Confused about the KPIs you should consider for Supply Chain and Logistics? And how to enhance your organization’s performance through effective KPIs?
If these are your concerns, we have just the solution! Supply Chain and Logistics form the backbone of an organization, and when defined with robust KPIs, they can drive a business to desired goals. The following information will help you evaluate and choose the right KPIs for your business.
What Do KPIs Mean?
A KPI or Key Performance Indicator is a unit of measurement to evaluate company performance against business objectives. Most organizations consider KPIs at multiple hierarchies to monitor the completion and success of various targets.
There are both functional and cross-functional KPIs; the employment varies as per organizations. Many also combine and integrate these KPIs as per industry trends to view organization performance.
On average, there can be 3 to 6 Supply Chain and Logistics KPIs, which are more than sufficient to monitor company performance. However, the number of KPIs may vary as per the level of the hierarchy.
Why Are Supply Chain and Logistics KPIs Important?
KPIs form an integral part of businesses, as they ensure continuous evaluation against industry benchmarks. It helps an organization stay focused on its vision. For example, the KPIs for a warehouse would include cost, service-related, and productivity.
The use of KPIs allows constant supervision and implementation of specific changes when required. In case of a decrease in performance, KPIs enable managers to make calculated decisions on suffering parameters.
On the contrary, if a particular department’s performance soars according to their set KPIs, supervisors may appoint higher parameters to meet their caliber.
The Supply Chain and Logistics KPIs Checklist
To measure the effectiveness and cost of Supply Chain and Logistics, KPIs must be appointed to monitor each of its components. Broadly, the following are areas where the inclusion of KPIs is crucial to performance.
- Order Management
- Inventory Management
- Purchase and Supplier Management
Cross-Functional KPIs Include
- Level of Inventory This is one of the most useful Supply Chain and Logistics KPI available today. This KPI is used to keep track and manage inventory at all levels. Businesses can improve their purchase and production process, profitability, and cash flow as well.
- Stock Damages or Stock Losses Damaged stock can lead to a decrease in profitability and incur more losses in production. The damage or loss can happen due to pilferage, deterioration, and obsolescence. This would indicate the cost incurred on the overall profit of the business.
- Cost of Goods Sold (C.O.G.S.) The cost of goods sold indicates the direct costs of producing or manufacturing the goods that are sold by the company. This amount constitutes the cost of the material and labor used to produce a good. The higher the C.O.G.S., the lower is the margin earned.
- The Total Cost of Logistics Calculating the total cost of logistics is not an easy task. This is a performance management KPI that is used to track, analyze, visualize, and optimize all the costs required for all the relevant logistics processes effectively.
- Gross Margin Return on Investment (G.M.R.O.I.) G.M.R.O.I. is a crucial KPI that gives information about the profitability of any business. It represents the exact amount of money earned from a specific amount invested in producing a good. This KPI can be used for planning, production, and logistics operation for your business.
Some Other Supply Chain and Logistics KPIs Include
- Perfect Order
This KPI is essential and absolute to keep track of Supply Chain and Logistics. Its key components include on-time delivery, in-full delivery, damage-free delivery, and accurate documentation.
- Cash to Cash Cycle Time
This KPI determines the health of Supply Chain and Logistics in a business. It focuses on the optimum utilization of supply chain assets.
- Inventory Days of Supply
This KPI keeps businesses informed of their inventory’s safekeeping in the warehouse without replenishment.
- Customer Order Cycle Time This KPI is useful to calculate the responsiveness of Supply Chain and Logistics. Additionally, it helps evaluate customer service. The KPIs mentioned so far are suitable to monitor performance at all levels, from executives to staff members. To be able to fully utilize your KPIs, they must be actionable and relevant to your business.
Significant Outcomes from Supply Chain and Logistics KPIs
Much of the success of an organization lies in the parameters of performance that it implements. KPIs allow businesses to identify and leverage strengths and notice and work on their weaknesses. It enables a company to avoid losses and thereby create goodwill for itself in the industry.
In the case of Supply Chain and Logistics, the KPIs must span over the entire process, right from procurement to last-mile delivery. It is advisable to implement relevant metrics that are measurable and actionable as a part of the KPIs. The development of suitable KPIs includes:
- Selecting the right and relevant KPIs.
- Choosing the right level of KPIs for management hierarchy.
- Selecting the right set of targets for KPIs.
- Assessing and monitoring current performance.
All these KPIs can be implemented in the Pulse application, which focuses on the manufacturing sector and helps set KPIs for reducing downtime, safety protocol, decrease in defect rate, and others.