Supply Chain Metrics
It’s essential to monitor the health of your supply chain to know that you are getting the most out of it in terms of value, pricing, fulfillment and satisfaction. It’s easy to let the train run away from you if you don’t, as a new business requires you to wear many hats, often all at once. That’s why you want to invest some time, money and effort into making sure your supply chain is operating correctly and at peak efficiency. Software will do a lot of the heavy lifting for you, but here are just a few of the things you should be monitoring:
On-time Delivery – This metric is all about your customers getting what they want when they want it and being able to track this process in real-time. As a business, you are also a customer of your suppliers, and this metric can be used to track that as well. In the beginning, you can track this information on a spreadsheet, but eventually, you will want to automate this process. In its most basic form, delivery is tracked by order date, date promised, date shipped and date delivered. If you shipped 100 orders in a month and one of them arrived a day late, your on-time delivery rate is 99% for that month. The same would be true for products ordered and shipped by your suppliers.
You should always set the goal for on-time delivery at 100%. Of course, it’s not a realistic rate, since things are often out of your control such as weather or third-party shipping errors. Most companies find a 98.5% and higher on-time rate is acceptable and attainable.
Inventory Accuracy – Once again, the ideal is to have 100% accuracy, which means that everything you ship is what your customer ordered and expected. Monitoring your inventory to ensure there are no outages, or if there are, that product is on its way, will increase your on-time delivery. Accuracy also relates to fulfillment errors where incorrect products are shipped out to customers. A high return rate affects your inventory as well as your bottom line.
Cycle Counting – Counting the number of times products in your warehouse are completely replenished helps you control inventory effectively. You should assess this quarterly if possible, but no less than annually. If you have three cases of product and you need to order another three cases in a specific period of time, that is “one turn” or “one cycle.” Knowing your “turns” allows you to adjust your orders so that you always have sufficient quantities of popular items in stock and can liquidate items that are not selling. Items sitting on your shelves aren’t profitable; they are a cost until they sell. Cycle counting is even more important if your products have a finite shelf life, which requires you to throw “spoiled” product away. For this metric you want to set an acceptable rate of turnover for all your products, specific product categories and individual items, so you always have a complete picture of the performance of your inventory.
Cost of Goods Sold – This can be difficult to track. If you buy an item for $10 and sell it for $15, then your gross margin would appear to be $5. But that doesn’t factor in the cost of the goods. If you make the product yourself, you need to revisit the cost of making the item, including labor, raw materials, utilities, etc. By knowing the actual costs of goods sold, you’ll know when to either raise prices or reduce expenses.