Effective supply chain management is more critical than ever. Companies face many challenges, from fluctuating demand to complex global logistics, and staying ahead is challenging at best. Identifying key performance indicators (KPIs) and using them to guide decision-making will pinpoint inefficiencies and improve operations. However, even the most robust KPI strategy will falter without accurate data.
Real-time visibility and accurate metrics allow companies to make data-driven decisions, streamline processes, and enhance supply chain performance. Shippers need an in-depth understanding of the top KPIs and their impact on business success.
The top supply chain KPIs to track
Not all supply chain KPIs are solely about transportation, however, many come from transportation. Here are the top supply chain KPIs your organization needs to track now.
1. Order fulfillment cycle time
Order fulfillment cycle time, also known as the customer order cycle time, is the period between order placement and delivery. Reducing this time is crucial for enhancing on-time delivery. Faster cycle times lead to improved customer satisfaction and lower logistics costs. For example, companies that streamline their order processing systems and optimize their logistics networks can see substantial reductions in fulfillment times. This efficiency translates into a stronger competitive position and increased customer loyalty. Companies can also benefit from a comprehensive business intelligence approach to further enhance their supply chain operations.
2. Supply chain cycle time
Supply chain cycle time encompasses the total time required to fulfill a customer order, including all upstream processes (inbound activities). Optimizing this KPI involves streamlining processes to enhance efficiency and align with sustainability goals. Companies can achieve this by improving coordination between suppliers, manufacturers, and retailers. For example, adopting just-in-time production methods can reduce waste and improve cycle times, leading to a more agile and environmentally friendly supply chain. Businesses that prioritize supply chain efficiency often see positive impacts on their bottom line.
3. Transportation costs as a percentage of revenue
Total transportation costs as a percentage of sales revenue is another big supply chain KPI. It’s technically the transportation costs divided by the total number of orders and multiplied by 100 to get a percent. According to a Department of Transportation Report, trucking rates tend to pivot above and below average inflation costs. This cycle has given rise to confusion about how much transportation should cost in relation to total revenue. Although exact figures are elusive, most organizations spend roughly 10% of total revenue on transportation. If you’re spending more, then there may be opportunities for optimization that have been overlooked.
4. Inventory turnover
Inventory turnover is a vital KPI that measures how efficiently a company uses its inventory. High turnover indicates effective inventory management, reducing excess stock and minimizing holding costs. Businesses can achieve better supply chain visibility by refining their inventory practices and managing inbound logistics. For instance, a company that integrates real-time data analytics into its inventory management system can quickly adapt to changes in consumer demand, ensuring products are available when needed. This responsiveness not only cuts costs but also boosts customer satisfaction.
5. Perfect order rate
The perfect order rate measures the percentage of orders completed without errors, including on-time and damage-free delivery. Achieving a high perfect order rate is vital for customer satisfaction and operational efficiency. Improving order accuracy minimizes delays and reduces the need for costly rework. Businesses can enhance this KPI by investing in robust order management systems that automate routine tasks and reduce human error. They can also leverage freight auditing solutions to better understand when and where delays that lead to an imperfect order (late order) exist. Companies that succeed in this area often report stronger customer relationships and increased repeat business.
6. Cash-to-cash cycle time
The cash-to-cash cycle time measures the period between paying for raw materials and receiving customer payments. Unlike the order-to-cash cycle time, which covers when a customer purchases through receiving customer payments, this KPI is broader. Shortening the extended cycle - from procurement through getting paid - improves cash flow and financial stability. Renegotiating supplier terms and enhancing accounts receivable processes can make a significant difference. Companies that efficiently manage their cash-to-cash cycle are better positioned to invest in growth opportunities and withstand economic fluctuations.
7. Fill rate
The fill rate evaluates a company's ability to meet customer demand without stockouts. Maintaining a high fill rate is crucial for customer satisfaction and effective supply chain metrics. Companies can optimize their fill rates by implementing accurate demand forecasting and maintaining flexible inventory systems. By ensuring that products are consistently available, businesses can build strong customer relationships and drive sales growth. A strategic logistics approach can further enhance fill rates and overall supply chain performance.
8. Freight bill accuracy or invoice accuracy
Freight bill accuracy ensures that shipping invoices are correct, which is essential for controlling transportation costs. Accurate billing prevents overcharges and disputes, contributing to a more efficient transportation strategy. Companies can achieve freight bill accuracy by automating invoicing processes and conducting regular audits. This attention to detail can lead to significant cost savings and a more streamlined logistics operation.
Choose IL2000 to better manage your supply chain KPIs
There are many potential issues that could undermine your use of supply chain KPIs and send efficiency spiraling downward. Shippers need to ensure their systems are up to par, provide accurate data, and distill that data down into actionable insights. IL2000 turns garbled data into clean, crisp insights to improve your margin return on investment.
Engage with an IL2000 team member to transform your business and ensure long-term success in analyzing transportation data to power your KPIs now.