In retail, optimizing the supply chain is crucial, intersecting several key areas : operational efficiency, customer satisfaction, cost reduction, profitability, and adherence to corporate social responsibility commitments.
Logistical performance directly impacts a store’s economic outcomes. In this context, logistics managers and executive teams closely monitor key performance indicators (KPIs).
These KPIs provide a comprehensive view of operational performance. They aid in making informed decisions, optimizing processes, and enhancing customer satisfaction.
In this article, discover the essential supply chain KPIs and our advice on how to effectively utilize, combine, and understand them.
Why track supply chain KPIs?
Logistics KPIs (Key Performance Indicators) are tools for evaluating and reporting on the supply chain solution.
As with any metric, they correspond to predefined goals in supply chain optimization. Once a goal is set, it’s crucial to measure the extent to which it is being met. KPIs serve this evaluative purpose.
They also play a reporting role. Sharing them with internal or external stakeholders can help collectively identify improvement areas and action plans.
Supply chain indicators meet 4 major challenges:
- Optimize operations: indicators help supply chain managers and their teams to monitor and evaluate the performance of their operations. Tracking over time helps identify trends and potential malfunctions. When performance drops, teams can react quickly and make the necessary adjustments.
- Inform decision-making: the data provided by KPIs gives decision-makers a solid basis for strategic decision-making. With this data, they can identify growth opportunities, anticipate challenges and allocate resources effectively to maximize efficiency and profitability.
- Control logistics costs: the supply chain is subject to high expectations in terms of profitability. KPIs help control logistics costs. They make it easier to identify inefficiencies and waste.
- Improving customer service and satisfaction: an efficient supply chain means product availability for customers. KPIs also help optimize delivery times, order accuracy and product availability, to ensure that customer expectations are met.
Top 5 supply chain KPIs to track
Stock levels
Optimizing inventory levels is crucial for all supply chain teams. Excess stock leads to lost profitability, while insufficient stock can result in shortages, especially for unique or irreplaceable products. Tracking inventory levels helps balance safety stock decisions, such as determining if inventory levels can be reduced without compromising product availability.
Availability rate
Availability is closely linked to storage. It refers to the proportion of active part numbers immediately available to customers. It can therefore be used to assess the availability of products in stock at time T.
This KPI helps you monitor the readiness of your products and reduces the risks of stockouts. If inventory levels for a specific product are low, you can decide to replenish it to ensure availability.
Logically, you would want to ensure that your most critical products are available, thus assessing the necessary safety stock to maintain this availability.
From a cost-control perspective, the goal is to find the right balance by addressing the following question: How can you optimize your availability rate while reducing (or not increasing) your inventory levels?
Breakage rate
When dealing with perishable goods, another metric comes into play: the breakage rate.
Breakage refers to all products that a store could not sell or only sold below the “normal” price. On average, it is estimated that one in every seven fresh products delivered to stores expires before it can be sold. The cost of breakage and its impact on revenue and store profits are substantial.
Consequently, a trade-off is necessary between customer availability and breakage. Increasing availability for perishable products might raise your breakage rate. However, if you reduce availability, you risk losing sales and margin.
Here again, the strategy involves finding a balance, but this time considering three factors: inventory levels, availability rate, and breakage rate.
Supplier order compliance
Supplier order compliance is an indicator focused on the procurement and replenishment side. The purpose of this indicator is to measure the order failure rate. These failures are generally due to non-compliance with agreements made with the supplier.
Through this KPI, you can assess supplier reliability in terms of quality, adherence to deadlines, and ordered quantities. It includes sub-indicators such as product compliance rates and merchandise return rates.
Similarly, other indicators related to the order engine can be measured:
- The reliability of order suggestions : this KPI measures whether order suggestions are respected in their entirety, or whether adjustments are made by end-users. If orders are modified, you can investigate the reasons for these adjustments.
- The control engine utilization rate evaluates the efficiency of the control engine used in the procurement process. It measures the ratio of orders generated to orders actually placed. It provides an overview of internal process efficiency.
Forecast accuracy
Forecast accuracy is an indicator used to assess the extent to which a forecast has predicted actual results. The indicator is used to determine the reliability and efficiency of the forecasting techniques and models used.
Indeed, to drive supply chain performance, teams rely on forecasting tools (and even projection tools) that enhance their overall perspective and help them anticipate and plan their actions. These solutions facilitate finding the right balance among various KPIs (availability, stock levels, breakage rates).
They also aid in making informed decisions by incorporating various supply chain influencing factors into the models. Additionally, these tools enhance cooperation with other supply chain stakeholders (suppliers, carriers, etc.). The benefit of having reliable forecasts is clear in terms of operational efficiency and profitability.
How to use logistics indicators
Track KPIs by product class
Most supply chain indicators are of limited interest if you track them globally. A strategic approach is to use these KPIs for different product classes.
In this approach, products are segmented into several classes (A, B and C, for example) based on criteria such as sales volumes or sales figures, or a mix of the two. We can also define product classes within a product family. Strategies for managing performance indicators such as availability and stock levels therefore need to be adapted to each product class.
Classification is a key point, particularly when it comes to determining safety stock. The stakes will differ according to the product’s purchase cost or margin level. For example, Class A products may require maximum availability due to their importance in overall revenue, while Class B or C products may tolerate lower availability due to their lesser impact. For certain families, we can agree to reduce availability. On the other hand, for certain products, even if they are in class B, availability must be optimal because they are not substitutable.
Combining KPIs to manage the supply chain
The effectiveness of supply chain management depends on the ability to efficiently use logistic indicators to steer operations.
Considering each KPI individually offers little value. A more practical approach would be to create a dashboard that consolidates the main supply chain KPIs and cross-references these indicators.
These indicators are clearly interconnected. When you act on one of them, you generate effects on the others. At all times, you need to place the cursor in the right place in relation to your strategic objectives, taking into account the relationships and interactions between indicators.
This holistic approach to supply chain management optimizes operations, improves customer satisfaction, and enhances profitability.
Moreover, merely tracking KPIs is insufficient. You must also investigate when an indicator reveals dysfunction or improvement opportunities. For example, if availability rates are low, what might explain this: supplier reliability, external events, poor forecasting, or the impact of a poorly timed promotion?
To identify the root causes, it’s possible to trace back through the data, assuming you have all the necessary input data and that the tools are well synchronized.
Working with projection in mind
To optimize supply chain performance, teams don’t just work on KPIs.
Increasingly, stakeholders are interested in simulating various scenarios in advance. This need for projection is driven by the desire to anticipate the effects of an action or a group of actions on the associated KPIs. For instance, if you plan to change the service rate of a product, you want to know in advance what the impact will be on stock levels or availability rates.
The strength of current tools, such as Optimix XFR, lies precisely in their ability to simulate several alternatives by acting on input variables, to help make the right decisions. With this in mind, we can model scenarios with impacts on key indicators, but also effects in terms of costs and even greenhouse gas emissions (from a green supply chain perspective).
Conclusion
As retailers become more adept at data management, supply chain management evolves into a high-precision mechanism. Understanding and analyzing the main logistic indicators is necessary but no longer sufficient.
To achieve goals and balance the stakes, understanding the relationships between various KPIs is essential. In this regard, you need software solutions that help you cross-reference, analyze, and interpret data.
Beyond just understanding and correcting, supply chain efficiency now requires a projection logic. It’s not just about understanding after the fact and making corrections but about anticipating and planning as much as possible to optimize performance. Soon, we might even be able to evaluate the efficiency of different logistical flows and offer the best option.
Optimize your supply chain performance. Discover how Optimix XFR enhances your performance with its forecasting and projection modules.
