Top eCommerce Supply Chain Metrics, KPIs, and Analytics
You can’t measure how many people have come to your store after looking at your billboard ad, but you can track the number of people that have visited your website after clicking on a banner advertisement. Which one would you rather have?
As you can probably understand, digital marketing has larger visibility towards behaviors and actions as compared to other marketing initiatives. This is why measurements like time on site, bounce rate, pages per visit and conversion rate have been devised to give insights into the reach of your eCommerce store.
Not just these, there are many more key factors and concepts that businesses need to stay on top of to get a clear picture of where they stand in comparison to their competitors. In this post, let’s try to understand some of these factors.
Let’s start from the basics.
What is a Supply Chain Metrics?
A supply chain is the backbone of any business that ensures the smooth and consistent delivery of its products and services. If your supply chain is inefficient and fragmented, it could cause damage to your prospects, which is why it is essential to monitor and optimize your supply chain metrics.
A metric is generally defined as a quantifiable measurement. In the context of supply chains, it denotes how well your business’ supply chains are performing. For example, the inventory to sales ratio, turnover metrics, and accuracy of inventory are some key metrics that can help you figure out whether or not you’re functioning towards the achievement of your growth goals.
By collecting and analyzing relevant supply chain metrics, you can spot inefficiencies in your models, which can then help in capitalizing on the strengths and establishing goals for better performance.
What are KPIs?
Key performance indicators, aka KPIs, as the name suggests are the parameters and numbers that are tracked to measure growth. Essentially, they’re a handful of important numbers derived from the basic metrics that need to be evaluated. For example, you could measure your site visitation, but the number of orders being placed is your KPI.
There are several common KPIs for every industry, however, each business has its own set of unique KPIs that need to be tracked and analyzed daily to improve service and engagement with customers. It is essential to find out the KPIs that are relevant and then monitor them closely every day.
What’s the difference between Metrics and KPIs?
These two terms, Metrics and KPIs, are often interchanged and are bound to create confusion. So let’s make a clear distinction between them.
Metrics specifically measure processes, whereas KPIs assess the performance of such processes based on the metrics. KPIs are subjective, whereas metrics are objective and quantifiable. Metrics tend to be predictive and not reactive. Simply put, all KPIs are metrics but not all metrics are KPIs.
Let’s understand this better via an example.
The average order value is a metric not a KPI, however, the average value target of $60 is a KPI. The metrics used need to be relevant to your business. If marketing via email is an essential part of your promotional strategy then the email click-through rate (CTR) needs to be considered. However, if the value of customer lifetime is a crucial part of your strategy then that needs to be measured.
Now that we’ve laid the basic foundation for the core concepts of metrics and KPIs, let’s explore the top metrics that most eCommerce businesses use to chart their growth strategy.
Top supply chain metrics you can track and measure
Lately, with extensive development in technology, you can access your metrics anytime and anywhere. There are several data analysis tools available online that can collect this data for you, but we agree; all of it can get a little overwhelming. This is why we’ve shortlisted a list of supply chain metrics that can add value to your business and contribute towards its bright future.
1) Cash Time Cycle
This is a priceless metric for your supply chain that will help calculate the time required to transform resources into cash. The three core ratios – DOI (days of inventory), DOP (days of payable) and DOR (days of receivables) – are parts of the KPI cash time cycle. This KPI will visualize the time required between paying cash to suppliers and receiving cash from customers, specifically for your business. The shorter the duration of the cycle, the better for your revenue! This metric will help you in taking the right measures to run your business with as little money tied up in operations as possible.
2) Perfect Order Rate
This particular metric is a crucial supply chain KPI for businesses working in multiple sectors. Perfect order rate is a measure of the business’s ability to deliver orders without an incident. This metric will eventually help your business get rid of inaccuracies, damages, delays and inventory losses. The higher the rate of this metric the better it is for your business, as this has a direct impact on customer loyalty levels and retention.
3) Freight Bill Accuracy
Shipping products from your supplier to your warehouse or from the warehouse to customers is crucial for the success of the business. Any error in this process can cause unnecessary wastage in time and investments. Also, billing accuracy is critical for the success and future of the business, so by tracking this particular metric you can spot the loopholes and improve shipping accuracy.
