The supply chain is at the heart of the logistics business. Each of its parts should be as efficient and optimized as possible, and there is only one way to conclude whether your supply chain meets these two criteria. That is careful research, measurement, and analysis of each of its stages with the business’s goals in mind.
In this article, we will share the leading supply chain performance metrics that will help you gain insight into your business’s improvement and optimization.
What is a KPI and Why Is It Important
KPI refers to a Key Performance Indicator and is a way to evaluate any business activity’s effectiveness. Your supply chain is also eligible to be analyzed and measured with the help of SCM metrics. Why is supply chain KPIs analysis important? There are several reasons.
- It allows you to realistically evaluate the effectiveness of all the elements of your supply chain with the help of mathematical expressions instead of suggestions and expectations.
- It allows you to find your weak points and develop strategies to strengthen them.
- KPIs and other data analysis open up new ways to improve your business, optimize business processes, cut unnecessary costs, and find better solutions within your supply chain.
Main KPIs & Metrics For Supply Chain Management to Boost Your Logistics
Let’s take a look at the key performance indicators of your supply chain.
An important point! Each business has individual goals that can be linked to different performance indicators. Think about your objectives before analyzing your supply chain. You need to choose, track, and improve the most critical metrics that directly impact your business development. A qualitative analysis of the five most crucial performance metrics in supply chain management will be more effective than a twenty-five point cursory analysis. What is more, the most critical metrics for your business are better to track with the help of a custom solution created by a supply chain software development company.
1. Cash to Cash Cycle Time
The essence of this metric is clear from its name. It is the time between the date you purchased goods from your supplier and the date you received money from your customers for the final product. Logically, the less time this process takes, the more efficient your supply chain and business as a whole is, since you get the opportunity to reinvest profits as fast as possible.
How to improve this indicator? The business reality is that suppliers and customers do not always pay on time. If you already have well-established relationships, it makes no sense to look for new suppliers or attract new customers. It would be better to analyze other indicators to increase efficiency in other areas of the business.
2. Customer Order Time Cycle
This metric is a good indicator of your clients’ satisfaction with your work. This indicator refers to the time that elapses from placing an order until the customer receives it. Less time equals more satisfaction and vice versa.
How to improve this indicator? For example, you can use vessel fleet management software that will allow you to plan the drivers’ routes wisely, covering as much area as possible while saving time and fuel.
3. Fill Rate
This metric indicates the percentage of orders that contain all the goods specified by the customer. Ideally, 100 percent of your orders should be fully-filled. A smaller indicator is a reason to reconsider your approach to warehouse planning.
How to improve this indicator? A modern way to improve this metric is to change the warehouse’s approach for storing goods by analyzing user insights in advance. For example, using AI, you can understand trends, such as which products and what quantities are in greatest demand at a particular time.
4. Supply Chain Cycle Time
This metric must be kept to a minimum for your supply chain and customer relationships to be truly effective. This figure means the time you need to complete an order if your inventory is zero. In other words, the time during which you can complete an order from the very beginning of your chain.
How to improve this indicator? Unfortunately, the speed of your suppliers is beyond your control. However, to indirectly improve this indicator, you can start by optimizing the order processing or delivery times, focusing on other supply chain management metrics.
5. Inventory Days of Supply
This is one of the controversial metrics used to measure supply chain performance, but you still need to track it. It refers to the number of days before your inventory will run out entirely. However, it is logical to assume that with the same quantity of goods in the warehouse, your customers can redeem it both in a week and a month.
How to improve this indicator? This is the case when it is necessary to maintain an optimal balance to be able to provide customers with the goods needed without creating a surplus, especially when it comes to perishable products. Analyzing trends, supply, and demand, as well as subtle patterns and factors using artificial intelligence, will also be useful in this case.
6. On-Time Shipping Rate
Everyone wants to get ordered goods on time. Optimally, this supply chain KPI should be 100%. It is calculated as an amount of on-time delivered shippings divided into the total number of shippings and multiplied by 100%.
How to improve this indicator? The possibility of delivering the order on time depends on various factors. So, you need to research more in-depth to get to the core and find out why some of your shipments are delayed. Possible reasons are improper route planning, the lack of vehicles and drivers, or your suppliers’ delays.
7. Inventory Velocity
This is a predictive indicator that forecasts the amount of inventory that will be ordered and consumed during the next period (for example, during the next season or the holidays). As a rule, the previous periods’ data are taken into account, and the supply chain managers make suggestions accordingly.
How to improve this indicator? You may utilize AI-powered tools for demand/supply prediction and price optimization. These data-driven insights will allow you to get accurate suggestions and develop smarter strategies for supply chain improvement.
8. Perfect Order Rate
This is one more of the supply chain indicators that should be as high as possible. What is more, you may come up with your own statements of what your perfect order is. For example, you may take 100%-filled and delivered on time orders into account. In this case, your ideal order rate will be calculated as an amount of 100%-filled and on-time delivered orders divided into the total amount of orders and multiplied by 100%. An 80% perfect order rate is a good outcome in real life since some factors are beyond your control.
How to improve this indicator? Start from finding the weak points in your delivery process and eliminate them one by one.
Analyzing your supply chain means dealing with a lot of incoming data. It is one reason why it is essential to focus on a few crucial supply chain metrics without spraying your attention on things that may be out of your control. Plus, it’s impossible to work with data truly efficiently without dedicated analytics, visualization, and reporting applications.
Since every company strives to achieve specific goals, custom software makes a lot of sense. Partnering with an experienced supply chain software development company will allow you to create a business-specific solution for your supply chain management, fleet automation, route planning, and analytics, reporting, and advanced logistics strategies development.