KEY PERFORMANCE INDICATORS (KPIS) FOR DISTRIBUTION

In today’s new “normal”, distributors are being challenged like never before; supply chain networks are remaining remarkably complex and unpredictable, competition is closing in, customer expectations are escalating, and margins are getting slimmer. It’s important to do anything and everything possibly to decrease costs, increase revenue and boost profitability.

But now the question remains, how do you identify the processes and functions where new efficiencies, extra pennies and an additional tenth of a percentage point in your margin can be found?

With the real-time, detailed, and accurate data found in your ERP system, you can begin to track specific key performance indicators (KPIs). KPIs help show which processes are working (and which are not), determine target areas for improvements, and assist end-users in making informed, intelligent decisions to improve your bottom line. But which KPIs are the most important?

When it comes to the distribution industry, it’s important to know, in real-time, which items are being ordered, how fast each item is being shipped, and the most profitable items. Without insight, your business will struggle to survive.  Here are some of the most used KPIs within the distribution industry…

On-Time Delivery (OTD)

This is one of the easiest approaches to determining the efficiency of your processes – it’s simply measured as the ratio of the number of units delivered divided by the total units shipped. However, it’s important to remember the definition of “on time” differs depending upon the customer, the industry, and whether shipping was handled in-house or by an outside source.

Customer Satisfaction Rating

Customer satisfaction should be one of your main priorities; without loyal and happy customers, your business is boomed. When evaluating your customers overall satisfaction you’ll find many different causes for complaints: picking inaccuracies, mis-ships, shipping damage, slow Return Merchandise Authorizations (RMAs) and credits, and more.

Total Order Cycle Time (TOCT)

As customers’ expectations continue to escalate, they expect Amazon-like delivery timeframes. Fortunately, Total Order Cycle Time (TOCT) measures the time taken to fulfill an order and allows you to monitor for any increases in TOCT plus, you can benchmark your metrics against the competition.

Inventory Accuracy

An increasing number of distributors are using advanced analytics to help balance inventory levels with service levels. To make that work, you need to know exactly how much inventory you have in stock. In fact, without at least a 98%-accurate cycle count inventory metric, you’re highly likely to have issues such as stock-outs, long order cycle times, high back-order rates, lost sales and, eventually, poor customer satisfaction scores.

Capacity

The use of your warehouse capacity is valuable knowledge – if you’re only using 50% of the warehouse capacity, you may be wasting money, and, if you’re using more than 85% of your capacity, you’re probably unable to operate efficiently (or safely).

You could base these metrics on available cubic feet storage, number of pallet locations or available pick facings. However, identifying the utilization sweet spot is key. Your ERP will help you make this calculation and help you understand and accommodate seasonal and temporary variability.

Revenue Per Employee (RPE)

This is a great metric to measure the productivity of your employees – revenue divided by the number of employees. Caution: RPE is highly variable by industry sector. Industry analyst data show that, in 2021, RPE for the distribution industry as a whole ranged from roughly $1.8 million to $600,000, with the average being around $800,000. But it would be more insightful – and more accurate – to set a benchmark using your own data, and then utilize percent change or increase/decrease as your metric.

Profitability

When measuring profitability, you need to look at the big picture, this includes product or product family, facility, customer, and customer group.

• Gross Profit Margin makes it easy to see profitability trends over time.
• Net Profit Margin reveals exactly how much profit your company makes after expenses.
• EBITA (earnings before interest, taxes, and amortization) provides an accurate view of your company’s overall financial performance.

Inventory Turnover Ratio

Easily spot low and high turnover items while keeping an eye on open POs and purchasing trends.

Your Next Steps

When you team up with ACC Software Solution’s premier team of consultants, you’ll receive a team of experts committed to following ERP best practices, from selection to end user training.

Find out why distribution centers across the United States have come to us for over 25 years to execute their software projects—contact ACC Software Solutions today!