When 3PLs fulfill multiple orders, they can lose track of their stock levels. 28% of 3PLs admit they manage their inventory reactively, leading to misplaced records, shrinkage, and revenue loss.
This is where Key Performance Indicators (KPIs) can help. KPIs give you clear data on inventory accuracy that, used intelligently, will lead to higher margins for your 3PL.
In this article, we’ll discuss 20 important inventory management KPIs you must know to measure your warehouse operations, and how warehouse management systems (WMS) can automate reporting.
What are 3PL Inventory Management KPIs and Why do They Matter?
Key performance indicators are measurable statistics on warehouse performance and productivity to help you make data-driven decisions and meet specific goals. In inventory management, these metrics include measuring inventory stock levels, turnover rate, fulfillment rate, labor costs, and productivity.
Inventory management now accounts for $759 billion of the $2.3 trillion spent on business logistics, making up one-third of total costs. KPIs help you design a structured framework to monitor real-time stock levels, optimize storage layouts, and control labor costs. They balance your supply with demand, reduce waste, improve order accuracy, and meet client expectations.
20 Inventory Management KPIs for 3PLs
Here are 20 essential inventory metrics you need to track:
1. Inventory Accuracy Rate
The inventory accuracy rate measures how well-recorded stock levels in your inventory system match actual physical inventory.
Why it matters: This metric helps avoid stockouts, overstocking, and fulfillment errors. A high accuracy rate (95%+) means your recorded stock closely matches the actual inventory.
Formula:
Inventory Accuracy Rate = (Physically Counted Stock/Recorded Stock) × 100
2. Inventory Turnover Rate
The inventory turnover rate measures how many times your inventory is sold and replaced within a specific period (usually a year). It’s a statistical representation of how well you manage stock and meet client demands.
Why it matters: A low turnover rate may indicate overstocking, slow-moving inventory, or weak demand.
Formula:
Inventory Turnover Rate = Cost of Goods Sold (COGS)/Average Inventory
Note:
- Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2
- COGS = Total cost of goods sold in the period.
3. Available-to-Promise (ATP) Inventory
ATP inventory tracks your available stock for new orders after fulfilling current orders. It considers incoming supply, existing orders, and lead times to prevent overselling.
Why it matters: This metric helps you manage order commitments accurately while optimizing inventory turnover.
Formula:
ATP = On-hand Inventory + Planned Receipts − Committed Customer Orders
4. Dead Stock Ratio
Dead stock ratio measures the percentage of inventory unsold for an extended period (e.g., 12 months).
Why it matters: This metric helps you free up space, reduce wasted capital, cut storage costs, improve purchasing decisions, and speed up warehouse operations.
Formula:
Dead Stock Ratio = (Unsold Stock Over Time/Total Inventory) x 100
5. Stock-to-Sales Ratio
Stock-to-sales ratio measures how much inventory you have compared to sales you made in a given period.
Why it matters: This metric helps you keep enough stock without overstocking. Too much ratio means high storage costs, while too little means you risk stockouts.
Formula:
Stock to Sales Ratio = Inventory Value/Sales Value
6. Holding Costs
Holding costs measure the total cost of storing unsold inventory, including warehousing, insurance, depreciation, and labor. High holding costs reduce profit margins and tie up capital.
Did you know? North America had the highest median inventory holding (over $4.6M) in 2024, but this is 9% lower than in 2023 as SMBs reduced inventory value to control storage costs.
Why it matters: Holding costs helps you reduce excess inventory while maintaining enough stock to meet demand. It’s a critical metric for cutting avoidable storage and maintenance costs.
Formula:
Holding Costs = Storage Costs + Insurance + Depreciation + Opportunity Costs
7. Fill Rate
Fill rate is a key metric to measure the percentage of customer orders shipped on time and in full.
Why it matters: This metric shows how reliably you fulfill orders on time. A low fill rate leads to backorders and delays, while a high fill rate keeps orders moving and customers happy.
Formula:
Fill Rate = (Total Orders Shipped in Full/Total Orders Placed) x 100
8. Perfect Order Rate
A low perfect order rate indicates frequent shipment errors, delays, or damaged goods, leading to lost contracts. This metric also gives your clients a data-backed view of your fulfillment performance (on-time delivery, accuracy, and condition of shipments).
Why it matters: A high perfect order rate makes sure customers receive the correct products on time and in good condition, reducing returns, complaints, and lost revenue.
