6 Critical Supply Chain KPIs to Track and Improve for Business Success

Introduction

The global supply chain has faced continuous challenges since the start of the pandemic, and these disruptions are likely to persist. However, even in the face of such obstacles, businesses have the opportunity to demonstrate their resilience by improving their supply chain logistics. One of the most effective ways to achieve this is by tracking and enhancing Key Performance Indicators (KPIs).

KPIs are critical metrics that track progress towards intended goals. They provide valuable analytic data that businesses can use to modify their practices and reach desired outcomes. In this article, we'll explore six essential supply chain KPIs that can help improve your business operations and customer satisfaction.

Understanding KPIs

Before diving into specific supply chain KPIs, it's crucial to understand what makes a good KPI and how to set one. A well-defined KPI should:

• Provide evidence of progress toward achieving a result
• Measure and analyze data to help make better decisions
• Offer comparisons to report changes
• Track efficiency, effectiveness, quality, timeliness, compliance, behaviors, economics, performance, or resource utilization

There are two types of KPIs: leading indicators and lagging indicators. Leading indicators drive lagging indicators toward success. If one indicator can't be achieved without another, then the first is lagging - it relies on the leading indicator to succeed before it can be achieved.

Common categories of KPIs include:

• Inputs: The amount, type, and quality of resources consumed before producing a product
• Process: Measures of tools and sequences of events that occur
• Outputs: The results or products
• Outcomes: The impacts or accomplishments that occur
• Project: Measures of the status of deliverables and progress related to different initiatives

Now that we have a foundation for understanding KPIs, let's explore the six key supply chain KPIs that can benefit your business.

1. Perfect Order Rate

The perfect order rate is an excellent KPI to measure when growing your eCommerce business. A high perfect order rate indicates operational efficiency and high customer satisfaction. Consistently making customers happy leads to great reviews and repeat business.

A perfect order encompasses several aspects of fulfillment:

• Location: Was the order delivered to the right location?
• Product & Quantity: Was the right product delivered in the correct quantity?
• Time: Was the order fulfilled in the correct timeframe?
• Condition: Was the order in the correct condition? (No damage)
• Package: Was the order packaged correctly?
• Customer: Did the order get sent to the right person?
• Documentation: Was the correct invoice sent along with the order?

To calculate the perfect order rate, use the following formula:

(Percent of orders delivered on time) * (Percent of orders complete) * (Percent of orders damage free) * (Percent of orders with accurate documentation) * 100 = Perfect Order Rate

Tracking and improving the perfect order rate is essential for enhancing overall operations and customer satisfaction.

2. Fill Rate

The fill rate is the percentage of customer orders that your company can ship immediately without placing back orders or missing a sale. A high fill rate indicates that your company consistently fulfills orders quickly by maintaining sufficient product in the supply chain.

To calculate your company's fill rate, use this formula:

(Total Number of Customer Orders Shipped / Number of Customer Orders Filled) * 100 = Fill Rate

A higher fill rate is better for several reasons:

• It positively affects your relationship with customers
• It demonstrates effective inventory management and data utilization
• It maximizes revenue opportunities

Improving your fill rate will enhance your business operations and increase earnings.

3. Customer Order Cycle Time

Customer order cycle time is the duration between when a customer places their order and when they receive it. This cycle includes processing, preparation, and shipping. Key moments in the customer order cycle include:

• Customer order: When customers order the product
• Customer entry: When your business receives the order
• Manufacturing order: When the program places an order for the goods
• Warehouse packing: When the employee packs the item
• Delivery: When you send the item to the customer

To calculate the customer order cycle time, use this formula:

(Delivery Date - Order Date) / Total Number of Orders Shipped = Customer Order Cycle Time

This KPI is crucial to track and improve because it directly impacts customer satisfaction rates. It can also provide valuable insights into which phase of the cycle your warehouse can improve.

4. On-time Shipping

On-time shipping is a critical KPI that directly affects customer satisfaction. It's important to note that on-time shipping doesn't necessarily mean "fast" shipping - it simply means that your product was delivered within the promised timeframe, whether that's two days or two weeks from the order date.

