A strong supply chain is essential to the success of every modern organization. As a dynamic ecosystem, the supply chain constantly adapts to new circumstances and facilitates the distribution of goods from a supplier to a client. For this reason, it is necessary to monitor and optimize essential supply chain key performance indicators (KPIs) with pinpoint accuracy.
1. Perfect Order
Perfect order is the most important KPI metric that measures a supply chain’s effectiveness. It is a blend of essential metrics that provide insights into several regions of the supply chain process. It’s instrumental in tracking the storage and delivery options, addressing costs, and measuring client satisfaction.
On-time delivery, in-full delivery, damage-free delivery, and accurate documentation are the critical components of the perfect order KPI. Each helps you determine client satisfaction, and collectively, it will provide a final report on how your business is doing.
2. Cash-to-Cash Cycle Time
Cash-to-cash cycle time KPI is significant when requiring insights about supply chain operations. It’s basically the time lapse between the payment made to suppliers and the payment received from clients. So, if businesses witness a low value of this supply chain KPI, it means an increase in profitability. It also suggests that the storage and delivery spaces are in good condition since the operating capital is tied up for a short span. Additionally, this KPI metric will assist businesses in knowing about the effectiveness of supply chain assets like workstations, trucks, shelves, etc.
3. Customer Order Cycle Time
Customer order cycle time refers to the time between the client placing an order and receiving the item. It provides businesses with insights into product service and supply chain responsiveness. If cash to cash cycle time increases but the customer order cycle time isn’t, there’s a concern with the former. To find the cause for the same, specific important metrics such as accounts payable and receivable and invoicing times must be considered.
4. Fill Rate
Fill rate KPI refers to the percentage of the SKUs or packages shipped on the first attempt. The fill rate is amongst the most critical supply chain KPIs that help businesses monitor the line fill and order fill rates. To understand the in-full performance of the supply chain, understanding the fill rate KPI is required.
There are three fill rate metrics: order fill, line fill and unit fill. Order fill measures the percentage of successfully completed orders on the first shipment. Line fill measures the percentage of successful delivery of order lines on the first shipment. And last, unit fill measures the percentage of items successfully supplied on the first shipment. Therefore, fill rate plays a crucial role in helping businesses measure client satisfaction and get insights into their delivery service’s efficiency and effectiveness.
5. Inventory Days of Supply
The inventory days of supply is the number of days an organization’s inventory can last without being replenished. This supply chain KPI analyzes the inventory held in the storage, allowing firms to restock it immediately before demand spikes or in the event of a stock-related disaster, protecting their image and investments.
Companies can monitor and evaluate this data on a daily basis and take immediate action to replenish supplies. Decreasing the inventory days of supply can assist mitigate the hazards associated with surplus and obsolete stock. If this indicator is declining, it indicates that a smaller proportion of your company’s operating capital is related to inventory.
6. Freight Bill Accuracy
Freight bill accuracy is determined by dividing the number of error-free freight bills by the total number of freight bills within a specific time period. Examples of possible errors are inaccurate pricing, improper weights, insufficient information, etc. In addition to enhancing profitability, freight bill accuracy enables firms to exceed customer expectations and recognize negative billing patterns.
7. Days Sales Outstanding
This supply chain KPI indicates the rate at which you collect customer payments. If your business has a low number of Days Sales Outstanding (DSO), it is a sign of healthy financial health. It indicates that you are generating revenue from your clients in fewer days.
In contrast, a high DSO indicates that it is taking you longer to collect account receivables, resulting in a cash flow slowdown and negatively impacting your bottom line. The lower the DSO, the leaner the finances and the more efficient the corporate processes.
8. Inventory Turnover
Inventory turnover is an additional supply chain KPI that displays how frequently your whole inventory is sold over a specific time period. Inventory turnover can be used to evaluate the efficacy of order fulfillment, marketing, and production processes.
The inventory turnover ratio demonstrates the efficiency with which you convert the working capital invested in inventory into profit. Generally, a higher turnover rate is preferable, whereas a lower rate indicates inefficiency and difficulty converting inventory into revenue.
9. Gross Margin Return On Investment
Gross margin returns on investment (GMROI) is a crucial KPI that offers information about a corporate entity’s profitability. It displays the actual amount of profit earned from an inventory investment of a defined quantity. By tracking GMROI on a monthly basis, you can discover slow-moving items in your inventory and use this data to optimize your business’s planning, manufacturing, and warehouse operations. In general, a GMROI between 200 and 225 is regarded as a standard and indicates profitable operations.
10. Inventory Velocity
Inventory velocity is an important supply chain KPI that displays the proportion of inventory that is anticipated to be depleted during a specific time period. This key performance indicator provides valuable insights into your warehouse operations. It enables you to optimize your inventory levels, successfully meet customer demands, and decrease risks associated with excess and obsolete inventory.
