Efficient order fulfillment is one of the most crucial pillars of eCommerce success. Hassle-free, fast delivery is what customers expect nowadays, and to fulfill that demand, you should have the capability to track and analyze distribution down to its last-minute detail. Here, we will explore the crucial distribution metrics you should track to stay ahead in the dynamic marketplace.
You can streamline supply chain operations and enhance logistics by regularly tracking and analyzing distribution metrics leveraging data and analytics. Efficient, accurate, and on-time order fulfillment is the cornerstone of your eCommerce success because customer expectations and demands constantly shift. As business operations are becoming more competitive each day, you need your supply chain partners to work cohesively at the optimum efficiency level for the success of your operations.
Tracking your distribution metrics with data-driven analytics empowers you to determine areas of improvement and implement enhanced processes that eventually lead to saving time, reducing costs, and improving customer satisfaction. In fact, a McKinsey study found that organizations utilizing advanced data and analytics experience above-market growth, with a 15-25% increase in EBITDA [earnings before interest, taxes, depreciation, and amortization].
Let’s dive deep into distribution metrics and why you need to track them.
What do you Need to Know About Distribution Metrics?
Distribution metrics or KPIs are the pointers that enable you to track your warehouse operations, movement of goods in inventory, picking, packing, shipping, and delivering processes. These metrics present an objective overview of business performance, helping you identify opportunities, monitor market trends, optimize resources, and scale per industry standards. Leveraging these metrics data enables you to gather actionable insights to improve efficiency and customer satisfaction and reduce costs.
Now, let’s understand why you need to track the distribution metrics. Here are some of the benefits of tracking distribution metrics:
• Areas of Improvement
Keep track of the metrics to be constantly aware of factors such as inventory turnover rate, picking accuracy, and cycle times to discover areas of improvement and detect bottlenecks to implement targeted strategies to improve efficiency and reduce expenses.
• Performance and Accountability
Enable your employees to understand the metrics to track and ensure they are onboarded with the reasons for tracking and how they contribute to the company’s overall success. It helps them to align their efforts towards organizational goals, leading to continuous improvement and an overall culture of accountability.
• Informed Decision-Making
Tracking crucial distribution metrics also helps you make strategic business decisions based on data-driven, actionable insights on performance trends. Such a data-driven, predictive approach helps you to adjust workflows and inventory management to meet shifting customer demands and expectations.
Now that we have seen why you should track distribution metrics, delve into the crucial metrics to track.
Top 10 Distribution Metrics for Ultimate Efficiency
When you track the correct distribution metrics, you are empowered with information on the strengths and weaknesses of your warehouse and inventory that helps you make informed decisions. Here are the top ten metrics or KPIs you should track:
#1 On-Time Delivery and Accurate ETAs – Estimating the arrival time is essential for on-time delivery to the customers. The movement of your products is a significant part of your supply chain operations. OTIF [on time, in full] is an essential metric in retail logistics. Getting this right is often critical for your supply chain efficiency.
#2 Inventory to Sales Ratio (ISR) – This metric compares the average value of your inventory over a specific period against net sales for the same period. An increase in the ISR may suggest that you are investing in your inventory faster than your sales, while a decrease in the ISR could indicate that your inventory investment is shrinking relative to sales. So, this is an important metric to watch out for.
#3 Carrying Cost of Inventory – Usually, carrying costs account for 20-30% of the total inventory cost, though this can vary depending on your industry and business size. The following formula helps you calculate inventory carrying cost:
[Sum of total carrying costs / Total Inventory Value] x 100
This metric helps you calculate the profit potential of your current inventory.
#4 Purchase Order Tracking – You need to track your order status to get a suggestion of any possible glitches in your supply chain operations. It is essential for successful procurement, and research shows that effective purchase order tracking boosts overall organizational performance.
#5 Picking and Packing Accuracy – Precision in picking and packing reduces returns, enhances customer satisfaction, and saves time and money by minimizing error correction. Use the following formula to calculate picking and packing accuracy:
[Total # of orders picked without error / Total orders] x 100
#6 Perfect Order Delivery Rate – This is a customer-centric metric, meaning you can use it as a strong selling point to your consumers. It shows the percentage of perfect orders delivered out of the total number of orders delivered.
#7 Supplier On-time Delivery – Your suppliers should extend your level of efficiency so that you can maintain a competitive OTIF. It is especially applicable if you market a select range of products.
#8 Warehouse Utilization – You should optimize your warehouse space to improve scalability and reduce overhead. If you measure this metric correctly, it tells you the total available storage space, each storage unit capacity, and the space currently used by your products. Calculate this metric using the below formula:
# of occupied warehouse storage spaces / Total # of warehouse storage spaces
#9 Order Fulfillment Cost Per Item – You need to track this metric for clarity on the average cost of delivering a single order, including storage, picking, packing, and shipping. This metric helps you in developing competitive pricing strategies and forecasting profit margins. You can calculate this metric using the below formula:
Total order fulfillment expenses / Total # of fulfilled orders
#10 Back Order Rates – Tracking this metric helps you understand the number of orders delayed because of inventory issues. Clarity on back order rates helps ensure product availability, optimize inventory management, and enhance customer satisfaction. Use the formula below to calculate this metric:
[# of back-ordered items / Total # of orders placed] x 100
So, tracking these crucial distribution metrics will help you elevate supply chain operations, enhance customer satisfaction, and grow your business.
Conclusion:
Always remember that handling issues becomes comparatively easier if you are equipped with data and insights in every sphere of operations. However, collecting data alone doesn’t serve the purpose. It depends on how you derive actionable insights, determine performance trends, and utilize a predictive approach for proactive risk mitigation. Make a strategic choice about the crucial distribution metrics you need to track to embrace a practice of continuous improvement leading to overall success.
If you are looking for a professional partner to help you collate supply chain data and track the key distribution metrics, connect XPDEL.
About XPDEL:
XPDEL is not another 3PL supply chain and logistics provider. We help eCommerce brands accelerate their growth, empowering them with multi-channel fulfillment, whether shipping directly to consumers, delivering to businesses, or selling through retail stores. Powered by advanced technology and led by industry experts, we thrive on data and insights for making smart business decisions.