March 1, 2021
Six Key Supply Chain KPIs to Track and Improve
This blog post was originally published by Deliverr, which is now Flexport. The content has been adjusted to fit the Flexport brand voice and tone, but all other information remains unchanged. With the merging of Deliverr’s services (DTC fulfillment, B2B distribution, and Last Mile delivery) into Flexport’s existing international freight and technology services, we’re now able to provide merchants with true end-to-end logistics solutions spanning from the factory floor to the customer’s door.
The global supply chain has faced continuous issues ever since the start of the pandemic, and that’s not going to change anytime soon. However, even in the face of disruptions, your business has the opportunity to prove its resilience even during this challenging time by improving your supply chain logistics.
One of the best ways to do so is by tracking and improving Key Performance Indicators (KPIs). KPIs are critical indicators that track your progress towards your intended goal(s). KPIs provide you with valuable analytic data that you can use to modify your business practices to reach your desired outcome.
What KPIs you should be using to help improve your supply chain management? Read on to learn more.
How To Set a KPI
The first step to setting a trackable KPI includes zeroing in on a target. In other words, what is your desired level of performance? Then, it’s crucial to manage your KPIs to continuously improve them until you reach your desired results.
A good KPI should do the following to help your business:
- Provide evidence of progress toward achieving a result
- Measure and analyze data to help you make better decisions
- Offer comparisons to report changes
- Track efficiency, effectiveness, quality, timeliness, compliance, behaviors, economics, performance, or resource utilization
There are two types of KPIs: leading indicators and lagging indicators. A leading indicator drives lagging indicators toward success. If one indicator can’t be achieved without another indicator, then the first indicator is lagging. It relies on the leading indicator to succeed before it can be achieved.
The following are common categories of KPIs:
- Inputs: This refers to the amount, type, and quality of what you consume before putting out a product.
- Process: This will measure all tools and other sequences of events that occur.
- Outputs:__ The result.
- __Outcomes. What impacts or accomplishments occur?
- Project: This measures the status of deliverables and progress related to different initiatives.
Now that you understand more about KPIs, let’s dive into the specific supply chain KPIs that will benefit your business.
6 Key Supply Chain Kpis to Track and Improve
1. Perfect Order Rate
A “perfect order” is an excellent KPI to measure when growing your eCommerce business. A high perfect order rate indicates operational efficiency and high customer satisfaction. Making your customers consistently happy leads to great reviews and repeat customers.
Here are some aspects of fulfillment that relate to your perfect order rate:
- Location: Was the order delivered to the right location?
- Product & Quantity: Was the right product delivered in the correct quantity?
- Time: Was the order fulfilled in the correct timeframe?
- Condition: Was the order in the correct condition? This includes no damage.
- Package: Was the order packaged correctly?
- Customer: Did the order get sent to the right person?
- Documentation: Was the correct invoice sent along with the order?
Perfect order performance is calculated as follows:
(Percent of orders delivered on time) * (Percent of orders complete) * (Percent of orders damage free) * (Percent of orders with accurate documentation) * 100 = perfect order rate
To keep improving operations, a perfect order rate is an essential KPI to track and improve.
2. Fill Rate
Fill rate is the percentage of customer orders that your company can ship immediately. The shipping must be done without placing back orders or missing a sale. A high fill rate means your company is consistently fulfilling orders quickly by maintaining enough product in the supply chain.
Here’s how to calculate your company’s fill order rate:
(Total Number of Customer Orders Shipped / Number of Customer Orders Filled) * 100 = fill rate
The higher your fill rate, the better. Why? Because it affects your relationship with your customers. If you’re consistently making customers wait long periods of time, or making them go to your competitors, they won’t continue to make purchases with you. Plus, this KPI shows how well your company manages your inventory and uses data.
Finally, a low fill rate shows that you’re losing opportunities to make money. The percentage you don’t fulfill is just money that your company passed up. Improving your fill rate will improve your business and earnings.
3. Customer Order Cycle Time
Customer order cycle time is another critical KPI to measure. It’s the time between when a customer places their order, and when they receive their order. The cycle includes processing, preparation, and shipping. Here are key moments of the customer order cycle:
- Customer order: When customers order the product.
- Customer entry: When your business receives the order.
- Manufacturing order: When the program places an order for the goods.
- Warehouse packing: When the employee packs the item.
- Delivery: When you send the item to the customer.
Here is the formula for customer order cycle time:
(delivery date - order date) / total number of orders shipped = customer order cycle time
The customer order cycle time is an excellent supply chain KPI to track and improve because it directly impacts customer satisfaction rates. Plus, it can give you valuable insights on which phase of the cycle your warehouse can improve on.
4. On-time Shipping
On-time shipping is another important KPI to track and improve. One of the best ways to differentiate your brand and make customers happy is to fulfill orders on time. Keep in mind that although customers do love fast shipments, on-time deliveries don’t necessarily mean “fast.” It just means that your product was delivered within the promised time frame, whether that’s 2 days from now or 2 weeks from now.
Here are some ways late shipments negatively impact your business:
- Bad customer reviews
- Loss of loyal customers
- Loss of valuable business
- Rising expenses
Here’s how to track your on-time shipping rates:
Total number of orders delivered / Number of deliveries that arrived after the promised delivery date = on-time delivery (OTD)
To improve your on-time delivery rate, here are some suggestions:
- Set an on-time delivery goal internally (and incentivize employees to meet the goal)
- Interview employees and see what would help them meet delivery goals
- Improve inventory management (software can help)
- Streamline order picking by using an alternative picking method, such as batch, zone, or cluster picking
- Minimize packaging
- Use route-management software
Bonus: Improving this KPI also helps you improve your perfect order rate!
5. Inventory Days of Supply
Another key KPI to watch is inventory days of supply. This is the average time a company keeps its inventory before it’s sold. Inventory days of supply is also known as “days inventory outstanding” or “inventory period.”
Here’s how to calculate inventory days of supply:
(average inventory/cost of goods sold) x period length = days in inventory
This particular KPI is important to track and improve because it indicates how efficient a company is in terms of operations and finances. If a company has low days of inventory, it indicates that it’s operating and selling efficiently. On the other hand, if a company has high days of inventory, that means it needs to improve its marketing, brand building, or make other important changes.
6. Inventory Turnover
Our last supply chain KPI to track and improve is the inventory turnover ratio. This describes what a company sells and then replaces. This KPI measures how efficiently a company is selling its inventory. If a company has a high inventory turnover rate, then it’s selling a lot of products (that then need replacing). If a company has a low inventory turnover rate, it is simply not selling a lot of inventory.
Here’s how to calculate the inventory turnover ratio:
Cost of goods sold / inventory = inventory turnover rate
Flexport Can Help You Track and Improve KPIs
To improve KPIs, you first need the data to analyze. These KPIs might sound challenging, confusing, and overwhelming, but with Flexport’s reporting capabilities within Seller Portal, you can access insights on important KPIs. We make tracking and improving supply chain KPIs simple.
The contents of this blog are made available for informational purposes only and should not be relied upon for any legal, business, or financial decisions. We do not guarantee, represent, or warrant the accuracy or reliability of any of the contents of this blog because they are based on Flexport’s current beliefs, expectations, and assumptions, about which there can be no assurance due to various anticipated and unanticipated events that may occur. This blog has been prepared to the best of Flexport’s knowledge and research; however, the information presented in this blog herein may not reflect the most current regulatory or industry developments. Neither Flexport nor its advisors or affiliates shall be liable for any losses that arise in any way due to the reliance on the contents contained in this blog.