9 Critical KPIs That Make or Break Supply Chain Strategies

Learn why these 9 KPIs are essential to a successful supply chain strategy.

The keys to meeting your trading partners’ increasing expectations come down to supply chain integration

There are examples across the history of individual achievement that set the bar higher for everyone else. Wilt Chamberlain’s 100-point game. The first human to run a four-minute mile. Astrophysicist Christopher Hirata who at 16 was working on Mars colonization at NASA. But comparing outstanding feats of strength, endurance, or intelligence often is the way we measure our own abilities, potential, and performance, and it’s certainly no different in how a business evaluates its supply chain strategy.

Here is everything you need to know about the top 9 supply chain KPIs:

  • What is a Supply Chain KPI?
  • Examples of KPIs 
  • The 24-Hour Game Changer in KPIs
  • The Supply Chain Strategy Imperative
  • 9 Important Supply Chain and Logistics KPIs
  • How to Improve Supply Chain KPIs
  • 5 Ways an Integration Platform can Improve Supply Chain KPIs
  • What Ecosystem Integration Enables

What is a Supply Chain KPI?

Supply chain KPIs (Key Performance Indicators) are specific metrics supply chain professionals use to monitor the efficiency and effectiveness of the most critical processes within a supply chain. These are typically the most important measurements that indicate the overall health of a supply chain. Many KPIs are used throughout the entirety of a supply chain, or can be limited to a single company's supply network.

In general, KPIs are how you gauge your performance over time, and they’ll often vary by business. But the insights such metrics provide also can help devise strategies to improve business processes, fix inefficiencies, and generate more business.

Examples of KPIs

KPIs will vary by industry, business, department, and even teams within that department. Here are a few common key performance indicators for individual lines of business:

  • E-commerce sales KPIs can include metrics that surround average order size, churn rate, and shopping cart abandonment rate, which tells how many users add products to a shopping cart but don’t check out. A high abandonment rate could indicate a complex or high-friction checkout process.
  • Marketing KPIs can include digital metrics like time spent on site and website bounce rate, as well as email open and click-through rates, which indicate the success of an email campaign and whether it’s driving traffic to your website.
  • Customer service KPIs track metrics like first response time and customer satisfaction scores. A net promoter score (NPS) tells how likely a customer is to recommend your product or service and is generally a good indicator of customer loyalty and how well your brand resonates in the market.

All these KPIs are solid metrics for measuring performance in areas critical to a specific role or department. Identifying and selecting the right KPIs begins with clear goals and an understanding of how those goals will affect the business.

Organizations partnering with the likes of Walmart, Target, and Amazon must identify and execute on several important supply chain performance metrics to optimize delivery processes, meet agreed-upon SLAs, and avoid penalties.

The 24-Hour Game Changer in Supply Chain KPIs

For instance, when Amazon announced it was making free one-day shipping the standard for Amazon Prime customers, a new industry benchmark was established that sent ripples throughout retail supply chains.

The move was such a game-changer that Walmart scrambled to announce a couple of weeks later that it also will offer next-day delivery on hundreds of thousands of items on its website.

Two-day shipping was considered a logistics feat when Amazon launched it in 2005, so the fact that the e-commerce giant 14 years later is rolling out 50% faster shipping to Prime members without adding consumer costs (though Amazon did raise Prime membership pricing by $20 in 2018) is at the very least an intriguing case study in supply chain management.

A phenomenon like one-day free shipping is what happens when an organization views and supports its supply chain as a centerpiece of competitive differentiation. Treating the pushing of performance-based boundaries as an asset is a way to rewrite the value proposition to the customer.

However, turning a massive challenge into a proverbial opportunity doesn’t come easy and it doesn’t come quick. Said Amazon CFO Brian Olsavsky, on the promise of 24-hour delivery: “We're able to do this because we spent 20 plus years expanding our fulfillment and logistics network.”

The business investing in supply chain integration and supply chain optimization helps improve the quality of service it can provide to its customers and strengthens a differentiator that no competitor can match. Optimizing that supply chain, however, meets hitting supply chain KPI performance metrics like agility, reliability, and accuracy every step of the way, from order to fulfillment – and even the return process.

The Supply Chain Strategy Imperative

The message to manufacturers, vendors, suppliers, distributors, and logistics and transportation partners is clear: Deliver products on time or be penalized until you can. Brands are quickly discovering how imperative agility is – the agility to shift their resources and often their priorities – to keep up with the demands of Amazon KPIs and others.

And thus, things like e-commerce, online marketplaces, omnichannel, unified commerce, and perhaps most importantly, higher customer expectations, are dramatically reshaping how retail supply chains operate. Keeping up with these trends, however, often requires multiple, disparate technologies – applications, connection protocols, transactional standards, etc.

