Whether you planned your company’s digital transformation long ago or you’re just now starting, you need to know the right metrics to monitor. Prior to and following digital transformation, it’s important to measure your supply chain performance.
Today, we’re highlighting the supply chain metrics that are especially important to track.
What Are Supply Chain Metrics?
Put simply, a supply chain metric is a data point a company tracks to better understand how efficiently it is delivering goods and services to customers. In general, companies track these metrics to gain visibility into how materials are flowing from procurement to delivery.
The key is to make the process smooth, seamless, and cost-effective across each key touchpoint, including:
• Production
• Warehousing
• Transportation
One of the benefits of supply chain digital transformation is that the new tools at your fingertips will allow you easier access to this data. You don’t have to dig around for updates on how your team is performing or where improvements can be made.
With so much information readily available, it’s essential to know what to track. Here are seven of the top metrics to keep your eye on.
1. Cash-to-Cycle Time
Cash-to-Cycle Time refers to the length of time that passes between when you pay your suppliers and when your customers pay you for their final, finished goods. The shorter this span, the better. Ideally, it will be under one month.
The specific formula used to measure it is:
• Receivable Days + Inventory Days – Payable Days
When this cycle is long, it’s easy to fall into a deficit. You need prompt payment to continue purchasing goods and taking new orders. Staying up to date on this metric can help you identify the root causes of any cash flow issues you’re experiencing.
2. Forecast Accuracy
Forecast accuracy, or forecast reliability, is a key factor in demand planning. If you can measure your forecasts accurately, you’re less likely to experience costly, frustrating stock-outs.
Forecast accuracy is the degree to which your sales leaders can predict the sales that will come down the pipeline in the near and long-term future. When these predictions are on point, it’s easier to manage short-term spending and optimize deals for key accounts.
3. Service Rate
Service rate measures the percentage of product orders that your team successfully delivers on time. To measure it, you’ll perform this calculation:
• Number of Product Orders Delivered on Time/ Number of Product Orders Received
Tracking this metric using software such as an SCM system can help you address bottlenecks, delays, and ordering issues before they occur.
4. Supply Chain Management (SCM) Cost
The total cost of your supply chain operations includes all the expenses you incur to perform the following functions:
• Planning
• Sourcing
• Delivery
• Return
These costs are spread throughout your organization.
In addition to IT costs, you’ll also have costs associated with other departments, such as:
• Finance and planning
• Inventory carrying
• Material acquisition
• Order management
• Returns management
Staying on top of these costs helps you understand and optimize your SCM investment. It’s usually expressed as a percentage of your total revenue.
5. Perfect Order Index
In life, perfection is rarely achieved. However, you can have a perfect order.
This is one in which no errors occur, from beginning to end. Everyone performed their roles without a problem, and there were no external issues that caused delays. The order was recorded the right way and shipped on time. The right quantities were sent, and they arrived as expected, without any signs of damage.
To calculate your perfect order index, perform this operation:
• [(Total Number of Orders – Total Number of Errors)/Total Number of Orders] x 100
If you want more insight into where and how the notable errors occurred, you can also track related metrics, including:
• On-time deliveries
• In-full deliveries
• Damage-free deliveries
• Accurately documented orders
6. Customer Order Cycle Time
Timely deliveries are a cornerstone of satisfaction. Today, customers expect companies to fulfill their orders with lightning-fast turnarounds and those that cannot keep up are at risk of becoming obsolete.
Customer order cycle time tracks the number of days that elapsed between the moment your company received a purchase order and when the customer delivery was completed. By monitoring this metric, you can estimate the responsiveness of your overall supply chain, as well as your level of customer service.
This calculation is represented as:
• Actual Delivery Date – Purchase Order Creation Date
7. Gross Margin Return on Investment
Gross Margin Return on Investment, or GMROI, measures the amount of money your company makes on a specific inventory investment. Tracking this metric allows you to see which products are good performers and which ones aren’t serving your business quite as much.
The calculation used to measure GMROI is:
• Gross Profit/ [(Opening Inventory in Current Period – Closing Inventory in Current Period) / 2] x 100
For most companies, a GMROI of 200 to 225 is acceptable.
Digital Transformation Drives Supply Chain Performance
By investing in digital transformation, supply chain leaders are making strides forward. With modern tools and solutions, they can impact the metrics that matter and continue to do so as the software delivers new insights and recommendations.
Above are only a few of the supply chain metrics that you should track. Our enterprise software consultants can help you define all the KPIs you need before, during, and after implementation. Contact us below for a free consultation.
