35 Essential Inventory KPIs & Metrics You Must Track

Managing inventory isn’t just about keeping track of stock—it’s about making smart, data-driven decisions that fuel business growth. Too much inventory ties up cash and racks up storage costs, while too little means lost sales and frustrated customers. The challenge? Finding that perfect balance.

This is where inventory KPIs (Key Performance Indicators) come in. These metrics give businesses the power to measure what matters—sales, turnover, demand, and more. With the right KPIs, you can spot inefficiencies, predict trends, and optimize operations.

But tracking these metrics manually? Not so efficient. To get it right, businesses need the help of advanced inventory tools. These systems make it easy to track KPIs, so you can focus on what really drives success.

In this guide, we’ll dive into the 35 most important inventory KPIs you should be tracking, and how each one can help your business stay ahead of the game.

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What Are Inventory KPIs and Metrics?

Inventory KPIs (Key Performance Indicators) and metrics are essential tools for measuring the health of your inventory operations. KPIs focus on key outcomes like sales performance, stock efficiency, and overall profitability, giving you a high-level view of how well your inventory is aligned with business goals.

Metrics, on the other hand, are the specific data points that feed into these KPIs. They track individual elements of inventory management, such as stock turnover, order fulfillment speed, or stockouts, helping you drill down into what’s working and what needs improvement.

By monitoring both KPIs and metrics, you gain actionable insights that allow you to optimize inventory levels, reduce costs, and improve customer satisfaction. These indicators help you stay proactive, making data-driven decisions instead of relying on guesswork.

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35 Key Inventory KPIs and Metrics:

Essential Inventory Metrics and KPIs to Measure Inventory Performance and Optimize Operations

1. Inventory Turnover Ratio

Inventory turnover ratio measures how quickly your inventory is sold and replaced over a period. A high turnover ratio indicates efficient sales and stock management, while a low ratio may point to overstocking or slow-moving products.

To calculate inventory turnover, use the following formula:

Inventory Turnover Ratio = Cost of Goods Sold (COGS) / Average Inventory

To improve this ratio, focus on better demand forecasting and optimizing your order quantities to match sales trends.

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2. Days of Inventory on Hand (DOH)

Days of inventory on hand tells you how many days it will take to sell through your entire inventory based on current sales rates. The lower this number, the faster your inventory is moving.

To calculate DOH, use the following formula:

DOH = Average Inventory / (COGS / 365)

By reducing DOH, you can lower storage costs and improve cash flow. Keeping a closer eye on sales velocity will help prevent both stockouts and overstocking.

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3. Stockout Rate

Stockout rate measures the percentage of time you run out of stock for a particular item. A high stockout rate can result in lost sales and frustrated customers.

To calculate stockout rate, use the following formula:

Stockout Rate = Number of Stockouts / Total Number of Orders

Reducing stockouts requires efficient inventory planning and order replenishment, along with real-time tracking of inventory levels to prevent running low on key products.

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4. Gross Margin Return on Investment (GMROI)

GMROI measures the profitability of your inventory by comparing the gross profit generated to the cost of inventory invested. A high GMROI indicates you’re making a good return on your inventory investment.

To calculate GMROI, use the following formula:

GMROI = Gross Profit / Average Inventory Cost

To improve GMROI, focus on increasing sales and reducing the cost of goods sold by negotiating better supplier terms or optimizing your inventory mix.

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5. Fill Rate

Fill rate is the percentage of customer orders that can be completely fulfilled from available inventory. A low fill rate can lead to customer dissatisfaction and lost revenue opportunities.

To calculate fill rate, use the following formula:

Fill Rate = (Number of Full Orders / Total Orders) * 100

Improving fill rate requires accurate inventory levels and strong demand forecasting to ensure stock availability across all products.

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6. Inventory Accuracy

Inventory accuracy measures how closely your physical stock matches your recorded stock levels. High accuracy reduces errors, enhances customer satisfaction, and improves order fulfillment efficiency.

To calculate inventory accuracy, use the following formula:

Inventory Accuracy = (Correctly Recorded Inventory / Total Inventory) * 100

To improve accuracy, implement regular stock audits and invest in inventory management systems that automatically track stock movements in real-time.

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7. Backorder Rate

The backorder rate tracks the percentage of orders that can’t be filled at the time of purchase due to out-of-stock items. A high backorder rate can delay shipments and frustrate customers.