Read how massive Mohawk Global Logistics drove 60% decrease in error-resolution time and cut EDI costs by $60k

So, how can suppliers agilely improve delivery performance and keep up with their fast-moving, rapidly evolving mega-retail partners? It’s not just deploying new technology; it’s comprehensively supporting a complex network of technology with highly flexible integration and rapidly adaptive systems to optimize business processes, which drive key performance indicators (KPIs).

KPI success, then, requires a modern technology approach, one that enables multi-enterprise supply chain integration as well as cloud and application integration. It requires reliable and accurate data, as well as end-to-end process automation. It requires ecosystem integration.

Here’s a look at some supply chain KPIs that every organization must embrace to meet a higher standard of business and how ecosystem integration technology will help you get there.

Get Started on Meeting Your KPIs Today

9 Vital KPIs for Supply Chain Management and Logistics

Merchants, vendors, and manufacturers have a significant interest in how goods move through retail partners’ warehouses and stores and how prepared their stores are to fulfill online orders. It matters considerably how consistently these orders arrive on time and how complete each order is. Here are five supply chain KPIs that will improve how you do business with Amazon, Walmart, and any other retail partners.

1. Inventory accuracy

Inventory accuracy compares the items that are in stock to what your ERP database tells you. Errors in inventory tracking lead to unnecessary orders, added costs, more stock-outs, and reduced customer satisfaction. For example, your Amazon e-commerce storefront might be selling items you can’t fulfill because order and inventory data in your NetSuite ERP isn’t up to date.

2. Inventory turnover

Inventory turnover is a supply chain KPI that reveals how many times your entire inventory is sold during a given time period. It is used to assess the effectiveness of your order fulfillment, sales and marketing operations, and manufacturing processes. The inventory turnover ratio demonstrates how efficiently you turn invested working capital into profit.

This formula is used to calculate your inventory turnover ratio:

Inventory Turnover Ratio = Cost of Goods Sold / {(Opening Stock – Closing Stock) / 2}

3. On-time delivery

An on-time delivery happens when an order reaches the recipient on schedule, and this is increasingly important with higher demands shrinking delivery windows. Walmart wants its suppliers to deliver orders within a two-day window, for full truckloads, 87% of the time. For less than truckload (LTL) deliveries, that number is 70%. That means several moving parts, from inventory to transportation and logistics carriers to accurate ASN documents, all must be working congruously, which is difficult without good integration solutions.

4. Days sales outstanding

Days sales outstanding (DSO) is a metric that measures how many days it takes to collect payments from customers after a sale. If your company's days sales outstanding (DSO) is low, it indicates greater financial performance. It demonstrates you are generating revenue from your customers in fewer days. A high DSO, on the other hand, indicates that you are taking more time to collect account receivables, which often slows cash flow and negatively impacts net income.

5. Average days late

Having visibility into how many days a product spends in your factory, warehouse, and on the road helps understand inefficiencies and areas to improve upon. To hit the ever-shrinking delivery windows of retail partners like Walmart and Target, your business might be shifting resources to prioritize larger orders or big-box customers, which can have negative downstream effects on service for the rest of your customer base. Accurate data flows and the reliable processing of that data can improve on this KPI because they help ensure the timely flow of goods.

6. Fill rate

One of the most vital supply chain KPIs you can use to track order fill and line fill rates is fill rate. It’s understood as a percentage of products or SKUs shipped successfully on the first try. This provides information on the effectiveness of your delivery service and aids in gauging client satisfaction.
Fill rate KPIs assist you in comprehending the efficiency of your supply chain. For illustration:

Order fill:  calculates the proportion of successfully completed orders on the first shipment.

Line fill:  calculates the proportion of order lines with successful first-shipment deliveries.

Units filled:  calculates the proportion of successfully delivered products in the initial shipment.

7. Freight invoice accuracy

Freight invoice accuracy (or freight bill accuracy) helps professionals understand the ratio of inaccurate freight invoices. Shipping inventory products from manufacturer to warehouse (or from warehouse to the customer) is crucial to smooth logistics operations, and a small mistake can damage your business’ reputation and cash flows. Beyond profits, freight bill accuracy aids in customer satisfaction and the detection of troubling patterns in your billing procedures.

Understand how EDI in transportation and logistics works

8. Order accuracy

Fulfilling every piece of an order also is critical for suppliers and manufacturers. Orders that are not delivered in full can contribute to partner stock-outs and result in hefty fines. Walmart suppliers get hit with a fine of 3% of the cost of the goods sold for each item that fails to meet the retailer’s “on time, in full” mandate. Everything from accurate inventory and order data to sufficient staffing schedules is critical for managers looking to improve order accuracy KPIs and their reputation as a reliable business partner.

