Metrics are measures of quantitative assessment commonly used for assessing, comparing, and tracking performance or production. Generally, a group of metrics will typically be used to build a dashboard that management or analysts review on a regular basis to maintain performance assessments, opinions, and business strategies. Show
Metrics have been used in accounting, operations, and performance analysis throughout history.
Metrics come in a wide range of varieties with industry standards and proprietary models often governing their use. Executives use them to analyze corporate finance and operational strategies. Analysts use them to form opinions and investment recommendations. Portfolio managers use metrics to guide their investing portfolios. Furthermore, project managers also find them essential in leading and managing strategic projects of all kinds. Overall, metrics refer to a wide variety of data points generated from a multitude of methods. Best practices across industries have created a common set of comprehensive metrics used in ongoing evaluations. However, individual cases and scenarios typically guide the choice of metrics used. Every business executive, analyst, portfolio manager, and the project manager has a range of data sources available to them for building and structuring their own metric analysis. This can potentially make it difficult to choose the best metrics needed for important assessments and evaluations. Generally, managers seek to build a dashboard of what has come to be known as key performance indicators (KPIs). In order to establish a useful metric, a manager must first assess its goals. From there, it is important to find the best outputs that measure the activities related to these goals. A final step is also setting goals and targets for KPI metrics that are integrated with business decisions. Academics and corporate researchers have defined many industry metrics and methods that can help shape the building of KPIs and other metric dashboards. An entire decision analysis method called applied information economics was developed by Douglas Hubbard for analyzing metrics in a variety of business applications. Other popular decision analysis methods include cost-benefit analysis, forecasting, and Monte Carlo simulation. Several businesses have also popularized certain methods that have become industry standards in many sectors. DuPont began using metrics to better their own business and in the process came up with the popular DuPont analysis which closely isolates variables involved in the return on equity (ROE) metric. GE has also commissioned a set of metrics known as Six Sigma that are commonly used today, with metrics tracked in six key areas: critical to quality; defects; process capability; variation; stable operations; and, design for Six Sigma. While there are a wide range of metrics, below are some commonly used tools: Economic Metrics
Operational Company Metrics From a comprehensive perspective, executives, industry analysts, and individual investors often look at key operational performance measures of a company, all from different perspectives. Some top-level operational metrics include measures derived from the analysis of a company’s financial statements. Key financial statement metrics include sales, earnings before interest and tax (EBIT), net income, earnings per share, margins, efficiency ratios, liquidity ratios, leverage ratios, and rates of return. Each of these metrics provides a different insight into the operational efficiency of a company. Executives use these operational metrics to make corporate decisions involving costs, labor, financing, and investing. Executives and analysts also build complex financial models to identify future growth and value prospects, integrating both economic and operational metric forecasts. There are several metrics that are key to comparing the financial position of companies against their competitors or the market overall. Two of these key comparable metrics, which are based on market value, include price-to-earnings ratio and price-to-book ratio. Portfolio Management Portfolio managers use metrics to identify investing allocations in a portfolio. All types of metrics are also used for analyzing and investing in securities that fit a specific portfolio strategy. For example, environmental, social and governance (ESG) criteria are a set of standards for a company's operations that socially conscious investors use to screen potential investments. Project Management Metrics In project management, metrics are essential in measuring project progression, output targets, and overall project success. Some of the areas where metric analysis is often needed include resources, cost, time, scope, quality, safety, and actions. Project managers have the responsibility to choose metrics that provide the best analysis and directional insight for a project. Metrics are followed in order to measure the overall progression, production, and performance.
Learn everything you need to know about tracking inventory with cycle counting, including the methods, process, frequency, steps and benefits. What Is Cycle Counting?Cycle counting is a method of checks and balances by which companies confirm physical inventory counts match their inventory records. This method involves performing a regular count and recording the adjustment of specific products. Over time, they have counted all their goods. Warehouse managers and supply chain professionals often prepare the plan for staff to audit inventory. The most efficient inventory management plans lead to minimal transaction error rates and extremely high stock record accuracy without taking away from staff's essential tasks. Regardless of whether a company uses periodic or perpetual inventory practices to track their inventory, regular cycle counting is a necessary auditing process to manage inventory counts. Video: What Is Cycle Counting?What Does Inventory Cycle Count Mean?Regardless of whether a company uses periodic or perpetual inventory practices to track their inventory, regular cycle counting is a necessary auditing process. Bill Conway, NetSuite Practice Director, Blue Horseshoe Solutions, describes the process in inventory management procedures:
What Is Inventory Accuracy in Cycle Counting?When used as a metric, inventory accuracy is either a count or a cost. Determine inventory record accuracy (IRA) by using the inventory cycle count accuracy formula.
IRA = Matched inventory / # items counted The goal of cycle counting is to identify and rectify any inventory record discrepancies. As with any process, it is helpful to understand your performance, if it is improving and how you perform compared to industry benchmarks. A common KPI for this is the IRA number. You can adapt this formula for either the number of units or a dollar total. For dollars/units, use the formula:
IRA = [ 1-the sum of the absolute variance / # the sum of the total inventory ] x 100 For example, if a physical count was 354 and the system count was 375, calculate the IRA as:
= [ [1-(21/375) x 100% A result of greater than 90% may seem reasonable, but the goal is to achieve almost 100% accuracy. Physical Inventory vs. Cycle CountingA physical inventory counts all stock in a building, usually once or twice a year. Cycle counting counts small, preselected sections of inventory multiple times a year, sometimes as often as daily. Performing only a physical inventory is a good choice for companies with minimal inventory. If you can easily count your stock without closing and inconveniencing clients, schedule and perform an annual inventory. For more information on conducting physical inventories, read NetSuite Best Practices: Annual Physical Inventory Counts.
