Supply Chain Management – Why is it so important?
Nowadays, no one can deny the significance of the supply chain, and it’s the backbone of every company. According to studies, the global supply chain market is set to reach $37.41 billion in 2027 More than ever, business leaders have recognized the power of top-performing companies driven by data and numbers.
After all, when the supply chain is ineffective, fragmented, or inefficient, it could seriously hinder your business prospects and value delivery process. An efficient supply chain ecosystem ensures smooth and consistent delivery of products and services from supplier to client or customer.
Hence, keeping an eye on relevant supply chain indicators (KPIs) and ensuring they are optimized. Let’s dive in with the key supply chain performance indicators.
Top 8 Performance Parameters In Supply Chain Management
Undeniably, supply chain parameters help set solid benchmarks for several key activities. These supply chain metrics have two main goals: increasing productivity and enhancing customer satisfaction. Surveys have showed that 57% of companies believe that supply chain management gives them a competitive edge. Certainly, with the right KPIs, your business can stand out from the crowd by being more productive – ultimately, more profitable.
To help you make rapid decisions in today’s competitive and ever-evolving business era, here are the key supply chain performance metrics that businesses need to pay attention.
1. Perfect Order Index
It measures an error-free rate where perfect orders from every stage are multiplied to give an overall performance indicator. It’s an excellent benchmark to measure supply chain management performance, allowing you to drill and pinpoint issues within the system.
((Total Orders – Error Orders) / Total Orders) * 100
2. Cash-To-Cash Time
Also known as cash conversions, it measures the time between when the company sends cash to the supplier and money received from the consumer. It comprises of three main chain measurements: days of payables, inventory, and receivables.
A short C2C cycle ensures money spends less time within the hands of others, whereas it can be invested to achieve core competencies.
Materials Payment Date – Customer Order Payment Date
3. Customer Order Cycle Time
It measures how long it takes to deliver a customer order after the purchase order is received.
Actual Delivery Date – Purchase Order Creation Date
4. Fill Rate
It’s the percentage of a customer’s order completed within the first shipment. It can be presented as a percentage of SKUs, items, and order value included in the first shipment.
It plays a significant role in determining customer satisfaction and transportation efficiency.
(1 – ((Total Items – Shipped Items) / Total Items)) * 100
5. Supply Chain Cycle Time
It indicates the overall efficiency of the supply chain. It includes the time to fulfill a customer order when inventory levels were zero.
Shorter cycles refer to efficient and agile supply chain management and vice versa.
Sum Of The Longest Lead Times For Each Stage Of The Cycle
6. Freight Bill Accuracy
It simply assesses the error-free freight bills in a percentage form and is significant in evaluating customer satisfaction and business profitability.
(Error-Free Freight Bills / Total Freight Bills) * 100
7. Freight Cost Per Unit
It is typically measured as the freight cost per unit, and businesses try to minimize their freight expenses to ensure efficiency.
Total Freight Cost / Number Of Items
8. Inventory Turnover
A metric that indicates how much inventory is sitting idle and higher inventory turnover levels is a clear sign of efficient supply chain management.
Cost Of Goods Sold / Average Inventory
The optimal supply chain management will bring fruitful long-term outcomes and can help businesses with growth development and expansion over time. The smooth operation of complex supply systems is difficult and requires efficient monitoring and evaluation.
Businesses can implement the above supply chain KPIs to measure performance and find ways to improve supply chain management.
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