As an eCommerce entrepreneur, all your focus is on sales, your customers, and your product range. While stock management may not be top of your list of priorities, good stock management can improve your cash and profit when you make it a part of your day to day routine.
It’s likely that you already have a good understanding of your inventory carrying costs. Keep track of the invoices and look out for areas where you can reduce the payable amount. Look into negotiating better contracts or improve your internal processes in stock handling and ordering.
However, some issues are not directly visible in this accounting approach. To get visibility into the capital locked up in inventory and avoidable costs caused by incorrect stock levels, you need to design the right tools to make the potential issues visible and improvements measurable.
From a high level perspective you want to fulfill all customers orders, at lowest cost and lowest inventory. With these 3 core elements, you will track the overall performance of your supply chain. However, when it comes to breaking this down into operational and measurable metrics, there is no single solution that fits all. The right choice of metrics depend on your business strategy and what you want to focus on. You have to set up your individual dashboard. Picking the right KPIs to track has an incredible impact on your success and initiate actions to improve your supply chain performance.
The inventory management dashboard will take a high level perspective, but the crucial insights will always come on the item level. At the end of the day, stock management always done on the item level, measuring Stock Keeping Unit (SKU) by SKU. After all, when you’re negotiating with your suppliers, you’ll be looking at the order quantities of individual SKUs.
Before getting into the individual metrics, it is helpful to group them by the direction of where an action need to be taken to improve the performance. The inventory management dashboard will cover the following three groups:
The customer centric metrics measure how the customer perceives your service. Are you a reliable distributor or supplier to them? How responsive are you? The most widely used metrics are:
The supplier assessment is a complete topic on its own and it is crucial to your own performance as distributor or wholesaler. When you’re trying to figure out which suppliers are contributing most to your business, you should set up a supplier assessment tool that combines information from several sources. One very important assessment is the quality of their services. You can use this for internal improvements, but also for the negotiation with them. Having a comprehensive track record of your suppliers will enable you assess their performance, and this puts you in a stronger position for the next negotiation round. Common supplier metrics are all about measuring the reliability of the supplier’s delivery like:
The most important thing for you is to assess the suppliers and watching out for any deterioration of the quality of their service and the products. Even if the deviations are minor, you should track them. You may find out that certain suppliers are deviating only slightly but consistently from your requests. Even if you can handle these deviations, it is an additional effort and should be avoided. Ideally, you should have a penalty scheme in place. In any case, you can use these quality lapses in the next negotiation round.
Finally there is the 3rd set of KPIs that measures your internal performance. Even if your customers are completely happy with your 100% fill rate and all your suppliers deliver with perfect precision, your internal process and organization can result in profits or losses without affecting your customers or suppliers. For a start, looking at the amount of capital locked-up in your inventory and how long you keep your stock in the warehouse before it is sold can make a difference to your business. Typical examples are:
After deciding on the metrics for your business, you need to review these regularly and schedule deep dives into individual SKUs and suppliers. By being proactive, you’ll be able to stay ahead of the issues instead of only reacting to inventory issues when they occur.
Thorsten Ohm is a cofounder of Waypoint Ventures. He has 20 years of international experiences spanning across many geographies, where he has set-up organisations and developed businesses. As a senior corporate executive and a board member he is experienced in growing businesses organically and via M&A. Waypoint Ventures helps companies to accelerate their growth, improve their performance, and enter new businesses or markets.
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