SiftedAI Is Now Live - See What's New Watch

Sifted logo

5 Crucial Supply Chain Metrics to Track Now To Reduce Shipping Costs

by Sifted Team

Jun 12, 2022

8 min read

What are key performance indicators (KPIs) of supply chain metrics?

Multi-and omnichannel supply chains enable organizations to deliver their products through flexible sales channels and master the complexities of eCommerce fulfillment. However, poor inventory accuracy or parcel shipping mistakes can result in a bad shopping experience for customers.

Supply chain disruptions already negatively impact 75% of companies, whereas 55% of companies are downgrading their growth projections.

Supply chain KPIs are metrics that help you measure and track the performance of your supply chain operations to foresee potential disruptions. They uncover actionable insights about your business operations and encourage you to make better decisions that improve your supply chain performance.

In this article, we’ll review some of the most important supply chain parameters you should regularly monitor to increase productivity and enhance customer satisfaction. 

Why are logistics KPIs and metrics important?

Logistics KPIs are useful indicators that quantify the performance of supply chain processes. Managers use these metrics to reveal inefficiencies within the company’s operations and identify strengths and weaknesses.

Supply chain KPIs serve as benchmarks that allow businesses to compare the effectiveness of supply chain operations over time and with other companies in the same industry. They also reveal how successful your business has been in achieving supply chain objectives.

Moreover, supply chain KPIs help you make better-informed decisions about sourcing raw materials, optimizing product inventory, improving budget planning and forecasting, and speeding up fulfillment operations.

Are shipping charges catching you off guard? Gain full visibility into your supply chain operations with Sifted’s Logistics Intelligence solutions.

5 Supply Chain Metrics to Track to Reduce Shipping Costs

Here are the 5 important supply chain metrics you need to monitor to optimize your supply chain operations and reduce shipping costs.

1. On-Time Delivery Rate

According to a Voxware study, 69% of customers are less likely to purchase again from an eCommerce seller if an order is not delivered within two days of the promised delivery date.

On-time delivery is a critical order fulfillment KPI to track. It measures your company’s ability to meet customer orders within the committed timeframe.

Here’s the formula for calculating time delivery:

On-Time Delivery Rate = Total Number of Orders Delivered on Time/100

Some of the most common reasons for late deliveries are longer transit times, spikes in order volumes, and disruptions due to bad weather. But real-time order tracking allows you to track shipping dates and monitor deliveries to your customers.

And the insights from on-time delivery KPIs give you a solid starting point to investigate delivery issues, identify possible bottlenecks, and optimize delivery processes.

This supply chain performance metric can also illuminate customer satisfaction. For example, if you have a low on-time delivery percentage, it’s doubtful your customers are pleased with the delivery experience.

Are you taking care of supply chain management tasks manually? Automate these tasks with one of Sifted’s Logistics Intelligence solutions.

2. Customer Order Cycle Time

68% of customers are more likely to place an order if they’re offered fast shipping, making customer order cycle time an important shipping KPI that helps you determine the speed of your order fulfillment process. The customer order cycle time is the average time it takes in days for the customer to place the order, the supplier to prepare the order, and for the customer to receive the order.

Here’s the formula for calculating the customer order cycle time of a supply chain:

Customer Order Cycle Time = Source Cycle Time + Make Cycle Time + Deliver Cycle Time

With the above formula, you can also see what’s slowing down your supply chain, and  accurately pinpoint if:

  • Source cycle time is overshot and causing a delay in manufacturing goods
  • Production and shipping is a challenge
  • Logistics and transport systems are failing to deliver orders on time

A longer order cycle time can be due to slow order processing systems, supplier lead times, and payment processing. Once you’ve identified the issues in your order cycle, you can work with your inbound, internal, and outbound teams to lower the time of your order fulfillment processes.

Fast delivery times has made Amazon a leader in customer experience. It’s conditioned online customers to expect fast shipping times for online orders—otherwise known as the “Amazon effect.” But you can compete with Amazon’s vast network of fast, last-mile delivery through KPI tracking and network optimization.