4) Inventory Turnover
This metric focuses on understanding the number of times the inventory has been sold in a certain time frame. It’s one of the best indicators of effective process strategy, the ability of fulfillment, management of sales and marketing, and efficient planning of production. By calculating and comparing your numbers with competitors within the industry, you can see where your business stands in the market and create an appropriate plan of action to improve. This can also help in boosting your brand authority.
5) Sales Outstanding
DSO, also the acronym for daily sales outstanding, is a metric that measures how swiftly your business can collect revenue from your customers. A low DSO is considered a good number, as this means it takes fewer days to collect revenue. However, a higher level of DSO illustrates that the business is taking longer to collect revenue, which can lead to stunted cash flow and minimized profit. By calculating this metric daily, your business will be able to be more efficient while collecting revenue and this will be of great help in the future.
6) Warehousing Costs
To establish a healthy supply chain, it’s critical to calculate the cost of distribution, along with the management of time and space of your inventory. Although the cost differs from warehouse to warehouse, it’s essential to measure and review this indicator frequently. This way you will be able to identify new opportunities and reduce unnecessary costs. This indicator involves factors such as labor costs, rent, bills, equipment costs, storage, ordering and information handling systems. To keep this cost low, it’s important to be well informed about all the processes that are taking place in your warehouse. By being more aware of your warehouse operations, you can have a greater opportunity to reduce unnecessary costs and introduce a more efficient way to manage operations. Additionally, the data collected will give you accurate reports that you can rely on to make better business decisions.
7) GMROI (Gross Margin Return on Investment)
Regardless of whether you’re in the service or production sector, the main aim of any business is the ROI for every activity it carries out. When it comes to the supply chain metrics, the GMROI provides a clear representation of the profit made on every AED for every investment. This is calculated by dividing the gross profit by the average investment made in the inventory. By checking these numbers regularly, you can gain insight into the poor performers and best sellers in your inventory.
8) Supply Chain Costs
This metric calculates the costs related to the management of the entire supply chain. It calculates the efficiency and costs of aspects such as planning, sourcing, delivering, and more. For any business to make a profit, it must reduce its costs and constantly identify spaces for improvement. Even while cutting costs, it’s crucial to evaluate its impact on the supply chain. For instance, if you decide to cut down on transportation costs by increasing the speed and weight carried on the trucks, then you could be at risk of accidents and other consequences that could harm your business. It’s important to do the right analysis while cutting down costs. One way to go about checking if your supply chain is healthy and steady is by collecting data from your business and comparing it with your competitors.
9) On-time Shipping
The on-time shipping metric is a great indicator of the time taken to carry out a shipment. This will further allow you to optimize the shipping and delivery processes, which in turn will reduce turnover time and improve customer satisfaction levels.
10) Delivery Time
This metric measures the time required from the second the order is shipped to the time it reaches the customer’s doorstep. It’s crucial for the order to be carried out correctly and reach the customer within a reasonable period. If not, you will leave your customers disappointed. By reducing the management involved in a supply chain, the precision and information passed down to clients regarding their products will increase. Customers prefer a precise date of arrival of their package rather than a vague estimate. Additionally, you could provide special delivery services and notice how customer satisfaction and loyalty increase in the long run.
How often should you check your metrics?
Now that we’ve introduced you to the basic metrics that you can use for your eCommerce business, you’re probably wondering how often you should monitor them. Well, there’s no single right answer to this question, but listed below are the possible intervals at which you can make the checks to make sure that your business runs in a healthy manner.
Once in two weeks
Bi-weekly metrics are best for larger sample sizes, those that are not easily variable within a week. These include AOV (average order value), abandonment of shopping cart, and CPA (cost per acquisition).
Email open rate, multichannel engagement and reach are examples of metrics that should be checked monthly, because it requires a longer period for data due to traffic patterns, and your business’s marketing patterns.
