In the omnichannel supply chain, where order accuracy and on-time delivery are paramount, the difference between getting the right product to consumers at the right time and getting a similar product to consumers at the right time could be disastrous. This difference can have catastrophic consequences for the success of your business, including lost revenue for returning the product, processing the return, shipping out the correct product, and time spent in addressing the issue at your customer service center. This scenario exhibits why tracking the right supply chain KPIs enables continuous improvement.
Perfect Order Is Chief Among Supply Chain KPIs
Take a moment to consider the characteristics of a perfect order. A perfect order consists of on-time delivery, in full delivery, damage-free delivery, and appropriate, accurate documentation. If all components are present, the consumer is less likely to have a problem, and your business continues fulfilling the next order. The perfect order KPI tracks the overall accuracy and timeliness of each shipment.
Perfect Order KPI = On-Time Delivery and Shipment KPI x Complete Order Percentage x Damage-Free Percentage x Accurate Invoicing Percentage.
Calculate the perfect order KPI by multiplying the , the complete order percentage, damage-free percentage and accurate invoicing percentage together. Viewed in a different light, if your perfect order percentage is 81.9%, the likelihood of getting something wrong is 18.1%.
On-Time Delivery and Shipment
To calculate the perfect order percentage, one must understand the on-time KPI. Calculate the on-time delivery KPI by dividing the number of orders shipped and delivered by the total number of orders shipped and delivered on-time.
On-Time Delivery and Shipment KPI = Total Orders Shipped and Delivered (Including Those Delivered Late) / Total Number of Orders Shipped and Delivered On-Time.
Order Fill Rate Drills Down Into Order Fill, Line Fill and Unit Fill
The order fill rate is another major supply chain KPI, and it includes the following three KPIs to identify failures or successes within order fulfillment:
- Calculate the total order fill rate by dividing the total number of orders shipped on the first try by the total orders that should have been able to ship based on inventory on hand.
Multiplying these three sub- KPI percentages together, similar to the perfect order KPI, derives the overall fill rate KPI.
Cash-to-Cash Cycle Time
Although the cash-to-cash cycle time KPI appears purely financial, it indicates the efficiency of your operation. Calculate cash-to-cash cycle time by averaging the cycle time, from paying for raw supplies to being paid for the finished product by consumers, of all orders together. As the KPI decreases, efficiency increases, freeing up capital for other uses.
Consider an average cycle time of 168 hours. That means the company is sitting on inventory for one week, so the number of reorders decrease. If the same product can achieve a lower cash-to-cash cycle time of two days, it creates an opportunity to spend profits on reordering product, other products or improving marketing. As the KPI decreases, carrying costs decrease, improving profitability and efficiency.
Storage Space Utilization
Knowing your space utilization is also key to effective supply chain management, making this KPI even more important. Calculate your storage space utilization and by dividing the total storage area used by the total storage area of the facility available. As with the previous KPIs, multiply the end result by 100 to obtain a percentage.
A 50,000-pallet facility is using 42,000 pallets: the calculation is ( 42,000 / 50,000) x 100 = 84%.
Warehousing and Transportation Costs
The warehousing and transportation costs per item should also be tracked. The calculation is comparable to the previous calculations, dividing the total warehousing and transportation costs by number of shipped items over a given period of time. The duration can vary widely to give warehouse managers an opportunity to compare average costs against past time periods.
For example, warehouse managers may track costs over a week, month, quarter, or year for comparison purposes.
Track the Right Supply Chain KPIs to Gain Control Over Your Operation
Hundreds of supply chain KPIs exist, but tracking top KPIs, ranging from the perfect order to warehousing and transportation costs, can help improve profitability. If you need help integrating your supply chain systems to track these KPIs, contact Veridian today.