Supply Chain Metrics in E-commerce

What are Supply Chain Metrics?

To run a business correctly and without any logistical hiccups, a company must keep track of many ratios and numbers that represent how effectively it can deliver the products to its customers. They are the metrics used to define how well a supply chain functions and how cost-effective it is. 

From procurement, transportation, warehousing, and production to the delivery of the product, all data related to these are referred to as supply chain metrics. The evolution and success of your business depend on how well you can analyze the SCM or Supply Chain Metrics. SCM is an indicator of how well your business is doing in some fields, and it also helps you identify if there are any insufficiencies that you need to take care of. You can also determine the strong points of your business logistics and capitalize on them to make a profit. 

In this article, we talk about which supply chain metrics you need to monitor more closely to improve them and make your business more profitable.

Supply Chain Metrics

Supply Chain KPIs : An overview

Key Performance Indicators or KPIs are also metrics, but they differ from the traditional supply chain metrics. They are more targeted and specified metrics that let you know the performance of your supply chain metrics and how smoothly it is running. There are many metrics that a company has to keep track of when they are trying to run their businesses effectively, and KPIs are the most critical metrics that need to be constantly monitored and improved. These are the high-tiered KPIs. 

But there are also other KPIs that companies need to keep an eye on, though not as frequently. These metrics must be checked and monitored occasionally, and they are divided into categories depending on their functions. The higher its functional value is, the more critical the metric is to the business. These metrics will have different values and serve other purposes depending on varying business strategies. But they offer you an honest look into the state of your business so you can work on a better and more profitable future. 

Why are Metrics Important to Supply Chains?

Every business has a goal, whether it is to profit more or to expand further. Regardless of what kind of business you are in, having clear goals is essential for maintaining a clear direction for the future. Your supply chain is a very integral part of your business. It is a system that connects your product’s whole process to reach the customer, starting from procurement to production, warehousing, transportation, and finally, shipment and delivery.

The supply chain metrics help you tally your progress against your goals, and they allow you to understand and measure your supply chain’s performance and what areas it might be lacking. Through these metrics, you will see which aspects of your supply chain might be working inefficiently to figure out a way to fix that and get your business back on track. 

Every business has a goal, whether it is to profit more or to expand further. Regardless of what kind of business you are in, having clear goals is essential for maintaining a clear direction for the future. Your supply chain is a very integral part of your business. It is a system that connects your product’s whole process to reach the customer, starting from procurement to production, warehousing, transportation, and finally, shipment and delivery.

The supply chain metrics help you tally your progress against your goals, and they allow you to understand and measure your supply chain’s performance and what areas it might be lacking. Through these metrics, you will see which aspects of your supply chain might be working inefficiently to figure out a way to fix that and get your business back on track. 

What are the Best Drivers of Supply Chain Performance?

Supply chain drivers are the components that can be managed to improve supply chain capabilities and enhance supply chain performance. If developed correctly, they can improve the efficiency and responsiveness of your supply chain, keeping up with the changing requirements of your business. These are some of the best supply chain drivers to improve your supply chain capabilities. 

Production

For this driver to be more responsive, businesses can hire manufacturers with excess capacity and flexible manufacturing techniques that can suit any need. You can also hire manufacturers closer to your inventory space or groups of customers. This way, shipping and delivery times are cut shorter, and the driver would be more responsive.

Inventory

The productivity of this driver can be improved if you stock a wide range of products in sufficient amounts in your warehouses. You can also hire warehousing spaces closer to your key customer bases to improve delivery time and your supply chain can run even more smoothly.

Transportation

If you can hire better and more flexible transportation modes, such as airplanes and trucks, this driver can become more productive. You can also make fewer deliveries and ship a lot of products together. Online companies need to make fast deliveries to customers, and that is why improving responsiveness is crucial to your business.

Information

Information is a driver that is gaining power every day. Through new technologies, more and more data is available to us, and sharing information has become seamless as well. Companies need to accumulate and share accurate data to improve their performance. The responsiveness of a supply chain depends on whether the correct data and metrics are being taken into account to enhance supply chain capabilities constantly.

Best Supply Chain KPIs and Metrics You Need for a Successful Business

Now that we have discussed supply chain metrics and KPIs let us delve into some of the most important KPIs in your business. Remember that these KPIs will tell you whether your supply chain process is running efficiently or if some part of it needs more effort to improve. 

