Managing your supplies is no cakewalk, especially when your business is growing and the supply chain metrics are becoming more complex.
Having a strong supply chain is very important if you want to make it in today’s tough business world and rake in more revenue. A survey conducted by Deloitte found that 79% of companies with top-notch supply chains see their revenues shoot past the industry average.
One handy way to see if your supply chain is up to the mark is by monitoring its metrics or KPIs. These metrics help you measure and understand how well your supply chain is performing.
In this blog, we will talk about the key supply chain metrics that you should be tracking to improve your logistics process and maximize the value of your business.
Let’s get started!
Supply Chain Metrics: What Are They?
Before we get into the supply chain management metrics, let’s first understand the basic supply chain metrics definition.
Supply chain metrics are the figures and ratios that a company keeps an eye on to see how smoothly they are delivering the products to their customers. Efficiency in supply chain execution boils down to how effectively and affordably businesses manage the movement of materials from buying them to delivering them. This involves factors like making, storing, and shipping goods.
So, how do you figure out where you can do better and find the sweet spot between what your customers want and your need to save money and work more effectively?
Supply chain KPI metrics is your solution. However, there is more to it.
Keeping track of these sets of metrics helps align your organization and makes it more adaptable, which ultimately results in happier customers.
Let’s see why monitoring your supply chain metrics is important.
Supply Chain Metrics: Why Are They Important?
In this fast-paced realm of supply management, it is crucial to understand the advantages that key supply chain metrics offer and how they contribute to your business.
- Monitoring key indicators provides instant insight into different operational areas like inventory and order fulfillment.
- This visibility helps pinpoint bottlenecks, inefficiencies, and strengths, allowing proactive problem-solving and process optimization.
- Tracking essential metrics empowers you to stay ahead by addressing challenges and improving operations efficiently.
- They help focus efforts on reducing order processing times, improving on-time deliveries, and minimizing inventory holding costs.
- These metrics steer your actions toward achieving specific goals for enhanced supply chain performance.
Now that we know the importance of metrics in supply chain management, let us understand the various supply chain metrics that you need to be aware of.
Top 10 Supply Chain Management Metrics That You Need To Monitor
Down below are the top 10 metrics used to measure supply chain perfomance.
1. Inventory Turnover
Inventory turnover is a fundamental metric you should keep tabs on.
- It shows how quickly you’re selling the stuff in your inventory, from when you sell it to when you restock.
- You can check on inventory turnover for both individual products and product categories. Tracking it for each product tells you how fast those items are flying off the shelves, while tracking it by category gives you a broader picture of sales speed.
- Inventory turnover is handy to monitor because it helps you gauge how soon you’ll need to restock items on the shelf.
To calculate it, you divide the Cost of Goods Sold by the average inventory.
2. Demand Forecasting
Demand forecasting is all about predicting and keeping a check on how much demand you expect for your products.
- It’s a crucial task for businesses that get a ton of orders from customers.
- It’s a valuable metric to watch because it shows how well you’re estimating sales.
- The better your demand forecasting is, the quicker you can restock items for customers.
3. Lead Time
Wouldn’t you as a customer want to know how quickly you’ll receive a product when you order it?
- Lead time refers to the duration from when you place an order to when the item reaches your warehouse.
- This includes the time that goes into sourcing, manufacturing (if applicable), and shipping the product.
- It’s a critical supply chain metric as it directly influences customer satisfaction.
4. Outsourcing Confidence
Outsourcing involves handing over some or all of a company’s production tasks to a vendor.
- The outsourcing confidence index measures the proportion of production handled by vendors versus what’s managed in-house.
- It’s a metric used to ensure the quality of outsourced production.
- This index helps track outsourcing for both components used in finished goods and those for inventory.
5. Order Fill Rate
Your order fill rate basically shows you how many customer orders you can ship right away from what you already have in stock.
- It gives you a good idea of how well you’re meeting customer needs and how smoothly your delivery service is running.
To figure out your order fill rate, just use this formula:
Total Number of Customer Orders Shipped / Number of Customer Orders Filled x 100
- If your order fill rate is low, it could mean there are issues with predicting demand, and you might need to tweak how you restock your inventory.
6. Perfect Order Rate
The perfect order rate shows you the percentage of orders that go out without any mistakes.
- It gives you insights into how well your storage and delivery systems are working and how satisfied your customers are, plus it helps you manage costs.
- To count as perfect, an order needs to be complete, arrive when expected, not be damaged, and have all the right paperwork.
7. Backorders
Backorders are those orders that cannot be filled when the customer places one.
To calculate this use this formula:
Number of orders undelivered/ total number of orders x 100
Orders with long waiting hours indicate that something is wrong. You can reduce backorders by using a system to get real-time data on your stock levels to reorder the products before they go out of stock.
8. Inventory Days On Hand
Inventory days on hand is a supply chain metric that shows you how many days, on average, it takes to sell your inventory.
- It helps you figure out when it’s time to replenish your stock.
To work it out, you use this formula:
Average Inventory for the Year / Cost of Goods Sold x 365
- If your inventory days on hand are high, it could mean you’ve got stock that’s tough to move or there’s an issue with how you’re handling it.
9. Rate Of Return
The return rate metric indicates how often shipped items are sent back.
- You can find this rate by dividing the total items returned by the total items shipped.
- If your return rate is high, it’s important to investigate to understand why customers are returning items so frequently.
10. Cash-to-Cash Time
The final important supply chain management metric is the cash-to-cash cycle, also referred to as cash conversion.
This metric reveals the duration between when a company pays suppliers and when it receives payment from customers.
FAQs: 10 Important Metrics Every Business Organisation Should Keep A Track Of
Why do you need to monitor supply chain metrics?
Monitoring supply chain metrics is essential because it helps you understand how efficiently your supply chain is operating. By tracking key metrics, you can identify areas for improvement, optimize processes, and ensure timely delivery of goods to customers. Ultimately, this leads to improved customer satisfaction, reduced costs, and a competitive edge in the market.
What are the benefits of tracking supply chain metrics?
Tracking supply chain metrics offers several benefits. Firstly, it provides valuable insights into the performance of various supply chain processes, allowing you to identify strengths and weaknesses. Secondly, it helps in making data-driven decisions for process optimization and resource allocation.
Which supply chain metrics should you focus on?
Some common metrics to consider include inventory turnover, order fill rate, on-time delivery performance, and perfect order rate. These metrics provide visibility into different aspects of your supply chain, such as inventory management, customer service, and overall performance. By selecting relevant metrics, you can effectively monitor critical areas and drive continuous improvement.
Conclusion
Keeping an eye on how well your supply chain works is super important for keeping customers happy and staying ahead in the market.
But watching too many numbers can get overwhelming, so focus on the ones that affect your profits. If you’re short on time or resources to keep track of all this, team up with a third-party logistics provider. They have the tools and know-how to help you keep an eye on your supply chain performance and make things run smoother.
You can also check out the list of services provided by Qodenext to learn more and enjoy great logistics support.
