More than ever before, business leaders recognize that top-performing organisations are driven by data. It is important that businesses are measuring, monitoring, and reporting on the numbers that matter most.
What are KPI’s
Key performance indicators (KPIs) are a set of quantitative metrics that can help you measure your business’ performance over time. Specifically, they enable you to monitor how effectively your organisation is achieving its target goals.
Supply chain experts use these metrics to track the effectiveness and efficiency of various supply chain processes. KPIs enable you to identify the processes of your supply chain that need improvement.
In this post, we’ll look at some of the most essential supply chain KPIs that’ll give you actionable insights into your business operations.
Top 10 supply chain management (SCM) KPIs
Delivered on time and in full (OTIF)
OTIF will provide a panoramic insight of your delivery performance over a set timeframe and will ensure your orders are fulfilled in full and on time. Delivering on your clients’ or customers’ expectations is vital to the ongoing success of your business.
Based on factors such as whether the right product was delivered to the agreed quality standards, fulfilled in the right quantities, and delivered to the agreed destination, this KPI will help you consistently optimise your performance. If your average OTIF rates are lagging, you can use this metric to pinpoint the factors at play and make strategic decisions to tweak your internal strategy or work with more reliable suppliers.
Supply Chain and Warehouse Costs
The cost distribution and the management of the time and space of your inventory are critical in establishing a healthy supply chain. While such costs vary from warehouse to warehouse, it's important to measure this indicator and review it regularly in order to identify opportunities for improvement and decrease unwanted costs.
Supply chain costs can include planning, managing teams, sourcing, delivering, etc., and it will show how efficient parts of the company are. The management of the warehouse facility includes various costs such as labour costs, warehouse rent, utility bills, equipment costs, material, and information-handling systems as well as costs related to supplies, ordering, and storing the goods.
Cash to cash cycle time
The cash to cash cycle time represents the average length of time required to convert resources into cash flows, starting from the moment you pay for inventory to the time you collect money for the sale of that inventory.
You measure it using three common financial metrics, namely, days of inventory (DOI), days of payables (DOP), and days sales outstanding (DSO). Add DOI and DOP, then subtract DSO to arrive at cash to cash cycle time.
Pick & pack cycle time
The pick and pack cycle time will give you an accurate gauge of just how efficient (or inefficient) your entire supply chain cycle is, breaking it down into specific lines. Each metric within the KPI is designed to quantify the time from when an employee plucks an item from the shelf to the moment the packing process is complete.
Customer order cycle time
The average amount of time (in days) that passes between the time a customer places an order and the actual delivery date is referred to as the customer order cycle time. If the cash-to-cash cycle is increasing while the client order cycle time is reducing or remaining constant, there may be a problem with payables, receivables, or inventory management.
Reasons for return
Returns can harm your supply chain operations, they cost your company time and money, and they almost always result in a poor client experience. To keep track of the reasons for returns, break down your customer returns into categories like "detective item," "damaged product," "product no longer needed," and so on.
On time delivery
On-time delivery is typically defined as the percentage of orders fulfilled on or before the scheduled delivery date. This has the advantage of being straightforward; you either delivered the order on time or you did not.
on-time shipping KPI is an excellent indicator of how long you may need to ship a particular type of order to a client, customer, or partner. This KPI will allow you to set a benchmark shipping time relative to each product which, in turn, will allow you to optimise your shipping and delivery processes, reducing turnover time, and boosting customer satisfaction levels.
Perfect Order Rate
The perfect order rate is one of the most critical supply chain KPIs for businesses operating in a multitude of sectors. It measures the success of your ability to deliver orders incident-free. This will help organisations to address issues such as inaccuracies, damages, delays, and inventory losses. The higher the rate, the better, because this KPI has a direct impact on your customer retention and loyalty levels.
Inventory turnover is a supply chain KPI that focuses on logistics. It helps a business understand the number of times its entire inventory has been sold over a certain time frame: an incredible indicator of efficient production planning, process strategy, fulfillment abilities, and marketing and sales management.