An Ultimate Guide To Monitor Supply Chain Metrics & KPIs And Effective Ways On How To Improve Supply Chain Performance in 2022
The supply chain, an ever-evolving ecosystem that ensures that goods or services are delivered from a supplier to a client or consumer smoothly, efficiently, and consistently, is the foundation of any contemporary organization.
Your business will struggle to expand if your supply chain is disorganized, unfocused, or inefficient. Because of this, it’s crucial to carefully track and improve the essential supply chain metrics and key performance indicators(KPIs).
You may establish reliable standards for a variety of crucial procedures and actions with the aid of supply chain metrics. Additionally, by utilizing the appropriate KPIs, you may increase the productivity, intelligence, and eventually profitability of your company.
In this article, we will cover essential supply chain performance metrics that you should track for improved logistics processes also how to improve supply chain performance while maximizing the value of your business.
But first, let’s start with the basic definition.
- What are Supply Chain Metrics?
- Why are Supply Chain Performance Metrics Important?
- 18 Supply Chain Performance Metrics You Should Be Monitoring
- Delivery Time
- Cash to Cash Time Cycle
- Inventory Movement
- Gross Margin Return On Investment (GMROI)
- Absolute Order Rate
- Day’s Sales Outstanding (DSO)
- Cycle Time for the Supply Chain
- Customer Order Cycle Time
- Fill Rate
- Warehousing Costs
- Cost of Shipping per Unit
- Average delivery Time
- Cycle Time For Pick and Pack
- Ratio Of Inventory To Sales
- Inventory Velocity
- Return Ground
- Supply Chain Costs
- Supply Chain Costs vs Sales
- 4 Effective Ways To Improve Supply Chain Performance
- Utilizing WareIQ’s Services Helps Improve Supply Chain Performance
- Frequently Asked Questions
What are Supply Chain Metrics?
Supply chain metrics are developed by creating specified characteristics to quantify and characterize supply chain performance. For example, the measurements may be applied to the inventory-to-sales ratio, inventory accuracy, and turnover measures.
Supply chain metrics are essential resources at your disposal for ensuring the ongoing expansion, evolution, success, and growth of your company’s supply, fulfilment, and delivery activities. You will be able to identify inefficiencies within your ecosystem, capitalize on your present strengths, and set goals that will help your supply chain expand with the success of your business by gathering, curating, and analyzing critical supply chain metrics.
What Should You be Looking for in Supply Chain KPIs?
Even though there are many distinct metrics you may monitor and measure, you’ll often be focusing on one of three things:
Measuring how long something takes or the efficiency of a process in a time context is simple. For example, you may track lead times, the proportion of on-time deliveries, or the typical time it takes your accounts payable personnel to fulfil a purchase order.
The definition of quality can vary. But once you’ve established a baseline, it’s simple to gauge. For instance, you may track your return rate, customer satisfaction levels, or the frequency with which customers report receiving defective items.
For most of us, measuring things in terms of price is typical. But in a supply chain setting, financial supply chain KPIs go beyond the price of the products your procurement team is sourcing. For example, you may track your cash flow, expenditures associated with your inventory levels, cost of products sold to excess inventory on hand, and many other things.
How to Define Effective Supply Chain KPIs?
A decent performance metric is to improve your supply chain performance. Therefore, all of your KPIs should be:
Simple To Comprehend
Your manager and the procurement team should be able to grasp your measurement goals and the data’s implications.
Measuring something has little value if you can’t quantify it with a number or another metric.
Metrics That Matters To You
What significant metrics can you utilize to enhance your supply chain? Try to resist being sucked into data analysis just for the sake of it. Instead, analyze and focus on metrics important for your business from the growth point of view.
Directive To Improve Supply Chain Performance
The best KPIs clarify what action you need to take, which is a directive toward optimal practice. However, it would help if you ensured that improving one area doesn’t harm another. For instance, you could desire to shorten lead times, but could this affect the accuracy of your deliveries or the calibre of your goods? Ensure that your goal metrics are interconnected so you can constantly see the effects of your activities.
Convenient To Collect
Simple metrics are the best ones to gather since they are the easiest. And it’s much better if you can see things in real-time using a computerized dashboard or other comparable software.
Obtain Clear Understandings of Your Objectives
Establish your goals before selecting your metrics.
What particular results do you want to get from monitoring your supply chain KPIs?
Say you want to, for instance,
- Optimize supply chain systems
- Boost your client satisfaction
- Reduce delivery times
- Maximize productivity throughout your supply chain.
- Decrease unsatisfactory orders to boost revenue growth
You choose what to concentrate on to determine the relevant KPIs to measure; to achieve these, you must first put together a number of headline targets.