To calculate the backorder rate, use the following formula:

Backorder Rate = Number of Backordered Units / Total Units Ordered

To reduce backorders, focus on better inventory forecasting, communication with suppliers, and faster replenishment cycles.

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8. Lead Time

Lead time measures the amount of time it takes from placing an order with your supplier until it’s received and ready for sale. Shorter lead times give you greater flexibility and help avoid stockouts.

To calculate lead time, use the following formula:

Lead Time = Order Receipt Date – Order Date

To improve lead time, build strong relationships with suppliers, streamline order processes, and consider using multiple suppliers for critical inventory.

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9. Replenishment Cycle Time

Replenishment cycle time measures the time it takes from identifying the need to replenish stock to when the order is placed and delivered. Shorter cycles ensure inventory stays in stock without overstocking.

To calculate replenishment cycle time, use the following formula:

Replenishment Cycle Time = Time Between Identifying Need and Stock Arrival

Reducing replenishment cycle time requires a combination of real-time tracking and efficient supplier processes.

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10. Carrying Cost of Inventory

Carrying cost refers to the total costs associated with holding and storing inventory, including storage, insurance, depreciation, and opportunity costs. Keeping this cost low maximizes profitability.

To calculate carrying cost, use the following formula:

Carrying Cost = (Storage Costs + Insurance + Depreciation + Opportunity Costs) / Total Value of Inventory

To reduce carrying costs, consider optimizing your inventory turnover, using just-in-time ordering, and reducing excess stock levels.

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11. Order Cycle Time

Order cycle time measures the time it takes to fulfill an order from the moment it’s placed to when it’s shipped. Reducing this time improves customer satisfaction and increases sales velocity.

To calculate order cycle time, use the following formula:

Order Cycle Time = (Order Shipment Date - Order Received Date)

To improve order cycle time, streamline order processing and invest in efficient warehouse management systems.

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12. Order Lead Time

Order lead time measures the time from when a customer places an order to when they receive it. A lower order lead time improves customer satisfaction and encourages repeat business.

To calculate order lead time, use the following formula:

Order Lead Time = Order Delivery Date - Order Placement Date

To reduce order lead time, optimize your fulfillment processes and work with reliable shipping partners.

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13. Stock Availability

Stock availability measures how often a product is available for sale when customers want to buy it. Low stock availability leads to missed sales and customer dissatisfaction.

To calculate stock availability, use the following formula:

Stock Availability = (Available Stock / Total Customer Demand) * 100

Improving stock availability requires accurate demand forecasting and quick restocking processes to avoid stockouts.

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14. Supplier Lead Time

Supplier lead time is the time it takes for suppliers to deliver goods after an order is placed. Shorter supplier lead times reduce the risk of stockouts and improve inventory management efficiency.

To calculate supplier lead time, use the following formula:

Supplier Lead Time = Delivery Date - Order Date

You can reduce supplier lead time by choosing suppliers with faster turnaround times and maintaining a close relationship with them.

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15. Return Rate

Return rate measures the percentage of products returned by customers. A high return rate can indicate quality issues or mismatches between inventory and customer expectations.

To calculate return rate, use the following formula:

Return Rate = (Number of Returned Items / Total Items Sold) * 100

To reduce return rates, focus on product quality control and ensure that marketing aligns with customer expectations.

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16. Demand Forecast Accuracy

Demand forecast accuracy measures how accurately your inventory forecasts match actual sales. Higher accuracy ensures you stock the right amount, reducing both stockouts and excess inventory.

To calculate forecast accuracy, use the following formula:

Forecast Accuracy = (1 - |Forecasted Demand - Actual Demand| / Forecasted Demand) * 100

Improving demand forecast accuracy requires historical sales data, market analysis, and refining forecasting methods.

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17. Backlog Orders

Backlog orders track the number of orders that are delayed due to insufficient stock. A large backlog indicates poor inventory management or understocking.

To calculate backlog orders, use the following formula:

Backlog Orders = Total Orders - Orders Fulfilled on Time

Reducing backlog orders involves better inventory planning and faster replenishment to meet demand on time.

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18. Inventory Shrinkage

Inventory shrinkage refers to the loss of inventory due to theft, damage, or errors in tracking. Keeping shrinkage low is crucial for maintaining profit margins.

