Today, top-performing modern organizations have recognized the importance of data-driven decisions. The best practices in supply chain management have emerged as performance analysis through monitoring, measuring, and reporting on the numbers/ data that matter the most. Supply chain KPIs are the indicators that enable your business to monitor your operational process to ensure smooth and efficient delivery of goods. Read through the blog to further get an insight into the top 10 this blog further to get an insight into the top 10 supply chain KPIs you need to measure to improve efficiencies in operations.
What is Supply Chain KPI and Why is it Important?
In general terms, Key Performance Indicators (KPIs) are the metrics used for analyzing and measuring business performance. Supply chain KPIs are the standards or benchmarks for measuring supply chain operations. Such parameters help track the inventory requirement, overstock situation, accuracy of orders, delivery cycle, and so on.
Essentially, supply chain KPIs are used for tracking order processing, order fulfilment, inventory management, and procurement management. It reveals the shortcomings in the existing operations so that you can apply a profitable strategy for improving overall performance. Further, this means that you are continuously monitoring the progress of operations against the static benchmark. The fluctuations in the predefined indicators are visible, and you can quickly respond if your performance goes in the wrong direction.
Top 10 Supply chain KPIs for Performance Measurement
If you are concerned about your company’s continued growth, you must have supply chain indicators at your fingertips. Curating and evaluating data through performance assessment might assist you in setting future objectives. These useful tools are concentrated on identifying bottlenecks and inefficiencies in supply systems. Here are the top 10 supply chain KPIs you should measure for successful supply chains.
1. Perfect Order Rate
Perfect order metrics combine different components of the order fulfilment process. The focus is on accident-free delivery that helps prevent inventory losses, manage costs, and improve customer satisfaction. The features of perfect order rate KPI include
- Damage-free Delivery: This KPI aims to calculate the number of orders that arrived in the facility in excellent condition.
- Accurate Documentation: Measures the percentage of orders that have been delivered after following proper documentation, including packaging lists, commercial invoices, and labels.
2. Cash to Cash Cycle Time
Not a strict financial ratio, but a critical supply chain KPI that determines the insights into your supply chain operations. This KPI reveals the time between paying for raw materials and the final product. A lower value will depict that your storage facility is working well because operating capital is for a shorter duration.
3. Freight Bill Accuracy
Shipping inventory items from factory to warehouse is integral for supply chain success. Even a minor error can harm cash flows and your organizational reputation. It is calculated as:
(Number of Correct Freight Bills/ Total Freight Bills) x 100
Billing accuracy is critical for profitability and helps meet customer demands by analyzing detrimental spots in operations to assist the business in growing.
4. Inventory Turnover
One of the integral logistic KPIs is inventory turnover which helps the operational manager to understand the entire time you want your inventory to be on hold. Historically, managers strongly prefer holding a minimal inventory that shows a significant effort toward maximum capital utilization.
Inventory turnover is a part of efficient production and fulfilment abilities, including marketing and sales management. Calculating appropriate shipping and comparing it with competitors can create a straightforward management practice.
5. Customer Order Cycle Time
This supply chain KPI is related to evaluating supply chain responsiveness. This calculates the period from the order received at the facility to the time taken to get the order delivered to the customer’s doorstep. An increase in cash-to-cash cycle time with less customer order cycle depicts the problem from the former side. Evaluating vital metrics, including account receivable, accounts payable and invoicing time, can help find the actual cause.
6. Reasons for Return
The most crucial supply chain KPI is determining why your customers return the products. You can present all the possible reasons in a digestible pie-chart format. For instance, you can categorize return reasons as “no longer needed”, “damaged product”, and so on to assess the changes in product strategies to boost sales.
By showcasing your primary reasons for return, you can assess your weakness and determine the improvements that will improve your business reputation and growth.
7. Supply Chain Costs
Costs are vital indicators of efficiency in supply chain management, including planning, sourcing, ordering, and shipping. It plays a critical role in identifying the spaces for improvement in reducing the surplus cost and making an upward move to profits. However, you must know what supply chain cost reductions are essential for avoiding identifiable detrimental consequences. With careful analysis, you can cut supply chain costs by making steady and healthy adjustments to operations.
8. On-time Shipping
This excellent indicator evaluates how you want your order delivered to the customer, allowing you to set a product shipping time benchmark. That is how you can optimize the shipping process and delivery times to leverage satisfaction levels. Problems in transportation and logistics continue to persist and can hinder the shipment process.
9. Delivery Time
In the fast-moving world, companies find it hard to meet customer demands in uncertain situations. The ability to deliver faster holds tremendous importance in supply chain management and greatly influences purchase decisions. This supply chain KPI is measured as the percentage of orders delivered on time or before the promised time. This makes it easier to put in the formula:
(Total number of orders delivered on time/ Total orders) x 100
This metric is required to be closely monitored and needs to be prioritized in the supply chain KPI dashboard.
10. Fill Rate
Another important metric in supply chain management is the fill rate, representing the percentage of orders that have successfully filled the shipment. This KPI can be further broken down into line fill rate, unit fill rate, order fill rate, and line item fill rate so that you can precisely identify a discrepancy in your fill rate. Further, you can recognize the exact fulfilment factor impacting customer satisfaction.
You are not doing your business right if you do not track the supply chain and logistic activities. Supply chain KPIs are crucial indicators of gauging the financial health of your business. Each of the metrics discussed is essential for organizations to maintain sustainable supply chains. Visualizing and presenting facts through economic indicators can keep you on a soundtrack of your position. It can make your organization more intelligent, stronger, and economically stable in a rapidly changing business environment.
We hope the top 10 supply chain KPIs can help you enhance your business. LOTUS Containers offers international and local support for shipping container inquiries. We offer a wide range of containers, from reefers to dry van containers. Reach out to us at www.lotus-containers.com/en/