This can pay off in more ways than one. 48% of online customers are willing to spend more for a product if it comes with fast shipping.

3. Shipping Costs

Shipping cost per order is a carrier performance and distribution metric that shows how cost-effectively you are fulfilling customer orders.

Here’s the formula for calculating shipping cost per order:

Shipping Cost per Order = Total Shipping Costs / Number of Shipments per Period

This supply chain management KPI allows you to keep track of transportation costs and alerts you when the budget is out of control.

A high shipping cost per value indicates that you’re losing money on deliveries, so you should implement ways to optimize. There are a number of ways you can lower shipping costs through order consolidation, discounted shipping rates, and reducing shipping distance by storing portions of your inventory at a 3PL distribution center.

4. Order Picking Accuracy

The 2020 DC Measures benchmarking report found order picking accuracy as the third most important benchmark for warehouses.

Order picking accuracy is a supply chain KPI that uncovers the percentage of error-free orders shipped by your business.

Here’s the formula for calculating order picking accuracy:

Order Picking Accuracy Rate = (Number of Error-Free Orders/Total Number of Orders) X 100

Low order accuracy indicates that you have a high number of inaccurate orders reaching customers. Around 55% of warehousing costs can be attributed to order picking, and managing it properly helps you save time and money.

You can improve this perfect order fulfillment metric by implementing better control standards, providing extensive training to your staff, and automating inventory management.

5. Inventory Turnover

Inventory turnover is the number of times a company sells and replaces its stock of goods in a time period. The frequency at which the complete inventory gets sold out is called inventory turnover.

This KPI lets you calculate which inventory is moving slower compared to the other goods on the shelf. A low inventory turnover reflects a decline in demand. This could be due to a downtrend in consumer buying behavior, or you may be overstocking. Similarly, a high inventory turnover shows that the demand for your products is high, and you need efficient restocking to prevent stockouts.

Here’s the formula for calculating inventory turnover:

Inventory Turnover = Annual Cost of Goods Sold / Average Inventory

or

Inventory Turnover = Annual Cost of Goods Sold / [(Year-End Inventory + Beginning Inventory)] / 2

Where Average Inventory = Average amount of your inventory over two (or more) accounting periods.

Let’s look at an example.

Assume a retail chain ABC has reported $500 billion in annual sales with a year-end inventory of $40 billion, beginning inventory of $35 billion, and an annual cost of goods sold worth $350 billion.

ABC’s inventory turnover for the year is calculated as shown below:

Inventory Turnover = $350 billion / [($40 billion + $35 billion) / 2] = 9.33 times

This means that ABC company is turning over (selling and replacing) its inventory 9.33 times a year.

ABC’s Days Inventory:

Days In Inventory = Days In Year / Inventory Turnover
= 365 / 9.33

= 39.12 days

This means that it takes 39.12 days for ABC company to sell its entire inventory.

Inventory turnover is also a useful performance indicator of a company’s sales and marketing, production planning, process planning, and fulfillment capabilities.

You can improve inventory turnover by enhancing demand forecasting, automating inventory management, and developing an effective marketing strategy.

Keep track of the most important shipping metrics for shippers and eCommerce businesses with Sifted

Monitoring the supply chain metrics of your business enables you to measure the success of your supply chain operations and spot opportunities for optimization.

Sifted’s Logistics Intelligence solution offers tools for shippers and eCommerce businesses to keep track of their important metrics and KPIs to reduce shipping costs.

Ready to optimize your supply chain operations? Get a free demo from Sifted!

Topics: Logistics Intelligence, Shipping Costs, Supply Chain Operations
Topics

Check out related resources at Sifted.

