5 Supply Chain

Key Performance
Indicators (KPIs)
You Should Be
Measuring
Written by: David Wallace, MBA
July 19, 2023

Key Takeaways:
❖ This article will discuss the five key performance indicators (KPIs) that every supply chain manager
should be measuring.
❖ These KPIs include cash-to-cash cycle time, perfect order rate, fill rate, customer order cycle time,
and inventory days of supply.
❖ Monitoring these KPIs ensures an efficient and effective supply chain operation.
It's more important than ever for companies to have a well-functioning and optimized supply chain. And
while many factors contribute to a successful supply chain management strategy, one aspect often gets
overlooked is the measurement of key performance indicators (KPIs).
Supply Chain Key Performance Indicators (KPIs) provide valuable insights into your supply chain
operation's overall health and efficiency. They help you identify areas where improvements can be made
and highlight any potential bottlenecks or issues that may arise. By keeping track of these essential
metrics, you can make data-driven decisions that enhance productivity, reduce costs, and ultimately
drive success.
In this article, we'll delve into the five most critical Supply Chain KPIs you should be measuring. We'll
explore why they matter and how they can help you stay ahead in today's competitive market.

5 Supply Chain Key Performance Indicators (KPIs)

Supply Chain Key Performance Indicators (KPIs) play a crucial role in measuring the effectiveness and
efficiency of your supply chain operations. These KPIs provide valuable insights into various aspects of
your supply chain, helping you identify areas that require improvement and optimize your processes.
One important KPI to monitor is the Cash to Cash Cycle Time. This metric measures the time it takes for
cash invested in inventory to be converted back into cash through sales. A shorter cycle time indicates
better financial health and operational efficiency.
Another critical KPI is the Perfect Order Rate, which measures the percentage of orders delivered
without errors or disruptions. A high perfect order rate signifies customer satisfaction and robust supply
chain performance.
Fill Rate is another critical indicator that measures how well you meet customer demand by filling their
complete order requirements on time. It reflects your ability to manage inventory levels effectively and
ensure timely fulfillment.
By tracking Customer Order Cycle Time, you can analyze how quickly customers receive their orders
when they place them. This metric helps identify bottlenecks in order processing and delivery, enabling
you to make improvements for faster turnaround times.
Inventory Days of Supply show how many days' worth of stock you have on hand at any given time. By
monitoring this KPI, you can assess if your inventory levels are optimal or adjustments are needed to
avoid overstocking or stockouts.
Monitoring these Supply Chain KPIs empowers businesses with valuable insights that drive continuous
improvement and enhance overall supply chain performance.

Cash-to-Cash Cycle Time

Cash-to-Cash Cycle Time is a crucial Key Performance Indicator (KPI) that measures the time it takes
for your company to convert cash invested in inventory back into cash received from sales. In simpler
terms, it tracks the time it takes for money spent on raw materials and production expenses to be
transformed into revenue through customer payments.
Cash-to-cash number of days = Payment data of materials – Customer’s payment date
A shorter Cash-to-Cash Cycle Time indicates that your supply chain is operating efficiently, allowing
you to generate more revenue with less capital tied up in inventory. This KPI helps identify areas where
improvements can be made, such as reducing lead times or streamlining processes. Monitoring this
metric regularly can optimize working capital management and increase overall profitability.
To accurately track and measure Cash-to-Cash Cycle Time, gather data on various supply chain stages,
including procurement, manufacturing, distribution, and order fulfillment. Analyze each step's duration
and identify bottlenecks or delays affecting cash flow. Implementing just-in-time inventory management
or lean practices can help improve this KPI by minimizing waste and optimizing resource allocation.
Remember that measuring Cash-to-Cash Cycle Time alone may not provide all the insights needed for
comprehensive analysis; consider combining it with other relevant KPIs like Perfect Order Rate or Fill
Rate for a holistic view of your supply chain performance. Monitoring these indicators consistently will
enable ongoing adjustments and improvements within your organization.

