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What are supply chain metrics?
Why are supply chain metrics important?
Essential supply chain metrics & KPIs to track
How do you know how your business is performing?
Typically, you wouldn’t rely on your “gut sense”, or how you feel things are going. Instead, you would crunch the numbers on your balance sheet, calculate profits, and track important data points to determine your company’ performance.
Evaluating your supply chain should work the same way. To get the most accurate picture of your supply chain’s performance, you’ll need to rely on supply chain metrics. These metrics act as rulers, allowing you to measure the quality, efficiency, and ultimately success of your supply chain.
In this article, we’ll cover the most important supply chain metrics to track, as well as tips for improving your supply chain metrics over time.
What are supply chain metrics?
Supply chain metrics (also called supply chain key performance indicators, or KPIs) are the numbers, ratios, and parameters used to measure supply chain performance.
Supply chain metrics quantify different aspects of your supply chain, such as delivery and inventory movement, to provide insight into the efficiency and quality of those functions.
Why are supply chain metrics important?
Supply chain metrics are essential for measuring a company’s progress in achieving their goals. They provide visibility into key functions, and ensure that every part of the supply chain is monitored and running smoothly.
As such, tracking supply chain metrics can help a business easily identify areas in need of improvement or where supply chain efficiency could be enhanced. With a better understanding of their supply chain, businesses can be more proactive when facing challenges, and also increase their supply chain’s resilience and agility.
“ShipBob’s reporting is very robust and meets all of our needs. We get visibility into receiving, order volume, SKU availability – everything from inbounds and inventory transactions to individual order statuses (whether it’s on hold, in processing, an exception order, and other detailed descriptions). All this data is real-time, meaning that we’re always seeing the most accurate, up-to-date information. Having this real-time data is crucial for my team, so the fact that there’s not hours of lag time waiting for data to update is huge.”
Ryan Steffenson, Senior Manager, Channel Operations at Tonies
Essential supply chain metrics & KPIs to track
There are plenty of supply chain KPIs that can help you understand your supply chain performance. While you may want to pay special attention to particular metrics depending on your business’s goals, there are some key metrics that almost every business cares about.
Here are the supply chain metrics that every ecommerce business needs to track.
On-time delivery
On-time delivery rate is the percentage of orders delivered on or before the original estimated delivery date.
In a world where customer satisfaction hinges on speedy delivery, this KPI lets you see how well you are meeting customers’ expectations.
The formula for measuring on-time delivery (OTD) is:
Formula: OTD = (On-time deliveries) / (Total deliveries) x 100
For example, let’s say that out of 600 orders that were delivered, only 450 were delivered before the promised delivery date. In this case, your on-time delivery rate would be:
OTD = 450/600 x 100 = 75%
In this example, the OTD is quite low. To satisfy and retain customers, strive to maintain at least a 95% OTD rate.
Some businesses get more granular and measure their on-time in-full (OTIF) order rate — also called the perfect order rate — which tells you the percentage of orders that were not only delivered on time, but also delivered error-free.
To improve your on-time delivery percentage, be sure to capture late delivery reasons and address those issues as quickly as possible. In addition, consider re-evaluating your last-mile carrier partnerships, or partner with a logistics provider that offers guaranteed 2-day shipping.
Damage-free delivery
This supply chain KPI helps you track the percentage of orders that are delivered damage-free.
A high damage-free delivery percentage is crucial to an ecommerce business’s bottom line, as it almost always costs business a lot of money, time, and effort to replace damaged items.
The formula for calculating damage-free delivery rate is:
Formula: Damage-free delivery rate = (Damage-free deliveries) / (Total deliveries) x 100
That means if 550 orders arrive undamaged out of a total of 600 shipments, your damage-free delivery rate would be:
Damage-free delivery rate = 550/600 x 100 = 91.6%
Ideally, businesses should aim for 100% damage-free deliveries. While this isn’t always possible, especially in supply chains that involve multiple touchpoints, try to make sure that your numbers don’t drop below 95%.
A low damage-free delivery rate is a sign that you need to review your packing process or even reassess your shipping partner. You can also improve this KPI and prevent shipping damages by using the correct box size, wrapping items carefully, and using necessary protection.
Customer order cycle time
The customer order cycle time measures the time between when a customer places an order and when that customer receives their order.
Ideally, your business should keep customer order cycle time as low as possible, since a shorter order cycle time typically translates to higher supply chain efficiency and a better customer experience. While longer lead times and slower shipping rates caused by supply chain crises can inflate cycle time, 2 days is a good benchmark to aim for.
