Measuring and Optimizing Supply Chain KPIs
Assuring the success of a business requires running seamless operations that produce consistently good quality products and services. This means that there is a need to constantly track and manage the performance of significant operations. To track the performance of their supply chain, ecommerce business owners need to measure and optimize supply chain KPIS.
While it can be done using the comprehensive analytics dashboards offered by several supply chain management platforms, it won’t serve well unless you first identify the right KPIs from the lot. In this blogpost, we will share a list of the top most important supply chain KPIs that ecommerce businesses must track, and discuss how outsourcing fulfillment to a third-party logistics company such as ShipBots can enable you to efficiently measure and optimize supply chain KPIs.
What are Supply Chain KPIs?
The quantitative metrics that indicate the performance of supply chain operations of a business are called its KPIs. Each KPI is linked with a specific aspect of your business operations, and you need to measure these KPIs periodically to verify if your business is on track to meet its goals. This enables business owners to gain useful insights regarding current performance and identify areas for improvement. Here is a list of some of the most important supply chain KPIs that you need to track and optimize:
- Average delivery time
- Customer order cycle time
- Freight bill accuracy
- Gross margin return on investment (GMROI)
- Inventory turnover
- Order fill rate
- Perfect order rate
- Supply chain costs
Most Informative Supply Chain KPIs
Tracking your supply chain KPIs is crucial to identify areas that require improvement and to boost the productivity of your operations. While there are dozens of KPIs that you can track, it’s efficient to track the most important ones rather than getting overwhelmed and casting away the whole process. Read on to learn formulas to calculate the most informative supply chain KPIs and how to optimize them.
#1. Average Delivery Time
Average delivery time measures the number of days consumed between the shipping of an order from your fulfillment center to its arrival on a customer’s door. Measuring this performance indicator tells a business about the efficiency of its shipments. Many businesses have started offering expedited shipping for a higher quote while others choose to strategically locate products in the best warehouse location. You can calculate the average delivery time with the following formula:
Average Delivery Time: Total days to deliver all orders / Total number of orders delivered
#2. Customers’ Order Cycle Time
The customer order cycle time is a measure of the time between the placement and receival of an order. A low customer order cycle time indicates quick and fast processing and delivery and high efficiency of your supply chain. Strategic allocation of products in warehouses and close monitoring of shipping carrier’s performance can help in keep the value for this KPI low.
Customer Order Cycle Time: Delivery Date – Date of Purchase Order Placement
#3. Freight Bill Accuracy
This KPI is used to analyze the precision of information mentioned in the shipping bills. This includes information regarding product details, its cost, amount, and weight. Errors in your freight bills can negatively impact your customers’ experience and in turn your business profitability. It can be calculated as follows:
Freight Bill Accuracy: Number of correct freight bills / Total freight bills) x 100
#4. Gross Margin Return on Investment (GMROI)
GMROI is a great metric for evaluating your profits and planning your future procurement as it measures the amount generated by selling certain inventory items. Improving demand forecasting and cutting down on inventory carrying costs can improve the value obtained for Gross Margin ROI.
GMROI: (Gross profit / (Opening inventory – Closing inventory)x 2 x 100
#5. Inventory Turnover
It measures how often your entire inventory is sold out and restocked with a certain timeframe. Higher value of inventory turnover represents the proficiency of sales of a business. Low inventory turnover can be improved through better demand forecasting and an overall enhanced order life cycle.
Inventory Turnover Rate: Cost of goods sold / Average inventory value
#6. Order Fill Rate
It is the percentage of successfully completed orders within the first shipment. This metric is an important indicator of the efficiency of your supply chain operations, and it can be improved by opting for automation of fulfillment processes.
Order Fill Rate: (1 – [(Total items ordered – Total items shipped) / Total items ordered]) x 100
#7. Perfect Order Rate
Perfect order rate is a measure of the percentage of order delivered correctly i.e. on time and without damage. It is expressed as the on-time delivery rate and the damage-free delivery rate. On-time delivery order rate reflects the percentage of orders delivered timely while damage-free delivery rate tracks the percentage of orders delivered intact, and both these rates reflect the efficiency of your shipping service and how well you’re meeting your customer’s expectations.
On-time delivery: (On-time orders / Total orders) x 100
Damage-free delivery: [(Total orders – Number of damaged orders/ Total number of orders] x 100
#8. Supply Chain Costs
This KPI calculates the cost of running your supply chain operations and it is calculated as two separate KPIs:
Supply chain cost as a percentage of sales: (Total supply chain cost / Total amount gained from sales) x 100
Supply chain cost per unit sold: (Supply chain cost for a product / Number of units of that product sold)
How to Track and Optimize Supply Chain KPIs?
Utilizing tools offered by the right supply chain management software platforms can make analyzing KPIs a lot easier and provide you real-time visibility with a glance at their analytics dashboards. Readily available and updated information makes it easier and faster to identify operations that require immediate optimization to prevent financial loss.
How Can ShipBots Optimize your Supply Chain?
Outsourcing your supply chain management to a tech-savvy 3PL such as ShipBots will make optimizing operations a breeze, since at ShipBots great emphasis is laid on maintaining transparent inventory records that contain micro detail updates obtained through tracking SKUs. Our team efficiently tracks warehouse KPIs, and makes use of supply chain formulas to carefully measure and analyze your supply chain KPIs as well. Therefore, you can trust ShipBots to efficiently analyze and optimize your supply chain KPIs for you.