Also, remember that you may select goals and metrics that concentrate on the efficiency of your whole supply chain or a particular node.
WareIQ, an eCommerce fulfillment company, empowers online brands with a superior-tech platform to compete with Amazon like service levels by bringing their average delivery timelines from 5-10 days to 1-2 days.
Why are Supply Chain Performance Metrics Important?
For various reasons, your business’s essential fulfilment and logistics strategy must consider supply chain metrics. First, studies predict that the supply chain analytics market will grow to $16.82 billion by 2027. This is because using analytics to supply chain decision-making enables organizations to boost their tactical, strategic, and operational effectiveness.
The key advantages of tracking supply chain metrics for improving management are listed below:
Communication is essential to a successful supply chain. Every gear in the supply chain machine will become smoother, more efficient, and more dependable if everyone participating in the process has a greater awareness of their position and access to the metrics needed to optimize their potential.
Supply chain metrics offer uniform access to essential data. This type will enhance coordination, foster teamwork, and guarantee that your inventory is efficiently handled as each item successfully makes its way from your warehouse to the intended recipient.
Targeted Data & Supply Chain Insights
Fulfilment procedures may become unnecessarily complex in the information age since many sources, platforms, and touchpoints exist. When you are in charge of busy supply chains, sorting through a never-ending mountain of data soon becomes a battle. However, supply chain KPIs will enable you to narrow your attention to the data that matters.
Supply chain-based analytics present what matters in an easily consumable visual style from a single central place. Working with supply chain metrics will not only help you run your logistical operations more effectively but will also allow you to spot hidden trends that will significantly enhance your business or identify any looming problems (gaps in inventory, a lack of inventory, bottlenecks in your delivery processes, etc.) before they become serious problems.
Adaptability & Responsiveness
Supply chain metrics are essential since they will provide you with all the information you need to be flexible and adaptive constantly. Supply chain management requires complete adaptation in any circumstance. Therefore, you need to be able to correct problems right away.
Keep an eye on supply chain metrics to ensure your supply chain is strong as customer needs and the business landscape change. This will help you stand out from the competition. In addition, with the help of target data visualizations you can quickly and confidently assess, supply chain-focused metrics will offer you the knowledge and confidence to make meaningful strategic adjustments to your operations, depending on your environment.
You can optimize your supply chain for sustained performance in a cutthroat commercial environment by developing estimates that provide value and making wise decisions under pressure. As a result, your development and profitability will be maximized.
18 Supply Chain Performance Metrics You Should Be Monitoring
For your firm to thrive in the cutthroat business world of today and boost sales, you need an efficient supply chain. A Deloitte survey found that 79% of businesses with high-performing supply chains have higher revenue growth than the industry average. Monitoring your supply chain metrics (or KPIs), a set of indicators used in quantifying and characterizing the performance of your supply chain, is one technique to assess whether your supply chain performance is sufficient. The following list of 10 essential performance indicators will help you manage your supply chain more effectively.
Delivery time is a key performance indicator (KPI) for supply chains that focuses on enhancing customer service. It calculates how long it takes from when an item is dispatched to when it is delivered to the customer’s door. First, the order must be accurately created and returned to its destination at an acceptable time. If not, your clients may negatively view you because nobody likes to wait to receive their supplied items.
It makes sense to lower this supply chain management KPI and improve the accuracy of the delivery information provided to customers. For example, saying that the delivery will arrive in 2-3 business days is preferable to 5-8 business days. Additionally, it would be much better for your service if you could indicate the time. You may also provide customized delivery services to speed up delivery and assess how this affects customer satisfaction over time. Even better, track it more carefully by including supply delivery indicators in your supply chain-focused performance dashboard.
Cash to Cash Time Cycle
This invaluable supply chain metric will enable you to determine how long it will take to convert your resources into actual cash flows. The cash-to-cash time cycle uses three key ratios: days of inventory (DOI), days of payables (DOP), and days of receivables (DOR). KPI depicts the time needed between when a company pays its suppliers and when it gets cash from its clients. The shorter the conversion cycle, the better, and this invaluable supply chain data can help you decide how to run your business with less money dedicated to operations.
The number of times a company’s whole inventory has been sold over a specific time period is one of the most beneficial supply chain KPIs accessible today. This is an excellent sign of effective production planning, process strategy, fulfilment skills, and marketing and sales management. You can develop a straightforward management reporting practice, understand where you stand, and take the necessary action to improve it over time by calculating your on-time shipping rate and comparing it to other companies in your industry. This will result in an increased bottom line as well as a boost to your brand authority.