What Is a Fuel Surcharge and How Is It Calculated

What Is a Fuel Surcharge and How Is It Calculated

Oil prices increased by 12.9% in the first quarter of 2024. The IEA Oil Market Report (OMR) is one of the world's ...
Read More
2024 Holiday Shipping Deadlines

2024 Holiday Shipping Deadlines

What’s worse than coal in your stocking?   A package that’s late!   The major carriers have released cutoff dates ...
Read More
How to Prevent and Minimize FedEx and UPS Address Correction Costs: Pro Tips & FAQs

How to Prevent and Minimize FedEx and UPS Address Correction Costs: Pro Tips & FAQs

Let’s start with defining what an address correction is. Address corrections occur when carriers thoroughly check ...
Read More
Solving Supply Chain Puzzles: How Logistics Intelligence Connects the Dots

Solving Supply Chain Puzzles: How Logistics Intelligence Connects the Dots

Political instability, environmental disasters, pandemics, and even trade policy changes can destabilize global ...
Read More
PARCEL Forum 2024: Key Takeaways and Insights

PARCEL Forum 2024: Key Takeaways and Insights

In September, PARCEL Forum ‘24 brought top professionals from the small-package industry to Dallas. They discussed ...
Read More
Unpacking the (True) Impact: 2025 FedEx & UPS GRI Analysis

Unpacking the (True) Impact: 2025 FedEx & UPS GRI Analysis

As the summer temperatures start to cool down, the shipping world heats up. Peak season looms. Demand ...
Read More
Supply Chain Contingency Planning: Using Logistics Intelligence To Mitigate Risks

Supply Chain Contingency Planning: Using Logistics Intelligence To Mitigate Risks

Globalization is slowing down, and the world is doing everything to fix it and reduce modern-day supply chain ...
Read More
2024 FedEx & UPS Demand (Peak Season) Surcharge Guide

2024 FedEx & UPS Demand (Peak Season) Surcharge Guide

Please note: This article focuses on Ground and Express charges. For a full breakdown of international and other ...
Read More
The 2025 General Rate Increase (GRI) is Coming… What We Expect and How to Prepare

The 2025 General Rate Increase (GRI) is Coming… What We Expect and How to Prepare

As the 2025 General Rate Increase (GRI) approaches, businesses across industries are bracing for the potential ...
Read More
Invoice Auditing 101: How to Audit FedEx & UPS Invoices Accurately

Invoice Auditing 101: How to Audit FedEx & UPS Invoices Accurately

Did you know that on select days annually, both FedEx and UPS pause their money-back guarantees? These blackout ...
Read More
PARCEL Forum ’24 – Sifted’s Roundup

PARCEL Forum ’24 – Sifted’s Roundup

This September, the supply chain’s leading experts will converge in Texas for PARCEL Forum ‘24, the premier ...
Read More
Network Optimization 101: The Impact of Carrier Diversification on Supply Chain Resilience

Network Optimization 101: The Impact of Carrier Diversification on Supply Chain Resilience

FedEx and UPS had the same GRI for 2024 at 5.9%. Down 1% from 2023’s 6.9% increase. American businesses are facing ...
Read More

Shipping Insights & Alerts
Get updates and track the things impacting your business most

Decision Support
See how supply chain adjustments pay off before you pay out

Carrier Management
Streamline how you manage your carrier operations and contracts

Business Automation
Let software do what it does better than people can

Blog
Discover news, tips, and industry best practices

DIM Weight Calculator
See how DIM is impacting you

Podcast
Hear from industry experts on LeaderShipping

Case Studies
Learn how other brands use
Logistics Intelligence

Carbon Calculator
Calculate your CO2 Emissions

Guides
Download free reports and
expert how-tos

Demo
Get a personalized tour of our software

About Sifted
Get to know Logistics Intelligence

Unboxed Newsletter
Subscribe for parcel news, predictions & tips

Logistics Intelligence
For parcel shippers

Let's get you to the right place!

SIFTED DASHBOARDS
For parcel shippers

AMAZON
Redirect to Valence Intelligence Login

Not sure if you have an account? Email [email protected].