4 Essential Key Performance Indicators for Distribution Companies
Business operations are getting increasingly complex each year and companies need supply chain partners executing at an extremely high level. That means suppliers, distributors, and businesses working together to fulfill deliveries to end users. Measuring performance of distributors is essential and Microsoft Dynamics Business Central 365 can help companies oversee key performance indicators (KPIs) on real-time, weekly, or monthly basis.
So what are the essential key performance indicators (KPIs) that companies are using to measure distributors and warehouses in 2022 and beyond? Below are four KPIs that are popular among mid-size businesses and are fundamental for business success.
1. Inventory Value/Carrying Costs
Businesses are experiencing extremely challenging supply chain issues due to consistent consumer demand, so carrying costs can have a huge effect on your bottom line. Inventory carrying cost is the total of all expenses related to storing unsold goods. The total includes intangibles like depreciation and lost opportunity cost as well as warehousing costs. A business’ inventory carrying costs will approximately total to 20% to 30% of its total inventory value. For companies, accurate forecasting is essential to keep carrying costs low. In Business Central, advanced production scheduling is executed by way of the Planning Worksheet, which uses the Master Production Scheduling and Materials Requirement Planning functionality to shape inventory.
2. Sales Order Fill Rate
As companies have more visibility into warehousing data, the sales fill rate is a key metric. Customer expectations for on-time delivery are continuing to rise. According to Insider Intelligence, same-day delivery will likely grow by 21% annually through 2024 and, mostly free returns, accounting for 15% to 30% of online purchases totaled $114 billion during the 2021 holiday peak period alone.
The basic sales order fill rate is the percentage of customers’ orders that are filled on the first shipments, which has become increasingly important post-pandemic.
- Fill Rate = (1 – (total items – shipped items)/total items) x 100
Plus, there’s the Line Fill Rate, which is the percentage of order lines delivered on the first attempt and Unit Fill Rate that measures the percentage of individual items delivered on the first attempt. In Dynamics 365 Business Central, companies need to know delivery dates, and this can be found via the Order Promising Lines page and Sales Order. Business Central can calculate shipment and delivery dates based on an item’s known and expected availability dates that can be promised to customers. Via the sales order line, you can specify a delivery date and then that date is used for the following calculations:
- Requested delivery date – shipping time = planned shipment date
- Planned Shipment date – outbound warehouse handling time = shipment date
Business Central forecasting can also be done with these two options, Capable to Promise (CTP) and Available to Promise (ATP). For example, CTP assumes a “what if” scenario, which only applies to item quantities that are not in inventory or on scheduled orders. Based on this scenario, Business Central calculates the earliest date that an item can be available if it is to be produced, purchased, or transferred.
3. Rate of Return/Returns Due to Improper Shipments
The theme of customer satisfaction reappears as the rate of return tells the percentage of customers that have returned their items; due to factors that can be fixed like damaged products, incorrect items sent, or late delivery. It also includes factors out of your control. These items can fall under fraud or problems with the product after delivery.
- Rate of return percentage – Number of items/total numbers of items sold x 100 = %
The rate of return is a metric that doesn’t get much visibility within companies and by management, but this could be changing. Also, distributors are starting to track the Reverse Logistics Objective metric and this could emerge as a top KPI for distributors. Reverse Logistics is the movement of goods from the point of consumption, after a return, back to the point of origin.
4. Distributor/Vendor Performance
Distributor performance is another important metric. Distributor performance can fluctuate, due to some actions that are out of their control, but this is important for distribution companies to measure. With more real-time information available, companies are creating weekly, monthly, quarterly, and annual benchmarks that can be viewed to evaluate performance. Distributors can help themselves by offering services that support customers’ internal KPI reporting tools and provide multiple data integration points. Vendor performance is also a key metric to assess and constantly evaluate so alternative suppliers can be used in demand-heavy cycles.
Tracking Key Performance Indicators with Help from ArcherPoint
ArcherPoint’s supply chain experts have years of experience in system software projects and can help implement your company’s internal KPI reports and tools. ArcherPoint offers a full suite of business analysis, project management, ERP and WMS implementation, and more. Contact us today!