"It's not the organizations that are competing. It's the supply chains that are competing." - Wael Safwat, SCMAO
The supply chain is essentially the backbone of any business: a living ecosystem that ensures the smooth, efficient and consistent delivery of a product or service from a supplier to customer. And if your supply chain is inefficient, ineffective, or fragmented, it could seriously hinder your commercial prospects.
Recent studies suggest that 79% of companies with high-performing supply chains earn a revenue growth greater than the average within their sector. However, despite the clear-cut value of developing an efficient supply chain, 40% of companies aren't looking at supply chain performance metrics or automation to improve their processes.
What Are Supply Chain Metrics?
Supply chain metrics are defined by establishing specific parameters which are used in quantifying and defining supply chain performance. The metrics can be utilized in the inventory accuracy and turnover metrics, to the inventory-to-sales ratio.
Concerning the continual growth, evolution, development, and success of your company’s supply, fulfillment, and delivery efforts, supply chain performance metrics are the most invaluable tools available at your fingertips. By collecting, curating, and analyzing key supply chain metrics you will be able to spot inefficiencies within your ecosystem while capitalizing on your current strengths and establish goals that will help your supply chain scale with the success of your company.
Remember: Today, access to your metrics 24/7/365 is really important, what online data analysis tools can guarantee and ensure that your chances of long-term success increase.
That said, here we’re going to look at the top 10 supply chain metrics that will help you, and your business, work toward a bright and prosperous future.
1. Cash-to-cash Time Cycle
This priceless supply chain metric will help you calculate the length of time required to transform your resources into bonafide cash flows. Working with three core ratios - the days of inventory (DOI), the days of payables (DOP), and the days of receivables (DOR) - the cash-to-cash time cycle KPI visualizes the period required between the moment a business pays cash to its suppliers and the moment it receives cash from its customers. The shorter the conversion cycle the better, and this invaluable supply chain metric will help you take the right measures to ensure that you can run your business with less money tied up in operations.
2. Freight Bill Accuracy
Shipping and freighting your items from supplier to warehouse or warehouse to the consumer is vital to the success of your entire operation, and any issue or error can prove harmful with time and investments being wasted.
Billing accuracy is critical to profitability as well as customer satisfaction, so tracking this particular metric will help you spot detrimental trends, improve your overall shipping accuracy, and ultimately, help your business grow. Here is how freight bill accuracy is calculated:(error-free freight bills / total freight bills) * 100
3. Perfect Order Rate
This particular insight is one of the most critical supply chain KPIs for businesses operating in a multitude of sectors. The perfect order rate measures the success of your ability to deliver orders incident-free, which will ultimately help you iron out issues such as inaccuracies, damages, delays, and inventory losses. The higher the perfect order rate, the better, because this KPI has a direct impact on your customer retention and loyalty levels.
4. Days Sales Outstanding (DSO)
The days sales outstanding (DSO) KPI measures how swiftly you are able to collect or generate revenue from your customers.
Essentially, a low, or healthy, DSO number means that it takes a business fewer days to collect its accounts receivable. A higher DSO level demonstrates that a company is selling its product to customers on credit and taking longer to collect revenue in a tangible sense, which can stunt cash flow and minimize profits in the grand scheme of things. By calculating this often, you'll be able to collect revenue faster and more efficiently, which will help boost your bottom line in the long run.
5. Inventory Turnover
One of the most superbly helpful supply chain KPI available today focuses on logistics KPIs and 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. By calculating your on-time shipping rate and comparing it to other competitors within your industry, you will be able to create a clear management reporting practice, see where you stand and take the appropriate action to improve it over time - this will result in a boost in brand authority as well as an increased bottom line - so it’s important.
6. Gross Margin Return On Investment (GMROI)
Every business, regardless of service, product, or sector strives to achieve the best return on investment (ROI) for each and every commercial activity it undertakes. Maintaining a consistently solid ROI is the bread and butter of ongoing eCommerce success.
