Does it seem like we’re talking about the supply chain more often than ever before? That’s because we are.
There were more than two million mentions of the supply chain on Twitter in the fourth quarter of 2021. That’s over five times higher than 2019.
The pandemic impacted every part of the supply chain. It continues as manufacturers in China slow production, truckers go on strike, and small businesses struggle to get products to customers.
For supply chain managers, there’s only so much you can do. There are supply chain key performance indicators that you can implement for better oversight of your business.
You can’t control what happens to the supply chain thousands of miles away. You can control your part of the supply chain to ensure better performance.
Read these key performance indicator tips to learn how you can manage your supply chain and improve performance.
1. Inventory Supply
This key performance indicator tells you how many days you have before your inventory runs out. This is a difficult metric to get just right.
You could run the risk of running out of stock and losing sales if you misjudge this number. It’s also possible to increase operations costs by making emergency orders.
You could end up with too much inventory. Too much inventory costs more to store.
Take the number of items you have in stock. Know what your average monthly sales are. Divide that number by 30 to get your average daily sales.
Take the number of items in stock and divide by the average daily sales. That’s the number of days you have enough supply to cover.
You may need to make seasonal adjustments during times of high sales.
2. Accuracy of Freight Bills
Do you ship materials to a warehouse or directly to customers? The freight bill gives the receiving clerks information about each shipment.
They’ll confirm the cost per unit and the number of units in the shipment.
If this information is incorrect on the freight bills, your customers won’t find your business to be trustworthy. A simple error could lead them to think you’re trying to rip them off.
The business stands to lose money if you have billing errors, too.
Take the number of correct freight bills and divide that number by the total number of freight bills. Multiply that number by 100 and you have your accuracy rate.
3. Perfect Order
Managers see this as the most important supply chain key performance indicator. It doesn’t measure a singular aspect of the supply chain.
Perfect order is the percentage of orders fulfilled without any issues. This has the most impact on customer satisfaction, but it’s one of the most challenging to measure.
That’s because the perfect order rate is made up of several KPIs. This checks the number of deliveries that have accurate documentation.
It also tracks the percentage of on-time deliveries and deliveries made with the product in excellent condition.
4. Fill Rate
There are a few fill rate key performance indicators to observe. You’ll gauge the efficiency of the delivery part of the supply chain.
The unit fill KPI measures the percentage of items delivered in the first shipment. The order fill measures how many orders got delivered in the first shipment.
5. Gross Margin ROI
This metric shows you how much profit your business sees from an inventory purchase. This information helps you make strategic decisions about inventory, production, and business operations.
Take the gross profit and divide it by the inventory cost.
6. On-Time Delivery
Customers have high expectations for product deliveries. About 43% of consumers choose next-day delivery when they make an online purchase.
If you fail to meet their expectations, you won’t see those customers return to your business. This is a measurement of the number of on-time orders divided by the total number of orders.
Supply Chain Key Performance Indicator Tips
Which supply chain KPIs should you choose? Start by looking at your business goals and strategies. The main KPIs you choose need to be aligned with them.
You can also base your KPIs on different areas of the supply chain. You can have one supply chain key performance indicator for manufacturing and production and another one for order processing.
Supply chain managers find it helpful to have a couple of supply chain KPIs in each area.
These KPIs help you measure the results of your key objectives. They don’t help you manage people to make improvements.
A performance management process is necessary to keep employees motivated and engaged. Using KPIs to measure the business can make employees feel micromanaged.
This how to guide takes you through the steps to create a performance management process. It allows you to encourage employees and hold them accountable at the same time.
This model leaves room for coaching to get the most out of your employees. The last thing you want to do is implement KPIs that increase employee turnover.
You’ll see your operations costs balloon to replace those employees. The coaching model gives employees room to improve and enjoy their work.
The Top Supply Chain Key Performance Indicators
What are the top supply chain key performance indicators? They’re the KPIs that are aligned with business goals and strategies.
They can be inventory supply, perfect order rate, on-time delivery, or gross margin ROI. It’s important to remember that you have to manage people and guide them to improve. You’ll see the KPIs head in the right direction.
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