Formula:
Perfect Order Rate = (Error-free Orders/Total Orders) x 100
9. Days on Hand or Inventory Holding Period
Days on hand is a time metric that measures how long your inventory sits in storage before being sold or used.
Why it matters: High DOH means you’re holding too much inventory and paying for extra storage.
Formula:
Days on Hand = (Average Inventory/Cost of Goods Sold) x 365
10. Time to Receive Inventory
The time to receive inventory metric tells you how long it takes to process and store inventory after it arrives at your warehouse.
Why it matters: If your receiving time is too long, orders pile up, labor costs rise, and shipments get delayed.
Formula:
Time to Receive = Receiving Completion Time − Shipment Arrival Time
11. Put Away Time
Put-away time is a key metric that determines how long it takes to store received inventory in its designated location.
Why it matters: A slow putaway process means you need to optimize your workflows, improve space planning, or hire more labor.
Formula:
Put Away Time = Time Inventory is Stored − Time Inventory is Received
12. Carrying Cost of Inventory
The carrying cost of inventory is a cost metric that measures how much you spend storing unsold inventory, including storage, insurance, and depreciation.
Why it matters: It helps you set storage fees, optimize turnover rates, and justify long-term pricing in contracts.
Formula:
Carrying Cost (%) = (Total Carrying Cost/Total Inventory Value) x 100
13. Labor Cost per Order
Labor cost per order calculates the total costs associated with processing and fulfilling a single order, including warehouse staff wages, packing, and handling costs.
Why it matters: This metric helps you optimize workforce productivity, reduce fulfillment costs, and set competitive pricing for single-item order processing services.
Formula:
Labor Cost per Order = Total Labor Costs/Total Orders Processed
14. Order Cycle Time
Order Cycle Time measures how long it takes from when a customer places an order to when it’s delivered. If you’re not tracking your order cycle time, you could risk losing customers.
Why it matters: Shorter cycle times improve customer satisfaction, picking and packing operations, and supply chain responsiveness.
Formula:
Order Cycle Time = (Order Delivery Date – Order Placement Date) / Total Orders
15. Backorder Rate
The backorder rate measures the percentage of orders that can’t be fulfilled immediately due to stock shortages. It also helps clients track their stock levels and supply chain disruptions before they impact order fulfillment.
Why it matters: A high backorder rate indicates poor demand forecasting, supplier delays, or inventory mismanagement.
Formula:
Backorder Rate (%) = (Backordered Orders/Total Orders) x 100
16. Forecast Demand Accuracy
Forecast demand accuracy tells you how well your inventory predictions align with actual sales, helping prevent overstocking or stockouts.
Why it matters: Inaccurate forecasts lead to excess inventory costs or lost sales. High accuracy improves cash flow and customer satisfaction.
Formula:
Forecast Accuracy (%) = (1 – |Forecast Demand – Actual Demand| / Actual Demand) x 100
17. Inventory Shrinkage
Inventory shrinkage tracks the percentage of stock lost due to theft, damage, miscounts, or supplier fraud.
Why it matters: This metric helps you identify weaknesses in security, process control, and supplier reliability.
Formula:
Inventory Shrinkage (%) = (Recorded Inventory – Actual Inventory/Recorded Inventory) x 100
18. Supplier Quality Index (SQI)
Supplier Quality Index (SQI) evaluates supplier performance based on defect rates, on-time deliveries, and compliance with quality standards.
Why it matters: Poor supplier quality leads to delays, returns, and damaged client relationships. A strong SQI ensures reliable fulfillment and smooth operations.
Formula:
SQI = (Weighted Score of Quality Metrics/Total Possible Score) x 100
19. Gross Margin Return on Investment (GMROI)
GMROI measures how well your inventory generates profit by comparing gross margin to inventory costs.
Why it matters: This helps you evaluate whether stored inventory is worth the space and handling costs. A high GMROI means you’re making more profit per dollar spent on inventory.
Formula:
GMROI = Gross Margin/Average Inventory Cost
20. Customer Satisfaction Score (CSAT)
CSAT quantifies customer satisfaction based on direct feedback, usually collected through post-purchase surveys. It reflects how well your services, such as delivery speed, accuracy, and handling, meet your customer expectations.
Why it matters: In logistics, delayed deliveries, damaged goods, or poor service directly impact your customer retention. Tracking CSAT helps you identify areas for improvement and keeps clients happy.
Formula:
CSAT (%) = (Positive Responses/Total Responses) x 100
How the scale is calculated:
- Customers rate their satisfaction on a 1–5 or 1–10 scale.
