Top Three Supply Chain KPIs and the Strategies to Achieving Them

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Created on August 28, 2022

A fresh chili exporter from Spain transports the produce to an importer in India via the ocean. A budding shoe manufacturer in Dubai decides to send a full truckload of a thousand pairs of shoes to a buyer in Saudi Arabia. A popular German watch brand uses air cargo to ship goods to a distributor in California. 

Did they all succeed?

The fresh chili exporter failed on the parameters of delivery timelines and the quality of produce, which deteriorated in transit. The shoe manufacturer’s consignment was stuck on the border due to issues in customs clearance, delaying the shipment. The watch brand deviated from its sustainability goals miserably.

What businesses even mildly overlook, may topple down their entire operations in the supply chain ecosystem. It ultimately results in heavy cost leakages in the form of fines and reputation dents. So, despite all the efforts, how can supply chain professionals possibly avoid all their hard work from going in vain? Setting certain qualitative or quantitative standards or say Key Performance Indicators (KPIs) for supply chain operations can help.

Defining KPIs helps supply chain executives to monitor the performance and efficiency of supply chain processes. Establishing KPIs minimizes the chances of deviating from the core business goals and more accurately measures how your supply chain is performing.

Gartner identifies cost, customer experience, and sustainability as the top supply chain management (SCM) KPIs. Let’s discuss them in detail and find out the tools to achieve them.

Acing the Top Three Supply Chain KPIs

Smart logistics management platforms can be instrumental in meeting various supply chain KPIs. Here’s how.

Cost KPIs

Cost KPI can be divided into standard costing and total cycle time.

Standard costing: It includes the total cost delivered (money spent from manufacturing till delivery), costs, and profitability. These need to be combined with activity-based costing to provide granular level cost visibility. For example, knowing your freight costs is critical to avoiding operational losses. It is highly possible that a shipper is paying way more for freight than the market rates, or is unable to gauge deviations due to the ongoing volatility in the global shipping industry. Estimating your overall freight costs by the number of units shipped every trip will give a more accurate idea of cost management.

Total cycle time: It entails the total time a product takes to pass through the entire supply chain. The shorter the cycle time, the more responsive a manufacturer is towards its customers’ orders. A longer cycle time translates to shipping delays and dissatisfied customers. It indicates that supply chain executives need to identify inefficiencies and optimize processes.

Intelligent freight procurement capabilities empower shippers to get the best freight rates across the global carrier ecosystem, every time. Automating freight rate negotiations through smart bidding and dynamic deadlines is a great way to enable up to 5-days faster plan to ship time and save up to 10% in freight costs. Such tools enable automated real-time tracking of shipments with event milestones and advanced analytics and reporting reduces incidental costs by 80%.

Service KPIs

On-time in-full deliveries or OTIF is one of the most widely used metrics to measure customer service. The customer service metrics must align with the business goals of the customer. Hence, it is important to use external and internal service measures such as OTIF to arrive at a competitive customer service metric. Here, on-time and in-full can be two different metrics, followed by damage-free delivery and accurate documentation (advance shipment notifications, labels, invoices) to accurately summarize a perfect order KPI.

Logistics partners across the value chain play a crucial role in successfully meeting the service KPIs. Let’s take the incident of a leading multinational fast food restaurant supply chain debacle. One of the reasons behind this QSRs supply chain failure was partnering with a courier, express, and parcel service provider that had no experience in chilled food and lacked the expertise to fulfill the role successfully. 

Going by numbers, shipping delays lead to stockouts that cost retailers up to USD 1 trillion every year. Did you know that Walmart expects a 98% OTIF rate from LSPs to stay in compliance? The inability to meet these requirements results in a fine of 3% of the cost of goods sold.

Research shows that outsourcing shipment services can make a massive impact on customer satisfaction. Intelligent 3PL management allows businesses to partner with the most suitable logistics partner as per the requirement. The system considers multiple parameters of cost, network, area of expertise, historical data, and other factors to automatically choose the best logistics service provider for global shipping needs. Smart logistics management tools can reduce ETA SLA breaches by 37% and improve customer satisfaction by 64%.

Sustainability KPIs

Gartner 2022 Emerging Priorities in Supply Chain Survey finds that 72% of CSCOs do acknowledge climate change impacts on supply chain strategy.  Increasingly the SCM metrics include sustainability metrics relating to issues of environmental impact, pollution and waste, land use, climate change, water use, etc. Some of the commonly used metrics here include net-zero emissions, waste reduction, supply chain miles, reuse and recycle approaches, and so on.

Moreover, consumer passion for the environment is growing and they are triggering a sea change in the way they shop and from whom. According to a Nielsen Report, 45% of customers are willing to buy more from brands that care about the environment. An IBM study says that 49% of consumers have paid a premium — an average of 59% or greater — for products branded as sustainable or socially responsible.

Smart logistics management tools empower businesses to track their carbon emissions even before the shipment journey begins by gaining critical knowledge of tank-to-wheel and well-to-wheel CO2 emissions. AI-powered sustainability dashboards and global shipping insights enable intelligent decision-making and identify areas that need immediate attention. It makes overall logistics operations more sustainable and productive.

To learn about the top last-mile KPIs that businesses must track and improve, click here.

KPIs act as the starting point to establish metrics that monitor, identify gaps, and gauge areas for improvement to ensure healthy supply chain management. A perfect technology partner can ensure businesses stay focused and forge towards their supply chain goals and unlock greater business value.

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