Monitoring your shipping operations protects your business and helps you improve efficiency. Here we outline seven key performance indicators you should be tracking regularly.
1. Out-of-Stock Rate
The out-of-stock rate (OOS), or number of unavailable items, can be calculated by dividing out of stock SKUs by the total number of available SKUs.
A high out-of-stock rate negatively impacts your customers' experience. Calculating this allows your team to stay on top of lost sales.
2. Wait Time
Wait time refers to the average time that a ship spends anchored and is a valuable standalone metric used to calculate total port hours. A ship’s port hours also include the time it takes to unload, load, and “steam-in” time.
As evidenced by countless reports of port logjams over the last few years, excessive wait times can wreak havoc on supply chain continuity.
The benchmark for wait times varies depending on where cargo originates from, where it is going, and other factors. However, tracking this metric year round will allow you to detect concerning trends early to take appropriate action.
3. Average Carrying Costs
Inventory carrying costs is one of the most important metrics to track. Carrying costs are expenses incurred from storing your products at a distribution center, store, warehouse, or other facilities. This metric accounts for expenses related to depreciation, taxes, handling fees, transportation, etc.
To gain insights using carrying costs, compare this figure to your product velocity. The product velocity refers to how many units you sell from each specific distribution point.
If your carrying costs exceed sales revenue at a particular distribution hub, you may need to scale back how much inventory you store there to restore equilibrium.
4. Product-by-Product Margins
Analyzing product-by-product margins can help you better understand which items are your top performers and which are not generating adequate revenue. Once you have identified which products bring in the most revenue, you can reevaluate your current sales strategy.
Cumulatively, product-by-product margin data and average carrying costs statistics can guide your distribution strategy. You can consider discontinuing products, scaling back production of certain items, and reexamining marketing tactics.
5. DIFOT Rate
Every manufacturer or e-retailer that uses shipping services must track the delivered in full on time (DIFOT) rate.
This rate reveals the overall delivery performance of shipping and logistics providers. If a shipping partner consistently delivers products late or at a reduced quantity, your customers suffer.
While no shipper can guarantee a perfect DIFOT rate, the best logistics providers will have consistently high performance in this metric.
Calculating the cost of goods sold (COGS) will allow you to determine your cumulative supply chain costs to compare that figure to total sales.
COGS measures the cost of actually producing the goods you are selling. COGS accounts for variables such as labor and the materials used to produce your goods. However, it does not include sales expenses or supply chain costs.
To calculate total supply chain costs, you will also need to determine how much you are spending on transportation, procurement, carrying inventory, and marketing efforts.
7. Cash-to-Cash Cycle Times
Cash-to-cash cycle time calculates the number of days between when you purchase materials or inventory to when you actually sell said inventory. Short cash-to-cash cycle times lead to more stable revenue flow. Conversely, excessive cycle times limit overall organizational agility because they lead to illiquidity.
By tracking and analyzing the metrics outlined above, you can carefully monitor the efficiency of your shipping operations. These KPIs provide valuable performance data that you can use to guide key decision-making and protect business continuity.
See What Logistics Experts Are Saying!
Access a 3-ebook ultimate guide for free! Use our Ultimate Supply Chain Visibility Guide to learn:
- Strategies to become more resilient during disruptions
- How to integrate your order management, CRM, and invoicing
- How to avoid unnecessary expenses to focus on growing other areas of your business
- And much more!