fbpx Skip to content

16 Supply Chain KPIs & Metrics for Reporting

insightsoftware -

insightsoftware is a global provider of reporting, analytics, and performance management solutions, empowering organizations to unlock business data and transform the way finance and data teams operate.

10 2021 Blog 16supplykpis Blog Header (1)

What is a Supply Chain KPI?

A supply chain key performance indicator (KPI) is a quantitative measure that evaluates the effectiveness and performance of a company’s supply chain.

A supply chain is the relationship between a company and its providers through which they create and deliver a product to customers. This network consists of manufacturers, vendors, warehouses, transportation, distribution centers, and retailers. All entities in the supply chain perform a crucial role in producing and distributing the good to customers and must be included in the KPI analysis.

Companies create supply chains to expedite production and reduce cost. This streamlining, maintaining, and improving the flow of goods requires a competent team to manage it. Supply chain management (SCM) controls the production, shipment, and distribution of the products centrally, and protects the company from costly lawsuits and recalls.

Why Should Supply Chain Management Measure KPIs?

Success doesn’t come by accident. As mentioned above, many entities come together to form the supply chain network. Supply chain management must closely monitor the activities of each of these sectors to ensure success. As you can probably guess, it’s impossible for a small management team to micromanage every decision that happens in this wide network. That’s where KPI monitoring comes into play. KPIs are a select few metrics that provide insight on the operation of all entities contributing to the supply chain. Metrics help supply chain management track its progress in achieving its goals and respond quickly if needed.

How to Build Useful KPI Dashboards

Download Now

Below are a few important points to keep in mind while choosing KPIs:

  1. Choose SMART SCM KPIs. A SMART KPI is:Specific, Measurable, Attainable, Relevant and Time Based. In order to ensure your metrics pass the SMART test, ask the following questions:
    1. Specific: Is your KPI too broad or too vague? If it is, it could be misinterpreted. Attempt to specify it as much as possible by asking yourself what, where and when your KPI comes into the bigger picture of your business.
    2. Measurable: Is your metric quantifiable? All metrics should be quantifiable and have a target or goal set for them.
    3. Attainable: Is your KPI target achievable? Do not waste your time with any KPIs that are not realistic.
    4. Relevant: Is this metric answering a pressing question about your business? If it isn’t, it shouldn’t be part of your KPI program.
    5. Time Based: How often and by when should you measure and review your KPI? Identify a timeline and stick to it.
  2. Assess your resources and the competency of your staff before initiating a KPI program. Managing metrics is a resource intensive and time-consuming project, especially at the start. Do not overwhelm your team with too many KPIs. Start small and grow as you and your team gain experience. Remember that you can always add more metrics, but it is difficult to restore faith in a program that has failed.
  3. As you have probably caught on by now, a successful KPI monitoring program relies heavily on data. If you have had trouble in the past with accuracy of data, you’re not alone. Without a business intelligence software, it is very difficult to track, trend and monitor any metrics. You need a tool to unify your data in a timely fashion. Otherwise, you risk working with inaccurate and outdated information and failing in your endeavour to run a KPI program. insightsoftware’s BI software is accessible and user-friendly and it will empower your team to make better decisions.

We have gathered a few top key performance indicators for supply chain management in this article for you and your team to review. We acknowledge that even though this article has been prepared for supply chain management, every firm and operation is different. Review these metrics with your team, follow the advice mentioned above and create a KPI program that works for you.

Financial Supply Chain Management KPIs

All successful businesses have one thing in common: a strong financial backbone. Without closely monitoring the financial performance of your supply chain, you can’t identify problems or optimize your workflow. Most traditional financial reporting processes consume valuable time and money. Choosing the right financial reporting software will ensure that you don’t waste your resources manually crunching numbers or duplicating information.

5 Things Not to do When Choosing a Financial Reporting Tool

Download Now

Here are the top 5 financial SCM KPIs:

  1. Gross Margin Return on Investment (GMROI): this supply chain KPI is calculated by dividing gross profit by the average inventory investment.

GMROI = Gross profit / average inventory cost

Why should supply chain management care about this metric? Because this SCM KPI showcases the profit earned for the investment made in inventory. By regularly studying GMROI, you can gain valuable information about the profitability of each item in your inventory. You can determine what make and model of product to invest in for maximum returns.

  1. Freight Cost Per Unit: this KPI is calculated by diving the total cost of freight by the number of items in inventory.

