Ecommerce can feel like magic. You order a product online with a few clicks, and a handful of days later, it’s at your doorstep. But any ecommerce business owner knows it’s not so simple. Getting a product from a factory floor to the customer requires precise coordination between multiple vendors across the supply chain.
To keep revenue growth going strong and maintain customer satisfaction, it’s crucial to track several key supply chain metrics.
What are supply chain KPIs?
Key performance indicators (KPIs) are measurable values that demonstrate how effectively your organization is achieving its key business objectives.
Supply chain KPIs help you specifically assess the efficiency, effectiveness, and performance of your supply chain operations. Supply chain analytics—used to explore, interpret, and make sense of supply chain KPIs and other data—answer crucial questions about shipping times, order errors, inventory, and costs.
Supply chain KPIs are crucial for supply chain management and sustainable success. With a close eye on your supply chain KPI list, you can leverage these metrics to optimize your operations, increase customer satisfaction, and grow your operations.
Top supply chain KPIs to track
“There are a multitude of KPIs that businesses need to track to ensure they’re running a healthy margin-positive operation,” says Parisa Sadrzadeh, senior vice president of omnichannel fulfillment at Flexport, a supply chain logistics platform.
Supply chain operations vary across industries and individual companies. For example, some businesses work with overseas shipments, ocean freight vendors, and customs; while others ship handmade items domestically and must control their costs.
Still, the following supply chain performance metrics apply to most businesses.
Customer-facing KPIs
Customer-facing KPIs focus on the effectiveness of your supply chain operations from your customer’s perspective. They highlight outward-facing aspects like order accuracy, on-time delivery, and product availability. They include:
Perfect order rate
The perfect order rate, or perfect order index, measures the percentage of orders that are error-free from beginning to end. This means the order is recorded correctly, delivered on time, includes all expected parts, and arrives undamaged. To calculate it, use this formula:
Perfect order rate = (Number of perfect orders / Total orders) × 100
This is a critical supply chain KPI, as it reflects the overall efficiency and reliability of the supply chain.
Stockout rate
Stockout rate measures the frequency of out-of-stock items when customers place orders. The lower this percentage the better, as it means fewer missed sales opportunities. The stockout rate formula is:
Stockout rate = Number of stockouts / Total order requests × 100
This metric is key for managing your inventory, but impacts your marketing and branding as well.
“Operations is critical to building brand trust and loyalty with consumers,” Parisa explains. “If your products are constantly out of stock, you’ll lose sales and customers.”
Fill rate
Fill rate tracks the percentage of customers’ orders filled on the first shipment—meaning all items in the order are included in the initial shipment sent out, without any backordered or missing. This percentage of orders shipped on the first attempt reflects supply chain efficiency and your ability to meet customer demand by delivering products on time. To figure out fill rate, use this formula:
Fill rate = (Orders shipped / Total orders placed) × 100
You can use versions of this formula to calculate more detailed fill rates, including the line fill rate, which measures the percentage of order lines (individual items within an order) delivered on the first attempt:
Line fill rate = (Orders lines shipped / Total orders placed) × 100
The same goes for your unit fill rate, which tracks the percentage of individual items delivered on the first attempt:
Unit fill rate = (Units shipped / Total orders placed) × 100
These variations can help you identify specific issues, like a particular product line or item affecting your overall fill rate.
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Cycle time KPIs
These KPIs focus on the time it takes between specific tasks within the supply chain process:
Cash-to-cash cycle time
Cash-to-cash cycle time tracks the duration between when you pay vendors for raw materials to when customers pay you for the product made from these materials. Essentially, it’s how long it takes to convert resources into cash flow—so you want this metric to be as low as possible.
The cash-to-cash cycle time helps identify potential cash flow issues by analyzing three stages:
- Days inventory outstanding (DIO) measures how long inventory is held before sale.
- Days sales outstanding (DSO) measures how long it takes to collect payment after a sale.
- Days payable outstanding (DPO) measures how long it takes to pay suppliers after receiving an invoice.
Plug these numbers into the formula to calculate the cash-to-cash cycle time:
Cash-to-cash cycle time = DIO + DSO − DPO
Customer order cycle time
Customer order cycle time measures the duration from when an order is placed to when it is received. It reflects the responsiveness of your supply chain and the efficiency of your fulfillment processes. To determine customer order cycle time, use this formula:
Customer order cycle time = Actual delivery date − Purchase order creation date
“Consumers expect fast delivery speeds no matter where they shop, and speed can often be the decision-making factor when customers are choosing between different brands,” Parisa says.
“Merchants should measure their average delivery time and the improvement to sales when delivery times are fast. In fact, marketing fast delivery speeds can increase conversion rates up to 25%.”
Supply chain cycle time
Supply chain cycle time is a broader KPI measuring the time it takes your business to deliver an order with no existing inventory—starting from sourcing raw materials to delivering the finished product to the customer. It measures the end-to-end efficiency of your supply chain processes. The smaller this number, the more agile and responsive your supply chain.
This KPI provides an overview of your entire supply chain efficiency because it encompasses all critical processes involved, including:
- Procurement of raw materials
- Manufacturing
- Transportation of the final goods to the warehouse
- Time products spend in the warehouse
- Delivery to customers
The formula is:
Supply chain cycle time = Order processing time + Procurement time + Manufacturing time + Transportation time + Warehousing time + Delivery time
Inventory and per-unit KPIs
These metrics help you monitor the status of your inventory and make decisions about which products to offer:
Inventory turnover rate
Inventory turnover rate measures how frequently your entire inventory sells during a specific period. High turnover indicates an efficient supply chain and the ability to manage inventory well, driving strong sales.
A low rate can indicate areas for improvement, like poor sales and ineffective inventory management, potentially causing surplus stock. To determine inventory turnover, use this formula:
Inventory turnover = Cost of goods sold in period / Average inventory
Gross margin return on investment
Gross margin return on investment (GMROI) shows how much gross profit you earn for every dollar invested in inventory. Use this formula to calculate gross margin return on investment:
Gross margin return on investment = Gross margin / Average inventory cost
You might discover some products and categories yield higher GMROI than others, helping you prioritize these for promotion. This supply chain KPI also helps benchmark against industry standards or identify product lines needing improvement.
Supply chain cost as a percentage of sales, and per unit
These KPIs measure how much your supply chain processes cost you in relation to other metrics: sales overall and the number of a given item sold. For total supply chain costs as a percentage of overall sales, the formula is simple:
Total supply chain management cost as percentage of sales = (Total supply chain costs / Total sales) × 100
You can also measure supply chain costs relative to the number of unit items your company sells:
Supply chain cost per unit sold = Supply chain costs for a product over period / Number of units sold in that period
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Supply chain KPI FAQ
What are the top KPIs used in measuring supply chain performance?
There are scores of supply chain management KPIs available and the ones you use will depend on your business. Common KPIs include perfect order rate, fill rate, customer order cycle time, and inventory turnover rate.
Why should businesses track supply chain KPIs?
Supply chain key performance indicators help you assess the efficiency of your production processes. Supply chain management metrics can unlock deep insights across your business, allowing you to make data-driven decisions for growth.
Are there tools available to track supply chain KPIs?
Yes, many software platforms, like Flexport, are available to simplify and automate these calculations while offering an at-a-glance supply chain KPI dashboard for business leaders.