Gross Margin Return On Investment (GMROI)
Even though GMROI is one of the most crucial metrics you can utilize in your shop, it may be a little scary. It reveals how hard your inventory is working to generate revenues for you. A crucial statistic for safeguarding your cash flow is GMROI. Many shops safeguard their margins, which is crucial, but keep in mind that you can survive without earnings for a time. Without financial flow, you cannot survive.
Although some of your merchandise turns slowly, it generates excellent profits. Some businesses will flip swiftly but with minimal profitability. These two scenarios will result in decent to high GMROI.
A product’s low GMROI indicates whether it moves too slowly, has inadequate margin, or both. Fortunately, you can evaluate product performance using the GMROI calculation.
Absolute Order Rate
This specific information is one of the most crucial supply chain KPIs for companies across various industries. The capacity to fulfil orders without incident is measured by your perfect order rate, which will eventually assist you in resolving problems like errors, damages, delays, and inventory losses. The ideal order rate is a KPI that should be increased as it directly affects your customer loyalty and retention rates.
Day’s Sales Outstanding (DSO)
The day’s outstanding sales KPI gauges how quickly you can collect money from consumers or make money.
A low or healthy DSO figure indicates that a company collects its accounts receivable in fewer days. A greater DSO level means a business sells its goods to clients on credit and takes longer to get paid, which can impede cash flow and reduce overall earnings. Calculating this often will enable you to collect income more quickly and effectively, ultimately helping to increase your bottom line.
Cycle Time for the Supply Chain
The time it would take to complete a customer’s order if all inventory levels were zero when the order was made is measured by the supply chain cycle time, a comprehensive statistic. The total of the longest lag times for each phase of the supply chain cycle makes up this measure.
This statistic is an excellent gauge of how well your supply chain works. A shorter cycle indicates greater adaptability, agility, and responsiveness to external changes in the process. In addition, supply chain cycle time tracking reveals current or anticipated issues, allowing your company to take appropriate action.
Customer Order Cycle Time
The period of time between when a client puts order and when they get it is known as the customer order cycle time.
A short wait time excites clients and shows that your supply chain is highly effective; thus, your company should strive to maintain the customer order cycle time as low as feasible.
Customer order cycle time may be significantly decreased by automatically sending each order to the fulfilment facility closest to its final destination. Shortening the cycle could also be achieved by accelerating backend processes, simplifying SOPs for warehouse management and reviewing shipping carrier performance.
The percentage of client demand satisfied through stock availability, without backorders or missed sales, is known as the fill rate or demand satisfaction rate. Understanding your fill rate is crucial because it indicates the sales that, with improved inventory efficiency, you may provide better service.
Access to inventory data is one way to improve. You and your sales staff will be better equipped to ship accurate, complete, and on-time orders, increasing customer satisfaction along the way, the better informed you are about the inventory that is now available.
According to research, strengthening the bond between a store and a supplier may increase fill rates by 80%. Enhancing reactions to demand spikes, speeding up price-change discussions, simplifying order management procedures, and altering motivations for sales.
The cost of storage is the next element on our list of supply chain metrics. Building a solid supply chain requires careful cost distribution and managing your inventory’s time and space. Even if these prices vary from warehouse to warehouse, it’s crucial to track this indication and examine it frequently to spot possibilities and cut unnecessary expenses. Managing the warehouse facility involves paying for various expenses, including personnel, warehouse rent, electricity, equipment, material, information processing system, and procuring and keeping the items.
Being well-informed about all the operations at the warehouse facility and how precisely it runs is the first step in keeping costs as low as possible. In this manner, you will have a more significant opportunity to cut back on needless expenses, implement measures to manage operations more effectively and make required adjustments. Additionally, you will be able to depend on your reports and make quicker, more accurate business decisions if you regularly gather your information with a professional online reporting tool.
Cost of Shipping per Unit
Freight cost per unit is evidence that metrics in supply chain management are essential for achieving long-term gains. Freight cost per unit, one of the most crucial supply chain KPIs for any expanding organization, will provide you with a clear understanding of how cheaply you can send your goods.
This specific feature to the supply chain metrics dashboard will calculate your total freight expenses and split them by the number of products transported. This measure can be computed using any suitable unit for your company. However, any drawn-out or ill-thought-out procedures will cost you time, money, and client loyalty. This KPI will assist you in avoiding such challenges.
Average delivery Time
The number of days from the moment an item is dispatched out of your fulfilment centre and the time it reaches a customer’s doorstep is known as the average delivery time. This is a crucial indicator to monitor since it reveals the shipment speed of a company.
