Making sure a complex system such as supply chain management runs smoothly is a difficult process. It involves multiple organizations, each of which have their own objectives and practices. Tracking shipments and monitoring inventory levels are just a few of the key aspects that need to be closely followed in order to ensure that orders are handled effectively.
That’s why supply chain analytics is such an important part of it. Using numerous KPIs and metrics, companies are able to measure the performance of their supply chain management systems and find ways to improve the entire process.
But What Exactly is a KPI?
KPI stands for “key performance indicator.” Also known as a key success indicator, it provides a way for companies to measure their performance in specific activities that relate to projects, products or other parts of the company’s workflow.
The numerous metrics that are measured are then used to determine the progress towards achieving its goals and objectives, as well as to compare performance against other businesses in the industry.
Since the workflows and goals of companies can be quite different depending on the industry that they operate in, KPIs often vary greatly as well. In fact, they can even greatly vary within the company itself. HR departments usually track metrics such as employee satisfaction levels, while sales would be more interested in Key Performance Indicators like client acquisition rates or pricing against competitors.
Basically, KPIs provide an objective way to measure how a business is performing. Without them, there wouldn’t be an effective way to determine problems or make adjustments accordingly. And just like any other area, supply chain analytics have their own set of the most important KPIs.
Essential Supply Chain KPIs
Selecting the right key performance indicators for supply chain analytics isn’t an exact science by any means. It’s a process that requires companies to clearly identify goals and then develop the performance indicators that allow you to track your progress towards those goals.
Nonetheless, the process of selecting the right KPIs can’t be underestimated. In order to facilitate improvements across the company, data needs to not only be accurate, but useful as well.
This also holds true for supply chain management KPIs. It’s important to select SCM KPIs that can provide useful data of not only cross-functional activity, but track individual supply chain components as well.
Here are some of the key performance indicators that can be very useful for supply chain analytics:
Inventory turnover is a KPI that measures how well an organization is able to move its inventory. It can help you gain a better understanding of your supply chain efficiency, the buying practices of the company and gauge demand for your products. Basically, it shows how often the company is able to sell its entire inventory over the year. The ability to quickly move inventory is essential; it not only significantly lowers storage costs, but allows you to sell products at a premium price instead of creating promotions to clear stock.
In theory, your physical inventory should always match the numbers shown in your inventory management software database. Unfortunately, there’s often a significant disparity between what’s shown and the real situation.
In fact, according to GS1 US and Auburn University’s RFID Lab, the average inventory accuracy threshold for retail operations is only 63 percent, which can result in unexpected backorders and increased inventory costs.
With the help of inventory accuracy KPIs, it becomes possible to regularly compare the number of items that are in stock to what’s shown in the database, bridging the gap between the two numbers.
Another two KPIs that are essential are delivery and shipment times. Which of these two metrics are more important to measure depends both on your business and whether on-time delivery or on-time shipments are more important for you. The underlying reason for the importance of these metrics is the same, because it all comes down to customer satisfaction over shipping times.
A 2016 study by A. T. Kearney found that 24% of people deem three days to be an acceptable time for a non-urgent purchase, with 68% of responses varying between two and five days. Meeting customer expectations is obviously very important — both in the B2B and B2C industries — even if the impact can differ.
Cash-to-Cash Cycle Time
Cash-to-cash cycle is a very valuable KPI that can tell a lot about numerous parts of the supply chain. It can assist you in accurately calculating the cash-to-cash cycle time from paying for supplies to selling the finished product to customers, providing the average duration of the cycle.
This metric can help companies increase the efficiency of their supply chain. With the ability to track the average cash-to-cash cycle, companies can make improvements, thus freeing up resources for other uses.
Warranty Costs as a Percentage of Sales
To minimize costs associated with quality control group flaws, companies look at their warranty costs as a percentage of sales. This KPI allows you to get a clear picture of how much is spent on repairs and replacement of distributed units when compared to total sales.
Since warranty costs can greatly impact a business, it’s important to understand if the costs associated with faulty items are too high in order to make necessary improvements.
How to Use KPIs in Supply Chain Analytics?
Supply chain analytics can provide a wide range of metrics that help find and understand patterns in the order, shipment and transactions data. But in order to take advantage of the most useful KPIs, a comprehensive and customizable supply chain analytics solution is required.
What are the Best Supply Chain Analytics Tools?
Supply chain analytics is usually available either as a part of supply chain management software or as a separate business intelligence tool that has access to supply chain data. You’ll also find extensive supply chain analytics features with most enterprise resource planning (ERP) vendors.
Here are some of the top software solutions that can help you customize your supply chain KPIs and make the most of them in order to improve your supply chain management process:
SAP’s Supply Chain Management solution is one of the most powerful on the market. You can centrally manage all of your inventory, shipping and order fulfillment processes with this system. At the same time, you can view real-time data on each of these processes so you can optimize them all as well.
In fact, the system provides a constant influx of data in real time, so you always have the most relevant data to use in your analytics. This allows the system to create accurate demand forecasts, so you can plan your production accordingly.
Manhattan’s SCOPE is a portfolio of supply chain management solutions that aims to integrate visibility and insight into your organization’s various supply chain processes. SCOPE provides increased communication with your suppliers, manufacturers, distributors and customers so you can increase efficiency and satisfaction.
When it comes to analytics, SCOPE provides insight into your entire organization. Inventory, labor and asset optimization are particular points of emphasis in the system, as are reducing transportation costs. You can also view network-wide inventory availability so you can optimize your demand fulfillment, which increases revenue and, again, satisfaction.
As perhaps the top ERP system available on the market, SYSPRO 7 provides all the tools necessary to take your supply chain analytics to the next level.
SYSPRO Analytics allows you to measure your business performance based on key performance indicators that can be customized to fit your company’s individual needs, empowering businesses to make smart supply chain management decisions on a day-to-day basis. At the same time, it provides all the tools and advanced analytics you need to develop accurate and relevant long-term goals for business growth.