Distribution is an incredibly competitive field, and you must be able to outmaneuver your rivals to win market share. Utilizing distribution KPIs (key performance indicators) can help your distribution company do this in a variety of ways. A few of them include:
- Gaining a better understanding of operations.
- Tracking efficiency.
- Making better informed strategic decisions.
For example, distribution key performance indicators can be used to measure delivery times and accuracy, inventory levels, customer satisfaction scores, revenue growth, etc. Empowered by this information, you can take the necessary steps to optimize performance.
But why stop there? KPIs not only improve performance but also help streamline processes by providing visibility into areas needing improvement or additional resources. Companies can use this data-driven approach to uncover opportunities for growth as well as potential bottlenecks that inhibit efficient operations.
In addition to tracking operational metrics, utilizing KPIs allows your distribution business to monitor the competition. By keeping an eye on the right KPIs, you can identify strengths and weaknesses that may give you an edge.
Other KPIs can uncover customer preferences. Armed with this valuable insight, you can tailor your services and products accordingly. Thus, increasing customer loyalty.
With so many possibilities, effective tracking of distribution KPIs is something you simply cannot afford to overlook.
Which metric types should I track?
Types of KPIs to measure
Key Performance Indicators (KPIs) are metrics used to measure and analyze performance in a certain context. They can be divided into four main types: descriptive, diagnostic, predictive, and prescriptive.
- Descriptive KPIs: Analyze historical data, or lagging indicators, to understand what happened in the past.
- Diagnostic KPIs Attempt to answer why something happened. These KPIs look at factors such as customer feedback, employee attrition rates, economic indicators, etc. Their goal is to determine what may have impacted performance during a specific period. By analyzing these over multiple periods, businesses can uncover key changes and understand and how those might impact their future performance.
- Predictive KPIs: Help organizations anticipate future performance based on current trends and historical data. Examining factors such as seasonal shifts and abnormal market conditions can help businesses predict future performance. This could be for the coming months or quarters.
- Prescriptive analytics: Combine all these types of KPIs to develop strategies for preventing issues before they occur. Advanced statistical models are often employed in this type of analysis to accurately model different scenarios and develop plans.
Specific Distribution KPIs
There are thousands of performance metrics out there that can help you increase distribution efficiency. Below, we’ve divided some of the most relevant into high-level categories:
Financial KPIs
- Revenue and Profit
- Costs
- Cash Flow
Warehouse Capacity/Efficiency KPIs
- Perfect Order Rate / On-Time Shipping Ratio: Measures the accuracy and timeliness of order fulfillment. It includes any issues related to shipping delays or incorrect orders.
- Dock to Stock Efficiency/Accuracy/Cycle Time: Tracks how quickly inventory is moved from the dock area into the warehouse. Plus, how accurately this process is carried out.
- Picking Efficiency/Accuracy/Cycle Time: Measures how efficiently items are picked within the warehouse. As well as its accuracy and cycle time (the amount of time it takes for each order picking task).
- Packing Efficiency/Accuracy/Cycle Time: Like picking efficiency, this KPI monitors packing processes in terms of speed, accuracy, and cycle time. Specifically, the amount of time it takes for each packing task).
- Shipping Efficiency/Accuracy Cycle Time: Measures the rate and accuracy at which goods are shipped from warehouses during a specific period. This includes any delays or mistakes made during transit processes.
- Receipt / Put-Away Cycle Time: Measures how long receipts take to be processed. Or the lead time from when they enter a warehouse until they’re put away.
Inventory KPIs
- Days Sales of Inventory: Tracks how many days it takes to sell the products in inventory.
- Back Order Rate: The percentage of customer orders that cannot be fulfilled due to lack of stock on hand.
- Stock-Out Rate: Monitors inventory turnover. In other words, the rate at which items run out and need to be replenished from suppliers.
- Back Orders as a Percent of Total Sales: Explains what proportion of total sales are made up by back orders.
- Inventory Accuracy (Physical Inventory): Assesses the accuracy between physical inventory counts and automated/system generated inventory levels.
- Inventory Count and Value by ABC Rank: Measures the total number and value of inventory items itemized by their ABC ranks. A rank consists of high priority items. C rank comprises items with lower priority status.
- Inventory Valuation: Determines the fair market value or monetary worth associated with all items contained within a company’s inventory.
Operations KPIs
- Operating Margin: Compares income a business generates from its regular business operations to its total operating expenses.
- Quote-to-Cash Cycle: Analyzes all activities involved in making a sale. This includes receiving a customer’s quote request and collecting payment for goods or services rendered.
Quality Control Metrics
- Cost of Poor Quality: Calculates the total cost associated with producing goods or services that do not meet desired quality standards.
- Customer Quality Complaints: Counts the total number of issues your customers raise about the quality of your goods or services during a specific timeframe.
- Quality Returns: Accounts for items returned due to quality issues. This includes defects, incorrect items shipped, etc.
- Vendor Quality: Measure of how well vendors perform when providing materials used for manufacturing purposes.
- Quality Audits: Evaluates your business’ processes and procedures against industry guidelines and benchmarks.
- Time To Resolution: Measures how long it takes your employees to identify, diagnose, troubleshoot, and resolve any customer complaints.
Technology for Improved Metrics Management
Distributor businesses have a lot to gain from leveraging modern cloud ERP applications to track the essential KPIs. The benefits include.
- Robust data collection: An ERP system can provide a centralized location for all your business data, including sales, customer, and inventory information. With a unified view of your data, you can get a more accurate understanding of your business performance and make informed decisions.
- Automation of data analysis and storage: An ERP system can automate the process of collecting, storing, and analyzing data, saving you time, and reducing the risk of errors. With automated reporting, you can quickly identify trends and patterns that can inform your business strategy.
- Enhanced collaboration capabilities: With real-time access to your business data, your teams can work together more effectively. Collaboration features in modern ERPs allow for seamless communication and data sharing, ensuring everyone is on the same page.
In addition to these benefits, an ERP system can provide access to critical distribution metrics across all business areas. This includes:
- Sales performance in key markets: By tracking sales data, you can identify which markets are performing well and which are struggling. This information can help you make informed decisions about where to focus your resources and how to allocate your marketing budget.
- Customer profiles and preferences: Understanding your customers’ preferences and buying habits is crucial for developing targeted marketing campaigns and delivering personalized experiences. An ERP system can help you collect and analyze customer data to gain these insights.
- Product inventory levels and trends: With real-time visibility into your inventory levels, you can optimize your stock levels and avoid overstocking or stockouts. You can also track trends in product demand to ensure you have the right products available at the right time.
- Market trends affecting demand for specific products or services: By tracking market trends, you can stay ahead of the competition and adjust your product or service offerings accordingly.
- Competitive analyses: An ERP system can help you gather and analyze data on your competitors, including their pricing strategies, product offerings, and marketing campaigns. This information can inform your own strategy and help you stay ahead of the competition.
Modern ERPs like Acumatica provide access to all this critical business data in one centralized location. With this data, you can make informed decisions about pricing, customer service, inventory management, and supply chain optimization. By leveraging technology for metrics management, distributor businesses can improve their performance, stay ahead of the competition, and drive growth.
Summing it all up
With the help of an ERP system, you can gain a competitive advantage by streamlining distribution operations, optimizing resources, and improving customer service. Whether it’s looking into customer profiles or predicting changes in demand. An ERP system is a crucial tool for helping distributors stay ahead of the curve. Contact us today to discuss your options and learn what an ERP can do for you.