You can calculate your customer order cycle time with the formula below:
Formula: Customer order cycle time = (Actual delivery date) – (Purchase order creation date)
For example, let’s say you received the order on September 20 and delivered it to the customer on September 25, your order cycle time will be:
Customer order cycle time = 25 – 20 = 5 days
Automatically forwarding each order to the fulfilment centre closest to its destination can drastically reduce customer order cycle time. Speeding up backend operations by streamlining warehouse management SOPs and reassessing shipping carrier performance may also help shorten the cycle.
Freight bill accuracy
As the name suggests, this metric measures whether your shipping bills have the correct information such as pricing, items, amounts, and weights. Any error in your freight bills can negatively affect your cash flow and harm the customer experience.
Freight bill accuracy can help identify negative trends in billing operations.
The metric is calculated using the formula below:
Formula: Freight bill accuracy = (Number of correct freight bills / Total freight bills) x 100
So, let’s say out of 600 freight bills, 500 of them are accurate, your freight bill accuracy rate would be:
Freight bill accuracy = 500/600 x 100 = 83.3%
Once again, the ideal freight bill accuracy rate is 100%, as an inaccuracy rate of even just 5% can cause significant issues in your billing operations. Automating the invoicing and billing process or outsourcing freight management to the experts can help you keep this rate high.
“Time is money. The more time that I can save spending energy on things like freight and fulfilment, the more time I can spend on other details for my company. To know that I can trust somebody to complete the tedious stuff and be organised like I would; what a stress reliever.
We’ve had a lot of ups and downs with supply chain partners and for the first time, I know I’m in good hands with ShipBob. I’ve learned enough hard lessons, so this was a nice easy lesson to learn.”
Emily Coolbaugh, Logistics Coordinator at Driveline Baseball
Inventory turnover
Your business’s inventory turnover ratio measures how many times your entire inventory has been sold and then replaced within a given timeframe.
Inventory turnover is an extremely versatile metric, and can be used to evaluate the efficiency of your operations, your order fulfilment processes, and your production processes. You can even calculate turnover on the SKU level to identify which SKUs are selling well and which ones are slow-moving.
The following formula is used for calculating inventory turnover:
Formula: Inventory turnover = Cost of goods sold (COGS) / Average inventory value
For instance, if your COGS in the previous quarter was $100,000, and your average inventory value in that quarter was $25,000, your inventory turnover would be as follows:
Inventory turnover = 100,000/25,000 = 4
That means that in the previous quarter, you completely sold and replenished your inventory 4 times.
For most retailers, an inventory turnover rate between 2 and 4 is ideal. However, this can vary by industry. A high inventory turnover rate is a good sign that your business is doing well in terms of sales. To improve low inventory turnover, focus on forecasting demand more accurately so that you can invest in inventory that has a higher chance of being sold quickly. In addition, optimising your order management process for efficiency speeds up the order life cycle and helps keep inventory moving.
Order fill rate
Order fill rate is the percentage of orders that are successfully completed without stocking out, backordering, or requiring split shipments. It’s an important KPI for measuring the efficiency of your supply chain operations, and it correlates strongly with customer satisfaction.
Formula: (Total Orders Shipped / Total Orders Placed) x 100
For example, if your brand received 500 orders, but could only fulfil 490 of them before stocking out (leaving 10 customers on backorder), your order fll rate would be as follows:
Order fill rate = (490/500) x 100 = 98%
Automating order management and optimising your inventory replenishment strategy are essential for improving your fill rate, and avoiding costly stockouts.
Gross margin return on investment (GMROI)
GMROI measures how much money was made from selling certain inventory investments. This is a good metric for assessing your profitability, and to determine which products are selling well (enabling you to optimise inventory planning and procurement).
Formula: ([Revenue – COGS] / [{Beginning inventory + Ending inventory} / 2]) x 100
For example, say you wanted to calculate your brand’s GMROI for the last month’s inventory. You find the following information:
- Revenue = $60,000
- COGS = $20,000
- Beginning Inventory =$30,000
- Ending Inventory = $10,000
Using the formula above, you would calculate GMROI as follows:
GMROI = ([60,000 – 20,000] / [{30,000 +10,000}/2]) x 100
GMROI = (40,000 / [40,000/2]) x 100
GMROI = (40,000 / 20,000) x 100
GMROI = 200
A GMROI between 200 and 225 is respectable. If it is not up to this standard, try cutting inventory carrying costs or adjusting pricing to help your bottom line, or improving forecast accuracy to facilitate wiser inventory investments.