Perfect Order Rate

This metric is relatively straightforward, but since it includes a lot of variables, it can be a bit hard to track. Perfect Order Rate essentially means the percentage of your delivered orders. An ideal order denotes a delivery that was done on time, did not have any incidents or damages, and the customer received it with all the correct documentation. Many businesses tend to consider this metric as the most important one because it has a direct link to customer satisfaction. If a product does not reach the customer on time or if the product is damaged, the company’s reputation will take a hit.

Cash to Cash Cycle Time

This term refers to the average time it takes for a business’s resources to turn into cash flows. The process begins when you pay for inventory for an item and ends when that inventory is sold and you receive the money. Three main metrics are used to calculate cash to cash cycle time; DOI or Days of Inventory, DOP or Days of Payables, and DSO or Days Sales Outstanding. If you add the first two metrics together and subtract Days Sales Outstanding from it, you will calculate your cash to cash cycle time. Remember that the smaller the number in this metric, the better it is for your business.

Customer Order Cycle Time

This metric is also an easy one to understand and easy to track as well. It refers to the amount of time it takes to complete delivery after a customer places an order with your business. The cycle begins when a customer places an order with your company and ends when they finally receive the product. If this cycle time is shorter, your customers will be happier since they get faster deliveries.

Fill Rate

Another fundamental metric related to customer satisfaction has to be Fill Rate. This term might seem unfamiliar, but it refers to a straightforward metric. It refers to the orders that the business can successfully complete with the first shipment. Fill rate relates to the orders that do not require multiple shipments to fulfill.

On-Time Delivery

This one is pretty self-explanatory, even if you are not familiar with e-commerce terms. It refers to how many of your orders reached the customer on or before the time they were promised. It is pretty easy to calculate this. You just need to see how many of your orders were delivered on or before the promised day and how many were not. You can derive a percentage that shows how many of your orders reached the customers within time. The e-commerce market is changing rapidly, and customer satisfaction is the most crucial aspect of running a business. Most customers expect their products to be delivered in a day or two, and if it arrives any later than that, they might be unsatisfied. So it is essential to constantly track and improve this metric to achieve optimum customer satisfaction.

Reasons for Returns

Returns are nightmare material for any business owner because it costs a lot to reverse ship and process returns. Still, it also usually happens when a customer is unhappy with the product they have received. So it is not only an added expense but also an indicator of dissatisfied customers. But you can solve this if you divide the reasons for the returns into different categories like ‘damaged product’, ‘ defective item’, and much more. Then you will be able to see why most customers are returning your products and work towards solving the issue.

There are also some other important metrics and KPIs like freight bill accuracy, inventory turnover, and much more. They are all important metrics and need to be monitored regularly as well. But the ones we mentioned are the key metrics that every business should calculate and analyze if they want to improve their profits. 

Supply Chain Metrics

Supply Chain Metrics: Make Sure They are Aligned With Your Strategy

A business needs to be strategic to achieve success in today’s market. Your strategies should include how you want your business to run smoothly in the short term and setting long-term goals to perform to make a profit. You have to remember that you need good products to satisfy your customers, and your supply chain also has to run smoothly to prevent hiccups in the delivery process. To improve your supply chain performance, you have to monitor and analyze your supply chain metrics regularly and accurately. If you see that the data shows you straying from the strategies of your business, then you need to align them as fast as possible. The success of your business depends on how well you regularly manage and improve your supply chain management process based on your supply chain metrics. 

Conclusion

Supply chain metrics are cold-hard data that, if used correctly, can give you an accurate assessment of the performance of your supply chain. There are many parts to a supply chain, and they all need to work in perfect harmony to deliver an order properly to a customer. But if there are areas that need your attention more than others or are not running as efficiently as the other parts of the network, these supply chain metrics will help you identify them. That is why every business needs to constantly monitor important supply chain metrics and key performance indicators.

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FAQs

Some common metrics to measure supply chain performance are perfect order rate, fill rate, reasons for return, customer order cycle time, etc.

Supply chain metrics are crucial if you want to manage your supply chain process well. These metrics will be able to tell you which aspects of your supply chain need to be improved and which are performing well.

A supply chain evaluation or a network evaluation is basically a holistic review of the entirety of your supply chain system. It helps you identify the strengths and weaknesses of your system and shows you the opportunities that you can use to improve your business.

Much like supply chain metrics, inventory metrics are also indicators that help you assess your performance based on numbers. There are many metrics included in this category and if you identify a problem in any of the sectors through these metrics, you can work towards solving them. 

You can assess the performance and capabilities of your supply chain through some metrics. These metrics, also known as supply chain metrics, will be able to aid you in monitoring and evaluating your performance and efficiency. They can also help you identify the problematic parts of your supply chain that need to be improved.

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