"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 a customer. And if your supply chain is inefficient, ineffective, or fragmented, it could seriously hinder your commercial prospects. That's why it's critical to monitor and optimize relevant supply chain metrics.
In this post, we will cover essential supply chain KPIs and deliver bits and details about the top 15 that you should track. Finally, we will show how to combine those metrics with the help of modern KPI software and create professional supply chain dashboards.
But first, let's start with the basic definition.
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 (SCM) 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. While there are numerous KPI examples you can select for your assessment and optimization, we have focused on a list that will enable you to identify potential bottlenecks and ensure sustainable development.
Our Top 15 Supply Chain Metrics Examples
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 15 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. Warehousing Costs
We continue our list of supply chain metrics (SCM metrics) with the warehousing 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 and decrease unwanted costs. The management of the warehouse facility includes various costs such as labor costs, warehouse rent, utility bills, equipment costs, material, and information-handling systems as well as costs related to supplies, ordering, and storing the goods.
Keeping the costs on the lower side of the spectrum starts with being well informed about all the processes that are happening at the warehouse facility and how exactly it operates. That way, you will have a better chance to reduce unnecessary costs and introduce steps to manage operations more efficiently as well as adjust them when needed. Besides, if you collect your information on a regular basis with the help of a professional online reporting tool, you will have the opportunity to rely upon your reports and make faster, more accurate business decisions.
8. Supply Chain Costs
Costs are one of the supply chain key performance indicators that shows relevant costs that are associated with supply chain management. These costs can include planning, managing teams, sourcing, delivering, etc., and it will show how efficient parts of the company are. It's critical for any business to increase its profit and reducing costs is one of the strategies that is often applied. That way, the company can identify if there is any space for improvement without the need to increase sales in the process.
However, it's essential to evaluate what kind of impact the cost reduction will have on the whole supply chain. For example, if your transportation costs are high and you decide to push the speed and weight of trucks, you can risk accidents and potentially detrimental consequences for your business. You may also keep in mind that cutting costs in one area of the supply chain can increase in another so careful analysis in this part is essential. You can perform a benchmark or compare yourself with competitors in order to know whether this KPI in supply chain is steady and healthy or you need additional adjustments to be competitive. If you want to learn more about costs and the financial side of the business, we suggest you read our guide on financial graphs.
9. Supply Chain Costs vs. Sales
Our list of supply chain KPIs and metrics continues with additional cost analysis, connected to sales. This indicator basically calculates your supply chain costs as a portion of sales and, in essence, it will give you an indication of how much you are spending relative to a whole. By calculating such supply chain management metrics, you will be able to perform a healthy spend analysis and establish processes for potential savings. Optimizing the supply chain means reducing costs as much as possible but here, as we mentioned, it's important to cut costs where it makes sense, and not simply doing it to bring down the numbers. The reason is simple: if you cut costs that are consequently increased in another part of your supply chain, the whole process is not very useful.
To know whether you're successful in comparing your costs with sales, you can simply research industry benchmarks or compare your business with competitors. That way, you will know whether your percentage is too low or too high. In any case, it's critical to compare your data with the averages of the relevant industry.
10. 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.
11. Delivery Time
Delivery time is a KPI for supply chain that focuses on improving service: it measures the amount of time needed from the moment the order is shipped to the delivery on the customers' doorstep. The order needs to be correctly prepared and the destination reached within a reasonable time frame. Otherwise, the general service may be affected and the impression you leave on your customers: no one likes to wait for 9 months to get their delivered goods.
It makes sense to reduce this supply chain management KPI and create more precision in informing clients when the goods or products will be delivered. It's much better to state that the delivery will arrive in 4-5 business days in comparison to 1-5 business days. Moreover, if you manage to specify the time, even better for your service. You can also offer special delivery services to decrease the delivery time and see how your customer satisfaction, in the long run, rises. You can even include supply delivery metrics in your performance dashboard focused on the supply chain, and monitor it more closely. Please, see the bottom of this article to take a closer look at a supply chain KPI dashboard.
12. 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 – a piece of 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.
13. Inventory To Sales Ratio
One of the key supply chain metrics on our list, the inventory to sales ratio, is critical to track since inventory is one of the most important instruments in your supply chain. This metric measures the amount of inventory for sale in comparison to the actual quantity that is sold, expressed as a ratio. It will help you to adjust your stock in order to ensure high margins and tell you how well your company is dealing with unexpected situations.
Here the main point is that to keep a healthy ratio, you need to know how to balance it properly. It would make sense to keep the ratio not too high since it could affect your inventory turnover rates so the balancing act is essential. A modern dashboard maker can help you in creating an interactive inventory KPI that will update the data automatically and you can monitor the performance in real-time. Moreover, you will be able to adjust your future strategies and ensure there is an optimal ratio, specific to your business.
14. 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.
15. 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 Examples
Thanks to modern online data visualization tools you can create stunning supply chain management dashboards with all your needed KPIs with a few clicks.
1. Supply Chain Management Dashboard
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.
2. Supply Chain Costs Dashboard
Consumer goods are another important industry that relies on effective supply chain management. Especially when it comes to cost optimization, there should be not much room for ignoring the financial analysis as it can cause serious damages to the bottom line. A comprehensive BI dashboard can help you in automating your KPIs and ensuring you focus on what really matters: the information, visuals, and data in front of you.
On top of this supply chain metrics dashboard, you can see a quick overview of the total net sales, total supply chain costs, and the average cash-to-cash cycle, all-important supply chain management metrics to start your data presentation. On the left side are represented supply chain costs by category that includes warehousing, transport, carrying costs of inventory, customer service, and inventory management. Below these indicators, there is a clear overview of the supply chain costs vs sales. This KPI is additionally broken down by calendar week and compared to the previous period. We have already analyzed this metric so we won't go into much detail but the important thing to keep in mind is to track this metric and perform a more detailed spend analysis and, finally, adjust if needed.
On the right side of this supply chain performance dashboard are additional cost-related essential metrics: the cash-to-cash cycle and carrying costs of inventory. These metrics are essential if you want to know how much cash you need to finance ongoing operations and how much profit you can make based on your inventory. Such a dashboard you can easily create with a supply chain dashboard software.
Summary & Next Steps
Recent studies suggest that 79% of companies with high-performing supply chains earn a revenue growth greater than the average within their sector. Moreover, the usage of the software is growing 9% year over year, showing that this clear-cut value of developing an efficient supply chain lays within modern solutions to improve a company's performance.
That's where the power of the dashboard comes into play. If you want to create a data-driven company, save countless hours in the analysis processes, and work with real-time data, dashboards are a great way to do so. And for more data-driven wisdom, check out these great dashboard designs that you can get inspiration from.
Here is a summary of our top 15 supply chain KPIs we discussed in detail:
- Cash-to-cash Time Cycle
- Freight Bill Accuracy
- Perfect Order Rate
- Days Sales Outstanding (DSO)
- Inventory Turnover
- Gross Margin Return On Investment (GMROI)
- Warehousing Costs
- Supply Chain Costs
- Supply Chain Costs vs Sales
- On-time Shipping
- Delivery Time
- Return Reason
- Inventory To Sales Ratio
- Inventory Velocity (IV)
- Inventory Days Of Supply
If you want to track and visualize your supply chain metrics and KPIs with ease, you can try our software for a free 14-day trial!