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Key Performance Indicators For the Supply Chain

Manufacturing is an industry typified by countless unique processes and workflows. Because of this, assessing overall performance and efficiency is a complex task. Measuring the overall performance of your supply chain can be boiled down to a few key questions.

Manufacturing is an industry typified by countless unique processes and workflows. Because of this, assessing overall performance and efficiency is a complex task. When looking specifically at the supply chain, companies make large investments in equipment and people to ensure flawless execution and are constantly looking for ways to evaluate the success of operation.

Measuring the overall performance of your supply chain can be boiled down to a few key questions. Is the supply chain acquiring the things your organization needs? Is it providing customers with the things they need? And is it doing it all in the right time and for the right price?

There are four crucial KPIs that can be assessed to check the health of a supply chain.

1: Storage Space Utilization

Storage space utilization refers to the average amount of warehouse, or storage, capacity used over a specific amount of time.

Total storage space in use (ft3 or m3) / Total storage space available (ftor m3)

Storage space utilization can help managers assess whether they should change the layout and size of the storage area and identify obsolete products that should be removed. This formula can also be used to determine if material flow should increase or decrease. However, it is important to recognize that warehouses are not necessarily optimized if at maximum capacity.  Some studies suggest that a warehouse capacity of 80-85 percent is optimal because that allows warehouse managers to respond to shifts in demand in a more feasible manner.

2: Order Fill Rate

Order fill rate is defined as the percentage of orders that can be filled based on the inventory at hand.

Orders filled complete on the first shipment / Total Orders Shipped

Evaluating the order fill rate percentage helps to determine how balanced an inventory is and helping to forecast the amount of sales that can be met. Generally, a higher fill rate signifies a better ability to meet sales requests, keeping customer satisfaction high.

3: On time delivery/shipments:

Depending on a company’s specific business, either on time delivery or on time shipments may be more important than the other. But the rationale for measuring them is the same.

An on time shipment is classified as a shipment that is off the dock and in transit on schedule. An on time delivery is one that reaches the recipient on schedule.

Number of orders shipped or delivered on time / total number of orders shipped

The need for this KPI is perhaps the most obvious: customers expect on time deliveries and shipments. For this reason, it is in everyone’s best interest to ensure that on time delivery is as high as possible so that the supply chain runs smoothly and satisfaction remains high.

In the B2B world, a late delivery can have a huge effect on the business waiting for the finalized product. For B2C, the impact on delayed orders is more fragmented. Some customers will return late orders; others give bad reviews. Some want refunds, influencing cash flow. One thing is for sure, it will increase activity in customer service. This could be disastrous for companies that use external suppliers to handle stock and shipping without integration of relevant data. It creates a black hole for the customer until the product is delivered. Only then can they tell you there’s been a problem, eliminating the ability to be proactive on delays. This makes it impossible to build a trusted brand.

4: Perfect order metric

The perfect order metric, key to this list, is a higher level performance measure that is formed by a combination of performance markers. It is a dynamic KPI that makes it possible to determine if various factors have successfully worked together, including if a shipment has been delivered to the right place, at the right time, in the right condition, to the right customer and with the correct invoice.  

Exactly what goes into the calculation depends on what is being delivered, but an example provided by Warehouse Education and Research Council looks like this:


As we can see in the example, the formula calls for multiplying the rate of each individual area by each other. The resulting percentage is the perfect order metric. Although each individual area is performing fairly well, the chance of having a perfect order in this example stands at 81.4%, which means that there is a risk of issue in 18.6 percent of orders.

Measuring the perfect order offers a holistic perspective on delivering goods. A customer will always expect an order to be perfect, and poor performance in one aspect of a transaction can overshadow otherwise seamless customer service. This is why the perfect order metric is so compelling — it helps to ensure customer satisfaction by taking into account several related factors.

While tracking a perfect order metric is critical, it cannot stand alone to denote success. For example, if a perfect order metric drops from one week to the next, it would not be immediately clear if that number went down in the timeliness or complete delivery or invoicing, etc. That’s why it is necessary to track all of the KPIs we’ve discussed today. BI lets you move swiftly from your perfect order dashboard to an analysis of any of the corresponding KPIs that make up this metric in a single click.

Access to data has emerged as key to helping companies find answers to complex business questions like the success of the supply chain. The above KPIs guide companies to look at both lagging indicators (statistics based on past outcomes) and leading indicators (more proactive markers anticipating future outcomes). Utilizing business intelligence to assess both, it is possible to “drill down” in company data to track performance more accurately than ever before. This moves you through the OODA loop from observation to orientation to decision to action, with courage.

Jesper Lillelund is TARGIT Vice President of EMEA Sales.

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