Key Performance Indicators (KPIs)
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A Key Performance Indicator (KPI) is a measure of an organization's performance in a defined area of its business. It is a very general concept, with different KPIs being monitored depending on the type of business and goals of the organisation. Examples of KPIs may include such things as the percentage of deliveries made on time, total inventory at any given time, distribution costs as a percentage of total sales, accuracy of invoices sent to clients, or lead time for a product.
The purpose of KPIs is to give you a quantifiable measurement of things that are important to your success. Identifying the most important KPIs is the first step towards realising increased profitability and efficiency. For KPIs to be useful, they must be consistently quantifiable, have an established correlation to an area of your business in need of improvement, and not give false readings.
Here are suggestions of commonly used KPIs along with formulae for managing inventory, measuring inventory productivity, evaluating operational efficiencies, profits and growth. You may wish to adopt these and add them to your Ostendo Desktop or Workflow
Cost of Goods Sold (COGS) is an income statement figure which reflects the cost of obtaining raw materials and producing finished goods that are sold to consumers. It can be evaluated from
Beginning Inventory + Net Purchases - End Inventory
Average Inventory Cost per month is the cost average per month of your Inventory over that past 12 months. It can be evaluated from
(Beginning Inventory + End Inventory)/(2 * 12)
Inventory Turns is a ratio showing how many times a company's inventory is sold and replaced over a period. This is calculated from
Cost of Goods Sold during the past 12 months / (Average Inventory Cost per Month * 12 )
Gross Profit Margin (GM) reveals how much a company earns taking into consideration the costs incurred for producing products and/or services, and is expressed as a percentage. Gross margin is a good indication of how profitable your company is at the most fundamental level. Higher gross margins results in having more money left over to spend on other business operations, such as research and development or marketing. You can calculate this from
(Sales Revenue – Cost Of Goods Sold) / Sales Revenue
Days Sales Outstanding (DSO). You should attempt to shorten your cash conversion cycle by measuring DSO. It measures the average number of days taken to collect revenue after a sale has been made. A low DSO number means that it takes fewer days to collect accounts receivable. A high DSO number shows that you are selling your products to customers on credit and taking longer to collect money. Therefore a decrease in DSO represents an improvement whereas an increase indicates deterioration.
Account Receivable / (Net Sales / 365)
Displaying KPI's in Ostendo
Ostendo not only facilitates creating and maintaining Statistics and KPIs but also allows you to display these in Ostendo's Desktop. To see this in action we will create ongoing statistics of POS sales by doing the following
Save the entry and exit out to the main Ostendo Screen. You will see the POS Statistics displayed on the Ostendo desktop. These will automatically be updated every 5 minutes.