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How to calculate Inventory Efficiency?

Gross and Net Efficiency

In a perfect world, you produce exactly the demand and receive exactly the quantity that you need. Gross Efficiency calculation is based on these conditions.
In the real world:

  • Minimum Order Quantities or at least Packaging Quantities from your supplier or to your customers;
  • Production Batch Quantities in order to trigger production;

have to be respected.

These constrainsts are taken into account in the Net Efficiency calculation. In most cases, Net Efficiency is lower than Gross Efficiency. The Net Efficiency measures the ratio between the current inventory and the Optimum Inventory Needed based on these constrainsts.

What is the required mandatory data?

Few data are required to measure Inventory Efficiency:

  • list of references analysed, their standard cost, inventory (if you know the in-house and the in-transit inventory, it is a plus);
  • list of suppliers/customers for these references, their transit time (if you own the material during transportation, you have to include it in the in-transit inventory), the time between 2 deliveries;
  • the supplier/customer of each reference.

Other optional data can be used to help you to consolidate, filter or correct results.

How to use Inventory Efficiency results? Standard analysis to highlight main levers of inventory reduction.

Inventory Efficiency Tool Excel spreadsheet to calculate Inventory Efficiency.

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