Inventory ties up the largest amount of working capital for most omnichannel organizations and typically represents one of the largest costs of goods sold. Thus, it presents a strategic opportunity for retailers to make business improvements that drive significant and far-reaching results across the organization.
When an organization has inventory optimized, out-of-stocks and excessively slow-moving inventory are minimized, which means markdowns are reduced, carrying costs are minimized, fulfillment speed increases and gross profit margins (GMROI) are preserved. Understanding and driving key metrics is required to ensure the transparent and measurable communication of the current situation and budget targets.
12 Dirty Little Secrets Retailers and Manufacturers Need to Know About Inventory Optimization
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Key Performance Indicators (KPIs) Foster Inventory Optimization
A good first step to measuring inventory success is developing joint key performance indicators (KPIs) that can be used across departments and ensuring that the definitions of these KPIs are aligned and understood by all stakeholders. This enables the organization to align actions with common goals, and by speaking the same language, creating a “single version of the truth” to ensure a smoother planning process. The top key metrics utilized by respondents in the 2021 Inventory Optimization Survey include inventory turns (41 percent), financial targets (40 percent) and inventory holding and carrying costs (35 percent).
The ability to successfully manage inventory significantly impacts profitability, especially where order profitability and gross margin return on inventory investment (GMROI) are concerned. It also influences an organization’s ability to invest and grow in other areas.
For inventory management to be successful, omnichannel organizations must optimize and integrate the organization’s network, people (organization), processes and technology involved in buying, selling and distributing inventory to customers – from supplier to end customer – across physical and digital commerce and drive towards common goals. This is often achieved using a unified commerce platform.
For more information on managing your inventory successfully, download enVista’s 2021 Inventory Optimization Survey.