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, most recently, they’ve 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.

Operational success depends on how you manage your supply chain. Research indicates that the primary cause of customer dissatisfaction is poor management which, in turn, 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 will have a domino effect and may lead to large-scale consequences. Hence, proactive management, which includes tracking KPIs and metrics, may help avoid potential challenges. By taking this approach, a company will be able to know areas of concern and gain some time to respond to upcoming disruptions and inefficiencies.

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. Here, as in many other sectors, the formula of being a jack of all trades is relevant. Mastering a single KPI may help you in the short run. However, to maintain a competitive advantage, you must keep working on all supply chain KPIs and improving them simultaneously.

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. That is, the share of orders that were successful.

Supply chain logistics involves many destinations and hundreds of thousands of products to ship and track. That is why it is pretty challenging to manage OTIF and predict ETAs manually. At the same time, these factors are crucial to avoid delivery delays.

This metric may involve risks such as weather, traffic, the number of stops, or any other bottlenecks to determine and manage. The following formulas help us understand how this calculation is made at the back end.

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.
  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.

You can use the following formula to calculate OTIF:

2. Cash to Cash Cycle (C2C) Time

As the name suggests, the cash to cash cycle time (or C2C time) is the time in which a company converts its inventory into cash flows from sales. It is also an important KPI to measure because it indicates the efficiency of managing the company’s capital. The C2C cycle should be short.

One such example is Amazon which operates with a very short C2C cycle. Due to its high inventory turnover and fast payment collection, it can reinvest in new inventory.

According to a report by Deloitte, the median C2C cycle time for a global company across various industries is approximately 45 days.

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 after purchasing goods or services.

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. This metric is crucial as even small delays in supplier deliveries can cause production interruptions.

According to Gartner’s Supply Chain Top 25, 95-98% OTD is the average metric for high-performing global supplies.

Elements to Calculate the KPI

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

The formula will be:

4. Freight Cost Per Tonne Shipped

Freight Cost Per Tonne Shipped measures the cost of transportation of goods for every item. It is a critical metric as it impacts the total cost of goods sold (COGS).

A report by World Bank found that freight cost per tonne shipped is steadily on the rise.

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. This KPI indicates the efficiency of inventory management for a given company.

Elements to Calculate the KPI

  1. Cost of Goods Sold (COGS) is the direct costs incurred by the company to produce or acquire the goods sold during the period.
  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)

COCT measures the total time taken from when a customer places an order to when it is fulfilled and delivered. This KPI is essential for tracking the order fulfilment process.

Elements to Calculate the KPI:

  1. Order fulfillment time means the time it takes to pick, pack, and prepare an order for shipment.
  2. Shipping time means 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)

PODR tracks the percentage of customers whose orders were delivered correctly, on time, and in perfect condition. This KPI comprehensively measures how well a company’s supply chain and order fulfillment functions.

Elements to Calculate the KPI:

  1. On-time delivery is the percentage of orders delivered by the agreed-upon date.
  2. Order Accuracy is the percentage of orders shipped with the correct products, quantities, and specifications.
  3. Damage-free delivery is the percentage of orders that arrive in perfect condition.

The formula for the Perfect Order Delivery Rate is:

8. Gross Margin Return on Investment (GMROI)

GMROI evaluates how much gross margin is earned for every dollar invested in inventory. This KPI helps assess whether inventory investment contributes efficiently to gross margin.

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 means the company consistently delivers the right products in the right quantities on the first attempt.

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 rigorously monitoring and improving these KPIs, you can optimize your supply chain and achieve better performance.