To calculate inventory shrinkage, use the following formula:

Inventory Shrinkage = (Inventory Loss / Total Inventory) * 100

To minimize shrinkage, invest in robust security measures, conduct regular stock audits, and use accurate tracking systems.

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19. Reorder Point

Reorder point tells you when it’s time to reorder a product to prevent stockouts. It helps ensure that stock levels are maintained without overstocking.

To calculate reorder point, use the following formula:

Reorder Point = Lead Time Demand (Sales per Day * Lead Time in Days)

To optimize the reorder point, adjust it based on sales velocity, supplier lead times, and market conditions.

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20. Inventory Turnover Days

Inventory turnover days measures the average number of days it takes to sell through your entire inventory. The lower the number, the more efficiently your inventory is being sold.

To calculate inventory turnover days, use the following formula:

Inventory Turnover Days = 365 / Inventory Turnover Ratio

To reduce turnover days, focus on improving sales and reducing slow-moving stock by offering promotions or discounts.

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21. Inventory-to-Sales Ratio

The inventory-to-sales ratio measures how much inventory you hold compared to your sales volume. A lower ratio indicates more efficient use of inventory, while a higher ratio may suggest overstocking.

To calculate the inventory-to-sales ratio, use the following formula:

Inventory-to-Sales Ratio = Average Inventory / Total Sales

To optimize this ratio, aim to match your inventory levels with customer demand and avoid carrying excess stock.

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22. Order Fill Rate

Order fill rate measures the percentage of customer orders that are completely filled from available inventory. A high fill rate improves customer satisfaction and reduces backorders.

To calculate order fill rate, use the following formula:

Order Fill Rate = (Orders Filled Completely / Total Orders) * 100

Improving your order fill rate involves maintaining accurate stock counts and efficient order fulfillment processes.

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23. First Pass Yield

First pass yield (FPY) measures the percentage of inventory or products that are produced or received without defects or errors. A high FPY means fewer quality control issues and less waste.

To calculate FPY, use the following formula:

First Pass Yield = (Units Passed Inspection on First Attempt / Total Units) * 100

To increase FPY, improve quality control and vendor performance, and ensure accurate inventory receipts.

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24. Backordered Units

Backordered units measure the number of items ordered but not available at the time of order fulfillment. A high number of backordered units signals poor inventory planning or delays in stock replenishment.

To calculate backordered units, use the following formula:

Backordered Units = Total Units Ordered - Units Fulfilled

Reducing backorders requires accurate demand forecasting and quick restocking based on real-time data.

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25. Lead Time Variability

Lead time variability measures the fluctuation in the time it takes for suppliers to fulfill orders. High variability in lead times makes it difficult to maintain optimal inventory levels and plan ahead.

To calculate lead time variability, use the following formula:

Lead Time Variability = Standard Deviation of Lead Times / Average Lead Time

To reduce lead time variability, work with suppliers who provide consistent and predictable lead times, and consider using multiple suppliers for critical items.

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26. Service Level

Service level measures how well you meet customer demand by fulfilling orders without stockouts. A higher service level reflects better inventory availability and customer satisfaction.

To calculate service level, use the following formula:

Service Level = (Total Orders Fulfilled / Total Orders Placed) * 100

Improving service level requires balancing inventory levels with demand, while ensuring efficient restocking and order fulfillment processes.

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27. Stock Turnover Rate

Stock turnover rate shows how often inventory is replaced in a given period, similar to the inventory turnover ratio. This metric helps identify slow-moving stock and areas for improvement.

To calculate stock turnover rate, use the following formula:

Stock Turnover Rate = Sales / Average Inventory

To optimize stock turnover, focus on moving inventory faster, reducing excess stock, and promoting high-demand products.

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28. Inventory Aging

Inventory aging tracks how long stock has been sitting in your warehouse. Items that have been on the shelves too long may become obsolete or unsellable, tying up capital.

To calculate inventory aging, use the following formula:

Inventory Aging = Current Date - Date of Receipt

To reduce aging inventory, regularly review your stock, offer discounts on slow-moving items, and work on better demand forecasting to avoid overstocking.

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29. Perfect Order Rate

Perfect order rate tracks the percentage of orders that are delivered on time, complete, and undamaged. A high perfect order rate is a sign of efficient inventory and fulfillment processes.

