A company will be highly expected to have a well-run and well-managed supply chain in today’s competitive business environment. Businesses need to have a benchmark of how well they are doing in their supply chain operations. The simple solution would be to monitor and analyse certain indicators one would call Key Performance Indicators (KPIs). These would provide invaluable insights to successful operations and their efficiency. In the context of India, where the supply chain faces its own unique challenges, the Key Performance Indicators are something that needs to be chosen well.
What Are Supply Chain KPIs?
KPIs are quantifiable metrics used to track and measure a business’s performance. These are measurable values which demonstrate how efficiently the business is attaining business objectives. This process enables companies to identify their strengths and pinpoint areas of improvement; strategizing and taking data-driven decisions towards best optimised operations within the supply chains.
Essential KPIs for Measuring Supply Chain Success
1. Order Accuracy Rate
Order accuracy is the most critical KPI in the list, which measures the percentage of placed orders that are delivered exactly according to the customer’s instructions. Discrepancies in an order are the reasons that give rise to the consequences of returns, excess shipping costs, and dissatisfied customers. For instance, an organisation like Amazon India maintains a very high order accuracy to ensure customer delight. A high percentage of order accuracy within a company is indicative of well-aligned order fulfilment processes with customer requirements.
2. Accountants may refer to inventory turnover ratio
Inventory turnover ratio is a measure that provides information on how many times a company sells and eventually replaces its inventory in a given period. A high inventory turnover ratio means well selling products of a company. On the contrary, it may relate that there is overstocking occurring or the progressiveness of the goods is slow. Retail giants like Reliance Retail are monitoring this KPI with a lens totally focused on reducing inventory levels and related costs of holding down while ensuring that they are not over-affected or under-stocked with products.
3. On-Time Delivery Rate
A most important KPI is on-time delivery, which is a percentage share of delivered orders among all orders promised to be delivered on-time. In a country like India, where the logistic problems are so common because of traffic congestion and problems in the infrastructure, holding a high OTD rate is indispensable. As a case in point, Flipkart tries its level best to fare well in on-time delivery, especially during peak shopping seasons, like Diwali, with a view to generating more customer satisfaction and loyalty.
4. Supplier Lead Time
Measures the amount of time taken by suppliers for delivery after placing an order. Lower lead times would mean a faster replenishment of inventories and reduced carrying costs. Companies such as Maruti Suzuki focus on reducing their supplier lead time to ensure the production process is smooth and continues without any interruption.
5. Cost of Goods Sold (COGS)
COGS is the direct cost related to the production of the goods a company sells. By keeping close tabs on this KPI, it helps a business learn how much it spends making its products and where savings can be realised. For example, Tata Motors could be evaluating its cost of goods sold to determine if its production processes and supply chain are effective in keeping the costs of manufacturing vehicles at a level that is competitive.
6. Return Rate
High return rates should alert companies to problems experienced by customers with the product, and it is, therefore, a very important indicator of customer and product management. If the return rates are alarming, it could be due to quality of products, false descriptions, or bad packaging. Myntra is one of the leading e-commerce platforms in India for fashion, capturing these return rates and working continuously on increasing the product quality and thereby reducing the returns to a minimum as these cost a lot.
7. Freight Cost per Unit
This KPI indicates the transportation cost incurred to deliver each unit of product. Companies providing logistics services can identify potential areas of cost reduction by monitoring this KPI. BigBasket, an online grocery delivery service, may track freight costs per unit in order to optimise delivery routes and decrease total transportation costs, resulting in competitive prices for their customers.
In the complex area of supply chain management, more especially in a very diversified and dynamic market like India, it becomes acutely important to make the right selection and to keep track of KPIs. Therefore, key indicators such as order accuracy, inventory turnover, on-time delivery, COGS, lead time of the supplier, return rate, and freight cost per unit reflexively influence the business toward an understanding of its supply chain performance.
Those Indian companies that will track these KPIs and act proactively to better them would succeed more in driving operational efficiency, cutting costs, and increasing value to the customer further.
