As a business owner, you may be tracking several metrics. Metrics help measure results in a quantifiable manner. Supply chains have several components, thus resulting in several components that can be tracked. When you drill down into the details of your business and supply chain you may be overwhelmed with how many metrics you can choose to track. You may be asking yourself, what supply chain metrics should you be tracking?
What are supply chain metrics?
Supply chain metrics are data sets that are used to quantify and evaluate key elements of a business’s supply chain. The key elements include supply chain performance, customer service, and supply chain leverage. An efficient and fully optimized supply chain is critical to increase profitability and to increase shareholder value by ensuring the business is competitive in the marketplace. Here is a breakdown of the different types of supply chain metrics that are available for each of the key elements mentioned above,
- Supply chain leverage: Cost of inventory, cost of manufacturing, cost of materials, DSO, DPO, and several other tools.
- Supply chain performance: Accuracy of forecast demand, lead time and variability of replenishment, supplier performance.
- Customer service: Order fill rates, on-time delivery, and service levels.
The metrics supporting supply chain leverage (inventory, manufacturing, and material costs, DSO, DOP, etc.) help to lower the time it takes for cash-to-cash conversion cycles while adhering to projected customer service levels. The supply chain performance metrics help to improve demand visibility and forecast. These metrics drive continuous process improvement to create leverage further down the supply chain. The customer service metrics help to balance service levels with profitability. They monitor important metrics such as on-time delivery, which can be a large indicator of customer satisfaction.
When supply chain leverage, supply chain performance, and customer service metrics are collected and analyzed properly, they can be used to measure progress against pre-established goals and to strive for continuous process improvement.
What are the important supply chain metrics / KPIs?
When you are looking at defining your supply chain KPIs, you have to set the performance parameters that are required for tracking operations that give you insights into how well your supply chain is functioning. You can establish goals and track these operation metrics to reveal how effectively your supply chain is meeting those targets. KPIs can help your company improve order fulfillment, shipping operations, and warehouse management. KPIs can make shortcomings apparent, allowing you to leverage areas you are excelling to improve supply chain performance. If you are thinking about expanding your business, then KPIs will help you make informed decisions to help you scale your business appropriately.
Top metrics every supply chain should track
Supply chains are comparable to circulatory systems. They must flow seamlessly and uninterrupted in order for production, transportation, customer service, and other operations to be aligned.While it may be a complex task to track supply chain metrics, you will be glad you invested the resources into tracking. Metics can help you identify areas of improvement, thus allowing your business to be more efficient and lower costs. Metics can also help businesses better meet customer demands. The more organized and aligned your organization is, the better customer service you can deliver. Here are some supply chain metrics that you should track.
Cash to cash time
Cash-to-cash (C2C) can also be called cash conversion. It’s a simple metric that measures the time between a company sending cash to a supplier and receiving cash from customers. Typically, three measurements are used to make up this compound metric. Those measurements are days of inventory, days of payables, and days of receivables. While benchmarks can vary from business to business, cash conversion cycles of less than one month are favorable. The cash conversion cycle can vary depending on the industry. A study reported that over 22,000 publicly traded companies had a direct correlation between a shorter C2C cycle and greater profitability in 75% of cases.
Cycle time helps indicate overall efficiency of a supply chain. This metric measures the time it would take to complete a customer’s order, assuming all inventory levels are at zero at the time the order was placed. It’s the sum of the longest possible lead times for every stage within the supply chain cycle. Shorter cycles indicate a more flexible and responsive process. Supply chain cycle time can help uncover existing or potential problems.
Demand satisfaction rate is often called fill rate. This metric is the amount of customer demand met through stock availability. It does not include backorders or lost sales. Tracking fill rates helps identify sales you can recover and or inventory performance. If you have better inventory performance you can provide better customer service. A key part of this metric is understanding access to inventory data. The more accurate and accessible inventory is, the more accurate shipping and orders can be. Maintaining a good relationship with suppliers can help improve fill rates.
Inventory turnover is a simple yet critical metric to track. In simplest terms, inventory turnover is the number of times inventory will sell out within a specific time period. Inventory turnover can provide a snapshot of the efficiency of your entire supply chain process. Benchmarks will vary depending on the company and the industry. A low inventory turnover rate usually indicates weak sales. What is considered low can depend on the industry.
Perfect order rate
A perfect order rate or index is a metric that shows the error-free rate of the entire supply chain process. Every stage of the process is evaluated to determine the overall performance indicator. In some cases, this can be a confusing metric. For example, if there are four stages being evaluated and each stage is performing at 99%, when multiplied together you will get a 96% error-free rate. While the metric may be confusing it’s important to drill down to determine issues and where they are coming from. The perfect order rate can help improve overall supply chain performance.
Supply chain costs
Costs are an extremely important metric to pay attention to and carefully track. For the supply chain, relevant costs might include planning, sourcing, developing, and so forth. Costs can help determine how efficient various parts of your company are. It’s always important to increase profit without increasing costs. However, you want to avoid taking shortcuts or doing things the wrong way in order to cut costs. You also want to make sure you find the value in each cost. Investing in one area may indirectly improve another area of your business. It’s important to think broadly and have an open mind.
Grow your business with Kickfurther
Tracking metrics and growing supply chains requires investment. If you aren’t already tracking some of the metrics explained above, you should start now. As your business grows, you may need to secure financing. Metrics may help you understand that you need more inventory and or when you need more inventory. Maintaining proper inventory level is critical to ensure orders are on time and no sales are missed. As a small business, it may be hard to qualify for inventory financing. Or worse, it may be expensive to use inventory financing. Kickfurther offers businesses a better way to secure the funding they need for inventory. Kickfurther is up to 30% cheaper than other options. If you are trying to grow your business and improve your supply chain, you may be roadblocked by a lack of funds. Kickfurther can help you drift around roadblocks and keep your business growing.