To calculate perfect order rate, use the following formula:

Perfect Order Rate = (Orders Delivered on Time and Complete / Total Orders) * 100

Improving your perfect order rate involves optimizing your supply chain, minimizing stockouts, and ensuring accurate order fulfillment.

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30. Inventory Productivity

Inventory productivity measures how well your inventory contributes to overall sales. High inventory productivity means your stock is moving efficiently and generating revenue.

To calculate inventory productivity, use the following formula:

Inventory Productivity = Total Sales / Average Inventory Value

To improve inventory productivity, focus on streamlining operations, reducing slow-moving items, and promoting fast-selling products.

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31. Economic Order Quantity (EOQ)

Economic order quantity (EOQ) calculates the optimal order size that minimizes the total cost of ordering and holding inventory. This helps businesses avoid overstocking and understocking.

To calculate EOQ, use the following formula:

EOQ = √(2 * Demand * Ordering Cost / Holding Cost)

To optimize EOQ, fine-tune your order sizes based on demand, lead time, and storage costs to achieve cost savings while maintaining stock availability.

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32. Stockout Cost

Stockout cost measures the lost revenue and customer dissatisfaction caused by running out of stock on an item. High stockout costs can severely affect profitability and brand reputation.

To calculate stockout cost, use the following formula:

Stockout Cost = (Lost Sales per Unit * Margin per Unit) + (Cost of Expediting Orders)

Reducing stockout costs requires better demand forecasting, timely replenishment, and efficient inventory tracking to prevent running out of key products.

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33. Inventory Obsolescence Rate

Inventory obsolescence rate measures the percentage of inventory that becomes unsellable due to changing market conditions, product expiry, or damage. This metric helps businesses identify the need to clear out old stock.

To calculate inventory obsolescence rate, use the following formula:

Inventory Obsolescence Rate = (Obsolete Inventory / Total Inventory) * 100

To reduce obsolescence, maintain accurate demand forecasts, offer promotions on old stock, and regularly review your product lines.

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34. Order Accuracy

Order accuracy measures the percentage of orders that are fulfilled without any errors, such as wrong products or quantities. High order accuracy is crucial for maintaining customer satisfaction and reducing returns.

To calculate order accuracy, use the following formula:

Order Accuracy = (Orders Correctly Fulfilled / Total Orders Fulfilled) * 100

Improving order accuracy involves better training for your staff, clear labeling, and real-time tracking of inventory to ensure correct order picking.

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35. Inventory Replenishment Rate

Inventory replenishment rate measures the speed at which stock is replenished once it reaches a reorder point. A higher replenishment rate ensures inventory stays in stock without excessive delays.

To calculate inventory replenishment rate, use the following formula:

Inventory Replenishment Rate = (Replenishment Orders Fulfilled on Time / Total Replenishment Orders) * 100

To improve replenishment rates, maintain close supplier relationships, automate inventory alerts, and streamline your ordering process.

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What Metrics and KPIs Are Important for You?

When it comes to inventory management, every business has different priorities and goals. The KPIs and metrics you focus on should directly align with your business objectives, whether you're looking to reduce costs, improve customer satisfaction, or optimize operational efficiency.

Here's how to decide which metrics are important for your specific needs:

1. Business Size and Complexity

For smaller businesses with simpler operations, tracking basic KPIs like Inventory Turnover and Stock Availabilitymay be sufficient. However, as your business grows and inventory complexity increases, you’ll want to incorporate more advanced metrics like Economic Order Quantity (EOQ) and Lead Time Variability to fine-tune your supply chain.

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2. Customer Satisfaction Focus

If customer satisfaction is your top priority, metrics like Perfect Order Rate, Order Accuracy, and On-Time Deliverybecome critical. These KPIs help ensure that your customers receive their orders in the right quantity, condition, and on time—key factors that build loyalty and improve retention.

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3. Cost Optimization

For businesses focused on cost control, Inventory Holding Costs and Stockout Costs should be at the forefront. Reducing holding costs allows you to free up capital, while minimizing stockout costs ensures you don’t lose sales or customers due to poor inventory planning.

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4. Inventory Efficiency

If efficiency and operational productivity are key, KPIs like Inventory Turnover Rate, Order Cycle Time, and Inventory Productivity are crucial. These metrics help you measure how well your inventory moves, how quickly orders are fulfilled, and how much revenue each unit of inventory generates.

