KPIs for a supply chain are essential to guide the performance of all logistics activities. Choosing the right indicators means ensuring that you have the right information at the right time to make the right decisions.
Let’s remember that anything that can be measured can become a KPI. Therefore, supply chain professionals must find the right balance of measuring relevant and useful indicators.
Let’s know what indicators we should monitor and how to do it correctly.
What is a supply chain KPI?
KPIs are a set of quantitative metrics that can help measure your company’s performance over time. Specifically, they allow you to monitor how effectively your organization achieves its objectives.
To define your supply chain KPIs, you must first establish the specific performance parameters necessary to track operations. These parameters reveal useful information such as order accuracy, inventory turns, inventory-to-sales ratio, and inventory velocity.
Basically, these KPIs act as benchmarks that help you track your company’s operational metrics and reveal how effectively goals are being met. They also allow you to make future projections based on the progress you are making.
If you are planning to make business decisions related to business expansion and development or improving your company’s order fulfillment and shipping operations or warehouse management, your KPIs will make it easier for you to track. Specifically, they will reveal any gaps that allow you to leverage your strengths to improve your supply chain operations.
Examples of KPIs for a supply chain
Supply chain KPIs allow you to monitor your supply chain processes to identify those that need improvement.
These are some of the essential KPIs that will provide you with actionable information about your company’s operations:
1. Fulfillment of supplier orders
For your supply chain, the goal is to ensure that the compliance of orders placed is as close to 100% as possible. To do this, this indicator calculates the percentage of order failures with a specific supplier (or globally) in relation to the total number of orders.
A failed order means that the agreed quality of the product or service, the delivery time or the expected quantity has not been met. Sometimes you even have to reject some orders. If the compliance rate drops with a certain supplier, it is a red flag that must be taken into account quickly.
2. Customer satisfaction
Although it is not strictly one of the logistics KPIs, but rather a marketing or sales indicator, the measurement of customer satisfaction is, however, a very important point to take into account. If your clients are not satisfied with your services, you risk losing.
Furthermore, not all customers express their discontent, and that is the most dangerous thing. To measure customer satisfaction, there is a simple indicator: NPS, for Net Promoter Score. It is a tool that is used in most companies in the world, because it is easy to read and follow over time. The NPS is built from two simple questions:
How likely are you to recommend this product or service to a friend or family member?
Why or why not?
The first question is answered on a scale from 0 (not at all likely) to 10 (very likely). If the score is 9 or 10, your clients are in the promoter category. If they give you 7 or 8, they are passive. From 0 to 6, they are detractors. NPS is then calculated by taking the percentage of promoters and subtracting the percentage of detractors, which gives a number between -100 and +100. A positive NPS is an indicator of good customer satisfaction. Above 50, it is extremely positive.
3. Transportation management
Transportation management is one of the most important KPIs for a supply chain. Transport control allows the company to save time, offer quality service to its customers and save.
4. Purchasing and supply operations
A company that wants to have a better idea of the evolution of its business should analyze purchasing and supply operations (average contract execution rate, ROI of the purchasing function, etc.).
5. On-time delivery
The measurement of this supply chain KPI is linked to its ability to optimize last mile management. It is calculated as a simple percentage of the number of deliveries made on time over the total number of deliveries. The higher it is, the more its logistical efficiency would stand out.
At the same time, it can also calculate the utilization of your transport equipment. This is its actual transport capacity (calculated in volume or weight) compared to the capacity used for your deliveries. It is clear that if your trucks leave your warehouses loaded at 75% instead of 100%, you are losing money and are less efficient.
6. Inventory management
Inventory management is a sensitive topic for all supply chain professionals, as it is a balance. To do this, you can calculate your stock turnover. This is a KPI that shows the number of stock changes during a given period of time (quarter, semester or year).
In general, the more frequent the inventory rotation the better, since this means that your sales are active and that the manufactured products do not remain in your warehouses for long.
Finally, you can also measure a useful KPI related to out-of-stocks. It is the relationship between the number of total orders and the number of unplaced orders. This gives you useful information about the number of times you have been unable to meet your customers’ demand.
How to monitor your supply chain KPIs
As we have seen previously, KPIs for a supply chain should measure and quantify the efficiency of your supply chain through a few key indicators. The first thing you should do is create a dashboard and define these indicators.
At first, it is advisable to link with the strategic vision of the director and the management committee of the company, which should allow the objectives of the supply chain to be identified. These main objectives, monitoring and sustainability, are broken down into efficiency levels and, therefore, into measurable indicators.
These objectives must be integrated into a global approach to the chain by integrating suppliers and customers. It is essential that the supply chain manager maintains a strategic vision at all times and examines all of his decisions against this vision.
Supply chain performance is essential to the success of your strategy, whether it is gaining new market share, retaining customers, improving the profitability of each of them, or all three. at once. Therefore, measuring supply chain performance deserves special attention.
Evaluating your supply chain is a necessary but complex process, given the multiple factors that affect it: internal organization, customer demands, stock management, supplier risk, geopolitical events, etc. In an ever-changing world, the supply chain is at the heart of our economy, making it an indispensable part of every company. All the more reason to measure your performance.