Perfect Order Rate

Perfect Order Rate is a key performance indicator measuring the percentage of orders fulfilled without
errors or issues. It reflects the overall effectiveness and efficiency of a company's supply chain operations.
Achieving a high perfect order rate demonstrates the ability to consistently meet customer expectations
and deliver products accurately, on time, and in excellent condition.
Perfect order rate = (number of perfect orders / total number of orders delivered) X 100
A low perfect order rate can have negative implications for a business. It may result in dissatisfied
customers, increased costs due to returns or rework, and damage to the brand's reputation. Monitoring
this KPI allows companies to identify areas for improvement within their supply chain processes, such as
inventory management, order accuracy, and delivery reliability.
To measure perfect order rates accurately, defining specific criteria for what constitutes a "perfect" order
is essential. This could include accurate product selection, correct quantities shipped, error-free
documentation (such as invoices or packing slips), on-time delivery, and undamaged goods upon arrival.
By tracking this KPI regularly and analyzing trends over time, businesses can continually make informed
decisions to enhance their supply chain performance.
Monitoring and improving perfect order rates should be an ongoing priority for organizations striving for
operational excellence in their supply chains. Consistently meeting customer expectations by delivering
flawless orders ensures customer satisfaction and boosts profitability through repeat business and
positive word-of-mouth referrals.

Fill Rate
Fill Rate is a crucial Key Performance Indicator (KPI) that measures the percentage of customer orders
fulfilled in their entirety on the first attempt. It reflects how well a company can meet customer demand
and deliver products promptly. A high fill rate indicates efficient inventory management and strong order
processing capabilities.
Order fill rate = ((total number of items – number of shipped items) / total number of items) * 100
Maintaining a high fill rate is essential for customer satisfaction and retention. When customers receive
their complete orders on time, they are more likely to trust and continue doing business with your
company. On the other hand, frequent stockouts or delays in delivering products can lead to dissatisfied
customers and potential loss of sales.
Monitoring fill rate enables companies to identify any bottlenecks or issues in their supply chain
processes that may impact order fulfillment. By tracking this KPI regularly, businesses can make data-
driven decisions to optimize inventory levels, improve supplier performance, streamline logistics
operations, and ultimately enhance overall customer experience.
In today's competitive market landscape, where customer expectations are higher than ever, achieving a
high fill rate is vital for success. As companies strive for operational excellence and improved supply
chain efficiency, monitoring Fill Rate as one of your key metrics will help drive continuous improvement
initiatives throughout your organization.

Customer Order Cycle Time

Customer Order Cycle Time is a crucial Key Performance Indicator (KPI) that every supply chain
manager should be measuring. It refers to the time it takes for a customer's order to be fulfilled from the
moment they place it until the product is delivered to their doorstep. Monitoring this KPI allows
businesses to measure and improve their order processing, fulfillment, and delivery efficiency.
Customer order cycle time = actual delivery date – date of order
A shorter Customer Order Cycle Time indicates that orders are being processed quickly, products are
readily available, and deliveries are prompt. This leads to higher customer satisfaction and helps reduce
costs associated with expedited shipping or missed delivery windows.
To accurately track and measure Customer Order Cycle Time, businesses can utilize advanced
technology such as order management systems or ERP software. These tools help automate processes
and provide real-time visibility into each step of the order fulfillment journey.
By consistently monitoring Customer Order Cycle Time as part of your supply chain KPIs, you will have
valuable insights into how efficiently your business is fulfilling customer orders. This information can
drive continuous improvement efforts to reduce cycle times while maintaining high levels of customer
satisfaction.