Freight cost per unit = total freight cost / number of items

Why should supply chain management care about this metric? Because this SCM KPI demonstrates the cost of transportation associated with each item in the inventory. By monitoring this metric, supply chain managers can identify an average cost per unit for their products and flag anything that is above it. This KPI sheds light on freight bottlenecks and ultimately helps you reduce cost.

  1. Total Supply Chain Management Cost as Percentage of Sales:

This supply chain KPI is calculated by dividing the cost of supply chain operation by the total sales. Supply chain costs include everything from labour, warehousing, transportation, sourcing, and manufacturing expenses associated with your inventory.

Total supply chain management cost as percentage of sales = total supply chain costs / total sales

Why should supply chain management care about this metric? Because this SCM KPI highlights your operation costs compared to your income. In order to grow your business and stay profitable, you must keep this ratio low. By understanding the variety of factors that feed into supply chain costs, you can mitigate high cost contributors by finding more economic alternatives.

  1. Supply Chain Cost Per Unit Sold: this KPI measures supply chain costs associated with a certain product compared with the number of the same product that has been sold.

Supply chain cost per unit sold = supply chain costs for a product / number of units

Why should supply chain management care about this metric? Because this SCM KPI shows the different supply chain costs of each type of product. This information will then allow supply chain managers to study the reason behind high cost items and address any systemic issues.

  1. Cash to Cash Cycle Time: this supply chain KPI is the number of days between purchasing products and getting paid for them. Your team can use an average cash to cash cycle time over a longer period time like monthly or quarterly for further insight.

Cash to cash cycle time = product purchase date – customer payment date

Why should supply chain management care about this metric? Because this SCM KPI measures the duration that operating capital is tied up. When operating cash is being used in this manner, it is not available for any other purposes. Supply chain management should monitor this metric to decrease cash to cash cycle time for a leaner and more profitable operation.

Financial supply chain KPIs are very important as they help track the profitability of your operation. However, inventory KPIs are equally as important. Without inventory, how can you make a profit?

Inventory Supply Chain Management KPIs

Inventory management plays a major role in keeping your supply chain healthy. You must understand the inner workings of your inventory to be able to remove obstacles and increase efficiency. Here are the top five inventory key performance indicators for supply chain management:

  1. Inventory to Sales Ratio (ISR): this KPI measures the cost of inventory compared to the value of sales.

ISR = Inventory cost / Sales value

Why should supply chain management care about this metric? Because this SCM KPI could be a useful indicator for measuring your firm’s robustness in the face of economic downturn. Since there is always a cost associated with keeping items in inventory (cost of carrying inventory), it’s important for supply chain management to have a plan of action in place if and when unpredictable changes happen. Firms must aim to carry just enough inventory that is neither too much nor too little. In a way, inventory sales ratio is a measure of financial stability.

  1. Stock Rotation: this supply chain KPI is the average number of days that it takes for inventory to run out for each product. Stock rotation is often calculated over a long period (year) to account for seasonal variations. It is also advised to measure stock rotation in value (currency) rather than quantity. For example, if you improved the purchase price of a product, your finances would improve in value, but your stock rotation would not.

Stock rotation = average stock price (in the past year) / total sales (in the past year) x number of days within the selected period (year)

Why should supply chain management care about this metric? Because this SCM KPI provides your team with information about how quickly your inventory might run out. Supply chain managers can use this metric to make decisions about quantity of stock they keep at hand.

  1. Inventory Turnover: this KPI shows how many times a year a firm’s entire inventory is sold.

Inventory turnover = cost of goods sold / average inventory

Why should supply chain management care about this metric? Because this SCM KPI is a major indicator of the efficiency of your supply chain. A high inventory turnover rate is a sign of high quality stock and high demands. It also shows that you have good sourcing and manufacturing strategies in place. A low turnover rate signals to inefficiencies within your organization that need to be addressed promptly.

  1. Inventory Velocity (IV): this KPI is the ratio of stock at hand compared to projected sales.

Inventory velocity = stock at hand / projected sales for next period

Why should supply chain management care about this metric? Because this SCM KPI will help supply chain managers identify optimum inventory levels for each reporting period. Industry benchmark of 60% to 80% IV are fairly common, whereas an IV of below 60% could lead to inventory shortages and dissatisfied customers.

  1. Inventory Accuracy: as the name suggests, this supply chain KPI measures the accuracy of your inventory.

Inventory accuracy = inventory correctly captured (quantity, make, model, location) / total items in inventory

Why should supply chain management care about this metric? Because this SCM KPI will help you stay proactive with warehouse and data management, and ultimately reduces your operational costs. Poor inventory tracking will lead to higher expenses and customer dissatisfaction. In order to measure inventory accuracy, you must perform a headcount of your inventory in regular intervals.