Late shipments can negatively impact your business in several ways:

• Bad customer reviews
• Loss of loyal customers
• Loss of valuable business
• Rising expenses

To track your on-time shipping rates, use this formula:

Total Number of Orders Delivered / Number of Deliveries that Arrived After the Promised Delivery Date = On-Time Delivery (OTD) Rate

To improve your on-time delivery rate, consider the following strategies:

• Set an internal on-time delivery goal and incentivize employees to meet it
• Interview employees to identify obstacles to meeting delivery goals
• Improve inventory management (consider using software solutions)
• Streamline order picking by using alternative methods like batch, zone, or cluster picking
• Minimize packaging
• Use route-management software

Improving this KPI will also help boost your perfect order rate, creating a positive ripple effect throughout your supply chain.

5. Inventory Days of Supply

Inventory days of supply, also known as "days inventory outstanding" or "inventory period," is the average time a company keeps its inventory before it's sold. This KPI is crucial for assessing operational and financial efficiency.

To calculate inventory days of supply, use this formula:

(Average Inventory / Cost of Goods Sold) x Period Length = Days in Inventory

A low number of inventory days indicates that a company is operating and selling efficiently. Conversely, a high number suggests that the company may need to improve its marketing, brand building, or make other important changes to move inventory more quickly.

6. Inventory Turnover

The inventory turnover ratio measures how efficiently a company is selling its inventory. It describes what a company sells and then replaces. A high inventory turnover rate indicates that a company is selling a lot of products (which then need replacing), while a low rate suggests that inventory is not moving quickly.

To calculate the inventory turnover ratio, use this formula:

Cost of Goods Sold / Inventory = Inventory Turnover Ratio

This KPI is essential for understanding how well your business manages its inventory and how quickly you're able to convert that inventory into sales.

Leveraging Digital Logistics Platforms to Track and Improve KPIs

Tracking and improving these KPIs might seem challenging and overwhelming, but with the help of Digital Logistics Platforms like FreightAmigo, the process becomes much simpler and more manageable. FreightAmigo's comprehensive Digital Logistics Solution provides powerful tools and features that can help businesses monitor and optimize their supply chain KPIs effectively.

Here's how FreightAmigo can support your efforts to track and improve these crucial supply chain KPIs:

• Real-time tracking and reporting: FreightAmigo's Digital Platform offers real-time visibility into your shipments, allowing you to monitor on-time shipping performance and customer order cycle times accurately.
• Inventory management: With FreightAmigo's integrated inventory management features, you can keep a close eye on your inventory levels, helping you optimize your fill rate and inventory days of supply.
• Data analytics: FreightAmigo's advanced analytics capabilities can help you calculate and visualize your KPIs, making it easier to identify trends and areas for improvement.
• Order management: The platform's robust order management system can help you track and improve your perfect order rate by ensuring accurate and timely order fulfillment.
• Route optimization: FreightAmigo's intelligent routing algorithms can help improve on-time shipping performance and reduce delivery times.
• Integration capabilities: FreightAmigo can integrate with your existing systems, allowing for seamless data flow and more accurate KPI tracking across your entire supply chain.

By leveraging FreightAmigo's Digital Logistics Solution, businesses can not only track these KPIs more effectively but also gain valuable insights to drive continuous improvement in their supply chain operations.

Conclusion

In today's challenging global supply chain environment, tracking and improving key performance indicators is crucial for business success. By focusing on these six critical supply chain KPIs - perfect order rate, fill rate, customer order cycle time, on-time shipping, inventory days of supply, and inventory turnover - businesses can enhance their operational efficiency, customer satisfaction, and overall performance.

Remember that improving these KPIs is an ongoing process that requires consistent monitoring, analysis, and action. With the support of Digital Logistics Platforms like FreightAmigo, businesses can streamline this process and gain valuable insights to drive continuous improvement in their supply chain operations.

By leveraging the power of Digital Logistics Solutions, companies can not only survive but thrive in the face of supply chain disruptions, setting themselves apart from competitors and building stronger, more resilient businesses for the future.