As we usher in 2024, supply chain complexities have never been more apparent—or more challenging to navigate. Key Performance Indicators (KPIs) serve as invaluable compass points in this logistical chaos, enabling organizations to make data-driven decisions, optimize operations, and ultimately stay competitive. But with many metrics at your disposal, which KPIs deserve your focus?
This article will answer that crucial question by zeroing in on the ten most essential supply chain KPIs you should be measuring. From inventory turnover to customer satisfaction, we'll delve into the "what, why, and how" of each metric, ensuring you're well-equipped to achieve your operational goals.
What are supply chain KPIs?
Key Performance Indicators, commonly known as KPIs, are quantifiable metrics that help you evaluate the effectiveness of various aspects of your supply chain operations. These supply chain metrics act as vital signs, providing a quick snapshot of the health of your organization's supply chain, including areas like procurement, manufacturing, distribution, warehousing, or even customer service.
In supply chain management, KPIs offer insights into performance, enabling continuous improvement and operational excellence. Whether you're interested in reducing costs, improving delivery times, or boosting customer satisfaction, KPIs allow you to set clear objectives and measure your progress toward achieving them.
By diligently tracking and analyzing KPIs, you're gathering data that will equip your organization with actionable intelligence that can lead to significant improvements. In an increasingly competitive market, having access to real-time, relevant data can make the difference between leading the industry or falling behind.
10 supply chain KPIs you should be measuring
Here are the 10 essential KPIs to measure supply chain efficiency:
1. Order accuracy rate
What: The Order Accuracy Rate is the metric that gauges the precision of your order processing system. It focuses on how often orders are delivered without errors like incorrect items, wrong quantities, or billing discrepancies.
(number of error-free orders / total number of orders processed [over a set period]) X 100 = a percentage
Why: Maintaining a high Order Accuracy Rate is paramount for customer satisfaction and trust. It also substantially minimizes the operational costs of returns, exchanges, and corrections. Mistakes in orders often result in a ripple effect, affecting downstream supply chain processes.
2. Inventory turnover
What: Inventory turnover reveals how often a business sells and replenishes its stock within a given timeframe, commonly calculated annually.
(cost of goods sold (COGS) / average value of your inventory [during the same period])
Why: A robust Inventory Turnover rate suggests effective stock management and strong sales performance. It can also help you uncover issues related to either under-stocking or overstocking, each carrying its own set of financial consequences. Lower turnover can mean high holding costs and capital tied up in unsold goods, while higher turnover may indicate strong market demand but also risks of stockouts.
3. On-time delivery rate
What: This KPI measures the punctuality of your shipments by assessing the number of orders delivered within the promised timeframe compared to total orders.
(number of on-time deliveries / total number of deliveries made) X 100 = a percentage
Why: Timeliness in deliveries is a cornerstone of good customer service and is vital for maintaining client loyalty. Late deliveries can lead to contract penalties and erode your brand’s reputation, causing a loss in market share over time.
Another vital KPI related to supply chain operations is OTIF (On-Time In-Full). We’ve written an entire article about it, which you can check out.
4. Fill rate
What: Fill Rate measures your ability to meet customer demand by fulfilling orders with the current stock on hand.
(number of items shipped / number of items ordered) X 100 = a percentage
Why: A high Fill Rate indicates that you're adequately stocked to meet customer demand, minimizing backorders and lost sales opportunities. Conversely, a lower Fill Rate could indicate stockouts, leading to missed revenue and compromised customer satisfaction.
5. Perfect order rate
What: The Perfect Order Rate is a comprehensive metric assessing how many orders meet multiple criteria, such as being complete, on time, undamaged, and accompanied by the correct documentation.
(number of orders that meet all the criteria / total number of orders) X 100 = a percentage
Why: This KPI serves as a holistic measure of supply chain effectiveness. A high Perfect Order Rate is directly proportional to customer satisfaction and can be an excellent public relations point for your company. It can also help identify areas needing improvement across multiple supply chain processes.