Supply chain costs
As the name suggests, this KPI measures how much it costs to keep your supply chain operations running. It is often broken down into two separate KPIs:
1. Supply chain cost as a percentage of sales
This KPI compares the total cost of managing supply chain operations to your overall monetary gains from sales.
Formula: Supply chain cost as a percentage of sales = (Total supply chain cost / Total monetary amount gained from sales) x 100
For example, if it costs your brand $300,000 to manage your supply chain for 1 year, and in that year you earn $600,000 in sales, you would calculate supply chain cost as a percentage of sales as follows:
Supply chain cost as a percentage of sales = (300,000 / 600,000) x 100
Supply chain cost as a percentage of sales = 50%
2. Supply chain cost per unit sold
This KPI measures the average supply chain cost it takes to procure and sell one unit of a particular product (within a certain time frame).
Formula: Supply chain cost per unit sold = Supply chain cost for a product / Number of units sold of the same product
For example, if your brand calculated that you spent $700 in supply chain costs to procure and sell a particular batch of a SKU, and you sold 800 units of that SKU in a month, your supply chain cost per unit sold for that month would be:
Supply chain cost per unit sold = 700 / 800 = 0.875 (roughly $0.88)
The best way to reduce supply chain cost is to get rid of inefficiencies in your supply chain operations. Automating routine warehousing tasks reduces labour costs, optimising inventory management reduces holding costs, and strategically distributing inventory can drastically lower shipping and transportation costs.
Outsourcing to a professional fulfilment partner often secures these cost-savings without requiring you to spend time implementing these changes yourself.
Average delivery time
Average delivery time measures the average time full delivery takes — that is, the number of days between when an order is shipped out of your fulfilment centre to when that order arrives on a customer’s doorstep. This is an important metric to track because it gives a business a sense of their shipping speed.
Formula: Average delivery time = Total days to deliver all orders / Total number of orders delivered
For example, if the total amount of days in transit for all orders added up to 32,700, and your brand delivered 12,610 orders, your average delivery time would be:
Average delivery time = 32,700 / 12,610 = 2.59 days on average
With the rise of 2-day delivery, online shoppers now expect a quick turnaround time on their orders. Expedited shipping lowers average delivery time, but can be too expensive for smaller brands to rely on long-term.
Many ecommerce businesses subsequently choose to improve average delivery time by strategically placing parts of their inventory physically closer to end customers.
The right 3PL partner will advise you on which strategy is best for your business, and will have the infrastructure to support both 2-day shipping and distributed inventory.
Cash-to-cash cycle time
This supply chain metric measures the time elapsed between doling cash out for raw materials and ultimately receiving cash in for selling the inventory made from those same raw materials.
Formula: Cash-to-cash cycle time = (Inventory outstanding days + Sales outstanding days) – Payables outstanding days
For example, if your brand has:
- 46 inventory outstanding days
- 60 sales outstanding days
- 52 payables outstanding days
Then your cash-to-cycle time would be:
Cash-to-cash cycle time = (46 + 60) – 52 = 54 days
A short cash-to-cash cycle time is a good indicator that you’ve built a lean supply chain that is on pace to increase profitability over time.
To improve cash-to-cash cycle time, you’ll need to minimise the chances that your inventory will become deadstock, as obsolete inventory usually takes ages to sell (if at all) and grinds your cash flow to a halt. Better inventory forecasting can remedy this, as it enables you to identify and stock up on more popular SKUs.
How to optimise your supply chain metrics with ShipBob
Once you start tracking these performance metrics, you may find that there is room for improvement across different processes in terms of speed or productivity. Here are some tips to help you improve those numbers, and how an expert supply chain partner like ShipBob can make it easier.
Continuously optimise your supply chain
Supply chain optimisation is an ongoing process. Even if your current metrics are satisfactory, that doesn’t necessarily mean they’ll remain so several months down the line.
Situations change, and unexpected events or challenges may arise that could affect your supply chain’s performance. As such, there will likely always be areas and metrics that could benefit from optimisation.
To keep improving your supply chain, you’ll need to continuously analyse your supply chain operations and recalculate metrics frequently. While it doesn’t have to be a daily occurrence, checking metrics periodically will help you identify problem areas and fix them before they lead to bigger issues.
Monitoring your supply chain performance is much easier when you can access key metrics at a glance. ShipBob’s software combines real-time inventory and order management with fulfilment analytics to deliver a comprehensive view of your ecommerce operations by the numbers.
