5 Key Metrics to Track for Maximum Supply Chain Efficiency

5 Key Metrics to Track for Maximum Supply Chain Efficiency

All businesses need benchmarks to evaluate specific functions such as HR, customer service and social media performance. Similarly, distribution metrics are used to track the supply chain system and measure its performance and capacity. The better the metrics used to design the supply chain system, the better its performance and effectiveness.

In the current COVID-19 business environment, distribution metrics matter a great deal. Many logistics companies now have AI-driven demand planning tools. You can leverage big data and hyper intelligence to apply so many other metrics to your distribution plan, including customer habits and changing behaviors.

The metrics that drive logistics fulfillment and success differs from supply chain to supply chain. Here are five distribution metrics that you can use to track your supply chain and optimize its performance.

Perfect Order

An important fulfillment metrics in measuring supply chain performance, the perfect order refers to the percentage of the orders that are delivered without errors – in other words, orders delivered to the right place, at the right time with the right product, in good condition, the right quantity, with the right invoicing and documentation to the right customer.

What makes the perfect order a critical benchmark is the high standard it sets. A perfect order metric is hard to achieve and the formula is based on multiplying the various sub-metrics. For instance, if your business averages at 98% (0.98) when it comes to timeliness, 99% (0.99) in terms of quality and condition, and 93% (0.93) when it comes to product quality, you get 0.8661. Multiply it by 100 and your perfect order score is 86.61%.

This sets a high bar to work towards and keeps businesses focused. Ultimately, it is about driving performance instead of using metrics just to appear effective. The idea is to work upon and drive towards a better score. This metric gives you an overall view of the supply chain and can help you identify chinks in the system, whether it pertains to supply chain performance, vendor quality, service issues or costs.

Cash to Cash Cycle Time

Are you operating in a smart, lean and profitable supply chain that gives you a better bang for your buck? A cash to cash cycle time, also known as cash conversion, is a great metric to drive this kind of efficiency and turnaround time. Simply put, cash to cash cycle time is the number of days from the time you acquire your inventory to the time your customers pay for your product. The slower this cycle moves, the costlier it gets to produce your product. If this timeframe reduces, then this is good for the supply chain and it also means that your operating capital is not being tied up in the hands of others.

In general, 30 days or less is the optimal cash to cash cycle time, irrespective of industry. Cash to cash cycle time is important, especially for small and medium enterprises, as they are strapped for liquidity. If an SME pushes the cash to cash cycle time to 60 days, it needs to borrow money to pay for the next stash of inventory. This metric gives you some excellent ways to spruce up the supply chain – for instance, identifying pain points across the chain, options for immediate payment from customers, inventory optimization and better data management.

Inventory turnover

Inventory turnover refers to the total sales divided by the average inventory you have on hand. The idea is to check how many times inventory is being sold and replaced in a certain time frame. To do this, stores use many tools such as a stock keeping unit or SKU, an alphanumeric code used to identify a product and to control inventory by measuring real-time inventory levels.

The inventory turnover is calculated by the cost of goods sold divided by the average inventory. It is a great metric to optimize your company’s operational cash flow.

The Society for Maintenance and Reliability Professionals “recommends an inventory turn value greater than 1.0 when accounting for the total inventory and a value greater than 3.0 when accounting for the inventory without critical spares.”

Warehouse Capacity

Warehouse capacity utilization rate and the average warehouse capacity are useful metrics to track. A 100% capacity utilization rate is something to strive toward, although 80% is also a good percentage. If the company is using only 10% of its warehouse capacity, it means that it is paying for unproductive space. To measure these metrics, a company needs efficient software, processes and teams.According to 2019 Warehousing Education and Research Council (WERC), a business that is optimizing its warehouse capacity is using 92.54% of its available warehouse capacity and of course, the best peak warehouse capacity is 100%.

Fill Order Rate

The fill order rate, also known as the demand satisfaction rate, refers to the percentage of customer order demand that is met by the available stock on hand. This metric drives customer satisfaction and timeliness. The fill rate can tell you how much of your sales you can recover and how you can service your customers better. It also shows you how you can optimize your inventory performance and warehouse capacity. Understanding and using KPIs to leverage your inventory control and performance is a good way to improve fill order rates. Understanding the stock at hand thoroughly helps you ship orders quicker and to ensure customer satisfaction. According to this report,improving supplier-retailer relationship can result in an 80% improvement in fill rate. To help improve fill rates, automation software can help you control and track stock and predict delays. Real-time inventory control and results can be used to work towards a 100% fill rate.

With the supply chain and logistics industry changing rapidly due to the pandemic, it is important to aspire for a lean, dynamic and resilient supply chain. The above distribution metrics are important ways to make your supply chain do the work for you.

Read More:Chief Supply Chain Officers Adjust to the “New Normal”

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