- Only positive responses (often 4–5 on a 5-point scale or 7–10 on a 10-point scale) are counted in the formula.
- The final percentage represents the proportion of satisfied customers.
How to Choose the Right KPIs
Tim Brindley, a Supply Chain Consulting expert says: “The more a 3PL provides detailed performance metrics…the more you start providing a real look at productivity at the operational level.”
Here are 5 best practices to choose the right KPIs to track:
1. Align KPIs with Business Goals
Your warehouse needs KPIs that match your goals, inventory type, and client demands. For example, if your goal is to reduce excess stock, track the Inventory Turnover Rate and Dead Stock Ratio.
2. Use SMART Goals
You can use the SMART framework to align your inventory management KPIs:
- Specific: Choose KPIs that directly address your key inventory challenges such as inventory accuracy, picking errors, or storage space costs.
- Measurable: Choose KPIs simple and easy to track.
- Achievable: Set realistic targets based on your warehouse’s size, order volume, and operational capacity.
- Relevant: Focus on KPIs directly impacting your performance, profitability, and customer satisfaction.
- Time-bound: Define a clear timeframe to evaluate your KPI performance and make necessary adjustments.
3. Categorize KPIs by Key Operational Areas
Organize KPIs based on your operational areas and what you need to track:
- Inventory Accuracy & Tracking: Inventory Accuracy Rate, Available-to-Promise Inventory
- Order Fulfillment: Fill Rate, Perfect Order Rate
- Stock Tracking: Inventory Turnover Ratio, Days on Hand
- Warehouse Operations: Time to Receive Inventory, Put Away Time
- Cost & Profitability: Carrying Cost of Inventory, GMROI
4. Prioritize Real-time Visibility and Data Accuracy
According to the NTTData study, 57% of 3PLs face data quality issues. You need cloud-based solutions like WMS software to provide real-time visibility and data accuracy.
For example, Da Vinci’s WMS uses algorithms to provide real-time stock insights to help you implement the right KPIs. Our software’s real-time data-sharing capabilities give your customers transparency and accuracy in inventory management.
5. Enable Cross-Team Collaboration
Work with key teams like marketing, sales, and customer service to choose KPIs that reflect real inventory performance.
Instead of waiting for quarterly reports, review key inventory management KPIs monthly with all stakeholders to monitor fill rates, order accuracy, and inventory turnover.
How a Warehouse Management System Helps You Track KPIs
A warehouse management system (WMS) eliminates guesswork from inventory tracking. Instead of manually updating spreadsheets or relying on outdated reports, a WMS gives you real-time data on inventory movement, storage, and fulfillment.
Here’s how Da Vinci’s WMS helps 3PLs monitor and improve key KPIs:
1. Real-Time Inventory Tracking
Instead of scrambling to reconcile stock discrepancies, you get live updates on inventory levels as items move in and out of your warehouse. This helps maintain a high inventory accuracy rate and prevents stockouts or misplaced inventory.
2. Order Fulfillment and Accuracy
- Picking path optimization: Assigns high-demand products closer to picking zones to reduce travel time and speed up order processing.
- Cart picking and wave picking: Enables warehouse staff to pick multiple orders in a single trip, reducing labor costs per order.
- Directed putaway: Guides staff to store inventory in the most efficient locations, improving putaway time and preventing misplaced items.
These features directly impact fill rate, perfect order rate, and labor cost per order—key performance metrics for 3PLs handling high order volumes.
3. Demand Forecasting
Instead of overstocking or running out of key items, Da Vinci’s WMS analyzes past order trends to predict demand more accurately. This helps maintain an optimal stock-to-sales ratio and reduces excess holding costs.
4. Visibility for Clients
Customers can log in and track real-time inventory levels, reducing the back-and-forth on stock availability. This ensures transparency in order fulfillment and builds trust with clients.
5. Cost Control and Storage Optimization
- Cartonization: Calculates the best packing configurations to reduce shipping costs.
- Cross-docking: Moves incoming shipments directly to outbound orders when possible, cutting storage time and reducing carrying costs.
These automation features help manage holding costs, order cycle time, and warehouse space utilization—critical factors in running a profitable 3PL.
Tracking inventory management KPIs manually isn’t sustainable for 3PLs managing thousands of SKUs. Da Vinci’s WMS automates tracking, improves reporting, and helps you stay ahead of demand.
See how the software works today.