Supply chain management is a vital aspect of any business, as it covers everything starting from obtaining raw materials to delivering goods to end customers. So, in order to keep meeting customer demands, you must ensure that you keep track of your supply chain KPIs.
As per report, the global supply chain management was estimated to be around $16 billion in 2020. This is going to increase as a result of the development of international trade. Using these analytics help business owners make informed decisions to improve strategic, operational, and overall efficiency.
In this blog, we’ll delve into the top supply chain KPIs including inventory turnover, fill rate, and cash to cash cycle time. So, let’s get started on how you can choose the key metrics and enhance your supply chain operations.
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What is Supply Chain KPI?
Key performance indicator (KPI) is a reliable way to measure the performance of a particular aspect in business. A supply chain KPI is used to track the effectiveness of various processes such as logistics, inventory management, and customer service.
Getting an all-round perspective on key performance indicators allows you to take appropriate action in achieving your desired benchmarks.
If you’re occupied with supply chain problems, there are high chances that your customers will start looking elsewhere to buy items. By analyzing the right supply chain metrics, you can understand the areas of improvement and optimize operations to drive growth.
8 Supply Chain KPIs That Must Be Tracked by Your Team
Although there are a lot of supply chain metrics to track, the key KPIs will vary depending on your business goals. Here are the top 8 supply chain KPIs that can optimize your supply chain processes and improve customer satisfaction:
1. Inventory turnover
The KPI that measures the number of times your inventory is sold and replaced in a given time period is inventory turnover or inventory velocity. A high inventory velocity means that inventory is being managed efficiently and sold quickly. So, there’s an area of improvement if you are experiencing a low turnover rate.
Calculating your inventory turnover ratio regularly is a good way to maintain levels of overstocking and understocking of products. This KPI (inventory-to-sales ratio) measures how fast your inventory is sold after you buy it. You can calculate the inventory turnover ratio as below:
Inventory turnover ratio = Cost of goods sold (COGS) / Average inventory value in that period
Let’s say your inventory starts selling slowly. Then, you can come up with ideas such as applying marketing strategies or offering discounts to move it faster. So, you must track these metrics for any fluctuation in the ratio, as it helps you take the necessary steps in this KPI.
2. Customer order cycle time
This is a key supply chain performance indicator that shows the time between a customer placing an order and receiving it. It is used to analyze the efficiency of your company’s supply chain.
The customer order cycle time can be broken down into different stages as below:
- Order receipt and processing
- Order confirmation and payment
- Order fulfillment (including lead time from suppliers)
- Order delivery
It is normally calculated in the number of days format (weekends and holidays included). But this may change to hours or minutes if you provide on-demand or same-day delivery.
Customer order cycle time = actual delivery date – date of order
Longer customer order cycle times may indicate issues with supplier delivery, inventory management, logistics, or customer service. These issues can lead to lost sales, stockouts, and dissatisfied customers.
To reduce the customer order cycle time, you must find ways to make orders faster processing, start planning optimized delivery routes, improve your logistics operations, and work on refining your customer support.
3. Fill rate
One of the key KPIs to measure supply chain performance is the order fill rate. It measures the percentage of customer orders that are successfully fulfilled on the first attempt. It helps assess the effectiveness of your business’s supply chain in meeting customer demand.
The formula to calculate the fill rate:
Order fill rate = ((total number of Items – number of shipped items) / total number of items) * 100
Businesses must ensure their order fulfillment process is quick, accurate, and reliable if they want to increase fill rate.
A high fill rate indicates that the supply chain is successful in this metric and maintaining customer satisfaction levels. Whereas; a low fill rate shows that there might be issues in your inventory management and optimization methods or logistics.
The purpose of tracking this is to know if you had the product readily available when you were supposed to ship it to a customer without any delay. Your order fill rate offers detailed insights into upcoming problems so you can tackle them beforehand.
4. On-time delivery performance
Regardless of your delivery business type, you need a KPI to track your delivery drivers’ performance and on-time delivery percentage. A high delivery performance means that your supply chain is meeting customer demand. A low delivery performance points out issues related to logistics or supplier delivery that must be addressed.
You can calculate it as below:
On-time delivery = (Number of on-time orders / Total number of orders) * 100
To improve your on-time delivery metrics, you must upgrade your shipping and delivery processes. Adopting delivery management software can help you streamline your delivery related tasks and increase this percentage.
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5. Perfect order rate
This supply chain management metrics calculate the percentage of orders that are delivered on time, complete, and without damage. Perfect order rate is one of the critical supply chain KPIs that you must track. You can calculate it as below:
Perfect order rate = (Number of perfect orders / Total number of orders delivered) x 100
A higher rate means your supply chain is working smoothly to induce growth. A low perfect order rate because of delayed deliveries or damaged goods may lead to high return rates, disappointed customers, and revenue loss.
Tracking this metric can help you identify critical issues and take necessary actions for package safety. For instance, you can train your warehouse management team with best practices on material handling. Moreover, you can also train your delivery drivers and dispatch teams to make efficient deliveries.
6. Cash-to-cash cycle time
This is one of the key supply chain metrics that involves measuring the time needed to turn your resources into cash flows. The cash-to-cash cycle time analyzes the period between the time you pay to your suppliers and the time you receive cash from customers.
