This blog delves into the transformative power of Key Performance Indicators (KPIs) in navigating the complexities of modern supply chain. From real-time tracking to sustainability, learn how strategic KPI implementation can drive efficiency, resilience, and competitive advantage in supply chain management.
Introduction
Imagine standing at a crossroads, each path leading to a vastly different future for your business. One path, familiar and well-trodden, promises predictability and efficiency but feels increasingly more manageable and sustainable. The other one is agile, resilient, and aligned with the changing world, but shrouded in uncertainty. This is the crossroads at which every modern supply chain stands.
Supply chain management is tricky at the best of times. In many industries, margins are tight, and competition is fierce. Even one area of bad performance can have a domino effect, with negative consequences multiplying terribly. That’s why organizations are now stepping up efforts to optimize their supply chain operations to meet the new challenges posed by the worsening global economy and the geopolitical situation.
The digital Supply Chain Market is projected to grow from $4.1 billion in 2021 to $13.5 billion by 2027 at a CAGR of 12.8% during the forecast period 2022-2027.
This journey toward supply chain mastery begins with a profound understanding of the intricate factors that shape its operation. It’s a canvas woven from planning, visibility, collaboration, and agility threads. And if you have the secret to finishing the job, you’ve won half the battle.
Are you prepared to claim this hidden secret and unlock a world of optimized performance?
The answer does not lie in a single beacon but rather in a constellation of guiding lights. These lights, known as key performance indicators (KPIs), reveal hidden pathways and potential pitfalls within your operational maze.
Decoding the Supply Chain KPI Code
A key performance indicator is a practical and objective measurement of progress, either:
- Towards a predetermined goal, or
- Against a required standard of performance
KPIs bridge the gap between raw data and actionable insights. They transform complex data into digestible metrics, empowering you to make data-driven decisions for continuous improvement.
Now that we understand the importance of supply chain KPIs, let’s dive into some of the most valuable metrics to track.
7 Vital KPIs for Supply Chain Management and Logistics
Consider the following seven most valuable supply chain KPIs to make the most strategic decisions possible.
KPI 1: Percentage of Orders with Real-time Tracking
This measures the ability to track orders as they move through the supply chain, providing crucial insights into location, potential delays, and estimated delivery times.
| Real-time tracking of goods during transit can help prevent more than $10 billion in product losses or damages. | Did you know that only 31% of companies are taking advantage of real-time data? |
“Percentage of Orders with Real-time Tracking” holds immense importance in supply chain management due to its direct correlation with operational efficiency, risk mitigation, and customer satisfaction.
With traditional methods, such as relying on static data or periodic updates, supply chain managers face blind spots that hinder their ability to address real-time issues. These blind spots can lead to increased operational costs, poor decision-making, and dissatisfied customers. For instance, with real-time tracking, managers may be able to identify bottlenecks, optimize routes, or respond promptly to disruptions, resulting in higher transportation and logistics expenses and missed delivery deadlines. Moreover, inaccurate information can lead to stockouts or overstock situations, impacting profitability and customer satisfaction. Real-time tracking fills this gap, bringing agility and control to your supply chain.
Benefits:
- Reduced Transportation Costs: Real-time tracking can optimize vehicle routing and scheduling, leading to shorter transit times and lower fuel consumption.
- Increased Warehouse Efficiency: Optimized picking, packing, and shipping processes result in faster turnaround times and lower labor costs.
KPI 2: Lead Time Accuracy
Lead time accuracy, the difference between promised and actual delivery times, is a critical KPI in supply chain management that impacts various business aspects. It measures the total time it takes for an order to flow from placement to customer delivery.
According to Capgemini – 74% of businesses have experienced shipment delays and much longer lead times.
Think inaccurate lead times are just a minor annoyance? Think again. They’re silently draining your cash flow, disrupting operations, and eroding customer trust. The true cost of inaccurate lead times goes far beyond inconvenience. It’s a hidden tax on your business efficiency, profitability, and customer relationships.
Short lead times mean happier customers, faster inventory turnover, and improved cash flow. High accuracy improves planning and reduces uncertainty. It’s not just about knowing where your shipments are; it’s about knowing when they’ll arrive – and having the power to make informed decisions that drive your business forward.
Here’s what you’ll gain:
- Reduced Inventory Costs: By ensuring accurate lead times, you can find the sweet spot between overstocking and understocking, optimizing inventory levels and minimizing the associated costs.
- Enhanced Customer Satisfaction: Accurate deliveries lead to on-time orders and happy customers. A Gartner study reports that 56% of consumers would switch brands due to late deliveries.
- Reduced Logistics Costs: Accurate lead times enable better transportation planning, optimizing routes, and carrier selection.
KPI 3: Supply Chain Mapping Completeness
Supply chain mapping (SCM) is the process of documenting information across companies, suppliers, and individuals involved in a company’s supply chain to create a global map of its supply network. For example, the exact source of materials and all shipments used will be mapped.
A study by Aberdeen Group reveled that companies with complete supply chain maps are 70% more likely to achieve significant cost reductions.
Navigating complex supply chains is like exploring an uncharted forest. Hidden dependencies and unforeseen risks can trigger disruptions and damage your brand. Missed opportunities for cost-saving partnerships and sustainable sourcing are just beyond reach.
It is important to map your supply chain completely to navigate with clarity and confidence. This will allow you to anticipate disruptions, identify alternative routes, and exploit hidden opportunities. By making every part of your network transparent, you can make informed decisions that will build resilience and agility.
Complete mapping ensures:
- Enhanced Visibility and Transparency: A complete map unveils the intricate web of suppliers, sub-suppliers, transportation providers, distributors, and other stakeholders involved in bringing products to the market. This visibility empowers informed decision-making across various functions, from procurement to logistics to risk management.
