5 Critical KPIs That Make or Break Supply Chain Strategies
The keys to meeting your trading partners’ increasing expectations come down to supply chain integration
There are examples across 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.
24-Hour Game Changer
Last month, 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 through the retail supply world. 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 key performance goals like agility, reliability, and accuracy every step of the way, from order to fulfillment – and even the return process.
When a Shot is Fired, There is Always a Recoil
Even before it announced next-day delivery on May 14, perpetual Amazon competitor Walmart upped the ante on its suppliers’ delivery habits to help reduce inventory costs while effectively meeting e-commerce demand. The move calls for better delivery performance and increases pressure on Walmart suppliers to deliver more goods on time and in full, which affects full truckloads and partially full trucks.
It specifically raises the bar on the partial delivery front, in which its suppliers must hit a significantly higher on-time threshold. The goal is to ensure products from regular store inventory can be pulled to fulfill orders for things like Walmart’s online grocery pickup and other delivery services, services it rolled out in direct response to Amazon’s increasing market share.
While Walmart intimated that it had been working on 24-hour delivery for some time, the announcement from Amazon – and the subsequent $800 million investment to ensure its success – no doubt affected Walmart’s timeline and thus, how it manages its supply chain.
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 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.
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.
What is a KPI?
A key performance indicator is a value that measures how effectively a department or business achieves its objectives. KPIs are used at multiple levels throughout the organization to evaluate just how successful a person, team, or business unit is in reaching its specified targets. 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 sales, 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 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.
5 Important Supply Chain and Logistics KPIs
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.
- 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.
- 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 a number of 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.
- 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.
- 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 are critical for managers looking to improve order accuracy KPIs and their reputation as a reliable business partner.
- 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 its competition.
There are a number of internal and external forces that 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 auditability. Without accurate views of the B2B 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.
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 pertaining to 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.