It involves three core ratios:
- Days of inventory (DOI) or Inventory days
- Days of payables (DOP)
- Days of receivables (DOR)
Cash-to-cash number of days = Payment date of materials – Customer’s payment date
It is better to have a shorter conversion cycle. This priceless supply chain KPI will help you ensure that you don’t use up your total supply chain costs to conduct various business operations.
To improve this KPI, you must reduce the chances of your inventory being deadstock. Excess inventory takes more time to sell, thereby halting your cash flow. To remedy this, you must adopt a proper inventory forecasting method.
7. Days sales outstanding rate
Days sales outstanding (DSO) is a KPI that measures the number of days your customers take to pay their invoices. This is crucial to track if your business charges customers through invoices that are not paid right away. You can calculate it with the formula below:
DSO rate = (Accounts receivable / Net credit sales) * Number of days
The DSO is a major factor in your business’s cash flow. A higher DSO means that you are selling products to your customers on credit, thereby stunting your cash flow. It will help you identify which customers are not making payments on time.
To improve this KPI, you must focus on refining your credit and collections processes. This includes tightening credit terms, implementing automated systems, and regularly following up on overdue accounts. It is also vital to keep tracking your DSO over time, so that you can identify a trend and take actions accordingly.
8. Carrying cost of inventory
Inventory carrying cost is a key performance indicator (KPI) that measures the cost of storing and maintaining inventory. However, the carrying cost of inventory can be decreased by effective management of supply chain assets. This includes costs such as warehouse space, insurance, taxes, labor, and administrative expenses.
The cost of carrying inventory is calculated by adding up all the costs associated with holding inventory, such as warehouse rent, insurance, taxes, labor, and administrative expenses, and dividing that by the total value of the inventory. Here is the formula:
Carrying cost = (Total carrying cost) / (Total value of inventory) * 100
Low carrying costs of inventory indicates that the supply chain is appropriately managing inventory, while a high cost of carrying points towards issues that need to be addressed.
To reduce this cost, you must keep your inventory in the right balance, increase your inventory turnover time, and have an optimal supply chain management system.
Hence, for businesses looking to enhance their supply chain performance and gain a competitive edge, picking the appropriate supply chain KPI examples is essential.
Improve Your Delivery Performance Metrics with Upper Route Planner
Now that you know how to analyze the crucial supply chain KPIs, you might want to automate your delivery route planning method. As you have so many metrics to work upon, scheduling delivery routes by adding addresses manually is a tedious task you must avoid.
Upper Route Planner is here to lower down the extra layer of burden from you and here’s how:
1. Optimizes multiple routes
If you have delivery orders across various routes, Upper has your back. You can create multi-stop delivery routes and seamlessly assign them to your delivery drivers. Moreover, you can schedule optimized routes for months in advance and relax as your packages are delivered on time.
2. Reduces manual dependencies
If you are tired of manually planning delivery routes, the best thing to do is give Upper a shot. Upper’s excellent route optimization algorithm helps find the best routes in seconds. You simply need to import addresses from your spreadsheet and let Upper optimize delivery routes for you.
3. Enhances driver performance
Whether you are running a delivery business for food or medical supplies, Upper helps you frequently or weekly analyze the drivers’ performance by generating in-detail reports. Thus, you can get help from past records to decide whether to make changes to the delivery operations or not.
4. Saves fuel expenses
Another factor in the supply chain logistics is the rising fuel prices. You can save fuel expenses by adding delivery preferences such as avoiding tolls, ferries and highways. Upper lets you assign optimized and cost-effective routes so your drivers can get going instantly.
Businesses can reduce transportation costs, lower fuel usage, and improve delivery efficiency by optimizing routes using the Upper Route Planner. Explore more about using Upper and make your last mile delivery operations automatic by signing up for a 7-day free trial today!
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Selecting the right KPIs is essential for effectively analyzing the supply chain performance for any problematic areas of improvement. By keeping track of the most relevant KPIs through the supply chain metrics dashboard, you can get actionable insights to various supply chain processes to boost performance in your business.
The KPIs relevant to your business will be based on your specific business goals and how they associate with your supply chain. You can determine your KPIs by taking appropriate measures as below:
- Identify your goals
- Understand industry benchmarks
- Consider multiple perspectives (stakeholders, suppliers, and customers)
- Track both leading and lagging indicators
- Be specific and actionable
- Test and evolve
Here are the best practices to track and analyze supply chain KPIs:
- Identify which KPIs to track
- Collect and analyze data
- Locate areas for improvement
- Implement the required changes
- Keep monitoring and reviewing KPIs regularly
Choosing the most relevant KPIs is important to track and analyze the performance of supply chains. Businesses can increase supply chain responsiveness, streamline processes, and get a leg up on the competition with the right KPIs in place. The best way to conduct an in-depth supply chain analysis and see all of your metrics under one umbrella is by getting a supply chain KPI dashboard.
Since now you know the importance of measuring these KPIs, you must upgrade your delivery route planning methods. Upper helps you get rid of manual paperwork and efficiently schedule the best routes so your delivery drivers can make faster deliveries. Sign up for a 7-day FREE trial to get Upper started.