Benchmarking Your Supply Chain With EDI Integration
As a supplier in an increasingly complex digital market, benchmarking your supply chain can provide the insights you need to win. Supply chain benchmarking is a way of identifying the best possible performance to strive for. This might be done after your company has developed best practices but needs a refresher or as a means of gauging your company's position within its industry. From there, you can identify your target, set performance goals, and have a general idea of how long it should take you to reach those goals.
Learn what supply chain metrics your company should track and how integrated technology like EDI and VMI can help.
Supply Chain Metrics to Watch
Supply chain metrics, also known as key performance indicators (KPIs), measure the performance of various supply chain processes. These metrics provide valuable insight and data regarding the effectiveness and efficiency of those functions. By tracking your performance and measuring it against industry standards, you'll be able to determine gaps in your company's current performance that may be hindering growth, or worse, negatively impacting your overall revenue and profitability. Once you've identified areas of improvement, you can develop a plan of action.
While there are a huge variety of possible supply chain metrics to watch, each company will likely track different processes depending on its business model and customer types. However, some of the most common KPIs to track include processes like supply chain cycle time, fill rate, and more. Here are several key supply chain metrics to consider tracking, and how they impact your overall supply chain performance.
Supply Chain Cycle Time
Supply chain cycle time measures the overall efficiency of your supply chain from beginning to end. This metric looks at how long it would take to fulfill an order when inventory levels are at zero. Supply chain cycle time, therefore, shows you the longest possible lead time across your supply chain.
The goal is to have a short supply chain cycle time, which indicates your supply chain is responsive and flexible under changing circumstances. This metric is important to track because it can help you identify areas of your supply chain with potential or existing issues so they can be addressed and improved.
Fill rate, or demand satisfaction rate, measures the level of customer demand that can be met via your available stock without losing sales or creating backorders. Fill rate metrics help you determine the number of sales you could recover with improved inventory management. Having a strong relationship with retailers and a more thorough understanding of your available inventory helps your company more efficiently fill customer orders.
Businesses should aim for a high fill rate, as this indicates the ability to fill more orders at a time. Improving your fill rate helps improve customer satisfaction and how well your inventory planning responds to demand.
Cash-to-cash (C2C) time refers to the amount of time between paying suppliers for materials and receiving payment from customers for the final product. This cycle helps you identify cash flow issues. To track this metric, you'll need to add your receivable days and your inventory days before subtracting payable days. You want your C2C time to be as short as possible so money is being applied to core business operations rather than spending time in other peoples' hands. Some of the most efficient companies close their C2C cycles within a month.
Cash-to-cash time shouldn't be confused with the invoice-to-cash cycle (I2C), which measures the time between invoice generation by a supplier and payout by a customer.
Inventory turnover metrics refer to the number of times your company sells its entire inventory within a specific period. Tracking inventory turnover helps you determine the overall efficiency of your supply chain. Benchmarks for this KPI vary significantly between industries. For example, grocery stores and markets may have more inventory turnovers in a year than electronic stores. Having a high inventory turnover relative to your industry means you have efficient processes and strong sales.
Keep in mind that the higher your inventory turnover, the greater your replenishment needs. Therefore, if your turnover rate is high, you'll want to optimize your demand forecasting and inventory management processes to prevent stockouts.
On-time delivery metrics measure the percentage of deliveries your company made on or before the promised date. To determine your on-time delivery rate, divide the number of on-time deliveries by the total number of deliveries made and multiply by 100. Your company's benchmark should be high — ideally, your on-time delivery rate would be 95% or higher. The higher your on-time delivery rate is, the more satisfied your customers will be.
On-time delivery is also a critical metric for drop shipping suppliers, as many etailers have stringent fulfillment requirements to keep their customer promise. For example, Amazon Prime requires their suppliers to ship over 99% of orders on time, and maintain a “zero-day handling time.” This means that all orders must be sent on the same day they come in. Failure to meet these requirements can get a supplier removed from the program.
Other Important Supply Chain Metrics
Here are a few other examples of supply chain metrics your company may benchmark and track:
- Cost Per Order: The amount spent to fulfill an order. This can come in many forms, depending on the operational expenses included in the calculation. Operational expenses might include labor costs, communication, supplies, shipping costs, packaging, etc.
- Order Error Rate: The number of orders that are incorrectly processed compared to the total number of orders. Error rates can be assessed at various stages of fulfillment, including order picking, packaging, or orders shipped.
- Chargebacks: One of the biggest indicators of an inefficient supply chain, chargebacks are incurred due to order failures or incorrect/missing EDI information.
How Supply Chain Integration Can Improve Metrics
To close the loop in the supply chain automation process, many organizations are turning to electronic data interchange, or EDI. EDI standardizes electronic transactions between businesses and can be integrated into your ERP, accounting, or business system. Integrating EDI into your ERP or accounting system allows you to send verified, compliant information to your trading partners without the labor costs of manually keying order and shipment details. When your incoming and outgoing EDI documents and shipping requirements are mapped, tested, and successfully automated, labor costs go down, error rates decrease, and deliveries go out on time.
To maximize supply chain metric performance, many suppliers and distributors combine EDI with vendor-managed inventory (VMI). VMI software uses pre-set rules along with machine learning and predictive forecasting tools to provide replenishment recommendations, or automate the replenishment process completely. When used in concert with EDI to automate transactions, VMI can reduce stock-out rates, prevent overselling to keep your in-full rate high, and shorten your cash-to-cash cycle.
Achieving Supply Chain Success With TrueCommerce
In the race to grow your business, it's vital that you establish a benchmarking strategy to encourage constant improvement. With tools like integrated EDI and VMI streamlining your supply chain, you will be able to track improvements and reach the goals you've set during the benchmarking process.
Contact our supply chain specialists if you want to learn more about how integrated solutions can dramatically improve your supply chain and enable scalable growth.