Find out how fulfillment in supply chain is evolving

9. Perfect order rate

Perhaps the most important KPI, perfect order rate (or perfect order percentage) is a combination of several other KPIs and measures the number of orders that ship without incident, which could include an imperfect order, damaged goods, or delayed shipping. Every supply chain organization strives for the highest perfect order rate, an indicator of an extremely efficient business with highly satisfied customers. Those with high marks tend to carry less inventory, achieve faster order-to-cash cycles, and have fewer stock-outs than their competition.

Some internal and external forces can contribute to missed KPIs, but an increasingly common culprit is bad data.

It’s not surprising, poor data flows tied to technology or skills deficits lead to manual processes, data silos from disparate systems and legacy applications, and poor visibility and audibility. Without accurate views of the B2B integration software processes throughout your ecosystem, a business is unlikely to hit these critical KPIs.

How to Improve Supply Chain KPIs

Walmart and Amazon each have tens of thousands of suppliers, and it’s their prerogative to get them firing on all cylinders through a proactive supply chain strategy and tighter supply chain integration. If one supplier can’t keep up, a thousand others stand ready to take its place.

So, how do you improve on these important delivery KPIs and be a better business partner to Walmart, Amazon, and so many other trading partners?

By improving the underlying business processes – order to cash, procure to pay, load tender to invoice – impacting each KPI, and that requires ecosystem integration technology.

Five Ways an Integration Platform can Improve Supply Chain KPIs

The ability to interact and do business with new and existing customers is core to generating revenue, and it’s why data compliance will always be of the utmost importance to your bottom line. An ecosystem integration platform supports all manner of data format and protocol to support your customers’ evolving needs

1. Seamless End-to-End Processes for Data Transformation, Orchestration, Movement

Too many company-wide processes, while related, happen in silos and a disjointed manner. Consolidating EDI and application integration, however, means your business can automate data transformation, orchestration, and movement processes and streamline end-to-end data lifecycles. This allows enterprises to accelerate any-to-any integration by automating data validation, transformation, and orchestration processes across your internal environment, cloud applications.

2. Real-Time Visibility of All Data Exchanges

Integrated end-to-end data flows promote real-time visibility, and enterprises can unlock performance data that creates new opportunities and critical business insights. An ecosystem integration platform provides a central console specifically designed to gives your enterprise a comprehensive view of your important B2B interactions. Business users can view and monitor the complete customer journey, from the ordering process to fulfillment, with the ability to offer premium customer service at any step in the process.

3. Centralize All Integrations and Integration Processes

When you integrate with multiple customers and trading partners, you do not want to make things more complex than they already are by deploying one-off and custom integrations for each. A modern integration platform centralizes data movement processes and will eliminate the need for multiple clients and custom integrations, enabling you to consolidate systems and more easily manage the important B2B integrations across your ecosystem.

4. Automate Core Integration Processes to Reduce Manual Errors

Automating end-to-end processes help to reduce the potentially costly errors that occur with manual workflows. Creating and controlling secure connections with internal systems and applications and external customer and trading partner technologies, which is the crux of ecosystem integration, enables such automation. Additionally, automation of the partner onboarding process reduces the amount of time it takes to build and maintain data mapping or file transfers with new customers or technologies and speeds time to value.

5. Ensure Data is Handled According to Business Rules Through Data Governance Alerts

The final way to ensure your enterprise remains in compliance with your customer SLAs is through event and non-event alerts. These essentially pre-empt any risk of SLA or mandate violations that might happen due to file transfer errors. Alerting capabilities help businesses proactively mitigate errors that might lead to SLA penalties and ensure your organization stays in compliance with their customers.

What Ecosystem Integration Enables

  • Complete connectivity for the EDI and B2B systems, as well as supply chain applications driving your delivery and fulfillment processes
  • Faster partner onboarding and expedited order-to-cash workflows
  • Integration of end-to-end data flows that provide visibility across your entire supply chain
  • Transparency into the KPIs that enable analysis on your ecosystem interactions and drive new business models

The benefits of enhanced integration and improved KPIs extend well beyond just successful relationships with Amazon and Walmart. The investments in technology and process will also ensure you can tear down traditional data silos, eliminate visibility blind spots of the operational activity data flowing across business systems, provide added value for the rest of your customer and partner ecosystem, agilely roll out new services, and most substantially thrive in the post-digital age.

Ecosystem integration supports the key supply chain and logistics processes essential for competing in the age of Amazon. Learn how a modern technology platform enables compliance with evolving partner mandates, improves delivery and fulfillment, and ensures your business can capitalize on lucrative revenue streams.

Improve Your Supply Chain KPIs

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