Inventory KPIs in retail part 2

23rd January 2019

 

The other important inventory KPIs retailers use are:

Fresh stock percent

In a fashion business, fresh stock percent is an important indicator. It shows how much newness the consumer will see in the stores every time he or she goes in. The calculation is:

Fresh Stock Percent =  (Forecasted or Planned Receipts That Month / Beginning of Month Inventory) x 100

Acceptable levels of “freshness” can be maintained by planning the phasing of receipts (especially new products, new styles or new colors) in the most appropriate way.

Weeks of Supply or Weeks of Sales (WOS) is a measure widely used by the Buying Office to express how long inventory on hand will last. Often, the weeks of supply is calculated as the on hand or current inventory divided by the average rate of sale over the last n weeks, say the last 4 weeks. Sometimes the calculation will include in transit stock on its way to the store from past replenishment or allocation decisions, especially if the calculation is being used to determine the next replenishment quantity.

A better way to do the calculation is to calculate the weeks of supply using the forward sales forecast rather than the historic rate of sale. So, for example, a product that is going into its peak will have fewer weeks of supply based on the forward forecast than using the past 4 or 6 weeks of sales.

Shrinkage is measured as a % of sales. Shrink is made up of three main elements.

Internal shrink or theft by employees – whether in-store or online. This is normally the biggest part of shrinkage.External or customer shrink – this includes shoplifting and customers making fraudulent returns and this can be in-store or onlineVendor shrink (product stolen by delivery drivers)Bookkeeping or systems errorsDamage

Shrink averages 2% of sales measured at selling price or retail or roughly 1% at cost. As most retailers make pre-tax profits in the range of 2% to 7%, shrink is a high percentage of profits. In low or nil growth times, shrink assumes even higher importance as a way to protect profits, though it is always important to retailers.

Next time we will look at margin KPIs.

If you’d like to know more about these KPIs and how to calculate and interpret them check out our Retail KPIs e-learning course.

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