5 Most Important Supply Chain Metrics to Track
by Simon Unicomb, 7 March 2022
One of the greatest advantages to having a great Transport Management System (TMS) is the data that you can collect and analyse from all areas of your business. This data can be measured against a company's goals. We’ve put together a list of the 5 supply chain metrics that matter the most to look at next time you’re going over your business performance.
These analytics can give you a pretty good idea of the strengths and weaknesses of your operations, but they can also be confusing - and many first time users may not know what to look for.
5 Supply Chain Metrics
DIFOT is the first supply chain metric you know we had to put it first! DIFOT stands for ‘Delivered in full on time’ - meaning the percentage of your deliveries that arrive intact within the timeframe you have given the customers. If you asked anyone in the know, they’d say possibly the most important metric you can track.
DIFOT is so important because to improve your metric, you need to have both smooth processes and fantastic communication both within the organisation and with customers - which makes it a great indicator of how your business is performing in all of these key areas. Higher DIFOT means happier customers for your business, and your DIFOT can be improved by refining communication between different departments within your organisation - such as warehouse staff, management and delivery drivers. Transport management software that enables instant communication and information transfer between these parties is a key way to streamline this process.
2. Freight Bill Accuracy
Freight bill accuracy is a metric which measures the percentage of error free freight bills as a proportion of total freight bills. This is vital because high percentages of accounting errors - even when individually small - can be a major way in which businesses bleed revenue without even being aware of it.
Largely, accounting accuracy problems can be attributed to human error. Therefore, using a transport management system that automates a variety of accounting functions can be a simple way to reduce this margin of error. A comprehensive TMS can also help to reduce errors made in data transfers between platforms, as information is centralised and easier to cross reference.
3. Logistics Costs as a Percentage of Sales
Logistics costs as a percentage of sales (L%S) are a useful metric for understanding the profitability of your operations. This metric works by measuring the cost of your business’ logistics (for example: warehousing costs, distribution costs, fuel, etc) against the total amount of sales revenue brought in. Ideally, this percentage should be as low as possible, because it means wider profit margins for each job you take on. However, many businesses have a L%S number that is upwards of 15% without proper management.
The key way to improve this percentage is simply gathering and analysing data. The logistics bureau suggests that many businesses maintain high logistics costs due to the belief that they are already doing everything possible to reduce costs - which is often untrue. Through consistent analysis, you can identify the areas that consistently result in overspending and make a targeted plan to reduce.
4. Inventory Turnover
For businesses that manage inventory, inventory turnover is a crucial metric for measuring production efficiency, distribution and fulfilment, and process strategies - providing a holistic overview of a business’ entire supply chain. Inventory turnover is measured by calculating the number of times that your entire inventory was sold and distributed over a period of time, usually a full financial year. Generally, higher inventory turnovers indicate strong sales and an efficient production process, although the average rate of turnover varies significantly between different industries. Very low turnover rates can often be improved through a combination of stronger sales and distribution strategies, which will keep stock from gathering dust in a warehouse.
5. Delivery Times
As we’re sure you can guess, delivery times refers to the amount of time needed from the moment an order is placed until the order is fulfilled. This metric is important for two reasons: firstly, because the shorter the time frame, the more efficient your operations are at getting jobs done. This means that by measuring delivery times, you can have an overview of the overall efficiency of your business, and shorter delivery times are more attractive to potential customers.
Secondly, delivery time accuracy and consistency is important to your clients - another reason to keep an eye on this metric. Customers and clients often require a high level of accuracy in the estimates you provide them, for example, an estimate of 4-5 business days is far more helpful than that of 2-10 business days - which can only be achieved through consistent analysis.
Start Tracking Today
These 5 supply chain metrics have the potential to reveal a lot about your business’ operations and performance, and can be used to identify a range of strengths and weaknesses.
However, gaining access to this data can be challenging without the help of a comprehensive transport management system which keeps track of the numbers from all areas of the organisation. If you’re looking for a TMS that can give you the data you need book a demo with us today.