This is a contributed op-ed by Dylan Lee, senior product manager at Cleo.
It’s no secret that businesses investing in supply chain integration and optimization reap the benefits of improved quality of service and a competitive edge. In fact, 79% of companies with high-performing supply chains report significantly higher revenue growth than their industry average. Optimizing that supply chain, however, means hitting key performance indicators (KPIs) like agility, reliability, and accuracy every step of the way, from order to fulfillment – and even the return process.
Here are the five KPIs that will make or break your supply chain strategy:
1. Inventory accuracy
Inventory accuracy compares the items that are in stock to what your Enterprise Resource Planning (ERP) database tells you. Errors in inventory tracking lead to unnecessary orders, added costs, more stock-outs, and reduced customer satisfaction. Your Amazon e-commerce storefront might be selling items you can’t fulfill because order and inventory data in your NetSuite ERP aren’t up to date.
2. On-time delivery
It might go without saying, but an on-time delivery happens when an order reaches the recipient when its expected. As an example, Walmart now wants its suppliers to deliver full truckload orders within a two-day window, 87% of the time. For less than truckload (LTL) deliveries, that number is 70%. That means several moving parts, including inventory, transportation and logistics carriers, to Advanced Shipping Notice (ASN) documents, etc. All must be working congruously, which is difficult without a tightly integrated supply chain network.
3. Average days late
Having visibility into how many days a product spends in your factory, warehouse, and on the road helps supply chain managers understand inefficiencies and areas to improve upon. To hit the ever-shrinking delivery windows of partners like Amazon and Target, businesses might shift resources to prioritize larger orders or big-box customers, which can have negative downstream effects on service for the rest of your customer base.
Customer base diversification is an important strategy for suppliers looking to survive and thrive long term. With the upheaval in traditional brick-and-mortar, e-commerce provides new market reach and direct access to customers via B2C revenue streams.
While the 80/20 rule still holds true, 80% of the volume and revenue of business happens with 20% of customers (big-box), it is the individual consumer that helps activate an e-commerce strategy and represents the greatest potential in reducing dependency on a small handful of large customers in a highly unstable market.
By diverting bandwidth away from B2C interactions and focusing only on large-order, big box clients, the smaller customer interactions may be negatively impacted by inaccurate inventory or product data, or missed fulfillment commitments. Negative customer experience inevitably damages brand, affects customer loyalty, and ultimately lead to consumers looking elsewhere for goods and services.
Accurate data flows and the reliable processing of that data can improve this KPI because they help ensure the timely flow of goods.
4. Order accuracy
Fulfilling every piece of an order 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.
5. Perfect order
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 delays.
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 the competition.
Merchants, vendors, and manufacturers will undoubtedly show continued interest in how goods move through partners’ warehouses. It matters considerably how consistently these orders arrive on time and how complete each order is. Having a 30,000-foot view of the entire supply chain ecosystem will enable companies to focus in on KPIs like inventory accuracy, on-time delivery, average days late, order accuracy and will prove instrumental in augmenting supply chain strategy to yield a more profitable business overall.
When the operational elements of your supply chain are able to function in concert with frictionless digital information flows, the aforementioned KPIs are assured, leading to a lower days sales outstanding (DSO) measurements, an acceleration in the generation and collection of revenues and a more efficient business overall.
A resilient supply chain is especially important to your business in these uncertain economic times. By focusing on the KPIs that matter most, you’ll ensure your ecosystem adapts as situations change, but expectations don’t.