KPISupply chain KPIs and metrics.

Managing all the moving parts in your supply chain can be a logistical nightmare without the right KPIs and metrics. You need to track the status of shipments, monitor your inventory to sales ratio, and know which items are currently out of stock. With the right supply chain KPIs, this information is at your fingertips so you can ensure your warehouse inventory operations are always running smoothly.

Knowing which supply chain KPIs are important to monitor can be difficult, which is why we’ve put together this list of KPIs. Check out the top 10 warehouse inventory KPIs and metrics our customers use.

  1. Inventory Turnover. This is one of the most important supply chain KPIs for your organization to monitor. This KPI provides a barometer for the health of your organization because it shows how quickly you are able to move inventory. To formulate this KPI, calculate the cost of inventory sold during the period and divide the balance left over at the end of the year. A high inventory turnover rate is preferred, although it is important to compare your turnover rate to other organizations within the same industry.
    Audience: Analysts, Managers, Executives
    Calculation: (Total Sales – Cost of Sales) / (Inventory remaining at end of year) = Times inventory turns over per year
  1. Perfect Order Rate. This inventory KPI is closely related to customer satisfaction as it measures your ability to put together a “perfect” order. This means shipping without damage, delivering the shipment on time, invoicing the order correctly, and ensuring the accuracy of the order. This metric will tell you a lot about the efficiency of your warehouse and the ability of your organization to meet (and exceed) customer expectations. Understanding this supply chain KPI is essential for gauging the efficiency and effectiveness of your organization.
    Audience: Front-line, Managers, Executives
    Calculation: # of errors per order / total # of orders = Order Rate
  1. Back Order Rate. This KPI measures the amount of orders that cannot be filled at the time they are placed. Back order rates cause your customers to wait while you attempt to fill an order, and a high back order rate will affect customer retention over the long run. Monitoring this inventory KPI will help you to identify issues so you can get to the bottom of a poor back order rate to find out which items, customers, or even seasonal trends are affecting your performance.
    Audience: Front-line, Managers
    Calculation: # of back orders / total # of orders = Back Order Rate
  1. Inventory Accuracy. This KPI measures the accuracy of your bookkeeping methods when it comes to tracking in-stock inventory levels. This is a telling KPI for any supply chain organization, since low inventory accuracy will result in lost sales and low customer satisfaction. Keeping your books in order is essential to running a successful operation, because you can’t afford to waste time looking for inventory that isn’t there. At the same time, a high accuracy rate builds credibility with your customers and saves you time and money in the long term.
    Audience: Front-line, Managers, Executives
    Calculation: # of Items counted / # of Items books count = variance %
  1. Order Status. This supply chain metric tracks the status of all orders in your organization and prioritizes them according to urgency. There is no definitive version of this KPI, rather it incorporates data about the specific circumstances of your organization. As well as monitoring the date and status of orders, this KPI can also include additional supply chain metrics like rate of demand.
    Audience: Managers, Executives
    Calculation: Anecdotal information: date order placed, current order status, shipment due date.
  1. Percentage of out of stock items. This KPI measures the percentage of items that are out of stock at the time a customer places an order. It measures your ability to meet customer demand, a key aspect of running a successful supply chain business. This KPI also requires additional information, since seasonal or unexpected order volumes can cause spikes in this metric. That being said, it is important for your organization to be able to anticipate what items are most popular.
    Audience: Front-line, Managers
    Calculation: # of items out of stock / # of items in stock = % of out of stock items
  1. Inventory to Sales Ratio. This inventory KPI measures the ratio of in-stock items versus the amount of sales orders you are filling. Inventory to sales is a good barometer for the performance of your organization, providing you with a strong indicator of the economy. The challenge with this supply chain KPI is identifying a ratio that reflects your goals and industry norms. Regardless of the trend line you choose for this metric, your objective is to maintain stability with regards to prevailing economic conditions.
    Audience: Analysts, Executives
    Calculation: (Inventory value $) / (Sales value $) = I-S ratio
  1. Rate of Return. This supply chain metric looks at the rate that items are returned to you after they have been shipped. The key to this metric is providing a breakdown for the reasons why items are returned, so you can identify trends and reduce your rate of return ratio. The example on the left provides a chart that compares reasons for returning items, but this inventory metric also jives well with the perfect order rate KPI (see above).
    Audience: Front-line, Managers
    Calculation: (Total Items Returned) / (Total Items Shipped) = % Rate of Return
  1. Order Tracking. This supply chain metric is used to monitor the status of orders on a geographic basis. This metric can incorporate a variety of data points like order accuracy, shipment arrival and departure times, number of errors per region, as well as anecdotal information. While what you measure for this metric is important, the crux of this metric is monitoring data in real-time so you are aware of any fluctuations or irregularities as they happen.
    Audience: Front-line, Managers, Executives
    Calculation: Anecdotal information: order accuracy (# of errors per order = Order Rate %), size of order, date/time of delivery
  1. Carrying Cost of Inventory. This inventory KPI measures how much it costs you to hold, store, and ship inventory over a given period of time. Every item you purchase and store in your warehouse costs you money beyond the initial purchase – consider expenses like labour, risk / insurance, storage costs, and freight. To calculate this KPI, you need to know your average inventory value which is the sum of your inventory value divided by total number of inventory items. To calculate your inventory carrying rate divide inventory costs by the average inventory value.
    Audience: Managers, Executives
    Calculation: Inventory carrying rate * Average inventory value = Carrying Cost / Item