Inventory analysis is a practical step in the inventory management process that helps a company understand how customer orders are being fulfilled and keeps inventory costs low. In this article, we would like to provide information to help your business step up inventory analytics with essential reports.
What is Inventory analytics?
Inventory is a category of assets on the balance sheet and represents the final product a company plans to sell to its customers. Inventories include products or raw materials needed to produce the goods and work in progress. Inventory analytics is a necessary and important process, helping businesses determine the right amount of inventory to meet demand and avoid spending too much on inventory storage.
Goals of Inventory analytics
Like managing other categories, inventory analytics also has goals geared toward helping businesses. The goals of this analysis include reducing costs, reducing theft, managing cash flow, and ensuring that customers have the right amount of goods to buy.
Performing analysis thanks to inventory reports, businesses will be able to keep an adequate amount of inventory to meet customer requirements, businesses will not have to invest additional costs in the number of goods and associated costs that they still have enough sales and from there the profit is increased.
Closely monitoring inventory with necessary reports will help businesses identify products that are selling well or not, so they can rearrange shelf space and utilize it to improve relationships with suppliers.
Another purpose of inventory analysis is to minimize backlogs and reduce waste. If you buy and store too much product, it can become waste as it becomes obsolete, degrades or loses value.
How to analyze inventory with essential reports?
There are many tools to help you create essential reports for inventory analytics. Today’s software can completely support the preparation of reports on the operation of warehouses and inventory. However, for the most in-depth and effective analysis, your business needs to rely on techniques or methods to analyze those reports.
First of all, businesses can analyze reports using the ABC analysis method. This is a common inventory analysis method for retail, which, based on reports, ranks inventory from highest to lowest sales and profit margin using three buckets: A, B, and C. Another analytical method is VED. This method is based on the importance of having an inventory item in stock. Manufacturing companies use this technique to evaluate the components and parts they must have on hand. Two other methods, HML Analysis and SDE Analysis, are also frequently used to analyze inventory reports.
To evaluate the effectiveness of inventory analysis, metrics are always given for calculation and comparison.
The sell-through rate allows you to measure how much of an item you sold over a period of time compared to how many items you received in stock. This KPI is very important in the retail industry and is expressed as a percentage. Inventory turnover rate is also an important metric, measuring the number of times a company has sold its average inventory during a particular period. An indicator of how well you’re managing your inventory, the formula also shows how your products are selling.
Common metrics include turnover ratio, available to promise, stock-out rate, and sell-out rate which help to aid inventory analysis with reports and suitable decisions for maximum benefit.
Inventory analysis thanks to the necessary reports, will help businesses optimize their profits and benefits. If you need assistance in preparing an inventory report, feel free to contact us.