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5. Forecasting and Planning

For businesses that rely on accurate demand forecasting, Demand Forecast Accuracy and Reorder Point are essential. These KPIs help you align inventory levels with customer demand, preventing overstocking and stockouts while optimizing replenishment cycles.

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6. Risk Mitigation

If minimizing risk, such as excess stock or obsolete products, is important, then Inventory Obsolescence Rate and Return Rate should be top of mind. These KPIs help you reduce dead stock and improve the overall quality of your inventory.

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Conclusion

Effective inventory management is a cornerstone of business success, especially in industries where demand fluctuations and operational efficiency are critical. By tracking the right KPIs and metrics, you can gain valuable insights into your inventory performance, streamline operations, and ultimately boost profitability. 

Whether you're focusing on cost reduction, improving customer satisfaction, or optimizing your supply chain, understanding which metrics matter most for your business will guide your strategy and decision-making. Remember, the key to mastering inventory management is not just collecting data, but using it to make informed decisions that propel your business forward.

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Frequently Asked Questions (FAQs) on Inventory KPIs & Metrics

Q1. How can inventory KPIs impact my business’s bottom line?

Inventory KPIs directly affect your profit margins by helping you optimize stock levels, reduce excess inventory costs, and prevent stockouts. Monitoring KPIs like Inventory Turnover and Days Sales of Inventory can help ensure that you have the right products in the right quantities at the right time, minimizing both costs and missed sales opportunities.

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Q2. Can I track inventory KPIs without using complex software?

Yes, you can manually track some inventory KPIs using spreadsheets and basic inventory management systems. However, for more complex metrics like Economic Order Quantity (EOQ) or Stockout Costs, leveraging software can help automate calculations, track data in real-time, and improve accuracy.

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Q3. How do I choose the right inventory KPIs for my business?

The KPIs you track should align with your business goals. If you’re focused on cost reduction, Inventory Holding Costsand Stockout Costs are crucial. If customer satisfaction is a priority, track Order Accuracy and On-Time Delivery. Tailor your KPIs based on what will drive your business success.

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Q4. What role does forecasting play in improving inventory KPIs?

Accurate demand forecasting directly impacts key metrics such as Days Sales of Inventory and Reorder Point. By predicting future demand more accurately, you can optimize stock levels, reduce overstocking and stockouts, and improve overall inventory efficiency.

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Q5. How often should I review my inventory KPIs?

It’s essential to review your KPIs regularly—typically monthly or quarterly—depending on your industry and business size. Frequent reviews help identify trends, spot potential issues early, and make adjustments before problems escalate, allowing you to stay on top of inventory management challenges.

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Q6. What is the impact of high inventory turnover on my business?

High inventory turnover indicates that your products are selling quickly, which can lead to improved cash flow and lower holding costs. However, excessively high turnover might mean you're understocking, potentially losing sales due to stockouts. The key is to balance turnover with adequate stock levels to meet demand.

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Q7. How can I use KPIs to reduce stockouts?

To minimize stockouts, focus on KPIs like Demand Forecast Accuracy and Replenishment Rate. These metrics help you maintain optimal stock levels and ensure that your supply chain is responsive enough to restock before items run out. By improving these KPIs, you can strike the right balance between having enough stock without overburdening your warehouse.

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Q8. How do I handle obsolete inventory using KPIs?

KPIs such as Inventory Obsolescence Rate and Stock-to-Sales Ratio can help identify slow-moving or unsellable products. Regularly tracking these metrics allows you to take corrective actions such as offering promotions or clearing out dead stock, which can free up valuable warehouse space and improve cash flow.

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Q9. Are inventory KPIs the same for B2B and B2C businesses?

While the general principles of inventory management apply to both B2B and B2C, the specific KPIs may differ. B2B companies may focus more on metrics like Lead Time and Order Cycle Time, while B2C businesses often prioritize Sell-through Rate and Stock Availability. Tailor your KPIs to the specifics of your sales model and customer needs.

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Q10. How can I improve inventory forecasting with KPIs?

To improve your inventory forecasting, focus on KPIs like Demand Forecast Accuracy and Reorder Point. These metrics help fine-tune your forecasting process, ensuring that your predictions align more closely with actual sales and seasonal trends. Better forecasting leads to more accurate stock levels, reducing the risk of both stockouts and overstocking.