How do you know how your business is performing?
Typically, you wouldn’t rely on your “gut sense”, or how you feel things are going. Instead, you would crunch the numbers on your balance sheet, calculate profits, and track important data points to determine your company’ performance.
Evaluating your supply chain should work the same way. To get the most accurate picture of your supply chain’s performance, you’ll need to rely on supply chain metrics. These metrics act as rulers, allowing you to measure the quality, efficiency, and ultimately success of your supply chain.
In this article, we’ll cover five important supply chain metrics to track, as well as tips for improving your supply chain metrics over time.
What are supply chain metrics?
Supply chain metrics (also called supply chain key performance indicators, or KPIs) are the numbers, ratios, and parameters used to measure supply chain performance.
Supply chain metrics quantify different aspects of your supply chain, such as delivery and inventory movement, to provide insight into the efficiency and quality of those functions.
Why are supply chain metrics important?
Supply chain metrics are essential for measuring a company’s progress in achieving their goals. They provide visibility into key functions, and ensure that every part of the supply chain is monitored and running smoothly.
As such, tracking supply chain metrics can help a business easily identify areas in need of improvement or where supply chain efficiency could be enhanced. With a better understanding of their supply chain, businesses can be more proactive when facing challenges, and also increase their supply chain’s resilience and agility.
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5 supply chain metrics to track
There are plenty of supply chain KPIs that can help you understand your supply chain performance. While you may want to pay special attention to particular metrics depending on your business’s goals, there are some key metrics that almost every business cares about.
Here are five supply chain metrics that every ecommerce business needs to track.
This metric measures the percentage of deliveries that were made on time.
It’s mainly useful for understanding your supply chain’s ability to fulfill orders by the promised date.
The formula for measuring on-time delivery (OTD) is:
OTD = (On-time deliveries) / (Total deliveries) x 100
For example, let’s say that out of 600 orders that were delivered, only 450 were delivered before the promised delivery date. In this case, your on-time delivery date would be:
OTD = 450/600 x 100 = 75%
In this example, the OTD is quite low. To satisfy and retain customers, strive to maintain at least a 95% OTD rate.
Some businesses get more granular and measure their on-time in-full (OTIF) order fill rate — also called the perfect order rate — which tells you the percentage of orders that were not only delivered on time, but delivered error-free.
This metric measures the number of orders that arrived damage-free.
A high damage-free delivery percentage is crucial to an ecommerce business’s bottom line, as it almost always costs business a lot of money, time, and effort to replace damaged items.
The formula for calculating damage-free delivery rate is:
Damage-free delivery rate = (Damage-free deliveries) / (Total deliveries) x 100
That means if 550 orders arrive undamaged out of a total of 600 shipments, your damage-free delivery rate would be:
Damage-free delivery rate = 550/600 x 100 = 91.6%
Ideally, businesses should aim for 100% damage-free deliveries. While this isn’t always possible, especially in supply chains that involve multiple touchpoints, try to make sure that your numbers don’t drop below 95%.
Customer order cycle time
This metric measures the number of days between the moment a business receives an order and the moment that order arrives on the customer’s doorstep.
A shorter order cycle time typically translates to higher supply chain efficiency, and a better customer experience. While longer lead times and slower shipping rates caused by supply chain crises can inflate cycle time, 2 days is a good benchmark to aim for.
You can calculate your customer order cycle time with the formula below:
Customer order cycle time = (Actual delivery date) – (Purchase order creation date)
For example, let’s say you received the order on September 20 and delivered it to the customer on September 25, your order cycle time will be:
Customer order cycle time = 25 – 20 = 5 days
Freight bill accuracy
As the name suggests, this metric measures the number of accurate freight bills.
Freight bill accuracy can help identify negative trends in billing operations.
The metric is calculated using the formula below:
Freight bill accuracy = (Number of correct freight bills / Total freight bills) x 100
So, let’s say out of 600 freight bills, 500 of them are accurate, your freight bill accuracy rate would be:
Freight bill accuracy = 500/600 x 100 = 83.3%
Once again, the ideal freight bill accuracy rate is 100%, as an inaccuracy rate of even just 5% can cause significant issues in your billing operations.
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Emily Coolbaugh, Logistics Coordinator at Driveline Baseball
Your business’s inventory turnover ratio measures how many times your entire inventory has been sold and then replaced within a given timeframe.
Inventory turnover is an extremely versatile metric, and can be used to evaluate the efficiency of your operations, your order fulfillment processes, and your production processes. You can even calculate turnover on the SKU level to identify which SKUs are selling well and which ones are slow-moving.
The following formula is used for calculating inventory turnover:
Inventory turnover = Cost of goods sold (COGS) / Average inventory value
For instance, if your COGS in the previous quarter was $100,000, and your average inventory value in that quarter was $25,000, your inventory turnover would be as follows:
Inventory turnover = 100,000/25,000 = 4
That means that in the previous quarter, you completely sold and replenished your inventory 4 times.
