Taking Stock of Office Supplies
Author: Inventory Pro
Published On: 2021-10-20
Probably your company maintains a selection of office supplies for employee use, so you need to maintain a regularly updated list of inventory purchased and used for each accounting period. A proper inventory serves two purposes: it makes sure your business doesn't run out of office supplies, and it allows you to account for office supply purchases as assets or liabilities under the accrual system of accounting.
Inventory management has been termed to be one of the most important factors that facilitate business expansion and scalability. A well-managed inventory leads to a well-balanced organisation. But how does one define what a well-managed inventory is? Is it how you arrange the products or what kind of reports you generate? Well, a well-managed inventory can be subjective and to bring uniformity and set standards, there are some KPIs for. Inventory management.
Let us start by understanding what KPIs are?
KPI stands for Key Performance indicators. KPIs are basically metrics that help analysis the decisions based on the figures indicated by reports.
In inventory management software, the KPIs will be indicative of sales, demand and turnover related information. There are many inventory management software that can calculate KPIs related to sales, operations and employee KPIs. Some of the important KPI metrics related to Inventory management are:
1. Revenue and cost per unit: The revenue per unit and cost per unit are the important KPIs for Subscription based business and manufacturing based business respectively. Revenue per unit simply means the worth of one unit of product. It can be calculated by the formula:
Revenue per unit = total revenue for period / average units sold for period.
Cost per unit is the cost that the company has incurred to manufacture one unit of product. It can be calculated by the formula:
Cost per unit = (fixed costs + variable costs )/ no of units produced.
2. ROI : Return on Investment or also known as Rate of return. This is a sales KPI widely used across all sorts of industries. This represents the percentage of profit over the amount invested over a period of time. This KPI is calculated as below:
Rate of return (ROR) = [(final value – initial value) / initial value] x 100
3. Average inventory: Average inventory in a company is the amount of inventory a company has in hand at any given point in time. This is an important KPI while reporting the inventory status. Using this KPI companies are able to keep the average inventory in place everyday and maintain their stock. The formula for average inventory is:
Average inventory = (beginning inventory + ending inventory) / 2
4. Perfect Order Rate: A perfect order is an order which is smoothly delivered without any glitches or delays. The perfect order rate is the measure in percentage of how many orders were delivered by the company with extreme accuracy. This metric is a metric of operations and process. Ideally, this rate should be 100 and every company tries to achieve it and become an efficient company. The formula used to calculate this rate is:
Perfect order rate = [(no of orders delivered on time / no of orders) x (no of orders complete / no of orders) x (no of orders damage free / no of orders) x (no of orders with accurate documentation / no of orders)] x 100
5. Internal Warehouse Management System Efficiency: This KPI is specific to the companies which have implemented inventory management software. It is the measure of efficiency achieved on the return on investment over the amount of investment done for the system.
Using inventory management software for small and medium scale businesses can seem to be an overhead but when this KPI is positive, the benefits of the software are evident. This KPI can also help determine which inventory management software is more effective and can be a decisive factor for organizations failing to choose from different inventory management applications. Calculating this KPI can only be justified when the organization has been using all the features of the application for all its purposes.
The formula for this KPI is as below:
Internal WMS efficiency (ROI) = (gain on investment – Cost of investment) / Cost of investment
Using these KPIs a business can know how it is progressing and can set agendas in order to attain the benchmark KPIs.
Inventory management has been termed to be one of the most important factors that facilitate business expansion and scalability. A well-managed inventory leads to a well-balanced organisation. But how does one define what a well-managed inventory is? Is it how you arrange the products or what kind of reports you generate? Well, a well-managed inventory can be subjective and to bring uniformity and set standards, there are some KPIs for. Inventory management.
Let us start by understanding what KPIs are?
KPI stands for Key Performance indicators. KPIs are basically metrics that help analysis the decisions based on the figures indicated by reports.
In inventory management software, the KPIs will be indicative of sales, demand and turnover related information. There are many inventory management software that can calculate KPIs related to sales, operations and employee KPIs. Some of the important KPI metrics related to Inventory management are:
1. Revenue and cost per unit: The revenue per unit and cost per unit are the important KPIs for Subscription based business and manufacturing based business respectively. Revenue per unit simply means the worth of one unit of product. It can be calculated by the formula:
Revenue per unit = total revenue for period / average units sold for period.
Cost per unit is the cost that the company has incurred to manufacture one unit of product. It can be calculated by the formula:
Cost per unit = (fixed costs + variable costs )/ no of units produced.
2. ROI : Return on Investment or also known as Rate of return. This is a sales KPI widely used across all sorts of industries. This represents the percentage of profit over the amount invested over a period of time. This KPI is calculated as below:
Rate of return (ROR) = [(final value – initial value) / initial value] x 100
3. Average inventory: Average inventory in a company is the amount of inventory a company has in hand at any given point in time. This is an important KPI while reporting the inventory status. Using this KPI companies are able to keep the average inventory in place everyday and maintain their stock. The formula for average inventory is:
Average inventory = (beginning inventory + ending inventory) / 2
4. Perfect Order Rate: A perfect order is an order which is smoothly delivered without any glitches or delays. The perfect order rate is the measure in percentage of how many orders were delivered by the company with extreme accuracy. This metric is a metric of operations and process. Ideally, this rate should be 100 and every company tries to achieve it and become an efficient company. The formula used to calculate this rate is:
Perfect order rate = [(no of orders delivered on time / no of orders) x (no of orders complete / no of orders) x (no of orders damage free / no of orders) x (no of orders with accurate documentation / no of orders)] x 100
5. Internal Warehouse Management System Efficiency: This KPI is specific to the companies which have implemented inventory management software. It is the measure of efficiency achieved on the return on investment over the amount of investment done for the system.
Using inventory management software for small and medium scale businesses can seem to be an overhead but when this KPI is positive, the benefits of the software are evident. This KPI can also help determine which inventory management software is more effective and can be a decisive factor for organizations failing to choose from different inventory management applications. Calculating this KPI can only be justified when the organization has been using all the features of the application for all its purposes.
The formula for this KPI is as below:
Internal WMS efficiency (ROI) = (gain on investment – Cost of investment) / Cost of investment
Using these KPIs a business can know how it is progressing and can set agendas in order to attain the benchmark KPIs.