Unlock complete supply chain visibility
Having real-time visibility into your entire supply chain provides you with up-to-date data that you can use to make better decisions, and subsequently improve your supply chain metrics.
For example, visibility into inventory levels at all stages of the supply chain provides you with an accurate sense of how fast inventory is moving, and lets you time inventory replenishment accurately to satisfy customer demand.
Similarly, better supply chain visibility is essential for identifying any bottlenecks and delays. The quicker you pinpoint the source of an inefficiency, the quicker you can implement solutions — so having insight into your supply chain improves your overall efficiency and helps you optimise your supply chain management (or SCM).
ShipBob’s dashboard maintains end-to-end supply chain visibility, and lets you keep track of how different supply chain functions are performing over time. Our best-in-class inventory tracking enables real-time, accurate inventory counts across channels and locations, so you always know how much inventory you’re working with – and with our analytics reporting tool, you’ll get insights into your supply chain performance to identify room for improvement in shipping, fulfilment, inventory, and warehouse operations.
“ShipBob has given us increased visibility thanks to the dashboard that allows us to easily manage stock and orders. That wasn’t possible for us before. Our relationship with ShipBob has been a game-changer for Quadrant, and it’s made my life so much easier.”
Will Kerr, Apparel Lead at Quadrant
Automate supply chain processes
One of the best ways to improve your metrics is by implementing supply chain automation in key functions.
By automating manual tasks that are menial and time-consuming (such as generating essential documents, generating pick lists, or paying out invoices), you can allocate human attention and hours to the most important activities, which saves time while increasing productivity.
Moreover, automation minimises or eliminates human errors such as duplicating orders or incorrect data. This creates a lean supply chain that’s efficient, cost-effective, and more accurate.
Besides taking order fulfilment off of merchant’s plates, ShipBob’s technology enables merchants to automate key aspects of inventory and order management. For example, merchants can set up automatic reminders to reorder stock when a SKU hits a certain threshold, helping them time replenishment, stay stocked, and avoid costly stockouts and delays.
Leverage ShipBob’s advanced supply chain software
The right supply chain technology can go a long way towards achieving better metrics.
While there are a variety of supply chain software solutions on the market, consider investing in an inventory management system (IMS), order management system (OMS), and/or warehouse management system (WMS) to help you optimise your inventory tracking, order processing, and warehouse operations for efficiency.
ShipBob’s platform offers built-in inventory and order management capabilities, so brands can manage their stock, orders, warehousing, and fulfilment all through a single partner. Our solution features:
- A centralised dashboard through which brands can view key supply chain metrics and monitor performance across geographies and sales channels
- Real-time visibility into inventory levels and orders inventory management across sales channels
- Inventory tracking capabilities for up-to-date inventory counts
- Analytics such as inventory turnover, average shipping time and cost, on-time fulfilment percentage, and more
- Seamless integration with dozens of major ecommerce platforms and tools
Brands wanting to keep operations in-house can also leverage ShipBob’s WMS (the same one that powers 50+ ShipBob fulfilment centres globally) to optimise their own operations for efficiency and cost.
For more information about how ShipBob can help you optimise your suply chain, clikc the button below to get in touch with our team.
Supply chain metrics FAQs
Here are answers to the top questions about supply chain metrics.
How do I choose the right supply chain metrics for my business?
When choosing which supply chain metrics to track for your business, consider what your brand’s goals or priorities are and select KPIs that give you insight into how you are progressing towards those goals.
For example, if you are looking to minimise costs to improve your bottom line, you will want to monitor KPIs like GMORI, supply chain cost per unit sold, and average fulfilment and shipping costs. If you are looking to improve the customer experience, you should monitor metrics like on-time and damage-free delivery percentages and customer order cycle time.
What are the five measures of supply chain performance?
According to the SCOR model, the five key components of the supply chain are planning, sourcing, making, delivery, and returning. The performance of each component is assessed based on reliability, flexibility, responsiveness, cost, and quality.
What is the difference between supply chain metrics and supply chain performance?
Supply chain performance refers to how well — that is, how quickly, efficiently, cost-effectively, and satisfactorily — a supply chain is functioning, or getting orders to customers.
Supply chain metrics are the numbers and ratios used to measure supply chain performance.
What supply chain metrics does ShipBob track?
ShipBob’s analytics tool allows you to track a number of different supply chain metrics, including (but not limited to) orders fulfilled on time, average fulfilment cost per order, transit time, inventory velocity, and inventory on-hand.
