Introduction
Now more than ever, having full control of your supply chain makes your job smoother and simpler. Not long ago, I was asked to define the Top 10 Supply Chain management KPIs I would use to monitor my Supply Chain performances.
If this is something that interests you, I’ve already done the dirty job of navigating a plethora of metrics and picked the ones I considered the most insightful.
What is a KPI?
KPI stands for Key Performance Indicator. In a handful of words, it’s a quick, simple, and insightful measure of one specific metric.
It works like a thermometer for your core processes and usually, it follows the rule: if it’s good, your process is good.
The reason why KPs has always been so popular is simple: Top management has no time to deep dive into every single aspect of their business but they still want to check from the surface that everything is fine. Yet, KPIs give them both the opportunity of an overall overview and a chance to make them focus only on what needs improvement.
#1: OTIF - On Time In Full
This KPI is pretty self-explanatory. It measures the percentage of orders received or shipped in time and in full. I personally love this KPI, as it works both for inbound and outbound logistics.
You can also measure it by supplier if your aim is to classify their performances or, if we consider outbounds, evaluate one of your fulfilment centers.
Type: Percentage
Value Range: from 0% to 100% were 100% is excellent.
#2: Purchase Spent
Who doesn’t want to keep costs under control? This Indicator can be easily measured on a monthly basis and compared against your budget. It greatly supports you and your team in measuring your Supply Chain performance against your financial targets set at the beginning of the year.
Type: Currency (Number)
Value Range: no Min but Max should stay within your budget
#3: Safety Stock Value
Even though I’m not a huge fan of safety stock, I understand that, in some cases, it is necessary. Transport and MOQ can play dirty and screw up your plans leaving you with no choice. Keep this value under control to maximize your cash flow and strike at the best balance between holding some extra stock and optimizing your production/replenishment.
Type: Currency (Number)
Value Range: as low as possible to avoid disruptions. Ideally, this should be equal to 0.
#4: Planned Purchase Order Value
A bit more technical than the previous ones, this Supply Chain Management KPI is aimed to control your future expense due to “planned” and “firm” purchase orders to satisfy your requirements. Whilst having historical records of your expenditure is easy to get, forecasting your future cash requirement requires, most of the time, an MRP.
It’s important for you to consider both your firm orders (orders that you’ve already committed to) and your planned orders (future requirements suggested by your MRP but not yet firmed).
Even though the planned orders part might change since not yet 100% confirmed, your expenses won’t be so different if your stock and demand are accurate.
Working with this metric will be extremely useful for your cashflow management as your will know your future commitment in advance
Type: Currency (Number)
Value Range: no min or max, to be checked against budget
#5: Inventory Breakdown
You’ve got to know what your inventory is made of. Ideally, you can summarize your report in three macro-categories:
- Raw Material: everything that you buy and it’s not yet processed
- WIP: your Work in Progress is everything that left the raw material status but it’s not yet turned completely to Finished Goods
- Finished Goods: Goods that have reached their final status and are ready to be sold to customers
Type: Percentage – usually worked out on the total value of your inventory
Value Range: your total of Raw Material + WIP + Finished Goods must be 100%
#6: Inventory Days of Supply
Definitely one of my favourite. It shows how quickly you would completely deplete your stock of Raw Material and WIP at the current rate of Sales.
This is probably one of the easiest metrics to understand as, in other words, compare your sales rate against your stock and WIP on hand. It can be represented in days or also weeks, to give your audience a more responsive result.
To calculate it, simply take your last 6-month average sales figure and divide it by your current inventory. Finally, multiply this number by 30 to get your result in inventory Days of Supply.
Type: Number – Days or Weeks usually
Value Range: The lower the better as it means your inventory turns at a higher rate
#7: On-Time Shipments
Now, let’s move on to the tail end of your core process, and let’s start to analyze your outbound performances. Even in this case, the On-Time Shipment KPI is pretty self-explanatory.
Depending on your type of business you’d want to set some SLA for your customers and measure yourself against them.
Say that you are confident and capable of despatching orders within 2 days, your task is just to count how many of your sales orders were despatched in 3 or more days and compare them with the total amount of orders received during the current month.
If your business doesn’t have such a quick turnaround or you’re mainly working on a Make to Order policy, simply measure yourself against the despatch date you’ve agreed with your clients.
Type: Percentage where 100% is excellent and 0% is poor
Value Range: The higher the better, ideally you want a 100% score which means every order is despatched within the agreed SLAs or within the deadline agreed with your clients
#8: Carriers Performance
We all depend on quick and reliable deliveries and partnering with decent carriers is vital for your business to thrive.
Ideally, with this KPI, you want to capture two essential metrics:
- Number of orders delivery issues / total number of orders despatched
- Average transit time from despatch to delivery
Type: Percentage for point 1. and Number for point 2
Value Range: the lower the better for the first and the second. Ideally, no delivery issues with the quickest transit time would be perfect
#9: Click To Bell Time
Nowadays and especially for D2C businesses, your customers are expecting to receive their products within days. Amazon Prime set the standard however, it’s not always possible to guarantee a next-day delivery and be profitable.
With the Click to Bell KPI, your aim is to calculate how long is your “order to delivery” time, which is nothing but the time your customers are waiting before receiving the goods they’ve just purchased.
To calculate this KPI, you essentially need two information:
- Date and Time when the order was placed
- Date and Time when the order was delivered
Whilst the first information is easy to retrieve from your system, the second one is a bit harder to obtain. In a small context, you could check the tracking number of the parcel for every order (time-consuming) but frankly, it is easier to retrieve the date and time of the delivery using 3rd party apps or integrations.
For further analyses, you can also niche down your report by country or region to get more insights and maybe find a better suitable service.
Once you’ve gathered your data, simply subtract the second one from the date when the order was received in your system to get your Click to Bell Time
Type: Number – Usually Days
Value Range: The lower your number is, the lesser your customers will wait to receive their parcel.
#10: Returns Rate
Nothing is more annoying than clients returning their customers.
Whilst the reason behind returns might be different, is important to have an idea of the frequency of the returns. A good measure is the evaluate the return rate against the total number of orders despatched.
Type: Percentage
Value Range: The lower the better
Conclusioni
In this post, I wanted to share with you my Top 10 Supply Chain Management KPIs to measure the performance of your supply chain.
Whilst this set of metrics is a good start, to begin with, Supply Chain Management is in constant evolution and, depending on your type of business, you might want to focus on some instead of others.
Ideally, you might want also to develop your own set of KPIs, to keep your processes monitored and under control.
And you, what type of KPIs are you using to measure your supply chain performances?
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