Every business has
essential KPIs (key performance indicators) that help them to record
and track how well their business is doing. Every industry has
different KPIs that they should focus on as each business is unique
and features many different moving parts. However, sometimes
businesses can get caught up in tracking too many KPIs, which can
actually take away from the most important elements. If you’re in
the supply chain industry, you should be using
high-quality shipping supplies and
tracking the success of your products to ensure that your business is
performing well. Here are some major KPIs you should focus on.

What Is a KPI?

KPI stands for key
performance indicators and is important to measure your business’s
success. These calculated figures are either used to evaluate whether
or not you are achieving a specific business goal, or to decide if
your products are meeting specific standards. For example, supply
chain companies have a responsibility to get their products to
customers in a timely fashion and every product needs to be in great
condition as these clients will be using your shipping items to send
their own products to consumers. Tracking the KPIs can help you
recognize whether or not you are meeting your standards and
fulfilling your goals. It can also illuminate areas where your
company may be struggling and allow you to revisit your strategy and
enhance company performance.

Why Are KPIs important?

KPIs are extremely
important to every business because each one is a different
measurement of how well you’re performing. Without KPIs, it’s
more difficult to track figures like ROI. You should be able to
easily record and review how much you’re spending to make products
and, in turn, how much money you’re making. If these margins are
too low, you can readjust your pricing or look for cheaper supplies
to help grow your net profits. When it comes to supply chain
companies, there are a number of industry-specific KPIs that you
should be aware of.

Important Supply Chain KPIs

Return on
Investment (ROI)

ROI is one of the most
common KPIs for any kind of business. This measurement reveals how
much money you’re making on each item that you’ve invested in.
When you record your ROI, you can review the numbers and analyze
whether or not you’re spending too much on your investments. If
you’re not making much money back, you may want to consider looking
for a new supplier. To calculate
your ROI, you can simply follow
this formula:

(Current
value of investment - cost of investment) / cost of investment

Inventory Turnover Rate
(ITR)

This KPI is important for
supply chain companies as it measures how many times your business is
able to sell (or turnover) your entire inventory each year. Because
this KPI is an annual statistic, it may take some time to notice
trends, but it will give you a good sense of how quickly you’re
moving your products. If you find that you weren’t able to
completely turnover your inventory even once throughout the year, you
may want to consider ordering less inventory in the future. This can
help you cut costs and, hopefully, make more money in the long run.

The formula for this KPI
is:

(Total sales
- cost of sales) / remaining end of year inventory

On-Time Shipping Rate

For supply chain
companies, timeliness is a huge factor. If your customers are
consistently receiving their orders late, they will be less inclined
to trust your brand. Because your customers rely on you to provide
them with high-quality products in a timely fashion, it’s extremely
important that your orders ship and deliver on time. If your products
consistently arrive late, it’s unlikely you’ll maintain loyal
customers. On-time shipping rate, as the name suggests, gives you the
percentage of time that your orders have arrived on time and can be
calculated with this formula:

(number of
items delivered on time / total items) * 100

You can find this value on
a monthly, quarterly or even annual basis.

Days of Supply (DOS)

One of the most essential
KPIs to track as a supply chain company, DOS can give business owners
a lot of insight
into their company’s inventory management.
This measurement helps you to understand how long your inventory
supply is going to last as forecasted by your sales records. Finding
this number can help you understand your chances of running out of
stock and predict how much inventory you’ll need for the future.
With this information, you can properly gauge the number of supplies
you can keep on hand without running out or spending too much on
warehousing if you overstock. Use this formula to find your DOS:

(Average
monetary value of inventory on hand / monthly demand) * 30

Other Important Factors
for Supply Chain Companies

Environmental Packaging

Although not a KPI, it is
important to consider how much money you’re spending on your
packaging supplies and considering how this may be impacting the
environment. As a supply chain company, you’re using packaging
materials every time you ship a product and this can greatly affect
the environment. Consider buying
from a company that offers eco-friendly packaging
to make your company more green and, oftentimes, lower your costs.
This can help your KPIs as lower-cost products have the potential to
net great profits–particularly if the overall quality is also
improved. Many people are more eco-conscious now than in the past,
and buying from a company that also values environmental efforts can
sometimes attract new customers.

Stay on Top of Your
KPIs

KPIs are vital to understanding your business. Staying on top of these numbers is the best way to measure your success and re-adjust your business and marketing strategies to increase profits, lower overhead and ensure that every single one of your customers is getting a great experience. As a supply chain company, it’s important that you streamline your packaging operations to maximize profits and keep your process running as smoothly as possible. Use the information gathered from tracking these essential KPIs to help grow your business to its full potential.

About the Author:

Cory Levins serves as the Director of Business Development for Air Sea Containers.  Cory oversees the development and implementation of ASC’s internal and external marketing program, driving revenue and profits from the Miami FL headquarters.