Beginner's Guide to KPIs

Your performance depends on it. 

KPI

There are a lot of things to wonder about in this world. Like, how come whenever someone says, “no pun intended”, they actually mean the pun was intended? Or, why do they call them animal crackers, when they’re clearly cookies? (false advertising) And most importantly, where are all the baby pigeons?! While it’s fun to wonder, something you shouldn’t ever wonder about is the health of your supply chain. That’s what KPIs are for. But if you’re not measuring the right ones, you might as well not be measuring at all. Lucky for you, I decided to write a blog today. And by that, I mean it’s part of my job.

 

Why even bother?

To get the most out of your KPIs, you should fully understand the value they offer. Remember, the aim is to provide your company with the information it needs to make better-informed decisions. The result? Better business performance. And don’t forget that the information you collect keeps external stakeholders informed, so there’s value both inside and out. Ok, now that we got that out of the way, let’s get to the good stuff.

1. Fill Rate

First off, keep in mind that fill rate definitions and calculations can vary. But in broad terms, it calculates the service level between 2 parties—usually measuring the depth of demand that was satisfied by inventory on hand. They can be evaluated by lines on an order, SKUs, and cases shipped. You can then aggregate them across different time periods and facilities within different geographic regions. That gives you a clear bird’s eye view of what’s going on, and when it’s going on. Believe it or not, there’s no standardized system for using and reporting fill rates. But that doesn’t mean they aren’t important. How else would you manage inventory availability? That was a rhetorical question.

 2. On-time Delivery

This is a good one. No really, it is. If you need to asses the ability of your business to fulfill shipping orders or other transactions within the period of time promised to a client or customer (which you do), you’ll need this KPI by your side. It’s usually conveyed as the percentage of transactions achieved within an identified timeframe, so it’s simple to digest. If your figure is too low or below benchmarks, then you know there may be a bottleneck to tend to. What’s a bottleneck? Glad you asked. It’s basically an inefficient, time-consuming process that’s not adding value to your supply chain, so you’ll want to keep an eye out for that.

3. Inventory to Sales Ratio

Don’t be caught empty-handed. By measuring the amount of inventory you’re carrying against the number of sales orders being fulfilled, you’ll be doing yourself (and your customers) a favor. It’s a lot easier than you think—just follow this simple formula:

 

(Inventory value $) ÷ (Sales value $)

 

You’re welcome.

Inventory to sales is useful because it’s a strong indicator of prevailing economic conditions, and your ability to adapt, respond, and be awesome. It also says a lot about the financial stability of your company—which is kind of, sort of, totally important. Last but not least, you’ll realize what the cost of carrying inventory really means, and motivate your sales team to sell as quickly as possible.

Bonus Metric

There isn’t one. Go focus on the ones I told you to!

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