a hot trend, a price that’s too low, or that you were too conservative in your buying.
-TIP- Calculating sell-through for brands can help you build a vendor score card which will give you the data you need to negotiate better pricing and terms with your vendors.
By monitoring and analyzing the age of your merchandise, you can begin to asses the liveliness and health of your inventory from classification through vendor, style and size. Today, fresh merchandise is a key factor in keeping customers coming back. Building reports that look at product through a holistic lens gives an accurate snapshot of how “fresh” your merchandise is. Often, inventory can feel “precious” to retailers and it’s important to continually ask; When did you receive it? How much did you receive? How long has it been in store? How much is left? What are strategic next steps based on this learning?
Retail inventory management consultant Marc Weiss, CEO of Management One, describes people and inventory as retailer’s biggest assets and biggest liabilities. Thus, it’s important to understand how effective you are in promoting and selling the inventory you’ve invested in. These KPI’s should assess:
• Traffic & conversions
• Promotional effectiveness
• Individual sales performance and staffing
Using this framework will help you build the right reports for your business. Creating your retail inventory reports will ultimately depend on the flexibility of your POS software. To learn what kind of reports you should build, download our complementary Retail Inventory Report and gain valuable inventory tips and techniques from the experts!