In manufacturing, inventory is more than storage. It is a combination of capital, production readiness, and customer satisfaction. However, many manufacturers lack an effective system for managing their inventory. They either overstock to tie up capital or understock, which can cause production delays.
How do you find the perfect fit?
This is when Inventory KPIs (key performance indicators) come into play. Inventory KPIs enable you to measure, manage, and optimize inventory through data-driven decision-making.
In this blog, we have outlined the 10 essential inventory KPIs that you should track to ensure operations remain lean, efficient, and dependable, resulting in on-time deliveries.
Key Inventory KPIs to Monitor in Manufacturing
1. Inventory Turnover Ratio
The Inventory turnover ratio indicates how quickly you are using or selling your inventory within a given period. A higher turnover ratio indicates that you have good material flow through your system. A lower turnover ratio can result from excess stock due to overstocking or slow-moving inventory.
👉 Track this easily with ManufApp’s Inventory Management Module.
Example: If your average inventory is ₹10 lakh and your annual cost of goods sold (COGS) is ₹50 lakh, your turnover ratio is 5. It’s a good pace. Excess or outdated inventory may be indicated by a ratio less than 2.
2. Cycle Count Accuracy
Cycle count accuracy measures the consistency between the amount of stock recorded by your system and the actual quantity on hand. This KPI indicates the trustworthiness of your inventory information, which in turn influences how you plan and order for the future.
Example: If your software indicates that you have 120 fasteners, but the actual stock count is 100, that is a problem. Having inaccurate stock will inevitably lead to missing production deadlines.
3. Stockout Rate
The stockout rate indicates the frequency with which inventory items are unavailable when needed. Regular stockouts reduce customer satisfaction, delay dispatch, and interfere with production.
Example: Consider the scenario where you run out of MIG welding wire in the middle of a shift. A slight delay like this can halt fabrication and lower production.
4. Inventory Carrying Cost
This KPI helps a company understand the cost of holding inventory that remains unsold. It will include storage, insurance, depreciation, and even opportunity costs.
Example: You are sitting on ₹20 lakh worth of raw material and have an annual carrying cost of 18%. That is ₹3.6 lakh you are wasting on carrying costs of the raw material, which is famous for having excess stock. By simply reducing excess inventory, you can make a significant positive impact on your cash flow.
- Average Inventory Value
The average inventory value tells you how much of your capital is permanently tied up in stock. It will be helpful for comparison with sales, working capital, and turnover, among other metrics.
Example: If your monthly inventory is ₹14 lakh to ₹16 lakh, then your average is ₹15 lakh. Monitoring this metric will help you determine if you’re over-investing in your material.
6. Days of Inventory on Hand (DOH)
Shows how many days your inventory will last, based on current usage, leaving your buffer in place without resulting in an overstocked condition.
Example: If you use ₹1 lakh worth of raw materials per day and have ₹7 lakh worth of inventory, you have a seven-day supply. This could be efficient and practical — but risky if your lead times are too long.
7. Dead Stock Percentage
Dead stock is defined as any items that have not moved in a long time, typically a duration of three or four months or more. Deadstock occupies space and capital but creates no value.
Example: A fabrication unit still has ₹2 lakh worth of brackets that were ordered for a project that was subsequently discontinued. In this case, identifying and disposing of dead stock enhances the ability to utilize warehouse space effectively.
8. Return Rate (based on Inventory issues)
This performance indicator measures the percentage of returns that were caused by an inventory issue, such as receiving the wrong item, incorrect quantity, or damaged goods.
Example: A customer returns an entire order because, instead of receiving the requested 8mm steel plates, they received 10mm steel plates. This is not just a loss. It is now a loss of reputation.
9. Perfect Order Rate
This helps you better understand the level of orders with no errors (orders are received on time, in full, and without mistakes). This is a good indicator of the accuracy of your inventory and reporting.
Example: If you had dispatches of 100 last month and 93 reached your customers, that was complete and on time. Then your perfect order rate is 93%, which is excellent, but there is still room for improvement.
10. Backorder Rate
The backorder rate measures the percentage of customer or production orders delayed due to inventory shortages. The backorder rate is a useful KPI to recognize deficiencies in forecasting or reorder planning.
Example: If 10 out of 100 orders in a week go on hold due to missing parts or components, then your backorder rate is 10%. This indicates that you have a problem with your replenishment cycle.
Understanding the Importance of Inventory KPIs
Measuring these KPIs provides you with more than just figures — it provides you with control.
With the proper inventory KPIs, you can:
- Reduce overstock and free up working capital
- Avoid production downtime due to shortages
- Eliminate last-minute procurement stress
- Maximize warehouse space
- Improve delivery performance and customer satisfaction
Using ManufApp to Measure These KPIs in Real Time
ManufApp stands out from the competition because manually tracking inventory-level metrics is laborious and prone to mistakes.
ManufApp’s Inventory Management System allows you to:
- Get live inventory levels by item, location, or batch
- Set up alerts for low stock or stockouts
- Track dead stock and reorder levels
- View all your key inventory KPIs on interactive dashboards
- Access purchase and production views in real time
If you’re managing raw material inward, WIP, or finished goods — ManufApp can help you account for every step.
Make your Inventory work smarter, not harder.
Book a free demo today to discover how ManufApp helps manufacturers like yours achieve real-time inventory visibility.