6. Warehouse efficiency
What: Warehouse Efficiency encapsulates the speed, accuracy, and cost-effectiveness of warehouse operations—from receiving inventory to shipping out orders.
(total time and resources spent on warehousing tasks / number of completed orders)
Why: This KPI is crucial because optimizing warehouse activities can substantially reduce operational costs and increase customer satisfaction through faster delivery times. Efficient warehousing can also free up valuable space, leading to inventory turnover improvement.
Use advanced data analytics platforms for more granular insights, like time spent on each task, to identify areas for improvement.
7. Cost per order
What: Cost per Order is the comprehensive sum of all expenses incurred in fulfilling a single order—from material acquisition to delivery.
(add up every cost element—materials, labor, overhead, and shipping / total number of orders fulfilled)
Why: Understanding this KPI in detail helps identify cost leakages and inefficiencies in the supply chain. A high cost per order not only erodes profitability but can also be an indicator of underlying operational inefficiencies.
8. Return rate
What: Return Rate represents the percentage of items sold that customers return within a specified period.
(number of items returned / total items sold) X 100 = a percentage
Why: A high return rate can be a significant setback for profitability, signaling potential quality or customer satisfaction issues. It impacts warehouse operations and may lead to extra spending on reverse logistics. You can use customer feedback surveys to identify root causes and improve quality checks.
9. Cash-to-cash cycle time
What: This KPI measures the days between disbursing cash for raw materials and receiving cash from finished goods sales.
(sum the # of days inventory is held and sales are outstanding) - (the # of days payables are outstanding)
Why: Effective cash-to-cash cycle management is vital for maintaining liquidity and ensuring that the business can react to market changes quickly. Use real-time financial analytics tools to track this KPI and drive down the cycle time through better management practices.
10. Freight cost per unit
What: This KPI indicates the total shipping and handling costs divided by the number of units shipped.
(total cost of freight and handling / total number of units shipped)
Why: Accurate measurement of freight costs per unit is vital for setting realistic pricing strategies and identifying areas of inefficiency in your supply chain logistics. You can use this data to negotiate better shipping rates or consider alternate delivery methods.
GoRamp: your single source of truth
GoRamp is a cloud-based, centralized platform that offers the valuable service of being a single source of truth for your business. It is a unified system eradicating silos, integrating key stakeholders, and providing real-time, actionable insights across your supply chain.
How GoRamp empowers and aligns KPI initiatives
GoRamp is a strategy enabler. Here’s how it resonates with the KPIs we’ve discussed:
- Order accuracy: The platform allows for real-time tracking and validation of orders, driving up your order accuracy rates and minimizing costly mistakes.
- Inventory turnover: GoRamp's intelligent inventory management capabilities provide deep insights into stock levels and demands, facilitating a healthy inventory turnover ratio.
- On-time delivery rate: GoRamp’s truck management system (TMS) and dock scheduling solution assist in optimizing routes and managing timelines, enhancing your on-time delivery rates.
- Perfect order rate: Through seamless coordination between various operations and using GoRamp’s order management feature, sectors like procurement, warehousing, and delivery can obtain that perfect order rate.
- Warehouse efficiency: GoRamp offers an analytical view of your warehousing operations, illuminating inefficiencies and proposing actionable solutions through various modular solutions.
- Return rate: Through advanced analytics and integrated feedback mechanisms, the platform helps pinpoint the root causes of returns, leading to faster, more effective remedial action.
- Cash-to-cash cycle time: Comprehensive financial analytics yield an acute understanding of your cash flow, allowing for better cash-to-cash cycle management.
- Freight cost per unit: The platform's analytics and contract management feature give you a unit-by-unit breakdown of shipping costs, enabling strategic negotiations with shipping providers.
Monitoring the right KPIs in your supply chain isn’t just a numbers game and most companies struggle through the chaos and compile a lot of data only to throw it in a folder at the end of the year.
Investing in a sophisticated system like GoRamp can make or break how successful you are at the intricate task of KPI tracking. Or, you can use a cloud-based management system to gather, analyze, and provide the insights you need.
Schedule a free demo today to take the first step in this transformational journey.