Weekly and bi-weekly metrics illustrate the general health and survival of a business, therefore the quarterly metric is a long tail of activities that will show how well the business is flourishing. This time is the most strategic. It includes metrics such as email click-through, subscription rate, and lifetime value.
How to measure eCommerce success and track KPI
Now that you know the different metrics you can pick from, it’s time to shortlist them and get started. The first and foremost step towards getting useful insights is choosing the most suitable KPIs to track for your business, after which you can collect and analyze your data effectively. This cycle of tracking, collecting and analyzing needs to be repeated and adjustments need to be made to improve its efficiency each time. It may sound easy, but in reality, it’s a tedious task and can easily get overwhelming. Here’s a step-by-step guide to help you get started.
1) Set the main business objectives
It’s important to set the main objectives of the business because all your efforts put into analytics must contribute to achieving them. The metrics you’ve chosen to track must directly relate to the core objectives of your business and help you achieve them.
2) Fix short term and long term goals
Your short-term goals are important and will take precedence. However, they should work towards achieving the objectives for the long term. The metrics you chose to track must be relevant in the future as well.
3) Present aesthetically
By making your data visually presentable, it becomes more engaging to the stakeholders. While planning the necessary metrics to be measured, always have a picture in mind of how you want the data to be presented, in such a way that is beneficial for your business.
4) Organize well
Organization and easy access to your data is the key to getting useful insights. The data from your KPIs must be organized, accessible, manageable, as well as navigable, and the members involved should be able to manipulate that data for analysis.
5) Focus on the present performance
By analyzing the current performance of your business, you will have clarity on where to pivot to reach the main goal.
6) Select the right channel
By using a combination of several platforms and channels, such as social media engagement, online advertising, and email marketing, you can find the platform that has the best reach. But you should remember that the improvements seen through the metrics may differ for each platform, for they function in different ways. Thus, using a combination of various platforms and channels is always suggested.
Once you’ve analyzed and identified the trends in the collectd data, formulate strategies that will contribute towards improving your eCommerce business. This includes devising new marketing campaigns, increasing engagement in social media, employing fraud protection and any possible improvement required that need to be made to reach your main objectives.
Picking the most impactful KPIs for your eCommerce business
It’s important to pick the KPIs that are suitable to your eCommerce business and that will contribute towards improving and enhancing your business. Here’s a catchy acronym that can help you do it with ease.
Presenting - the SMART approach!
S - Specific
Be precise while picking out a metric so you know exactly what you’re tracking. Make sure you know why you’re tracking this metric and how it will contribute to enhancing the business. Doing this will help target metrics meaningfully.
M - Make it Measurable
Use metrics that are measurable so that there’s scope to analyze and improve your business with the data that’s been collected. It’s crucial that the data is collected accurately and displayed in an organized manner that’s easy to understand.
A - Action
Select metrics that have room for adjustments and improvement. The insights that you’re getting from this data should provide space for areas of improvement in your business.
R - Relevant
The metrics you’ve chosen must provide data that are directly related to the core goals of the business. This way you’re continuously working towards achieving the objectives set out for the business.
T - Time
The data collected needs to be analyzed over time and the right adjustments must be made at the right time. Though some metrics may take a while to present valuable data, if a metric has more than five characteristics that will contribute to your business at any point, it will be valuable.
What is the benchmark and where does your business stand?
Now that you’ve chosen which of these metrics to use for your business, let us try to understand how to evaluate your business. One way is to use internal and external benchmarks to compare the performance of your business with data in the past and the set standards of the industry. Internal benchmarks are previously collected data in the company that you can compare your new data to. External benchmarks, on the other hand, include data collected from the rest of the industry, that your business could use as a guideline for its performance.
Compare the performance of your business with those of competitors in the industry. This way you will have more clarity as to where your business stands and which areas exactly require improvements. Most of the metrics are common to the industry, so by comparing the data of your own company with others in the industry, you’ll be able to gauge the standards of performance.
Are you ready?
So that’s it, folks! We hope the information given above has helped you understand how data-based metrics and KPIs contribute to a business's success. We’re optimistic that you’re leaving with more confidence than when you started reading this article. Feel free to refer back to this and keep us updated on which metrics you chose.