Key Performance Indicators or KPIs are crucial to any business. They are essential metrics related to your business that would assess your business' growth over time. In short, it translates your business' progress into something quantifiable.
The KPIs in supply chain business give you a detailed insight into the company's accuracy regarding orders, inventory velocity, inventory turnover, and even inventory-to-sales ratios. The suitable KPIs help you understand the standards you must meet to survive in the industry. It acts as a benchmark you can achieve as your business progresses.
Here are 5 supply chain KPIs you should start bothering about if you haven't already.
1. The number of perfect orders
Perfect orders are integral to any supply chain business. Before we go any further, let's discuss the textbook definition of Perfect order.
A perfect order is something that is delivered on time, in full quantities, without any damage to the goods and with all the proper documentation. As you can notice, to ace a perfect order, you have to take care of four components.
- On-time delivery
Check if the product is delivered on or before the mentioned time. Deliveries that arrive earlier always bring a smile to your customers' faces. - In-full delivery
For a delivery order to be perfect, it should include all the items a customer ordered for. This also means the customers should get the package they ordered and not someone else's products. - Damage-free goods
The goods that reach the customers shouldn't have sustained any damage. Even the slightest damage can compel the customers to initiate a replacement or refund service, which adds to your additional costs. - Accurate documentation
Both parties should have proper documentation and update on what's happening to the product and where it is currently. Once it reaches the customer, they should receive the invoices and the manuals.
The more perfect your business manages to complete an order, the higher will be the customer satisfaction rate.
Perfect KPI = ((Total Number of Orders – Number of Erroneous Orders) / Total Number of Orders) * 100
2. The Cash-to-Cash Cycle Time
The cash-to-cash cycle time refers to the period from when you first purchased the raw materials until you received your first payment for the finished goods.
The lower the cash-to-cash cycle time, the higher your profitability. This also means you are getting good orders. And those are being fulfilled in a short period without irritating the customers.
3. The Customer Order Cycle Time
As the name suggests, the customer order cycle time is the time taken between receiving the order and delivering the perfect order to the customer. The term perfect order is of high importance here. The lower the customer order cycle time, the higher the customer satisfaction, directly benefiting your business.
The cash-to-cash cycle time and customer order cycle time are directly related. Therefore, if the cash-to-cash cycle time is low, you have a high chance to lower the customer order cycle time.
4. The inventory days of the supply
This KPI indicates the number of days your inventory can survive without restocking. The KPIs associated with procurement should be able to tell you when to stock the necessary goods so that you can be prepared when the demand goes high.
This doesn't mean you need to stack all the products. Only stock the products that are in demand or are expected to be in demand soon. This ensures the Cash to cash cycle time and the customer order cycle time are reduced.
5. The Days Sales Outstanding metric
This KPI indicates how fast you can collect payment from your customers. If you find out that the day's sales outstanding value is high for your business, you aren't able to collect the receivables on time, which could disrupt your whole business process.
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