For most retailers, an inventory turnover rate between 2 and 4 is ideal. However, this can vary by industry.
How to improve your supply chain metrics
Once you start tracking these performance metrics, you may find that there is room for improvement across different processes in terms of speed or productivity. Here are some tips to help you improve those numbers and ultimately boost your supply chain velocity.
Continuously optimize your supply chain
Supply chain optimization is an ongoing process. Even if your current metrics are satisfactory, that doesn’t necessarily mean they’ll remain satisfactory several months down the line.
Situations change, and unexpected events or challenges may arise that could affect your supply chain’s performance. As such, there will likely always be areas and metrics that could benefit from optimization.
To keep improving your supply chain, you’ll need to continuously analyze your supply chain operations and recalculate metrics frequently. While it doesn’t have to be a daily occurrence, checking metrics periodically will help you identify problem areas and fix them before they lead to bigger issues.
Having real-time visibility into your entire supply chain provides you with up-to-date data that you can use to make better decisions, and subsequently improve your supply chain metrics.
For example, visibility into inventory levels at all stages of the supply chain provides you with an accurate sense of how inventory is moving, and lets you time inventory replenishment accurately to satisfy customer demand.
Similarly, better supply chain visibility is essential for identifying any bottlenecks and delays. The quicker you pinpoint the source of an inefficiency, the quicker you can implement solutions — so having insight into your supply chain improves your overall efficiency and helps you optimize your supply chain management (or SCM).
“ShipBob has given us increased visibility thanks to the dashboard that allows us to easily manage stock and orders. That wasn’t possible for us before. Our relationship with ShipBob has been a game-changer for Quadrant, and it’s made my life so much easier.”
Will Kerr, Apparel Lead at Quadrant
Automate supply chain processes
One of the best ways to improve your metrics is by implementing supply chain automation in key functions.
By automating manual tasks that are menial and time-consuming (such as generating essential documents, generating pick lists, or paying out invoices), you can allocate human attention and hours to the most important activities, which saves time while increasing productivity.
Moreover, automation minimizes or eliminates human errors such as duplicating orders or incorrect data. This creates a lean supply chain that’s efficient, cost-effective, and more accurate.
Adopt supply chain software
The right supply chain technology can go a long way towards achieving better metrics.
While there are a variety of supply chain softwares on the market, consider investing in an inventory management system (IMS), order management system (OMS), and/or warehouse management system (WMS) to help you optimize your inventory tracking, order processing, and warehouse operations for efficiency.
Some supply chain software even uses artificial intelligence in different supply chain functions, which can improve certain metrics. For instance, some AI programs can detect patterns, trends, and gaps in sales data to predict future demand.
Additionally, you could improve warehousing supply chain metrics by leveraging robotics and self-driving trucks along with powerful warehouse management software.
Improve your supply chain metrics by partnering with ShipBob
With global fulfillment infrastructure and powerful proprietary software, ShipBob enables you to optimize your supply chain metrics while outsourcing fulfillment.
ShipBob’s dashboard maintains end-to-end supply chain visibility, and lets you keep track of how different supply chain functions are performing over time. With our analytics reporting tool, you’ll get accurate insights into your supply chain performance to identify room for improvement in shipping, fulfillment, inventory, and warehouse operations.
Moreover, ShipBob’s logistics expertise ensures that all your supply chain processes interact seamlessly for improved efficiency. When you leave fulfillment to the experts, you can increase accuracy rates and fulfillment speed to improve customer satisfaction, identify and eliminate bottlenecks, and save time and money.
Click the button below to learn more about how ShipBob can help you optimize your supply chain metrics.
Supply chain metrics FAQs
Here are answers to the top questions about supply chain metrics.
What is the best KPI for the supply chain?
The right KPIs to track for your business may not be the best for other businesses. However, metrics like inventory turnover, order cycle time, on-time delivery, damage-free delivery, and freight bill accuracy are usually some of the best metrics to track.
What are the five measures of supply chain performance?
According to the SCOR model, the five key components of the supply chain are planning, sourcing, making, delivery, and returning. The performance of each component is assessed based on reliability, flexibility, responsiveness, cost, and quality.
What is the difference between supply chain metrics and supply chain performance?
Supply chain performance refers to how well — that is, how quickly, efficiently, cost-effectively, and satisfactorily — a supply chain is functioning, or getting orders to customers.
Supply chain metrics are the numbers and ratios used to measure supply chain performance.
What supply chain metrics does ShipBob track?
ShipBob’s analytics tool allows you to track a number of different supply chain metrics, including (but not limited to) orders fulfilled on time, average fulfillment cost per order, transit time, inventory velocity, and inventory on-hand.