In supply chain metrics, the GMROI offers a clear representation of the gross profit gained for every AED (or $, £, €, ₺) of the average investment made in your inventory: a calculation achieved by dividing the gross profit by the average inventory investment. By tracking this KPI on a monthly basis, you’ll quickly gain an insight into which items in your inventory are poor performers and which are worth investing in more - gold dust in terms of business-based information.
7. On-time Shipping
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 optimize your shipping and delivery processes, reducing turnover time, and boosting customer satisfaction levels.
8. Return Reason
The return reason supply chain metric offers an astute insight into the various motives causing your customers and clients to return their orders – an information that is priceless to the ongoing success of an eCommerce business. Presented in a digestible pie chart-style format with a key showcasing the primary reasons for return, you will be able to assess your areas of weakness, analyze the quality of critical areas of your supply chain process, and make the kind of improvements that will enhance not only your reputation but your overall level of service significantly. By gaining this level of insight, you stand an excellent chance at decreasing returns, boosting profits, and improving cash flow as a result.
9. Inventory Velocity (IV)
A pivotal supply chain KPI, the inventory velocity, or IV, provides a visual snapshot of the percentage of inventory that's projected for consumption within the next period or quarter.
Calculated by dividing the opening stock by the sales forecast for the following period, the IV is a KPI that will help you optimize your inventory levels, give you a greater chance of meeting consumer demand, and prevent you from wasting money on excess levels of stock.
10. Inventory Days Of Supply
While this may not be the most panoramic or all-encompassing of supply chain metrics, inventory days of supply is particularly useful as it will give you a fairly accurate calculation of the number of days it would take you to run out of stock if it wasn’t replenished.
By tracking, analyzing, and understanding this stream data on a regular basis, you will be able to prepare for, and avoid, any stock-based calamities in an emergency situation, saving your reputation and cash flow in the process.
Supply Chain Management Dashboard Example
Thanks to modern data visualization tools you can create stunning supply chain management dashboards with all your needed KPIs with a few clicks. In the example below, we have collected data focusing on inventory metrics: Inventory-to-Sales ratio, which you can combine with the Inventory Turnover and clearly see the financial stability of your business. The next KPI of this particular dashboard is the Carrying Cost of Inventory, followed by Inventory Accuracy and Out Of Stock Items. The goal in this example is to avoid wasting money, retain customers and define the stability of a business.There's no denying it: optimal supply chain management conducted in a continually consistent, strategic, and data-driven manner will yield incredibly fruitful long-term results - the kind that will help your business evolve and scale over time.
One of our most powerful business dashboards, the supply chain dashboard boasts a digestible, functional, and visual representation of all key areas of supply chain performance, from inventory accuracy and turnover to the inventory-to-sales ratio. By drilling down into inventory management logistics, this particular KPI dashboard (which can also be used as an interactive dashboard) will help you deal with unexpected supply chain situations, enhance your stock buying practices, reduce operational as well as financial inefficiencies, significantly improve the accuracy of your and a great deal more. Your stock is essential to your commercial operation which is why tracking your inventory through a central nerve center will make sure that every supply chain effort and initiative improves the way you run your business as opposed to hindering it.
By tracking these critical supply chain performance metrics in one initiative space, you will be able to implement initiatives that not only hold maximum value but will also ensure the smooth running and perpetual improvements of your supply chain processes, ensuring that every single cog in the wheel is turning to maximum efficiency - which of course, is priceless.
You can explore our supply chain management dashboard in greater detail here.
For more data-driven wisdom, check out these great dashboard designs that you can get inspiration from.Here is a summary of our top 10 supply chain KPIs we discussed in detail:
1. Cash-to-cash Time Cycle2. Freight Bill Accuracy
3. Perfect Order Rate4. Days Sales Outstanding (DSO)
5. Inventory Turnover6. Gross Margin Return On Investment (GMROI)
7. On-time Shipping
8. Return Reason
9. Inventory Velocity (IV)
10. Inventory Days Of Supply