13 Supply Chain Formulas You Need to Know

13 Supply Chain Formulas You Need to Know

If you ask any successful supply chain manager what’s the fundamental trick in maintaining an efficient supply chain, they would say it’s realizing that you can never perfect your supply chain management. Well, that’s not entirely false. Every new change in the business world could affect how your supply chain is managed, especially the changing customer behavior and patterns. So the ‘perfection’ will last for a short term, and then you’ll have to change or improve your strategy according to the trends. But even so, certain things do not change and have an essential role in helping you manage your supply chain. Let’s take a look at those in detail.

Most times, quantifying the data and tracking them are the two things supply chain managers struggle with. If you want your order fulfillment to be efficient and optimized, you need your KPIs (key performance indicators) intact. Whether you are a seasoned professional in supply chain management or a starter, this list of need-to-know supply chain formulas can help you make your job a little bit easier.

Warehouse and Supply Chain Formulas

1. Inventory Accuracy

Inventory accuracy = number of items counted / number of items book count

Inventory accuracy refers to any discrepancies between the actual physical quantity of inventory in your warehouse and the quantity recorded in the books. Maintaining a good accuracy rate is vital to ensure there are no incorrect customer orders, damages, dead stock, or losses.

2. Storage Utilization Rate

Storage Utilization Rate = inventory cube / total warehouse cube

Having a huge warehouse space or a warehouse of your own isn’t enough to have efficient warehouse management. You need to ensure that the space you have is appropriately utilized. When you have thoughts of business expansion, you don’t want to waste money and time on having more or less space than what you need, right? You’re probably going to see a low storage utilization rate as you need to leave some room for the machinery and people.

3. Inventory Days of Supply

Inventory Days of Supply = on hand finished inventory goods value / total annual cost of goods sold aka COGS

When you are running an eCommerce business, every day is different. You might have a flood of orders one day, and the next day you might have fewer. Either way, you have to be prepared to handle this. IDS helps identify how much inventory you have to cover the order fulfillment for a specific number of days.

4. Perfect Order Percentage

Perfect Order Percentage = % orders on time X % orders shipped complete X % orders shipped no damage X % orders with the correct documentation

This metric helps identify the percentage of orders that get shipped in time without any damage, delay, documentation error, etc.

5. Total Order Cycle Time

Total Order Cycle Time = time of order received by the customer – (time of order placed / total number of orders shipped)

Total order cycle time measures the time taken from the time a customer places an order till it’s shipped. It determines how efficient your order fulfillment process is at the primary level. The higher the total order cycle time, the more likely it means your customers will not receive the order on time, leading to an unhappy customer experience.

6. Internal Order Cycle Time

Internal Order Cycle Time = time of order shipped – (time of order received / number of orders shipped)

Internal order cycle time determines the time from which a customer order is released to the warehouse to the time of shipment. This includes all the time taken for each stage of processing till it’s packed and shipped.

7. On-time Shipping Percentage

On-time Shipping Percentage = number of orders shipped on time / total number of orders shipped

You may be able to ship every order you receive from your customers, but can you ship them on time? On-time shipping percentage ensures that every order is shipped on time so that the delivery is made by the promised date.

8. Order Fill Rate

Order Fill Rate = total orders filled to customer request / total orders filled

This is the percentage of orders that are successfully filled. For example, say you get 100 orders, but ten are out of stock. Then your order fill rate is 90%. Order fill rate is essential to understand how well your inventory is managed and how efficiently you fulfill the orders.

9. Line Item Fill Rate

Line Item Fill Rate = total order lines filled complete / total order lines filled

This measures the actual orders filled in a specific parallel arrangement. Like the order fill rate, the line item fill rate also helps keep the order fulfillment process efficient.

10. Orders Picked Per Hour

Orders Picked Per Hour = total orders picked and successfully shipped / total hours worked in picking and shipping

This metric helps identify the efficiency of your warehouse staff and their productivity. This should include every process in the operational chain across every shift.

11. Lines Picked and Shipped Per Hour

Lines Picked and Shipped Per Hour = total order lines picked and successfully shipped / total hours worked in picking and shipping

This metric determines the efficiency of picking and shipping operations of each line, per person, per hour.

12. Distribution Costs (As a percentage of sales)

Distribution Costs = total distribution costs / total sales

As a percentage of sales, distribution costs determine the cost of distributions to the total sales. This helps maintain quality in distribution and maintain a healthy financial side to the operations.

13. Distribution Costs (Per Unit Shipped)

Distribution Costs = total distribution costs / total units shipped

Distribution costs per unit shipped determine the cost of distributions to the total units shipped.

Key Takeaway

Using these KPIs, you can optimize and improve the efficiency of your business and operations and identify the areas that need to be given more attention. We understand how stressful and time-consuming it can be to calculate, track, and manage all these KPIs and even more so when you want to focus your attention on other areas of your business.

When you partner with ShipBots, you don’t have to worry about the warehousing and order fulfillment processes. We will take care of everything for you, from efficiently streamlining the processes and reducing costs to identifying and improving problem areas. Get in touch with us today to learn more about how we can help your eCommerce business track your supply chain performance.

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