There’s no getting around it: If you want to get ahead in the competitive shipping industry, you have to be even more meticulous about details than Kenny Chesney when he’s on tour. If you leave anything to chance, you’re bound to fall behind and get displaced—slowing down the efficiency of your operation while your profitability dwindles.
As such, success requires carefully tracking and tuning a variety of key performance indicators (KPIs) throughout the supply chain.
Why Measure Supply Chain KPIs?
To paraphrase President Eisenhower: Battles, campaigns, and even wars throughout history have been won or lost due to logistics. This is especially important to consider when you're managing a modern supply chain. In such instances, overlooking small details can come back to bite you in a big way.
With that in mind, here are some of the top reasons your company should measure supply chain KPIs and aim to continuously optimize them.
Keep Your Customers Happy
When it comes to shipping, customers today have more options than ever. That being the case, it’s vital to do your best to make sure orders arrive intact and on schedule. Otherwise, customers will be quick to seek out competitors. And in the age of Google, they’ll be able to find a substitute right away.
Maintain a Competitive Edge
Success isn’t just about making customers happy. You also have to be more efficient than your competitors when moving items from point to point. That way, you can win and keep the top contracts.
Tracking supply chain KPIs is critical for making sure you're in line with industry standards and expectations. By tracking KPIs, you can ensure you're working at the same speed and efficiency as your competitors—and hopefully even faster.
Ensure Safety and Compliance
Shipping can be very dangerous—especially when you're moving heavy or cumbersome objects at great speeds. Therefore, managers need to keep a close watch on safety KPIs to control the pace of operations and prevent small mistakes from being overlooked. By doing so, they're able to mitigate risks and lessen their exposure to lawsuits, penalties, and other fines.
Reduce Operating Expenses
Shipping is also expensive—especially when you're moving items at scale. Tracking KPIs can help you identify areas of waste, allowing for cost savings over time. In turn, this enables you to deliver more value to shareholders, customers, and owners.
Key Supply Chain KPIs to Track
Now that you have a general understanding of why you should be tracking KPIs across your supply chain, here are some specific KPIs that you should consider measuring to optimize your processes.
1. Cash-To-Cash Time Cycle
The cash-to-cash cycle is the time between when a business pays its suppliers and when it receives payments from customers.
The cash-to-cash time cycle KPI is necessary for monitoring cash as it comes in and out of the organization. Failure to track this KPI could result in a cash-flow shortage—leaving you incapable of paying your employees or partners.
2. Inventory Turnover
Inventory turnover refers to the measurement of how often a business is able to sell its entire in-stock inventory over the course of a year. This is critical for annual ordering and planning and for determining the business’s ability to drive profits from the items that are for sale.
The last thing you want is a warehouse full of items that never get sold. The inventory turnover KPI can act as a useful guide when you're deciding what to put on your shelves. Generally speaking, you want to have more items that fly off the shelves in stock at any given point in time.
3. On-Time Shipping
On-time shipping is a measurement of how often orders arrive on time at their destination. If your shipments are constantly late, you'll lose business and generate negative reviews. It’s therefore critical to have a stellar on-time shipping rate.
4. Order Accuracy
Mistakes sometimes happen. But if your company is consistently pulling the wrong orders and shipping incorrect items to customers, something has to change.
Keeping track of order accuracy is one of the most important supply chain KPIs to follow. The more accurate your orders are, the higher your profits will be.
5. Return Reason
One KPI you can use to improve order accuracy is return reason. Just as the name suggests, return reason explains why an item is being sent back. For example, it may be damaged, the customer no longer needs the product, or someone delivered the wrong item. Identifying the most common reasons for a mistake can help you improve your processes and avoid additional returns.
Preventing items from sitting too long at their destination requires close coordination with shipping partners. When items sit too long, they can generate heavy demurrage fees, potentially amounting to thousands of dollars per day. Supply chain managers need to keep a tight watch on shipping fees to prevent excess charges from accruing during transit.
Additional expenses to monitor can include traffic violations, tolls, vendor charges, and regulatory fees.
7. Perfect Order Rate
Perfect order rate is an indicator of how many orders were delivered on time without any incident. Companies sometimes use perfect order rate as a benchmark or target goal for their warehouse and shipping teams.
8. GPS Accuracy
A GPS navigation system can only tell an operator where to go. However, drivers don’t always follow the GPS system—and managers need to understand why when deviations occur.
For example, a GPS system might tell a driver to take a certain exit on the highway when the driver knows from experience that it’s faster and more efficient to take the next one. This could be due to average traffic patterns or because a certain route is difficult to traverse.
By tracking GPS accuracy and communicating, drivers and managers can work together to identify the best possible routes—overriding the GPS system when necessary.
9. Contactless Operations
Contactless operations are now a priority for just about every shipping company. Warehouse teams need to follow strict regulatory protocols to prevent illness from spreading among workers—and to avoid fines and shutdowns.
Managers are now using KPIs to benchmark progress with post-pandemic supply chain management. For example, certain processes (such as loading trucks or inspecting shipments) may need to be reevaluated and changed to enforce physical distancing and safety.
10. Paper Processing Time
Many managers are stuck between a rock and a hard place regarding digital transformation. On one hand, they know the company needs to digitize its operations. On the other, they still need to demonstrate the need to management to implement a better system.
One way to do this is to track paper processing time, or the average length of time it takes for specific processes to become available to managers. For example, this may include the time that it takes for a bill of lading to become available to stakeholders or for a damaged item notification to return to a warehouse manager. Long wait times can result in delayed order processing and administrative errors.
How Vector Can Help
Vector digitizes outdated paperwork, making digital transformation easier while helping drive maximum supply chain efficiency. And it can help you get paid faster.
Using Vector, shipping teams can digitize all paper forms so they're immediately accessible over secure and user-friendly mobile apps. It's possible to fully customize and brand these apps, giving teams full control over the features they want to include and the look of the user interface.
By working with Vector, your organization's information can move faster and more securely between managers, drivers, warehouse personnel, and customers.
If you’re looking to get started with seamless KPI tracking, Vector can help. Find out how.
This post was written by Justin Reynolds. Justin is a freelance writer who enjoys telling stories about how technology, science, and creativity can help workers be more productive. In his spare time, he likes seeing or playing live music, hiking, and traveling.