Inventory looks inside the warehouse, but when you take a step back, what do you end up with? Transportation and logistics. Your inventory needs to arrive at your warehouse and get to your clients somehow.

Transportation Supply Chain Management KPIs

A commonly forgotten cog in the supply chain machine is transportation. Supply chain managers often focus all their energy on finances and inventory, and they forget about transportation. We live in a very global world and the challenges that threaten the efficiency of transportation are endless and ever evolving. Monitor the following 3 transportation SCM KPIs to gain a competitive edge among other supply chain managers.

  1. Freight Bill Accuracy: this KPI calculates the precision of orders and shipping bills.

Freight bill accuracy = number of correct bills / total number of freight bill

Why should supply chain management care about this metric? Because this SCM KPI highlights wasteful practices in your transportation. Sending the wrong, damaged, or missing products to customers will increase cost and decrease customer satisfaction. Supply chain managers should strive to improve their freight bill accuracy.

  1. On-Time Shipping Rate: this supply chain KPI is the percentage of your orders that are received within the promised shipping window.

On-time shipping rate = number of orders delivered on-time / total number of orders

Why should supply chain management care about this metric? Because this SCM KPI will help you asses the effectiveness of your transportation strategies. Studying the on-time shipping rate metric will also help you improve your shipping window estimate for the next customer.

  1. Freight Transport CO2 Emissions: this KPI measures the amount of carbon dioxide (a greenhouse gas) emitted by your fleet.

Freight transport CO2 emissions = average carbon dioxide produced / mile (km) of travel

Why should supply chain management care about this metric? Because this SCM KPI will highlight the environmental impact of your supply chain operations. In order to run a sustainable business, it’s important for the modern supply chain manager to take GHG emissions seriously and aim to mitigate them. Practices such as using biodegradable packaging or vehicles with alternative fuel could be adopted to reduce the environmental impact of your firm.

At this point, we have covered finance, inventory, and transportation KPIs. The last, and potentially most important group of KPIs is next, customer KPIs.

Customer Supply Chain Management KPIs

Customers are the last piece of your supply chain puzzle. Keeping your customers happy will ensure that business keeps growing. The following four customer SCM KPIs directly affect customer satisfaction and should be monitored diligently:

  1. Customer Order Cycle Time: this KPI is the number of days between receipt of order and product delivery to customer.

Customer order cycle time = order delivery date – order receipt date

Why should supply chain management care about this metric? Because this SCM KPI helps measure the responsiveness of your supply chain and the quality of your customer service.

  1. Delivery Time: this KPI measures the amount of time it takes for an order to be delivered to a customer from when it’s shipped.

Delivery time = order delivery date – order shipment date

Why should supply chain management care about this metric? Because this SCM KPI is a direct contributor to customer satisfaction. Surely, you have been on the receiving end of an order before. No one appreciates waiting months for a product. Customers are looking for shorter and more precise delivery times. The more accurate you can be in your delivery times, and the more options you can offer your customer for a faster delivery, the higher your customer satisfaction rate will be.

  1. Perfect Order Rate: this supply chain KPI is the ratio of orders that were delivered on-time, in-full, damage-free and with accurate documentation compared to total number of orders.

Perfect order rate = (total number of orders – number of wrong orders) / total number of orders

Wrong orders refer to products that did not arrive on-time, in-full, damage-free, or with accurate documentation.

Why should supply chain management care about this metric? Because this SCM KPI is a compound metric that provides you with insight into multiple areas of your supply chain. Perfect order rate demonstrates how effectively your team works together to make your customers happy. Arguably, perfect order rate is the most important key performance indicator for supply chain management. A low perfect order rate will result in additional operating costs that are wasted in providing refunds and offering returns to customers.

Wp Compare Reporting And Bi Solutions Rsc

How to Compare Reporting & BI Solutions

Download Now:

The above metrics have been handpicked to enhance the quality of your KPI program. However, choosing the right supply chain management KPIs is the first step in your journey. You must soon create a platform to track and monitor your metrics easily and effectively. Creating a dashboard from scratch is a daunting task and could take many years to perfect. The team at insightsoftware acknowledges that most businesses do not have the expertise or finances to dedicate a team to building KPI dashboards, that is why we have put together a fast and flexible solution that will easily integrate with any enterprise resource planning (ERP) software your firm is using. insightsoftware’s business KPI dashboard can help your supply chain management team achieve its full potential. By using this KPI dashboard, you will not only bypass the need for tedious programming, but you will empower your team to make informed decisions from anywhere.