9 Key Supply Chain KPIs to Measure and Track - Desteia

9 Key Supply Chain KPIs to Measure and Track

Key performance indicators (KPIs) are the metrics that make it easy to manage complex tasks. These are useful for most companies in the world but have become crucial to the world of supply chain where needs can change on an hourly basis. Thus, by monitoring supply chain KPIs, you can identify issues before they arise and arrange to tackle them with timely interventions.

After all, operational success depends on how you manage your supply chain. Research indicates that the primary cause of customer dissatisfaction is poor management which results in organizations losing their competitive advantage.

In supply chain logistics, tasks are often interconnected like a domino structure. If one area performs poorly, it can lead to large-scale consequences. Hence, proactive management, which includes tracking KPIs and metrics, may help avoid potential challenges. In this article, we go deep into KPIs that are commonly used in the supply chain industry. More specifically, we look at nine common KPIs used by experts to manage their supply chain logistics business with a proactive and intelligent approach.

9 Supply Chain KPIs

While the specific KPIs for a company might change given its industry and needs, there are at least nine that are worth tracking. Below, we go deeper into each of the KPIs and how to measure them:

1. On-Time in Full (OTIF) and Delivery ETA

On-Time in Full orders, or OTIF, refers to the share of shipments that arrive in the agreed upon time and containing the agreed upon materials. Supply chain logistics involves many destinations and hundreds of thousands of products to ship and track. This metric may involve risks such as weather, traffic, or any other bottlenecks to determine and manage.

How to Calculate the OTIF (On Time, In Full) KPI

The following elements are required to calculate the OTIF:

  1. On-time delivery is the percentage of orders delivered on or before the agreed-upon date between the buyer and the seller.
  2. In–full delivery means orders were delivered in the full quantity as ordered by customers.
  3. Total orders are the number of orders placed during a specific period.

The formula for OTIF is:

2. Cash to Cash Cycle (C2C) Time

The cash to cash cycle time (or C2C time) is the time in which a company converts its inventory into cash flows from sales. A shorter C2C cycle enhances liquidity and profitability.

Elements to Calculate the KPI

  1. Days Inventory Outstanding (DIO) is the average number of days a company holds its inventory before selling it.
  2. Days Sales Outstanding (DSO) is the average number of days it takes a company to collect payment from customers after a sale.
  3. Days Payables Outstanding (DPO) is the average number of days a company takes to pay its suppliers.

The formula for Cash-to-Cash Cycle Time is:

3. Supplier On-Time Delivery (OTD)

This KPI measures the percentage of orders delivered by suppliers on or before the agreed-upon delivery date/time. Small delays in supplier deliveries can cause production interruptions and inventory shortages.

Elements to Calculate the KPI

  1. Total Number of Orders Delivered on Time.
  2. Total Number of Orders placed with the supplier during a measured period.

The formula for OTD percentage is:

4. Freight Cost Per Tonne Shipped

Freight Cost Per Tonne Shipped measures the cost of transportation of goods for every item. This KPI directly impacts the total cost of goods sold (COGS).

Elements to Calculate the KPI:

The formula for Freight Cost Per Tonne Shipped is:

5. Inventory Turnover

Inventory Turnover indicates how often a company sells and replaces its inventory over a specified period. Thus, this KPI indicates the efficiency of inventory management.

Elements to Calculate the KPI

  1. The cost of Goods Sold (COGS).
  2. Average inventory is the inventory's value on hand during the period.

The formula for Inventory Turnover is:

6. Customer Order Cycle Time (COCT)

Customer Order Cycle Time (COCT) measures the total time taken for an end-to-end supply chain, from when a customer places an order to when the order is delivered.

Elements to Calculate the KPI:

  1. Order fulfillment time is the time it takes to pick, pack, and prepare an order for shipment.
  2. Shipping time is the time required for the order to be shipped and delivered to the customer.

The formula for Customer Order Cycle Time is:

7. Perfect Order Delivery Rate (PODR)

The Perfect Order Delivery Rate tracks the percentage of customers whose orders were delivered correctly, on time, and in perfect condition.

Elements to Calculate the KPI:

The formula for PODR is:

8. Gross Margin Return on Investment (GMROI)

GMROI evaluates how much gross margin is earned for every dollar invested in inventory. A high GMROI indicates a company is making good returns on its inventory investments.

Elements to Calculate the KPI:

The formula for GMROI is:

9. Fill Rate

The fill rate measures the percentage of customer orders completely fulfilled on the first shipment without backorders or delays. A higher fill rate indicates the company consistently delivers the right products in the right quantities.

Elements to Calculate the KPI:

The formula for the Fill Rate is:

The Bottom Line

Key performance indicators (KPIs) are crucial in measuring the efficiency and effectiveness of a company’s supply chain and overall operations. By tracking these KPIs, you can optimize your supply chain and achieve better performance, reduce costs, increase profitability, and improve customer relationships.