Inventory Days of Supply

Inventory Days of Supply is a key performance indicator (KPI) that measures the number of days it takes
for inventory to be depleted based on average daily sales. It provides valuable insights into how
efficiently an organization manages its inventory levels and ensures no shortages or excesses.
Inventory days of supply = inventory on hand / average daily usage of inventory
By monitoring the Inventory Days of Supply, businesses can avoid stockouts, improve customer
satisfaction, and minimize holding costs. A low Inventory Days of Supply indicates efficient inventory
management practices, while a high number suggests inefficiencies in forecasting or procurement
processes.
To calculate this KPI, divide the total value of inventory by the average daily cost of goods sold (COGS).
The resulting figure represents the number of days’ worth of inventory on hand. Regularly tracking and
analyzing this metric allows organizations to make informed decisions about when to reorder stock,
prevent overstocking or understocking situations, and optimize their supply chain operations.
Remember, maintaining optimal inventory levels is crucial for any business to meet customer demand
effectively while minimizing costs associated with excess stock. You can ensure smoother operations and
improved profitability by closely monitoring your Inventory Days of Supply as part of your overall supply
chain KPIs strategy.

Importance of Monitoring KPIs

Monitoring Key Performance Indicators (KPIs) is crucial for the success of any supply chain. By regularly
tracking and analyzing these metrics, companies can gain valuable insights into their performance and
make data-driven decisions to improve efficiency and profitability.
Monitoring KPIs clearly shows how well the supply chain is functioning. It allows businesses to identify
bottlenecks, inefficiencies, or areas where improvements can be made. For example, by measuring the
Cash-to-Cash Cycle Time, companies can determine how long it takes to spend money on raw materials
and receive customer payment. This metric helps pinpoint cash flow issues and highlights opportunities
for streamlining processes.
Monitoring KPIs enables proactive management rather than reactive firefighting. By having real-time
visibility into performance indicators like Perfect Order Rate or Fill Rate, companies can quickly address
deviations from desired targets before escalating into more significant problems. It allows them to take
corrective action promptly and maintain high customer satisfaction.
Tracking KPIs fosters a culture of continuous improvement within the organization. When employees
access relevant data about their work processes and understand how their efforts contribute to overall
performance goals, they become more engaged and motivated. Regular monitoring creates accountability
at all levels of the supply chain hierarchy and encourages collaboration toward achieving shared
objectives.
Conclusion
In today's fast-paced and competitive business environment, companies must continuously monitor their
performance and make data-driven decisions. Supply chain key performance indicators (KPIs) provide
valuable insights into the efficiency and effectiveness of your supply chain operations.
By measuring KPIs such as cash-to-cash cycle time, perfect order rate, fill rate, customer order cycle time,
and inventory days of supply, you can identify areas for improvement and optimize your supply chain
processes. These metrics help you track important aspects like order fulfillment speed, accuracy,
inventory management efficiency, and overall customer satisfaction.
To effectively track and measure KPIs in your supply chain operations:
1. Identify relevant KPIs based on your specific business goals.
2. Establish clear targets or benchmarks for each KPI.
3. Collect accurate data regularly from reliable sources.
4. Use analytics tools or software to analyze the data and generate meaningful insights.
5. Share the findings with stakeholders across your organization to foster collaboration and drive
continuous improvement.
Remember that monitoring KPIs is not a one-time task but an ongoing process that requires regular
evaluation and adjustment as market conditions change or new opportunities arise.
By diligently tracking these essential metrics within your supply chain operations, you will be equipped
with actionable information to enhance operational efficiency while meeting customer expectations
more effectively.
So start measuring those key performance indicators today! Harnessing the power of data-driven
decision-making in your supply chain can lead to improved profitability, streamlined processes, and
enhanced customer satisfaction - ultimately giving you a competitive edge in today's dynamic
marketplace!
Start by focusing on these five essential Supply Chain Key Performance Indicators (KPIs) – Cash-to-
Cash Cycle Time, Perfect Order Rate Fill Rate, Customer Order Cycle Time, and Inventory Days of
Supply—and watch as they transform how efficiently you manage your entire end-to-end supply chain!