Online buyers increasingly demand a speedy turnaround time on their goods due to the growth of 2-day delivery. Although expedited shipping reduces the time between orders, it might be too expensive for smaller firms to rely on over the long run.
As a result, many e-commerce companies decide to cut the average delivery time by carefully positioning some of their inventory near the final consumers.
Cycle Time For Pick and Pack
By breaking down your supply chain cycle into individual lines, this supply chain performance assessment will provide you with a precise indication of how effective (or ineffective) the overall supply chain cycle is. For example, the duration between when an employee takes an item from the shelf and when the picking and packaging procedure is finished is measured by each KPI.
It will be obvious where delays or vulnerabilities exist in your supply chain once you’ve established your goals and begun monitoring the progress of your supply chain cycle. Consequently, you may take focused action to stop these problems in their tracks, reducing your total cycle durations.
Ratio Of Inventory To Sales
Since inventory is one of the most crucial tools in your supply chain, the inventory to sales ratio is one of the essential supply chain metrics that must be monitored. This statistic calculates a balance between the amount of merchandise available for sale and the actual amount sold. It will also let you know how successful your business handles unforeseen circumstances and assist you in adjusting your goods to achieve high margins.
Here, the key idea is that maintaining a healthy ratio requires understanding how to balance it correctly. Since it could affect your inventory turnover rates, limiting the proportion from being too high would make sense. Finding the right balance in this situation is crucial. You may create an interactive inventory KPI with a contemporary dashboard builder, which will refresh the data automatically and allow you to track performance in real-time. Additionally, you can modify your future initiatives and guarantee that the ratio is ideal for your particular firm.
Inventory velocity is among the most crucial supply chain KPIs that visually represents the proportion of inventory anticipated for consumption over the following month or quarter.
Inventory Velocity is a supply chain metric that will assist you in optimizing your inventory levels, increase your likelihood of satisfying customer demand, and save you from losing money on overstock levels of stock. It is computed by subtracting the opening stock from the anticipated sales for the next period.
The return reason supply chain metrics provide a keen understanding of the numerous factors that influence your consumers and clients to return their products, which is vital knowledge for an eCommerce fulfilment company’s continued success. You will be able to assess your areas of weakness, evaluate the quality of crucial supply chain process areas, and make the kinds of improvements that will significantly improve not only your reputation but also your overall level of service thanks to the information being presented in an easily digestible pie chart-style format with a key showcasing the main reasons for return. Furthermore, you have a significant probability of lowering returns, increasing profits, and enhancing cash flow due to attaining this degree of information.
Supply Chain Costs
One of the key performance indicators for the supply chain is cost, which displays pertinent expenses related to supply chain management. These expenses, which reflect how various productive departments of the business are, might include those for planning, managing teams, sourcing, delivering, etc. Of course, any firm must find ways to boost profits, and cutting expenses is one tactic that is frequently used. In this method, the business may determine if there is room for progress without also needing to boost sales.
However, it’s crucial to consider how the cost decrease would affect the whole supply chain.
Supply Chain Costs vs Sales
Additional cost analysis related to sales is included in our list of KPIs and indicators for the supply chain. Essentially, this indicator will show you how much you are spending in relation to your overall spending by calculating your supply chain expenses as a percentage of sales. These supply chain management indicators will enable you to conduct a thorough expenditure analysis and set up procedures for possible cost reductions. Of course, cost reduction is a critical component of supply chain optimization. Still, as we’ve already discussed, it’s crucial to make cost reductions where they make sense rather than just doing it to lower the numbers. The explanation is straightforward: the entire procedure is useless if you reduce costs only to see them rise in another area of your supply chain.
4 Effective Ways To Improve Supply Chain Performance
Understanding how to improve supply chain performance has become essential for ensuring the effectiveness of diverse operations in today’s fast-paced organizations and industries. Since businesses and industries need a lot of raw materials and supplies to make a wide range of goods, it is crucial to maintain a stable supply chain to keep everything going smoothly.
Maximal profitability and faster processing and production times are guaranteed by tracking the most efficient supply chain metrics. In addition, you would be able to identify the ideal ways to raise the effectiveness of your operations while discovering fresh approaches to innovation and creating new tactics and procedures for future advancement.
In the context of this, here is the following practical advice that will help to improve supply chain performance.
Keep Track Of All Your Supplies
An essential component of supply chain management is inventory management, which enables you to keep track of all the materials entering your business or sector. This is crucial, especially when controlling all the required materials’ supply costs, delivery dates, and logistical needs.
Since most inventory management systems today are not fully automated, there is an opportunity for a more elaborate and thorough approach that would allow you to keep track of everything and give customers additional details about the products you have on hand.
