Supply Chain Performance: Key KPIs & How To Improve Them
Discover the essential supply chain KPIs you should measure to gauge your business’s performance and learn effective strategies to optimize them.
Improve your supply chain’s delivery metrics by leveraging Circuit for Teams delivery route optimization technology.
Supply chain performance is essential to maintaining a competitive edge in today’s business landscape. While you can’t control the global supply chain, you can manage your own to improve business outcomes.
Key performance indicators (KPIs) are supply chain performance metrics that play a critical role in measuring the efficiency and effectiveness of supply chain processes. They can include supply chain costs, order fill rates, perfect order rates, cash-to-cash cycle time, and delivery logistics.
This article will explain why monitoring and improving your supply chain KPIs is a key part of your supply chain performance measurement system.
- Improving supply chain performance can help lower operational costs, improve customer satisfaction and loyalty, and boost your bottom line.
- Order fill rate measures the percentage of customer orders completed and fulfilled on time.
- Perfect order rate measures the percentage of customer orders fulfilled correctly.
- Cash-to-cycle time measures the time it takes to convert business spending into revenue.
- On-time deliveries measure how many customer orders arrive within the promised time frame.
What is supply chain performance, and why does it matter?
Supply chain performance refers to the efficiency and effectiveness of the processes involved in getting products from suppliers to customers. So, improving your supply chain strategy can reduce costs, increase revenue, and improve customer satisfaction.
This involves managing all activities along the supply chain, from procurement of raw materials to delivering finished products to customers.
Improving supply chain performance is important for several reasons. It helps you meet customer demand with timely order delivery and improved customer satisfaction, encouraging loyalty and repeat business.
An efficient supply chain can also reduce business costs. You can save money and even increase profits by optimizing supply chain aspects like order lead times and transportation logistics.
As you can see, your supply chain performance is crucial for reducing costs, improving financial performance, and achieving your business goals. Measuring and optimizing the right KPIs can enhance your supply chain performance and give you a competitive advantage.
Supply chain KPIs to monitor and improve
There are many ways to streamline your supply chain and improve your bottom line. But, where to start? Here are five essential KPIs for supply chain managers to focus on, along with actionable examples to enhance each one.
Supply chain costs
Supply chain costs refer to the expenses incurred during goods production, transportation, and distribution from the manufacturer to the end consumer.
These costs generally divide into three categories:
- Direct costs. Examples include raw materials, labor costs, transportation costs, and packaging expenses.
- Indirect costs. These might include warehouse rent, equipment maintenance, quality control, and insurance fees.
- Intangible costs. Some examples are lost sales due to stockouts, damage to brand reputation due to late deliveries, and order replacement costs due to customer complaints.
How to improve supply chain costs:
- Conduct a supply chain audit to identify inefficiencies and areas for improvement.
- Implement supply chain management (SCM) software to track inventory levels, production schedules, and delivery times.
- Optimize your delivery routes to reduce transportation expenses, improve delivery times, and use your resources (like drivers and fuel) more efficiently.
- Develop strategic partnerships with suppliers or distributors to negotiate better prices and improve delivery times.
Improve and strengthen your supplier relationships by focusing on ways to communicate clearly about your needs and expectations. This can influence your suppliers to deliver high-quality products and materials in a timely manner. Conduct regular performance evaluations to identify areas for improvement and give supplier feedback.
Optimizing your supply chain costs comes with many benefits, including more profits and enhanced customer satisfaction through faster delivery — both of which give you a competitive advantage. Effectively managing your expenses throughout your supply chain also strengthens your brand’s reputation by consistently and reliably delivering customer orders on time.
Order fill rate
Order fill rate measures the percentage of customer orders fulfilled completely and delivered on time. It’s a critical performance metric for businesses, directly affecting customer satisfaction and retention.
How to improve order fill rate:
- Implement inventory management software to track inventory levels and avoid stockouts.
- Develop strong relationships with suppliers to promote timely deliveries and avoid production delays.
- Conduct regular performance evaluations to identify areas for continuous improvement and give employee feedback.
- Invest in automation and new technology to streamline order fulfillment.
Examples of automation technology include inventory management systems, order management systems, and warehouse management systems. These can enhance your order fulfillment’s efficiency, accuracy, and speed while helping you control your inventory and improve your order fill rates.
Order fill rate is an important supply chain KPI to measure since improving it offers multiple benefits. Some examples include enhanced customer satisfaction (due to receiving correct orders on time), reduced costs (due to fewer order returns, customer complaints, and lost sales), and increased revenue (thanks to the resulting customer loyalty, recommendations, and positive reviews).
