The Top 6 Supply Chain KPIs
Updated: Oct 16
Supply chain key performance indicators and metrics are ways in which someone can quantify the performance of their company's supply chain to gain a better understanding of its strengths and weaknesses. In sports and athletics, simply observing athletes perform can tell us if they're good enough, but we use statistics to measure their performance. Players and teams then use these statistics to determine steps to improve their team. In supply chain, simply observing your entire supply chain in action to assess it is not possible, but with data and a reliable performance management system like The Owl, you can view your supply chain performance through real-time KPI's and metrics.
KPI's are not solely limited to supply chains, but are used in various fields to measure how well a company is meeting its objectives. They are usually quantifiable ways in which one can assess a company's overall health and performance financially, strategically and operationally. In trying to determine the best supply chain KPI's, its important to not only choose the most important KPIs that your company should work to improve, but to choose KPI's that are feasible. The data must be available so that a performance management system can then provide the KPI.
In supply chain, often times when you focus your efforts on one part of your supply chain, another area could suffer. In whichever aspect of your supply chain that you choose to focus on, it's important to maintain a healthy balance of cash, cost and service so that you can prevent trade-offs between these three parts of the supply chain triangle. Ideally, you want to be within the centre of the triangle.
With that being said, here are 2 supply chain KPI's from each part of the triangle that your business should emphasize.
On-time & in-full delivery is the most telling indicator of how well your service performance is. It can tell you whether or not raw materials and/or goods are arriving at their scheduled time and whether or not the correct amount will arrive. It can then be potentially broken down further into areas where you are able to see exactly how late particular materials, products or suppliers perform in their deliveries and how many missing items they had. Measuring OTIF can tell you how just how efficient your logistics process is, which directly impacts how quickly customers end up receiving their products. Not having the necessary materials or products when they are scheduled to arrive can delay the entire shipping process, even if one small part is missing.
Customer Lead Time (Service)
The overall purpose of OTIF and the service aspect of your supply chain is to understand how long it takes for a customer to eventually receive a product, and this is exactly what customer lead time does. It measures the duration in which the customer has to wait after placing an order. Amazon is an example of a service that guarantees very quick lead times for customers with its 2 day shipping for Prime members. As a result, they are a very successful firm with a very high customer satisfaction rating.
Total Supply Chain Cost
From a cost perspective, this supply chain KPI is of the utmost importance as it will measure all of the costs associated with running your supply chain. It encompasses all of the supply chain costs associated with your products such as sourcing, producing, transporting, storing (etc). Visibility of this KPI through a performance management system can tell you whether or not costs are within your budget and save your company a ton of time calculating costs manually.
The cost of procurement includes not just the purchasing cost of inventory that is negotiated with suppliers, but it also includes hidden costs related to transportation, negotiation, duties and more. Procurement is incredibly important for a company since it helps them to make key purchasing decisions that directly affect a company's bottom line. Understanding not just the cost of goods but the hidden costs associated with procurement can help a company understand whether or not their purchases are within budget.
Inventory Turnover (Cash)
Knowing Inventory Turnover can help a company evaluate the efficiency of not just your inventory management but also how well your products are selling. Having a high inventory turnover means that your company restocks products frequently either because they sell them quickly, and/or because inventory is managed correctly to where there is not an excess amount of stock. Having an excess amount of inventory is not only dictated by poor inventory management, but could also be a sign of poor demand planning, delays by suppliers, delays in manufacturing and more. That is why this supply chain KPI is incredibly versatile and indicative of the strength of your entire supply chain.
Cash to Cash Cycle Time (Cash)
This KPI helps measure how quickly your company receives cash for the raw materials it purchases and the goods it sells. It is the time it takes from when you originally purchased inventory from a supplier to when the customer eventually pays for the finished product. Having the shortest cycle possible is what every company should strive for since this would mean that a company only needs to pay its expenses for that short period of time.
Focusing on these 6 supply chain KPIs will help you to have a well-rounded supply chain that focuses on all three aspects of the supply chain triangle including service, cost and inventory. Companies can make the mistake of focusing only on one part of this triangle, but doing so leads to trade-offs between other parts of the triangle. The goal should be to have the least amount of trade-offs possible by focusing on improving the most important KPIs for the service, cost and inventory performance of your supply chain.
To actually be able to improve your supply chain using KPIs requires you to have an effective supply chain performance management system that can convert your company's data into meaningful KPIs such as the ones listed above. Having full, real-time visibility of every aspect of your supply chain can help you to figure out improvement areas. The Owl not only offers a full-purpose supply chain performance management software, but also offers support from experienced supply chain experts that can show you how to leverage supply chain KPIs in order to improve. Click below to speak to The Owl's experts or watch a demo of its platform.