10 Key Supply Chain KPIs You Should Be Measuring
Logistics is a crucial driver of trade and beyond. Without this industry, there would be no possibility of swiftly and safely transporting products worldwide.
According to forecasts by Precedence Research analysts, by 2030, the value of the global logistics market will reach $18.23 trillion. And this is despite the challenges that constantly arise in various regions.
However, it’s not enough to focus on the segment and dream of building quality logistical processes. Significant efforts must be made, and supply chain KPIs must be constantly monitored and, if possible, improved upon.
What Are Supply Chain KPIs?
A supply chain KPI is a set of metrics that can measure existing supply chains’ efficiency and productivity. Furthermore, the parameters and indicators of this class literally point out potential business problems, as well as factors that restrain its development.
KPIs for supply chain can be used for brand activity analysis, preparation for scaling, or simply identifying moments that need to be corrected in the short or long term. For example, constant unsold inventory, shortages, disorganization, or supply delays lead to revenue loss.
What are the KPIs used to measure supply chain performance?
Note: there are no universal supply chain metrics that would optimally fit all types and scales of businesses. For example, small enterprises rarely need any additional distribution solutions as their product turnovers are minimal.
However, suppose a company plans to scale up or simply digitize part of its processes. In that case, it will need both specialized systems and supply chain performance metrics, which typically look like the following:
- Utilization.
- Delivery speed.
- Turnover.
- Order cycle time.
- Inventory.
- Delivery quality.
- Short-term sales.
- Cash conversion.
- Warehouse efficiency.
- Delivery cost.
Other types of KPIs depend on the exact scale at which the organization works, the forms of PL (1PL, 2PL, 3PL, 4PL) services it uses, and so forth.
Why Measure KPIs?
Logistic metrics are the indicators that, with correct analysis, will help you find potential problems related to supply chains and even correct them.
They also allow you to set new goals and gradually achieve them, gradually developing and expanding the business by focusing efforts on truly important aspects.
Additionally, KPIs will tell you how effectively your logistics provider is performing tasks and whether it’s worth changing them (or if it will impact the profitability and efficiency of the business) for another, more experienced, and advantageous partner.
10 Key Supply Chain KPIs You Should Be Measuring
When measuring logistics KPIs, it’s really possible to get lost in this incredible number of metrics that everyone proposes to measure constantly. However, you should still start by determining which ones critically impact your business and which ones are merely tangential.
Perhaps this is not an exhaustive and universal list of metrics. But still, review it and try to use it in practice. Hopefully, the following indicators will help you identify existing issues, address them, and take your business to a new level.
Supply Chain KPI №1: Utilization
Perhaps the key distribution KPI is the indicator of company capacity utilization. That is the ratio between staff occupancy, the number of orders, and actual capacities.
For example, if you unload 100 tons of products daily and have the capacity to process 150 tons simultaneously, this indicates that your staff is partially free from performing duties.
There are only 2 ways to address this: either reduce the number of employees or seek new clients and increase supply volumes to achieve a maximum efficiency ratio of 90%-100%.
Another scenario is when, conversely, the unloading is less than the number of orders, calculated by the formula “Order fill rate = (total orders shipped / total orders placed) x 100.” Then, supply chains need to be optimized.
Logistics KPI №2: Delivery Speed
KPI for supply chain with the formula “(Percent of orders delivered on time) x (Percent of orders complete) x (Percent of orders damage-free) x (Percent of orders with accurate documentation) x 100” demonstrates your speed of order processing and delivery. This is a very important indicator that primarily affects UX and customer satisfaction levels.
If the metric value is unsatisfactory, you should review your supply chains. Perhaps it’s necessary to review contracts with PL partners or involve new service providers in product delivery.
Ignoring this metric, you risk entering a risky situation that will impact your business reputation and reduce profitability due to a high level of customer dissatisfaction.