Perfect order rate
Perfect order rate measures the percentage of customer orders fulfilled without errors, disruptions, or issues. It is another important performance metric for businesses as it reflects your customers’ satisfaction and the quality of your supply chain management processes.
A high perfect order rate indicates orders are being processed and fulfilled quickly, accurately, and without errors.
How to improve perfect order rate:
- Conduct regular quality control checks to make sure workers are manufacturing and packaging products correctly.
- Automate quality control systems. One way to do this is to use delivery management software to detect and prevent errors in the delivery process.
- Regularly train employees to improve their skills and reduce human errors.
- Establish and enforce performance metrics with your suppliers so they continually meet your standards.
- Establish clear communication and collaboration channels between different parts of the supply chain, such as production and logistics, so orders are fulfilled accurately and efficiently.
Technology also plays a vital role in your perfect order rate. For example, automating your quality control makes it easier to spot problems in your production process for better product quality. Barcode scanning and tracking systems can also help by precisely tracking inventory and streamlining order fulfillment.
Embracing these tech solutions can enhance your perfect order rate and improve customer satisfaction, loyalty, and retention. It can also result in cost savings thanks to fewer returns and re-shipments and increased efficiency and productivity.
Cash-to-cash cycle time
Cash-to-cash (C2C) cycle time measures the time it takes to convert your cash outflows (like supplier payments and labor costs) into cash inflows (including customer payments). This is an important metric to improve since it reflects your cash management’s efficiency.
How to improve cash-to-cash cycle time:
- Implement inventory management software to track inventory levels and avoid overstocking or stockouts, which tie up your capital in carrying costs.
- Negotiate favorable payment terms with suppliers to reduce cash outflows.
- Implement efficient billing and collection processes to reduce the time between invoicing and receiving payment.
- Conduct regular cash flow forecasting to identify potential cash flow gaps.
Improving your cash-to-cash cycle time can enhance your cash flow and allow you to make quick payments as needed, improving your relationships with suppliers and employees.
Plus, reducing financing costs due to cash flow gaps means you can increase your profits and improve your return on investment (ROI). A shorter cash-to-cash cycle time also gives you more agility and flexibility to seize market opportunities throughout your product life cycle and quickly adjust to change.
Technology can help cut your cash-to-cash cycle time in several ways. One example is using automated payment processing to streamline payment workflows, minimizing errors and delays. A cash flow forecasting tool can also help by giving you real-time visibility into your cash flow gaps and opportunities.
Overall, improving your C2C cycle time can result in better profitability, cash flow, and liquidity. It can also improve relationships with suppliers and customers, who will appreciate faster payment and delivery times.
On-time deliveries refer to your ability to fulfill and deliver customer orders within the specified time frame. This is an essential aspect of supply chain performance, as delivery delays can result in dissatisfied customers, lost sales, and additional costs.
While delivering customer orders on time is an important part of it, on-time deliveries also refer to deliveries coming from suppliers to your warehouse.
How to increase on-time deliveries:
- Use an order management system to track order status and delivery progress.
- Establish communication channels with customers to inform them of delivery statuses and potential delays.
- Collaborate with suppliers and logistics partners to optimize delivery schedules and reduce transit times.
- Regularly assess your logistics partners’ and suppliers’ performance to identify areas for improvement.
Improving on-time deliveries can result in several benefits, including:
- Improved customer satisfaction and loyalty, leading to increased sales and revenue
- Reduced costs associated with rework, returns, and customer service inquiries
- Improved reputation and brand image
- Increased supply chain efficiency and productivity
In particular, your last-mile delivery stage is essential for successful on-time deliveries and happy customers. Accomplish this by optimizing delivery routes and managing driving teams with a software solution like Circuit for Teams.
Here’s how Circuit for Teams improves the last-mile delivery aspect of your on-time deliveries:
- Dynamic routing optimization helps your drivers reach their destinations quickly and efficiently.
- Real-time GPS tracking monitors drivers’ progress and helps you identify potential delays.
- In-app messaging facilitates communication between drivers and dispatchers and between you and your customers.
These supports can improve your decision-making insights and enhance your business’s sustainability. They can also improve customer satisfaction and loyalty, reduce costs, and improve efficiency in your overall supply chain operations.
Learn more about how Circuits for Teams can help you improve supply chain performance and boost your bottom line.