Businesswoman sitting at table with laptop  inventory management for specialty retailers

When optimizing your inventory, you rely on accurate data and reporting to make informed decisions. Sales counts and inventory turnover rates indicate customer demand, but some of the most important reports are often neglected. These are advanced inventory management reports that focus primarily on vendor performance.

Understanding vendor performance will help you fulfill customer demand and improve the overall customer experience. The changing retail landscape requires this, or else you may lose ground to your competitors.

Balancing Customer Expectations and Vendor Performance

Having the right amount of inventory on hand is crucial for any specialty retailer. But knowing how much to have on hand is determined by customer demand and expectations. Plus, more on-hand inventory ties up cash and decreases margins. Striking a balance means understanding your customers’ expectations and how well your vendors can perform.

Consumers have high expectations when it comes to fulfilling their orders. Most want their purchases within three days or less. They also believe that open communication is essential for a positive delivery experience. Vendor performance and relationships play a big role in meeting those expectations.

Understanding Vendor Performance

The flow of physical goods depends upon a variety of logistical concerns that involve information, communication, and product availability. All of these require data and robust reporting from your inventory management system to get a better picture of your vendor’s performance. Each of the metrics below can help you address those logistical concerns and optimize your inventory.

1. Backorder Rate

The backorder rate is a percentage of orders that will be delivered at a later date. Simply take the number of undelivered orders (typically marked as back order) and divide it by the total number of orders (then multiply by 100). You can do this for individual products, categories, or across all products for a particular vendor. A high backorder rate negatively impacts the overall customer experience and retention. Proactive vendor communication helps eliminate backorders.

2. Vendor-Managed Inventory

Running a warehouse is a balancing act of carrying costs and cash flow. You can streamline stock levels by increasing the vendor-managed inventory rate. This allows you to gain more visibility with accurate lead times when vendors take the responsibility of warehousing inventory. To calculate your rate as a percentage, take the total number of vendor stocked items and divide it by the total number stocked items (multiply by 100). To reduce costs, you can lean on your vendors to warehouse big-ticket, low-demand items.

3. Purchase Order Fulfillment

The clock is ticking with each purchase order that you send, especially if stock levels are critically low. Optimizing the rate at which your orders are fulfilled will give you a better understanding of lead times and when you should reorder. Calculating your fulfillment rates requires you to know precisely when orders are placed and when they are received. Remember, the rate is affected if the PO is only partially fulfilled. You can negotiate better lead times with your vendors when you have the data to back it up.

4. Product Returns

Customer satisfaction is key to the overall experience, so monitoring customer returns by vendor will alert you to issues with product quality and customer expectations. The rate of returns by product equals the total number of returns divided by the total number sold (multiply by 100). Any product or category that’s above 10% should be scrutinized for these issues. Gathering customer feedback during the return process will also give you a better understanding of what went wrong.

Optimizing Your Inventory

Your relationships with vendors and suppliers hold the key to growing your business. You can’t improve those relationships if you don’t know how they are performing. With the metrics described above, you can track their performance to develop strategies that improve cash flow and minimize costs by leveraging your relationship with them.