Supply Chain Metrics to Monitor Your Key Performance Indicators
The types of supply chain management metrics to monitor will vary from operation to operation. This includes what logistics costs are as a percentage of sales. Some say that the average of 11% is way too high. With an accurate real-time visibility overview that monitors essential supply chain metrics, you can easily identify weak links as well as cost-cutting opportunities.
We’ve identified 8 supply chain performance metrics as the KPIs to watch to help meet customer demands, improve customer satisfaction, identify cost-saving areas, and optimize your supply chain operation.
8 Supply Chain Metrics That Are Excellent Key Performance Indicators (KPIs)
KPI #1 – On-Time Delivery and Accurate ETAs
Having accurate estimated times of arrivals becomes more complex as the number of shipments and the number of destinations you serve increases. Getting your ETAs right is crucial because your products are part of other organizations’ supply chains. Any hiccup at any point on the supply chain causes hiccups further down the line.
KPI #2 – Inventory to Sales Ratio (ISR)
Any accountant will tell you that inventory is money sitting idle.
The ISR compares the average value of your inventory for a given period to net sales for that same period. This is just one metric, used chiefly in balance sheet analysis, that is related to a bundle of other metrics that give you an idea of the state of your inventory management. Others include:
- Average number of days you hold inventory before selling it (days inventory outstanding)
- Inventory turnover ratio measures how many times you sell and replace your inventory over any given period.
KPI #3 – Carrying Cost of Inventory
As a KPI for supply chains, the carrying cost of inventory is a more reliable benchmark than ISR in supply chain analysis. Carrying costs are usually 20-30% of the total cost of inventory, but will vary with your industry and business size. Use the following formula when calculating your inventory carrying cost:
Inventory carrying rate x Average inventory value
Any inventory you purchase has a cost associated with it. These costs would include labor, insurance, warehousing and freight. This metric is useful when calculating how much profit you can make from your current inventory. Indicators for success under this rubric are low costs and a high inventory turnover ratio.
KPI #4 – Purchase Order Tracking
Your order status metrics are definitely something you’ll want to track. If anything gives you an immediate indication of any potential glitches in your supply chain, it is this particular set of metrics. They should be front and center on the supply chain KPI dashboard of your real-time visibility platform.
KPI #5 – DSI – Days Sales of Inventory
DSI is the average number of days your company takes to sell its inventory. This metric is useful when analyzing your sales efficiency. A high DSI could indicate that you are not managing your inventory properly. Or that these inventory items are hard to sell. (If the latter is the case, take the remedial action by getting your Sales and Marketing teams involved — a clear example of how supply chain KPIs can help eliminate problem areas.)
KPI #6 – Freight Cost Per Tonne Shipped
Knowing your freight costs is essential for correct pricing and avoiding operational losses. You might be paying more for freight, given the downward pressure on prices experienced in the freight industry earlier this year and the ongoing uncertainty and volatility in the market.
KPI #7 – Perfect Order Delivery Rate
Perfect order delivery rate is an “outward-facing” KPI. This means that you can leverage it as a serious selling point to your customers. This supply chain metric is expressed as a percentage of perfect orders you delivered out of the total number of orders delivered. Your company can set its own measurable criteria to determine what constitutes a perfect order.
KPI #8 – Supplier On-time Delivery
In any logistics supply chain, your company wears two hats. We have written this article from the point of view of your company being the supplier. But you, too, have suppliers that you rely on. If you succeed in achieving your supply chain key performance indicators, then your suppliers have to be at least as efficient as you are.
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