Inventory Management: Stay On Top of the Metrics

For example, a category representing 10 percent of the items offered that generates 10 percent of the demand would have a performance factor of 1.0. Greater than 1.0 is good. Any performance factor less than 1.0 should be looked at for potential improvement.

Using the same concept, compare the percentage of space allocated to the demand generated. For example, this same category (10 percent of the items offered, 10 percent of the demand generated), which has 10 percent of the allocated space, would have a space performance index of 1.0. That’s 10 percent of the demand divided by 10 percent of the space.