Supplier KPIs You Should Be Tracking

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March 1, 2023

Effective, ongoing supply chain management is crucial to the health of any business. Having well-performing suppliers contributes to better productivity and brand image for your business, while supplier issues can pose a significant risk. Yet managing your company’s suppliers is often fraught with challenges.

Continuous monitoring and evaluation of your suppliers are essential to improving the value of your supply base. To ensure suppliers are adequately meeting your needs and product fulfillment demands, track their performance with key performance indicators (KPIs). Monitoring supplier KPIs enables your company to take control of its supply chain, reduce risks, and build a higher-performing supplier base. Keep reading to learn which supply chain management KPIs you should be tracking for optimal supply chain performance.

What Are Supply Chain Management KPIs?

Supply chain management KPIs are benchmarks used to track suppliers’ business metrics, efficiency in meeting your company’s needs, spending directed toward them, and other operational measurements. Businesses can use KPIs for vendor management to determine which suppliers are meeting their business requirements and which are falling short. Supplier KPIs also provide a framework for improving collaboration with suppliers, cutting costs, and mitigating risk. You can set specific performance criteria for measuring supplier performance in different areas of your supply chain.

Importance of Supplier KPIs

KPIs can help you determine how well you’re meeting goals or reveal areas you may need to improve in your supply chain. If you set specific KPIs, you can even make future projections for your goals and success based on your current progress. Above all, KPIs provide data to help you more effectively manage your supply chain and focus on strategic sourcing.

Key performance indicators for supply chain management are essential to the success of your supply chain. Creating KPIs to track vendor performance allows you to determine how well a supplier is complying, meeting your requirements, and helping your company meet goals. Ultimately, KPIs help you identify which suppliers benefit your business, need improvement, or simply weigh you down. With actionable data collected through tracking KPIs, you can identify where policies and procedures may need to be improved to create a more effective supply chain.

While supplier relationships are transactional, they also carry significantly more weight than simply purchasing a vendor’s goods or services. Your suppliers become part of your internal team, which means in addition to fulfilling their obligations, they need to comply with your company’s various legal, service, and quality requirements to satisfy the supply chain needs.

Performance Indicators You Should Be Measuring

To gain optimal visibility into your business supply chain processes from end to end, you must measure the right KPIs. KPIs will likely vary from business to business, though you should consider starting with the following:

Cash-to-Cash Cycle Time

Your cash-to-cash cycle is the amount of time between paying your suppliers for materials and receiving a customer’s payment for your product. The shorter this cycle is, the more efficient your supply chain processes are. From storage to delivery trucks to workstations, a short cash-to-cash cycle reflects positively on your suppliers’ performance. If the cycle is longer than preferred, you may need to dive deeper into each process in the cycle to determine where to make improvements.

Fill Rate

Fill rate describes the percentage of orders your company can fulfill without running out of inventory. You can measure your fill rate at any time to determine how effectively your supply chain management is meeting demand from your customers. To calculate, divide your total completed orders by your total orders and multiply the quotient by 100. Your fill rate can tell you if you’re not ordering enough product from your supplier to meet customer demand or if you’re ordering too much.

Perfect Order

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A perfect order consists of several components, including:

  • Damage-free delivery: Percentage of deliveries made in perfect condition.
  • In-full delivery: Percentage of deliveries made correctly.
  • On-time delivery: Percentage of deliveries made on time.
  • Accurate documentation: Percentage of deliveries that included accurate documents.

Perfect order KPIs help you assess customer satisfaction, manage various costs, and track storage and delivery performances. For example, if your customers are getting their orders late or their order is damaged when it arrives, you’ll have unsatisfied customers and likely additional costs to compensate for the errors.

Compliance Metrics

Every organization has regulations and demands they must comply with for order processing and fulfillment. Since your company needs to be compliant, you need to ensure your suppliers will meet your requirements on top of their own. If your suppliers aren’t complying with your requirements, such as your EDI mandates, you could face supply chain issues. Measuring your suppliers’ compliance rates helps you determine how well they’re meeting their obligations and committing to your requirements.

Lead Times

The lead time refers to the time a production process takes from start to end. The supplier lead time is the period between submitting an order with your supplier and receiving the requested products. Measuring and tracking supplier lead times helps you anticipate how long orders take to arrive, allowing you to schedule operations more effectively.

Supplier Availability

Supplier availability impacts your business’s ability to meet fluctuations in product demand. This KPI measures how available a supplier is in an emergency. For example, if your business experiences an unexpected increase in demand, will your suppliers be available to help you meet that high level of demand on short notice? Supplier availability is crucial for efficient supply chain processes. If a supplier lacks the availability necessary to meet your demands, you’ll likely experience issues in your supply chain.

Customer Service

Customer service is not to be overlooked. The level of customer service a supplier offers can be a direct indication of their ability to communicate and resolve issues. Measuring customer service KPIs can be as simple as holding your suppliers to a certain level of customer service. Working as closely as you do with suppliers, you want their service to be pleasant and efficient, especially since their reputation can reflect on your business.

Growth and Innovation

As you make improvements to your processes, products, and overall operations, you should expect your suppliers to have a certain level of ambition for growth and innovation. While you can make as many improvements on your end, if your suppliers fail to make improvements on their end your supply chain will still struggle. Be sure to also consider whether a supplier provides strategic value through innovative suggestions to expand or improve products, which can help reduce costs and increase profit.

Track Supplier KPIs with TrueCommerce

Utilizing technology to collect data and track KPIs is one of the most effective ways to manage your supply chain. Supplier enablement platforms like TrueCommerce offer high-quality analytics and reporting to evaluate and track your suppliers’ performance. Gain enhanced visibility into your supply chain with our supplier solutions. We can help you track various KPIs, including compliance, in-full performance, and on-time fulfillment. You can even give supplier feedback using our scorecards so your suppliers know where to improve.

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Contact us for more information about our solutions and services, or try our platform for yourself with a free demo.

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