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Top 9 Essential Supply Chain Management KPIs You Should be Tracking

The supply chain is an integral element of any business operation, comprising a network of organizations, individuals, and activities. A supply chain begins with the creation of a product and ends with its sale. 

The chain should not be envisaged as a formal process of conducting deals. Rather, it encompasses a wide array of aspects that involve the movement of raw materials and finished goods through a network of manufacturers, suppliers, and end users.

An optimum supply chain is an objective for any business, resulting in lower costs and increased production efficiency. Supply chain management aims to optimize the movement of products from producers to consumers through increased velocity and collaboration between supply chain partners. 

To implement the objectives of supply chain management, businesses usually use traditional elements such as planning, sourcing, manufacturing, logistics, and returning.

An effective supply chain management strategy helps to identify potential problems, optimize prices dynamically, and improve the allocation of available resources. A business may often use supply chain performance metrics to improve its competitive positioning. 

A supply chain can generate massive amounts of data, and with the help of analytics, there is hope to make sense of it. Supply chain analytics help to make data-driven decisions, together with the help of visualization in the form of charts and graphs and key performance metrics.

For any business, supply chain analytics reduce costs and improve margins, increase planning accuracy, and prepare for the future. They also help to evaluate business risk and achieve a lean supply chain. 

Understanding supply chain analytics is the way to go forward if you want to build a strong foundation in the business domain. A comprehensive course in data analytics that includes a focus on supply chain can be a rewarding opportunity for you, helping you ace the competitive space.

Supply chain performance metrics are vital numbers that help a business maintain track of how efficiently they can deliver goods to their customers. An efficient supply chain execution involves driving the flow of goods from the stage of procurement to delivery in a cost-effective manner.

Included in the purview of these activities are warehousing, production, and transportation. You will know which areas are most beneficial for maximum returns with the right metrics. Let us study the top supply chain metrics and KPIs and their relevance.

Cash-To-Cash Time Cycle

The cash-to-cash cycle is the average length of time that it takes to convert raw materials into cash flows. It is one of the most important supply planning KPIs, which can be measured using adjacent metrics such as days of inventory, days of payables, and sales outstanding.

We can add the first two and subtract the third to arrive at the cash cycle time. A smaller cash cycle is better for any business, some of which have also achieved a negative cash cycle. It is an important KPI in performance management that speaks a great deal about the efficiency of a supply chain.

Customer Order Cycle Time

A customer order cycle time is the average time between placing an order by a customer and its actual delivery to them. It is one of the few supply planning KPIs that help to understand whether a supply chain is efficient. For instance, the customer order cycle time can be studied in conjunction with the cash-to-cash cycle time.

So, for example, if the latter is constantly increasing, but the order cycle remains the same or decreases. The management may need to identify possible issues with the management of payables, inventory, and possibly, receivables.  

Order Fill Rate

An order fill rate signifies the volume of demand that can be met through available stock without losing out on sales or taking backorders. For a business, it is one of the key performance indicators metrics since it can throw light on understanding how products can sell out and when.

Accordingly, it is possible to make changes to sales forecasts and orders. A business can manage orders by increasing average inventory holding, moving to a more agile chain process, and improving relations with suppliers so that order quantities can be modified according to demand.

Inventory Turnover

Inventory turnover is one of the key performance metrics which tells a business how often it sells its entire inventory within a given time frame. A low inventory turnover points toward substantial issues or problems with the supply chain.

It could be due to low sales, poor forecasting for sales, inaccurate ordering, or lags in the supply chain. It is terrible news for a business because it indicates holding more inventory than necessary, freezing capital, and dampening cash flows.

Gross Margin Return on Investment

A return on investment is one of the most pivotal business decisions and processes. A business that does not deliver a positive ROI will be impacted in all facets of the supply chain. Ideally, a gross margin return on investment reflects how much return a business makes for every unit of money spent as an investment in inventory.

Measuring supply chain key performance indicators such as this helps to gain insight into areas of the supply chain that help achieve value. Consequently, a business can also aim for improvement wherever possible.

Supply Chain Costs

Supply chain costs are also an essential KPI in performance management wherein you look at the entire supply chain and the related costs. Thus, we are looking at costs not only in terms of product or inventory purchases but also things like cost of systems, logistical costs, staffing costs, and risk assessment costs.

The idea here is not to set a benchmark but to identify opportunities where cost savings can be done and control exponential costs.

On-Time Shipping

On-time shipping is among the few key performance metrics central to any business’s decision-making. It measures the ratio between the orders shipped before or on the requested shipping date. You can use this metric to measure your delivery performance, which ultimately helps you reach supreme customer satisfaction.

It can be measured by dividing the total number of items by the number of on-time items and multiplying by 100. The higher the ratio, the higher the efficiency of the supply chain. However, a poor ratio indicates that orders take too long to reach the intended customers. Customer retention is dependent to a large extent on correcting this ratio.

Backorders

A backorder is an order that cannot be fulfilled when a customer is placing an order for it. Calculating backorder can be done by dividing the number of undelivered orders by the total number of orders. 

Measuring such supply chain performance metrics is important since consistency in large backorders and longer waiting periods could mean something is wrong in the supply chain.

An ideal inventory system can be deployed to correct a situation of piling backorders. Real-time data on inventory and reordering management can help reduce backorders significantly.

Rate Of Return

Rate of return is another among the most relevant key performance indicators and metrics, which helps measure the rate at which shipped items are sent back to you. It can be calculated by dividing the total items returned by the total items shipped. 

The core idea behind measuring this ratio is to understand the possible reasons why customers are returning your orders.

While some of the reasons that it brings to light may be generic but some others can help to spot a weakness in the supply chain, which could be improved consequently. Supply chain analytics can help to make sense of every KPI associated with the chain. 

Such analytics make understanding the supply chain key performance indicators easier and direct the business towards the most profitable practices.

A holistic course in supply chain analytics is the key to gaining access to complete knowledge in the domain and bagging high-paying jobs.

For a promising future in supply chain management and analytics, you can opt to pursue comprehensive courses with Hero Vired, such as their PG Certificate Program in Business Analytics and Data Science and the Accelerator Program in Business Analytics and Data Science – both of which include modules on how to apply principles of data analytics to supply chain problems. 

You will have access to live sessions with global and Indian faculty. The courses also provide exposure to various industry projects and case studies so that you can work on real-world problems.

The purpose of these courses is to develop knowledge about supply chain performance indicators and relevant business analysis skills. The course prepares you to create data analysis and visualize how to make sense of complex datasets.