For the organization looking to better understand all facets of its supply chain, metrics that provide key performance indicators are a critical ingredient to that understanding. Indeed, recent studies note that nearly four-fifths of companies with high-performing supply chains enjoy a revenue growth exceeding the average within their sector. Here are some of the most critical:
Cash is king, and that is the time between when a company meets its invoice obligations to its suppliers, and when it receives sales revenue from its customers. Firms with a long lag time between those two points of the transaction, known as the Cash-to-Cash cycle risks serious liquidity problems. Obviously, the shorter this lag time, the better it is for the company's bottom line.
Designed to measure the amount of time it takes customers to receive their shipment, measured in days and including weekends, from the moment of order delivery. Prompt and reliable deliveries are key to ongoing customer satisfaction. For companies struggling with kinks in their supply chain, this key metric will identify the problem, allowing for corrective action to ensure faster delivery.
Your order fill rate represents the percentage of a customer's order that can be immediately filled upon order placement. No customer wants to hear that their order has been back-ordered, and no merchant wants lost sales as a result of not being able to fulfill an order. The fill rate is a metric designed to showcase your ability to meet immediate customer demand. A low fill rate can impact customer satisfaction while highlighting glitches in the delivery aspect of your supply chain.
It doesn't help your customer to get their merchandise quickly if the box contains only 20% of what they ordered. The perfect order rate turns a spotlight on incidents that can occur during the picking process that might include such issues as sending the wrong merchandise, damaged goods, or late shipments. With a perfect order rate being the goal, organizations utilize the perfect order rate metric to know if it needs to tighten its order picking protocols.
Customer order fulfillment has a great many moving parts that need to work seamlessly for a business to succeed. Consistently late deliveries can prove a death knell to a company's reputation, so worried executives will turn to their On-Time Shipping rates as an indicator of whether the company is meeting consumer expectations in terms of timely delivery. This metric tracks the percentage of items ordered that arrive on the requested ship date.
This is a ratio that highlights the number of times a company has cycled through inventory, sold and replaced the goods on the shelf in a given particular time frame. This metric identifies what amount of a company's inventory stock is languishing in stockrooms before being sold. An efficient supply chain is highlighted by a higher inventory turnover.
Every business has slow days, and Days Inventory Outstanding is a metric that aims to identify just how many slow days a business might be suffering. DIO indicates the number of days on average that a company sells a piece of inventory. Obviously, this rate varies by industry, but it is a useful management tool to gauge whether inventory is sitting idle. As an example, a grocery store is likely to have a much lower DIO than a company selling heavy construction equipment.
As noted above, cash is king, but customers avail themselves of any number of payment options from checks to credit cards to varying layover plans. While this is fine, late payments can put a crimp in a company's finances, and the Days Sales Outstanding metric shows how good a company's credit and collection efforts are at the collection of outstanding debt.
Inventory, generally speaking, is the stock on hand available for immediate buying by an eager customer. When measuring inventory velocity, however, management is looking at individual sales items with an idea of tracking the amount of inventory as it relates to customer demand. Achieving equilibrium in demand and supply is the hallmark of an effective supply chain, and inventory velocity is an excellent tool to determine whether that lofty goal is being achieved.
Each piece of inventory brought into a business represents a cost above and beyond the price of purchase. Shipping, storage and employee labor to get the merchandise on the shelves all add to the overall cost of an item. The ability to turn a profit over and above all these associated costs represents the gold standard of supply chain economics: a high return on investment. GMROI looks at a company's ability to turn that inventory into cash efficiently.