Performance tracking is philosophy of continuously improving your system by monitoring the key indicators that define your organization’s overall wellbeing. Basically for the indicators that bear importance some data are collected. Their performance is tracked with respect to a metric. Based on the results using the metric at hand performance issues are detected. After diagnosing the problems, some healing solutions are offered and the problems are fixed.
For inventory management there are financial measures and quality measures. Financial performance measures are Inventory Turns or Inventory Days of Sales (DOS) and Gross Margin Return on Inventory (GMROI). DOS measures how cost-efficient your inventory management is and higher inventory turns (lower DOS) are better. GMROI measures how much money company is making on its own inventory investment. Quality performance measures are stock-out percentage, service level, line-item fill rate, perfect order percentage, inventory accuracy, and forecast accuracy.
Planning should focus on performance measures that influence or control Turns or DOS, Stock-out or Service Level, Forecast Error. By focusing on these key performance metrics, it becomes more accurate to set optimal inventory targets, optimal service level targets and forecasting processes are improved.
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