You can guarantee that everything will be handled correctly and on schedule by creating a system that maintains track of all your supplies.
Utilize Automated Systems
Automation is currently used in procedures like inventory management to increase overall efficiency; therefore, applying this technology to other processes may also be quite advantageous.
Automation has emerged as one of the best options for many firms and sectors. Offering the essential equipments for quick production may expedite procedures and activities. In addition, utilizing automated digital platforms for supply chain management can increase productivity and let you create fresh approaches and solutions.
Automation has been used in many organizations to simplify the work completed, eliminating the need for repetitive chores and allowing more staff to concentrate on doing more essential tasks.
Expand and Improve Distribution Network
Growing your distribution networks may also enhance your supply chain performance efficiency. Partnerships with suppliers and distributors have considerably helped supply chain and logistics organizations, offering improved delivery procedures and additional transportation possibilities.
Optimizing your supply chain networks is also crucial; it enhances employee teamwork and communication, monitors automated systems, and ensures that everything runs according to schedule. In addition, solutions would be helpful in the long run because your distribution network is essential for developing a successful supply chain management system. You can read more on how to keep track of distribution metrics for eCommerce growth.
Utilize Your Supply Chain Metrics
Since information is the foundation of all future discoveries and improvements, data has emerged as one of the most crucial resources in every business or sector. Because this information may be utilized to enhance supply chain performance, data analytics is an essential component. For example, this information may track the number of goods you need to supply and receive, examine your spending and budget, and keep tabs on overall performance.
Numerous platforms give comprehensive data analytics solutions, so you might apply these apps within your business to have a complete supply chain metrics framework that lets you access data from anywhere.
Over the past several years, businesses and industries have become more data-centric; thus, using these technologies to offer the finest solutions and strategies for long-term success is ideal.
Maintaining your supply chain’s effectiveness is essential for maintaining customer happiness and gaining a competitive edge. However, tracking many supply chain metrics may rapidly become unmanageable, so focus on a handful that is important to your business’s bottom line. Partner with a third-party logistics provider if you lack the time or resources to manage and evaluate your supply chain metrics. 3PL offers the equipment and know-how required to track your supply chain KPIs and enhance your business operations.
Utilizing WareIQ’s Services Helps Improve Supply Chain Performance
As a partner in tech-enabled logistics, WareIQ possesses the infrastructure and technology required for companies to monitor and enhance supply chain KPIs throughout their entire supply chain.
With the aid of WareIQ’s inventory management software, you can remotely manage inventory, keep an eye on essential data, and have inventory control without the hassle of self-storage.
You can manage inventory levels and turnover using WareIQ’s dashboard, trace your inventory through supply chain metrics, and get the data you need to compute GMROI.
WareIQ’s quick and precise order fulfilment services expedite the supply chain without compromising quality when orders come in. This enhances the fill rate, perfect order rate, and order cycle time, which can be tracked through your analytics dashboard.
Our network enables businesses to provide services comparable to Amazon Prime. In addition, WareIQ’s 2-Days express delivery network and fulfilment services help you to decrease your average delivery time while increasing your on-time and damage-free delivery rates when it comes time to send goods.
It is now simpler than ever for your company to measure, evaluate, and fulfil your KPIs thanks to WareIQ’s software and support capabilities, which also assist eCommerce organizations in reducing supply chain expenses and increasing efficiency.
- Pan India Fulfillment & Darkstore Network: Plug-and-play fulfillment infrastructure with no minimums, which is compliant with Amazon Seller Flex, Flipkart Assured, Myntra and other marketplaces
- Inventory & Network Planning Excellence: Best-in-class AI models for sales forecasting, product segmentation, and inventory management to reduce inventory by 40% and increase revenue by 10%.
- Vertically Integrated Fulfillment Tech Stack: Our Fulfillment Tech Solution supports integrations with 20+ top marketplaces & D2C platforms, and prominent national, regional and hyperlocal couriers, enhancing reach by covering deliveries for 27,000+ pin codes
- Supply Chain Productivity Applications: Integrate a host of supply chain productivity apps with a single-click to your existing CRMs, ERPs & accounting software to manage your logistics workflows from one command center. Use Apps like RTO Shield to get 100% RTO protection, Branded Tracking to turn your order tracking page into a profitable marketing channel, and many more.
Trusted by 300+ top Indian brands, we are helping them accelerate online sales and expedite their growth through a synergistic combination of advanced technology, robust fulfillment infrastructure & seller enablement services!WareIQ is backed by leading global investors including Y Combinator, Funders Club, Flexport, Pioneer Fund, Soma Capital, and Emles Venture Partner.