- Streamlined Operations and Cost Optimization: A comprehensive map facilitates the identification of inefficiencies and redundancies within the supply chain. Optimizing transportation routes, consolidating shipments, and negotiating with multiple suppliers based on accurate data can lead to significant cost savings.
KPI 4: On-time Delivery Rate of Critical Components
In today’s competitive marketplace, where efficiency and customer satisfaction reign supreme, the on-time delivery rate of critical components isn’t just a nice-to-have – it’s a cost-saving lifeline for businesses. Late deliveries have a ripple effect on your entire operation, eating into profits and creating a chain reaction of expenses.
Nearly half (45%) of online shoppers now expect ultra-fast delivery within 2 days, according to a GreyOrange survey. Even worse for retailers, over half (57%) of customers abandon them after just 3 late deliveries.
The delay of critical components in the production industry causes a ripple effect throughout the entire process, leading to costly replacements and expediting.
By ensuring that critical components are delivered on time, you can transform any potential issues into a smooth and efficient process. This will result in an assembly line that operates precisely, meeting deadlines and satisfying customers.
Let’s dive into the concrete cost benefits of prioritizing on-time delivery:
- Reduced Inventory Costs: Holding excess inventory to buffer against delayed deliveries is a costly trap. Companies can free up valuable capital for investment in other business areas by improving their on-time delivery rates.
- Minimized Expedited Shipping: Missed deadlines often force you into last-minute, expensive shipping methods to meet customer expectations. A 2023 report by the National Conference of State Legislatures revealed that the average cost of expedited shipping is five times higher than standard ground shipping. By ensuring on-time delivery, you avoid these hefty freight charges.
KPI 5: Supply Chain Costs as a Percentage of Sales
In the intricate world of supply chains, the Supply Chain Costs as a Percentage of Sales (SCCOS) metric emerges as a beacon of clarity. It’s not just a number; it’s a powerful data engineering lens showcasing the percentage of sales revenue absorbed by supply chain costs (procurement, storage, transportation, etc.). Lower percentages signify efficiency, while higher one’s demand scrutiny. This single metric holds the key to understanding how much of your hard-earned sales get consumed by the gears of your supply chain.
Why is SCCOS important?
- Financial Transparency: It cuts through the clutter of individual cost categories, showing the fundamental supply chain inefficiencies taken from your bottom line. A high SCCOS screams for immediate attention, while a decreasing one whispers of success.
- Strategic Prioritization: With limited resources, where do you invest? SCCOS guides you toward the areas with the most cost leverage.
KPI 6: Stockouts Rate
Likewise, the stockout rate is a crucial KPI that tells you how often you run out of inventory. It reveals blind spots in forecasting and data inaccuracies, exposing impending shortages that could trigger sudden stockouts and frustrated customers.
A high stockout rate has significant, often hidden, costs that can cripple your company’s revenue and reputation. Here’s why:
- Lost Sales: The most direct impact is lost sales. Customers who can’t find what they need will take their business elsewhere. According to a McKinsey & Company study, 56% of customers who encounter a stockout never return to that retailer.
- Revenue Erosion: The consequences go beyond immediate lost sales. Studies show that stockouts can lead to a 5-10% decrease in long-term sales for that product category.
Proactive management of this KPI empowers you to chart a clear course. Anticipate and address potential shortfalls before they negatively impact your sales, ensuring product availability and customer satisfaction.
KPI 7: Sustainability Metrics
Sustainability metrics in the supply chain are crucial for several compelling reasons. First, businesses face mounting pressure to minimize their ecological footprint in an era of increasing environmental consciousness and regulatory scrutiny. Second, sustainability metrics contribute to long-term resilience and profitability. As climate change and resource scarcity become increasingly pressing, businesses must adapt their operations to ensure continuity and mitigate disruptions.
48% of companies, according to a Fictiv survey, report facing growing pressure to enhance sustainability within their supply chains.
Sustainability metrics offer a quantifiable framework for evaluating environmental impact, allowing organizations to identify areas of inefficiency, reduce waste, and adopt eco-friendly practices.
Conclusion: KPIs Build Trust and Transparency in Your Supply Chain
Strategically chosen KPIs can become powerful tools in building a resilient, agile, and future-proof supply chain. Streamlining these invaluable metrics illuminates otherwise hidden pathways to success, empowering you to navigate the complexities of the global market confidently. However, implementing and monitoring KPIs can be a tedious, resource-intensive task requiring an experienced professional team. This is where you need a partner who can become an extension of your team.
At Bridgenext, we have deep expertise in digital experience consulting services. We offer services to maximize your existing investments and our solutions enable you to build a connected system of platforms and technologies for digital success. We guide you from idea to execution, enabling you to invest with purpose and create a connected system.
You can reach out to us anytime, and our experts will get in touch with you to offer free consultation regarding your business challenges.
Let’s embark on your journey towards supply chain excellence together.
References
www.industryarc.com/Report/19528/digital-supply-chain-market.html
www.qimaone.com/resource-hub/real-time-visibility-series#:~:text=Reduced%20Costs,-Up%2Dto%2Ddate&text=Real%2Dtime%20SCV%20helps%20you,stored%20to%20meet%20customer%20demand
www.capgemini.com/insights/research-library/supply-chain-resilience/
www.mckinsey.com/~/media/mckinsey/industries/retail/our%20insights/perspectives%20on%20retail%20and%20consumer%20goods%20number%208/perspectives-on-retail-and-consumer-goods_issue-8.pdf
www.bringg.com/blog/delivery/on-time-delivery/
www.fictiv.com/ebooks/2023-state-of-manufacturing-report
www.tive.com/blog/is-real-time-supply-chain-tracking-of-shipments-possible
