Supply Chain Management (SCM) requires proper management of many complex dependencies between teams, departments and partners across international boundaries. Due to this, data plays a key role in allowing us to run an efficient supply chain. Supply chain efficiency is vital to optimizing all levels of the supply chain.
Supply Chain Metrics
Supply chain metrics can include measurements for many different things, these could include but are not limited to:
- Customer Service
There’s many metrics that can be used to rate your supply chain management performance. Today, we’re discussing 12 everyone should know.
1. Cash to Cash Cycle Time
Your cash to cash cycle time refers to the number of days between paying for materials and getting paid for the product.
- materials payment date – customer order payment date* **
* This is usually averaged for all orders for a specific time-frame (week, month, quarter, annually)
** When many materials are required, a weighted average materials payment date can be calculated
Cash to cash cycle time measures the amount of time your operating capital is tied up. During this time, cash is not available for other purposes. A fast cash to cash cycle would indicate a lean and profitable supply chain.
2. Customer Order Cycle Time
The customer order cycle time measures how long it takes to deliver a customer order after the purchase order (PO) is received.
- actual delivery date – purchase order creation date
A variant of this is the promised customer order cycle time: requested delivery date – purchase order creation date
3. Perfect Order Measurement
The percentage of your orders that are without errors.
- ((total orders – error orders) / total orders) * 100
This is usually broken down by stage:
- Procurement 99.99% perfect
- Production 99.12% perfect
- Transportation 99.02% perfect
- Warehousing 99.98% perfect
4. Fill Rate
Fill rate represents the percentage of a customer’s order that is filled on the first shipment. This can be represented as the percentage of items, SKUs or order value that is included with the first shipment.
- (1 – ((total items – shipped items) / total items)) * 100
There’s no question that fill rate is important to customer satisfaction and has implications for transportation efficiency.
5.Inventory Days of Supply
Inventory Days of Supply refer to the number of days it would take to run out of supply if it was not replenished.
- inventory on hand / average daily usage
SCM seeks to minimize inventory days of supply in order to reduce the risks of excess and obsolete inventory. There are other financial benefits to minimizing this metric — excess inventory tends to tie up operational cash flow.
6. Supply Chain Cycle Time
This supply chain metric represents the time it would take to fill a customer order if your inventory levels were at zero.
- Sum of the longest lead times for each stage of the cycle
Supply chain cycle time indicates the overall efficiency of the supply chain. Short cycles make for a more efficient and agile supply chain. Analysis of this critical metric can help recognize pain points or competitive advantages.
7. Freight Bill Accuracy
The percentage of freight bills that are error-free, which 100 percent is always the aim.
- (error-free freight bills / total freight bills) * 100
Keeping your customers happy is vital to the growth of every company. Billing accuracy is key to a company’s profitability and customer satisfaction.
8. Freight Cost Per Unit
Freight cost per unit is usually a measurement of the cost of freight on a per item or SKU basis.
- total freight cost / number of items
One of the goals of supply chain management is to minimize the freight cost per unit.
9. Inventory Turnover
Inventory turnover represents the number of times that a company’s inventory cycles on an annual basis.
- cost of goods sold / average inventory
This is another solid metric that shows how much inventory is sitting around. The higher your inventory turnover, the more likely your supply chain is efficient.
10.Days Sales Outstanding
This is used to measure how quickly revenue can be collected from your customers.
- (Receivables/Sales) * Days in Period
A low days sales outstanding would be an indicator of a more efficient company.
11. Average Payment Period for Production Materials
This represents the average time from receipt of materials and payment for those materials.
- (Materials Payables/Total Cost of Materials) * Days in Period
Most experts will recommend that you pay suppliers slowly as its a benefit to your company. The longer the average payment period, the more efficient the company is.
12. On Time Shipping Rate
The percentage of items, SKUs or order value that arrives on or before the requested ship date.
- (Number of On Time Items / Total Items) * 100
The on time shipping rate is key to customer satisfaction. A high rate indicates an efficient supply chain.
*Accelerated Analytics publishes resources like this to provide insights to different analytical metrics, data points and formulas. POS Analytics. Please be aware, this doesn’t mean that our product will this metric, data point or formula. To learn exactly what our reporting covers, please feel free to schedule a demo or give us a call. Thanks for understanding.