Supply Chain 2018: Top Performance Metrics and How to Choose the Right Ones for Your Business
Your supply chain is an essential part of maintaining a well-functioning organization. If you have an efficient and organized warehouse, you will be better able to achieve your distribution goals and understand metrics. While you may be aware of some supply chain performance metrics to track, you may still be missing others. That’s why we are listing the top performance metrics you should know about, and how you can choose the right ones to make your business thrive.
Perhaps the most important aspect among supply chain KPIs (Key Performance Indicators) is perfect order. This aspect consists of on-time delivery, full delivery, damage free delivery, and accurate documentation. When all these components are present, the consumer does not have to deal with any problems. Therefore, your business will continue to fill orders, while the perfect order KPI tracks the overall accuracy and length of time for every shipment. There is a formula for perfect order KPI and it is the following:
Perfect Order KPI = On-Time Delivery and Shipment KPI x Complete Order Percentage x Damage-Free Percentage x Accurate Invoicing Percentage.
Order Fill Rate
The order fill rate is broken down into three aspects: order fill, line fill, and unit fill. The total order fill rate is calculated by dividing the sum of orders shipped on the first try by the sum of orders that were able to be shipped based on available inventory. Multiplying these three sub-KPI percentages together will give you the total fill rate KPI.
Order Fill Rate = Order Fill x Line Fill x Unit Fill.
Shipment & Delivery Time
To get the metrics for shipment and delivery time, you need a full understanding of the on-time KPI. The on-time delivery KPI is found by dividing the number of orders shipped and delivered by the sum of orders shipped and delivered on-time.
On-Time Delivery and Shipment KPI = Total Order Shipped and Delivered (Including the Orders Delivered Late) / Total Number of Orders Shipped and Delivered On-Time.
Cash-to-Cash Cycle Time
So far it has seemed as if KPI is a purely financial aspect, but it also reveals how efficient your operations are. The cash-to-cash cycle time is calculated by averaging the cycle time from paying for raw supplies to receiving pay for the end product by consumers. A lower KPI means higher efficiency, lower carrying costs, and improved profitability.
Customer Order Cycle Time
To ensure your warehouse is running at optimum performance, you should track cycle times. The total of this KPI refers to the time needed to properly store the product in inventory from arrival time, then ship it from the warehouse. You can record the dock-to-load time, picking, packing, and preparing for shipping times. This metric provides a good look into whether your process is performing to meet your expectations or if it needs to be improved.
This KPI measured how well your organization moves its inventory. This metric will give your organization a better idea of how efficient your supply chain is, including your buying practices and demand for products. Inventory turnover shows how often you can sell your entire inventory within a year. Moving inventory quickly is essential, as it lowers storage costs and lets you sell products at a premium price instead of relying on promotions and discounts to clear out stock.
Warehousing & Transport Costs
This calculation is comparable to storage space utilization, where you divide the total warehousing and transportation costs by the total shipped items over a specific time period. The duration may differ, which gives you the opportunity to compare average costs against past time periods. You can track costs over a week, month, quarter, or year to achieve a comparison.
How to Choose the Right Metrics
Here are a few tips for choosing the right metrics:
- Your KPIs should be easily understood without needing to study them too hard. You should be able to understand what the metric is measuring.
- Metrics should be based on an objective value or hard data.
- Always vet your metrics against your company’s needs before deploying them.
- Your KPIs should identify corrective actions and help your company make them when necessary.
- Avoid metrics that are overly time-consuming to collect. If your staff need to be taken away from other jobs to prepare data, the KPI is wasting your valuable time. There are easier ways to collect data, such as working with a third-party logistics (3PL) partner, who has the manpower necessary to tackle these tedious jobs.
- KPIs that relate to time are easy to calculate and understand, and they clearly reflect operational effectiveness. These metrics include the level of on-time deliveries, on-time receipts, time taken to process orders, and to fulfill an order.
- Cost-based metrics can help your company improve margins and your bottom line. They also identify where your business can improve.
- Your metrics should be output-based, meaning they are easily measured events or deliverables that are finite in nature. They focus on resources and capabilities of the supplier or the processes needed to provide service.
Improving Your Supply Chain Performance
Tracking the right supply chain KPIs is paramount to the success of your organization but measuring and understanding these metrics can be time-consuming and overwhelming. If you need to focus on marketing and sales, let a reliable 3PL help you improve your supply chain strategy. Lean Supply Solutions provides supply chain management and we make ourselves aware of the rising trends to help our clients maintain success. We commit to being aware of our clients’ operational challenges and help them get the most out of their processes. We can offer consistent, accurate, and quality results by striving to ensure that the right products are provided to the right customers at the right time, while saving you money, and we can help you track and understand your metrics. To learn more about outsourcing to our 3PL distribution team, or to ask any questions, contact us today.