There are a number of advantages of a cycle count over a physical count — it saves time while helping you improve inventory accuracy and deliver product reliably — and there are a number of different approaches to cycle counting. Many companies perform cycle counting in addition to an annual physical count, often a good approach for those who have a solid grasp on their inventory. How to Do Cycle CountingYou can perform cycle counting by scheduling high frequency, regular counts of sections or bays as part of everyday operations. Use inventory cycle counting methods to do counts daily and assign specific workers to particular areas. When developing a cycle counting program, first consider three main inputs:
Inventory Cycle Count PolicyAn inventory cycle counting policy specifies when to perform counts periodically to confirm inventory balances. Companies should also determine whether they will count products randomly or in a set pattern and whether they will have occasional “special” audits. Inventory Cycle Counting ProcessCompanies start inventory cycle counting to eliminate the root causes of errors. This action leads to reliable control processes. After completing a full physical inventory to correct any stock discrepancies, the company institutes a regular counting program for maintenance. TThe steps to take during a cycle count are:
Methods of Cycle CountingThe main methods for cycle counting rely on either the physical area or sales ranking. For physical area counting, review high volume items more frequently. When using sales ranking methods, based on the Pareto Principle, count the faster-moving, more expensive items more often. The Pareto Principle method, also called ABC cycle counting, assumes that 20% of the parts in a warehouse relate to 80% of the sales. These are the “A” items (“B” items account for 30% of the inventory and 15% of sales, and so forth). “A” items may be your fastest-moving SKUs or most valuable assets. Inventory control software can identify the counted as A, B or C items. You may want to count your “A” items more frequently, and “B” and “C” less regularly. You can base ABC cycle counting on other metrics such as transactions and production numbers. There are many metrics you can use to identify which items have a significant impact on your organization’s overall inventory cost. However, most software systems rely entirely or in part on ABC cycle counting, irrespective of the metrics used to identify the As, Bs and Cs. Other methods of cycle counting include:
The Frequency of Cycle Counting Methods and When to Choose EachHow often you do a cycle count depends on your company’s goals and the method you choose to use.
Inventory Cycle Counting BenefitsNo matter how good its replenishment, tracking and management systems are, organizations must do regular checks of actual inventory levels for key items. Maintaining an accurate item count can help reduce required safety stock and lower overhead costs. Because it doesn’t force companies to shut down operations and perform a full physical inventory count at once, cycle counting has become a popular inventory management strategy for companies across all industries. Other benefits include:
Cycle Counting Challenges and RisksEven the most organized of companies can have problems with inventory cycle counting. It’s easy to introduce inventory errors when dealing with multiple locations, paperwork lags and outstanding transactions. You can introduce false variances if you do not update the count in real time. Therefore, define your process, track your inventory accuracy and aspire to a high degree of accuracy. How to Increase Accuracy in Cycle CountingInventory management professionals favor cycle counting to annual inventory counts for its time and cost savings. Companies can improve accuracy by using a methodological approach that accounts for any unique business needs and human involvement. Make sure teams do the work at a time that makes sense for the business. Some businesses prefer to count at the beginning of the day, citing fresh staff. Other organizations say the end of the day is better because it does not take away from the staff’s routine jobs. Some organizations use a warehouse management system to assign counting by station, so staff never have to leave their station to perform their counts. More ways to sharpen accuracy include:
Inventory Cycle Counting Best PracticesIrrespective of your inventory auditing method, its performance should be systematic and part of regular business operations. Each organization should also decide the interval for counting based on its stock’s specifics. Cycle counting best practices include:
Automation in Cycle CountingUsing automation in your cycle counting process can improve the accuracy of your results. Automation also lowers labor costs, boosts worker productivity, provides trust in your stock levels and enables real-time visibility as your inventory changes. Thanks to technology, the cycle counting process has become easier, less intrusive and requires even less manpower. By replacing Excel spreadsheets or other manual inventory control systems with inventory control software, companies can more efficiently track their stock — all while reducing human error and saving time, money and valuable man-hours.
See how 2Pure Ltd streamlined its inventory management, showing inventory details right down to the bin location, with NetSuite ERP. How NetSuite Helps with Inventory Cycle CountingNetSuite’s Inventory Count feature improves inventory tracking and provides increased control over key assets. With this feature, firms can categorize inventory based on the volume of transactions and/or value, and enter regular periodic counts of on-hand item quantities to maintain inventory accuracy. With its standard functionality, NetSuite not only helps you gain better control of your inventory, but takes it a step further by extending those activities to its warehouse management solution and mobile radio frequency (RF) devices. With the mobile app, users can scan bins and items, automatically recording the cycle counts without leaving the floor. This makes auditing inventory less intrusive to daily work and reduces manual errors due to incorrect keying and lag time. By implementing a cycle counting strategy that’s supported by inventory management software, companies get more accurate inventory levels; automatic prompts for items that need to be counted; the ability to categorize items based on volumes or value; improved quality assurance; and higher customer satisfaction rates. Learn more about cycle counting in our inventory management solution. Cycle Counting FAQsWhat is the purpose of cycle counting? What are the types of cycle counting? What is cycle count in WMS? What is cycle count in retail? When should cycle counting be performed? |