E-commerce feels like magic. You order something online with just a few clicks and it arrives on your doorstep a few days later. But with any e-commerce experience, Business Owner We know it’s not that easy: Getting products from the factory to the customer requires precise coordination between multiple vendors across the supply chain.
To continually drive revenue growth and maintain customer satisfaction, it’s important to track a few key supply chain metrics.
What are Supply Chain KPIs?
Key performance indicators (KPI) is a measurable value that indicates how effectively an organization is achieving its key business objectives.
Supply chain KPIs help you specifically evaluate the efficiency, effectiveness, and performance of your supply chain operations. Supply chain analytics is used to examine, interpret, and understand supply chain KPIs and other data to answer important questions about shipping times, order errors, inventory, and costs.
Supply Chain KPIs are: supply chain management It leads to sustainable success. By closely monitoring your list of supply chain KPIs, you can leverage these metrics to optimize your operations, increase customer satisfaction, and scale your business.
Key supply chain KPIs to track
“There are a lot of KPIs that companies need to track to ensure they are running a profitable business,” said Parisa Sadrazadeh, senior vice president of omnichannel fulfillment. FlexportSupply chain logistics platform.
Supply chain operations vary by industry and individual company. For example, some companies may need to ship internationally, work with ocean freight agents and customs, while others may need to ship handcrafted goods domestically and control costs.
Still, the following supply chain performance metrics are applicable to most businesses.
Customer KPIs
Customer-facing KPIs focus on the effectiveness of supply chain operations from the customer’s perspective. They emphasize external aspects such as order accuracy, on-time delivery, and product availability. Examples include:
Perfect Order Rate
Perfect Order Rate, or Perfect Order Index, measures the percentage of orders that are error-free from start to finish. This means that the order was recorded correctly, delivered on time, contained all the necessary parts, and arrived without damage. To calculate it, use the following formula:
Perfect order rate = (number of perfect orders / total number of orders) x 100
This is a key supply chain KPI that reflects the overall efficiency and reliability of your supply chain.
Out-of-stock rate
Out-of-stock rate measures how often an item is out of stock when a customer places an order. The lower this rate, the better, as it reduces lost sales. The formula for calculating out-of-stock rate is:
Out-of-stock rate = Out-of-stocks / Total order requests x 100
This metric is key for inventory management, but it also has implications for marketing and branding.
“Operations are critical to building brand trust and loyalty with consumers,” Parisa explains. “If products are constantly out of stock, you’re going to lose sales and customers.”
Filling rate
Fill rate tracks the percentage of customer orders that are filled on the first shipment, meaning that all items in an order are included in the first shipment and there are no backorders or shortages. This percentage of orders that are shipped on the first attempt reflects the efficiency of your supply chain and your ability to deliver products on time to meet customer demand. To calculate fill rate, use the following formula:
Fill Rate = (Orders Shipped / Total Orders Placed) x 100
You can use a version of this formula to calculate more detailed fulfillment rates, such as line item fulfillment rate, which measures the percentage of order lines (individual items within an order) that were delivered on the first attempt.
Line Fill Rate = (Order Lines Shipped / Total Orders Placed) x 100
The same applies to unit fill rate, which tracks the percentage of individual items delivered on the first attempt.
Unit Fill Rate = (Units Shipped / Total Orders) x 100
These variations can help pinpoint specific issues, such as specific product lines or items that are impacting your overall fill rate.
Cycle Time KPIs
These KPIs focus on the time required between specific tasks within the supply chain process.
Cash-to-Cash Cycle Time
Cash-to-cash cycle time tracks the time it takes from when you pay your vendors for raw materials to when your customers pay for the products that are made from those raw materials. Cash flowTherefore, this indicator should be as low as possible.
Cash-to-cash cycle time helps identify potential cash flow issues by analyzing three stages:
- Days in inventory turnover (DIO) measures how long inventory is held before it is sold.
- Days Accounts Receivable Outstanding (DSO) measures how long it takes to collect payment after a sale.
- Days outstanding paid (DPO) measures the time it takes to pay a vendor after receiving an invoice.
Plug these numbers into the formula to calculate your cash-to-cash cycle time.
Cash-to-cash cycle time = DIO + DSO − DPO
Customer Order Cycle Time
Customer order cycle time measures the time it takes from when an order is placed to when it is received. It is a function of the responsiveness of your supply chain and Fulfillment ProcessTo determine the customer order cycle time, use the following formula:
Customer order cycle time = Actual delivery date − Purchase order creation date
“Consumers expect fast delivery wherever they shop, and delivery speed is often a deciding factor when customers are choosing between different brands,” Parisa said.
“Retailers should measure their average delivery time and the sales lift that comes with faster delivery times. In fact, advertising fast delivery speeds can increase conversion rates by up to 25%.”
Supply Chain Cycle Time
Supply chain cycle time is a broader KPI that measures the time it takes to deliver an order without inventory, from sourcing raw materials to delivering the finished product to the customer. It measures the end-to-end efficiency of your supply chain process. The lower this number is, the more agile and responsive your business is. supply chain.
This KPI provides an overview of the efficiency of the entire supply chain as it covers all the critical processes such as:
- Raw materials procurement
- Manufacturing
- Transporting the finished product to the warehouse
- The time the product is stored in the warehouse
- Delivery to customer
The formula is as follows:
Supply Chain Cycle Time = Order Processing Time + Procurement Time + Manufacturing Time + Transportation Time + Warehousing Time + Delivery Time
Inventory and per unit KPIs
These metrics help you monitor your inventory and decide which products to offer.
Inventory Turnover
Inventory Turnover It measures how often your entire inventory is sold in a given period of time. A high turnover rate indicates an efficient supply chain and the ability to properly manage your inventory, which means strong sales.
A low turnover ratio may suggest room for improvement, such as poor sales or inefficient inventory management, which can result in excess inventory. To determine your inventory turnover ratio, use the following formula:
Inventory Turnover = Product Price On sale during the period / Average Stock
Return on Investment
Return on investment (GMROI) tells you how much gross profit you get for every dollar you invest in inventory. To calculate return on investment, use the following formula:
gross Return on Investment = Gross Profit / Average Inventory Cost
You may find that some products or categories generate higher GMROI than others and use these to help prioritize promotions. This supply chain KPI can also help you benchmark against industry standards and identify product lines that need improvement.
Supply chain costs as a percentage of sales and per unit
These KPIs measure the cost of your supply chain processes compared to other metrics such as overall sales or the number of specific items sold. The formula for total supply chain costs as a percentage of overall sales is simple:
Total supply chain management costs as a percentage of sales = (Total Supply Chain Costs / Total Sales) x 100
Supply chain costs can also be measured according to the number of unit items a company sells.
supply chain Cost per Unit Units sold = Supply chain cost of the product during the period / Number of units sold during that period
Supply Chain KPIs FAQ
What are the key KPIs used to measure supply chain performance?
There are many supply chain management KPIs available and the ones you use will vary depending on your business. Common KPIs include complete order rates, fill rates, customer order cycle times, and inventory turns.
Why do businesses need to track supply chain KPIs?
Supply chain key performance indicators help you evaluate the efficiency of your production processes. Supply chain management metrics give you deeper insights across your business, allowing you to make data-driven decisions for growth.
Are there tools that can help you track your supply chain KPIs?
Yes, many software platforms, such as Flexport, simplify and automate these calculations while providing at-a-glance supply chain KPI dashboards for business leaders.
