No matter what business you are in, you cannot undermine the importance of the supply chain. It forms the backbone of any business. It allows companies to operate efficiently and ensure the timely delivery of all their products and services. Understanding the supply chain metrics is vital for every trade for optimum growth and success. It can help enhance a company's productivity and, ultimately, its profitability. This blog post will teach you all the essential aspects of supply chain metrics.
What Are Supply Chain Metrics, And Why Are They Important?
Supply chain metrics refer to the different parameters used for defining and quantifying the performance of supply chains. In other words, they can be said as the key performing indicators or KPIs for the supply chain. The metrics are essential for determining the success of a company's supply, delivery, and fulfillment efforts.
The metrics supply chain is essential for several reasons. One of the reasons is that they facilitate effective communication.
- The metric can provide your business with essential data that enhances communication and aids collaboration.
- It ensures proper inventory management and guarantees the safe delivery of products to end customers.
- The supply chain metrics can offer you better insights relating to the supply chain operations of your business.
- They can help in finding appropriate strategies to improve your logistical processes.
Types Of Supply Chain Metrics
Are you wondering about the different types of supply chain metrics? Here are the prominent types of supply chain metrics.
Perfect Order Index
The perfect order index is a critical KPI supply chain. It helps in measuring the error-free rate in the overall supply chain process. Perfect orders from all the stages of the supply chain process can be collected and multiplied to get the performance indicator. It allows businesses to identify issues and correct them at the right time.
Supply Chain Cycle Time
The supply chain cycle time enables you to calculate the time taken to complete an order of a customer if the inventory level is zero at the order time. It aids in finding out the longest possible time required for completing an order. It is an effective measurement of the efficiency of the supply chains.
Cash-to-cash time is the supply chain metric that determines the time between a company sending cash to the suppliers and the business receiving money from end customers. The shorter the cash-to-cash time of a company, the greater its profitability will be.
Inventory turnover is also one of the significant supply chain management KPIs. It allows you to determine the number of times the complete inventory is sold during a specific time. It gives companies a clear idea about the efficiency of the supply chain process.
The fill rate is also referred to as the demand satisfaction rate. It measures the ability of your supply chain to meet customer demands through stock availability without any lost sales or backorders.
Related: Supply Chain Challenges And Solutions In 2021
How To Calculate Supply Chain Metrics?
There is no single method to calculate the supply chain metrics. As there are several metrics, the formula for their calculation also differs. For instance, to estimate the supply chain cycle time, you will have to find the most extended lead times at each stage and then add them all.
Examples of supply chain metrics: There are a variety of supply chain metrics that can be used to measure performance and effectiveness. Here are some examples:
Delivery time: This measures the average time it takes for goods to be delivered from the supplier to the customer.
Days sales outstanding: This measures the average number of days that it takes for customers to pay invoices.
On-time shipping: This measures the percentage of orders shipped on time.
Inventory to sales ratio: This measures the amount of stock on hand relative to sales.
Pick & pack cycle time: This measures the average time it takes to pick and pack orders.
Delivered on time and in full: This measures the percentage of orders delivered on time and in full.
Uses And Benefits Of Supply Chain Metrics
In recent times, supply chains have become a lot more complex. Therefore, supply chain metrics are essential to ensure adequate supply chain process management. Some of the benefits of using the supply chain metrics are:
Improves Quality Control
Supply chain metrics can help to improve quality control by providing data that can be used to identify issues and trends. For example, if there is a high level of returns for a particular product, this could indicate a problem with the quality of that product. By tracking supply chain metrics, companies can become aware of such issues and take action to address them.
Supply chain metrics can also help to reduce costs. By tracking data such as inventory levels and delivery times, companies can identify areas where they may be able to improve their operations. For example, if a company notices that it is incurring high inventory carrying costs, it may decide to implement just-in-time manufacturing methods to reduce these costs.
Improves Customer Service
You can also use supply chain metrics to improve customer service. For instance, by tracking delivery times, companies can promptly ensure that their products reach customers. Additionally, by monitoring customer satisfaction levels, companies can take action to address any issues that may be causing dissatisfied customers.
Supply chain metrics can also help to increase productivity. By tracking data such as cycle times and throughput, companies can identify areas where they may be able to improve their operations. For example, if a company notices that it is taking a long time to complete orders, it may decide to invest in additional resources or employees to speed up the process.
Supply chain metrics can also help to increase efficiency. By tracking data such as utilization levels and waste, companies can identify areas where they may be able to improve their operations. For example, if a company notices a lot of waste in its manufacturing process, it may implement lean manufacturing methods to reduce this waste.
Tips For Improving Your Company's Supply Chain Performance Using Metrics
Want to improve the performance of your supply chain? Here are a few tips that can help.
Choose The Right Supply Chain Metrics
Not all supply chain metrics are created equal. When choosing metrics, select those most relevant to your company's operations and which will provide the most helpful information.
Monitor The Right Data Points
In addition to choosing the right metrics, monitoring the right data points is essential. Make sure to track data that is representative of your company's supply chain as a whole and which will give you insights into your company's performance.
Analyze The Data Regularly
Once you have started tracking supply chain metrics, it is essential to analyze the data regularly. This will help you identify trends and issues to take action to improve your company's supply chain performance.
Leverage, A Supply Chain Dashboard
A supply chain dashboard can be a valuable tool for tracking supply chain metrics. Dashboards provide a way to see all critical metrics in one place so that you can easily monitor your supply chain's performance.
Get A Clear Idea About The Lead Times
Supply chain metrics can help you get a clear idea about the lead times. You can track and monitor the data to find out how long it takes for your company to deliver a product from the time of order until the time of delivery. This information can be used to improve your company's operations and efficiency.
Find Out The Rate Of Customer Attrition
Supply chain metrics can also help you determine the customer attrition rate. You can track and monitor the data to determine how many customers leave your company due to poor service or products. This information can improve your company's customer service and retention rates.
Start Measuring The Inventory Efficiency
Supply chain metrics can help you get started measuring inventory efficiency. You can track and monitor the data to determine how much inventory your company has on hand and how quickly it sells. This information can improve your company's inventory management and operations.
Related: How to Excel at Store Inventory Management
Monitor The Performance Of Your Suppliers
Supply chain metrics can also help you monitor the performance of your suppliers. You can track and monitor the data to determine how well your suppliers perform. This information can improve your company's supplier relationships and operations.
Track And Analyze The Transportation Costs
Supply chain metrics can help you track and analyze transportation costs. You can track and monitor the data to determine how much your company spends on transportation. This information can improve your company's transportation operations and efficiency.
Use The Metrics Regularly
You should use supply chain metrics regularly to track and monitor your company's supply chain performance. By using the metrics regularly, you will be able to identify trends and issues to take action to improve your company's overall performance.
Take Action Based On The Data
Finally, once you have analyzed the data, it is essential to take action based on what you have learned. Implement changes in your supply chain based on the insights you have gained from the metrics to improve your company's overall performance.
Supply chain metrics are essential for businesses. They can help you measure the performance of your supply chain and make improvements where necessary. However, it can be difficult to know which metrics to track. In this blog post, we'll discuss some of the most important supply chain metrics and how to use them effectively. Stay tuned! We at Conveyr build the tools 3PLs use to not only compete but to win new business. If you're looking for a comprehensive, cloud-based solution that will help you manage your supply chain more effectively, contact us today. We'd be happy to show you how our software can improve your bottom line.
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