KPI for Logistics №3: Turnover
Measuring supply chain performance through the formula “Inventory carrying cost = (Inventory turnover rate = (cost of goods sold / average inventory)” will help you understand how effectively you’re moving goods. Further actions depend on this metric, either reducing inventory for better liquidity or expanding sales channels.
However, you should also consider seasonal factors, trends, demand for specific product groups, and current political and economic circumstances, which also affect business turnover.
It’s also worth implementing a planning automation system based on AI, which will further improve process efficiency.
KPI in Supply Chain №4: Order Cycle
One of the key performance indicators for supply chain management is the formula “Order cycle time = (delivery date – order date) / total number of orders shipped.” This formula shows how well you meet consumer needs with your logistics services, i.e., whether you have a stable number of orders and whether you deliver them on time.
This indicator is important for business as it allows measuring staff productivity, addressing challenges, and mitigating them through supply chain optimization.
You might need to integrate advanced order processing automation systems into your digital infrastructure, but it’s an effective investment.
Logistics Metrics №5: Inventory
One of the supplier KPIs can be expressed by the formula “Inventory carrying cost = (total carrying costs/total value of inventory) x 100.” It indicates inventory turnover or the residual stock in storage locations, logistics hubs, etc.
A useful indicator that allows determining the potential of business capacities, reviewing distribution concepts, and replanning them according to current needs.
To improve metrics, it’s recommended to use automated specialized systems and regularly analyze the segment to efficiently manage available inventory.
Supply Chain KPIs and Metrics №6: Delivery Quality
One of the key performance indicators for suppliers, “POR = (% delivered in full) x (% damage-free) x (% accurate documentation) x (% delivered on time) x 100,” demonstrates how effective your logistics processes are.
With its help, you can assess delivery quality and identify potential issues affecting UX and customer satisfaction and, consequently, your revenue.
In certain cases, you may need to automate the chain using digital systems and platforms, which is a beneficial long-term investment.
Key Supply Chain Metrics №7: Short-Term Sales
One of the important supply chain KPIs and metrics, “DSO = accounts receivable x number of days / total credit sales,” allows you to assess sales effectiveness.
It signals potential challenges the business faces and its actual profitability over a defined period.
With this indicator, you can identify existing issues in order processing and fulfillment, optimize the delivery chain, and improve business productivity and profitability.
Shipping KPIs №8: Funds Conversion
One of the critical supply chain formulas, “CCC = (days inventory outstanding + days sales outstanding – days payable outstanding),” allows you to understand the real conversion of finances in the company.
It helps evaluate sales effectiveness, analyze cyclicality, and the impact of factors on profits.
You will find new opportunities to increase conversion and improve the brand’s profitability by measuring the indicator and analyzing it and its derivatives.
Metric Logistics №9: Warehouse Efficiency
One of the logistic metrics, “(Average Inventory for the Year / Cost of Goods Sold) x 365,” allows you to determine how effectively your hubs and warehouse facilities are working.
It enables you to calculate the real ROI of warehouse management and identify potential problems that need to be addressed.
The information obtained can be used to optimize processes related to the movement and storage of goods, as well as for a more accurate calculation of effective inventory levels.
Supplier KPIs №10: Delivery Cost
In simple terms, this is the ratio between the profit from product sales and the cost of its delivery. This logistic metric indicates overall supply chain issues (or their absence).
You may need to transform and optimize logistics processes somewhat to reduce the cost of delivering goods and increase profitability.
For example, you can add digital components to the logistics infrastructure or delegate processes to other contractors who provide quality transportation services at lower costs.
Conclusion
The performance metrics in supply chain management will allow you to actively test the existing business logistics infrastructure and quickly identify potential issues.
You will also have the opportunity to find new ways to develop and optimize supply chains and increase profits.
We recommend maximizing the digitization of your logistics processes and working on creating an efficient and adaptive infrastructure that easily integrates with the systems of *PL partners.
If you have any questions or wish to start cooperation with a powerful logistics service provider, please contact an HH Express manager!
