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Key Industry Metrics



Keeping an Eye on Success



Are your inventory levels optimized to service your customers?

Are your orders shipped quickly and accurately?

Below is a list of key industry metrics or measurements. This is a partial list - listed here as an aid to our clients.

Corporate Metrics
  Overall Management
 

Economic Value Add (EVA)
Business profit after deducting an appropriate charge for all the capital in the business.
(wikipedia)

Economic Value Add Momentum
The change in a business's EVA divided by the prior period's sales

 
Industry Metrics
  Cycle Times
 

Customer Order Promised Cycle Time
The anticipated or agreed upon cycle time of a Purchase Order -- It is gap between the Purchase Order creation date and the RDD (Requested Delivery Date).

Customer Order Actual Cycle Time
The average time it takes to actually fill a customer’s purchase order -- This measure can be viewed on an Order or an Order Line level. The measure starts when the customers order is sent/received/entered. It is measured along its various steps of the order cycle, through credit checks, pricing, warehouse picking and shipping. The measure ends at either the time of shipment, or at the time of delivery to the customer (sometimes tracked by using an EDI #214). This "actual" cycle time should be compared to the "promised" cycle time.

Manufacturing Cycle Time
Measured from the Firm Planned Order until the final production is reported -- It usually takes into account the original planned production quantity verses the actual production quantity. Example: X% of the planned quantity must be completed on a production run, or the cycle time should not be considered.

Inventory Replenishment Cycle Time
Measure of the Manufacturing Cycle Time, plus the time included to deploy the product to the appropriate distribution center

Cash-to-Cash Cycle Time
The number of days between paying for raw materials and getting paid for product -- Calculated by inventory days of supply plus days of sales outstanding minus average payment period for material

Supply-Chain Cycle Time
The total time it would take to satisfy a customer order if all inventory levels were zero -- It is calculated by adding up the longest lead times in each stage of the cycle.

   
  Fill Rates
  Line Count Fill Rate
The number of order lines shipped on the initial shipment versus the number of lines ordered -- This measure may or may not take into consideration the requested delivery date (see On Time Delivery)

Example:
ABC Company orders 10 products (one order line each) on its Purchase Order #1234. The manufacturer ships out 7 line items on March 1, and the remaining 3 items on March 10. The Fill Rate for this Purchase Order is 70%. It is calculated once the initial shipment takes place.
Calculation: Number of Order Lines Shipped on the Initial Order* / Total Number of Order Lines Ordered (7/10 = 70%)

SKU Fill Rate
The number of SKUs (Stock Keeping Units) ordered and shipped is taken into consideration. Above, we consider each Order Line to have an equal value (1 ). Here, we count the SKUs per Order Line.

Example
: If on Line 1, the order was for 30 SKUs of product "AB" and on line 2, they ordered 10 SKUs of item "AC". If Line 1 ships on April 1, and line 2 on April 20, the the SKU Fill Rate is 75%
Calculation: Number of SKUs Shipped on the Initial Shipment / Total Number of SKUs Ordered (30/40 = 75%).

Case Fill Rate
The amount of cases shipped on the initial shipment verses the amount of cases ordered

Example:
ABC Company orders 6 products that total 200 cases, on its Purchase Order #1235. The manufacturer ships out 140 cases on 3/1/01, and the remaining 60 cases on 3/10/01. The Fill Rate for this Purchase Order is 70%. It is calculated once the initial shipment takes place. The number of Order Lines is not considered in this calculation. This Fill Rate measure gives "weight" to the order lines that are shipped out.
Calculation: Number of Cases Shipped on the Initial Order / Total Number of Cases Ordered . (140/200 = 70%)

Value Fill Rate
Same as above, except the order line value is used instead of cases

Calculation: Value of Order Lines Shipped on the Initial Order / Total Value of the Order ($400/$500 = 80%)

What happens if a customer orders 10 products, but then decides to expedite one of them? Should the other 9 products be counted as a Fill Rate "miss"? ( 1 shipped / 10 ordered = 10%). The answer is no. You should factor rushed lines out of your Fill-Rate Calculation. This can usually be done by identifying the routing code (as in an SAP system) or by the carrier (FEDX).

*NOTE: "Shipped on the Initial Order" - This usually refers to the first shipment out of the primary warehouse. Therefore, if an order line ships out of an alternate shipping facility and it ships out on/before the first shipment out of the primary warehouse, then it is considered an addition to the Fill Rate.

   
  Inventory Record Accuracy
  Inventory Record Accuracy

A common calculation is:
Stratify SKUs: (annual usage X standard cost)
A Items= items representing the top 80% of total dollars
B Items= items representing the next 15% of dollars
C Items= items representing the bottom 5% of dollars

Cycle count items (usually daily) using a random sample, within the following groupings:
A Items = 4 times per year
B Items = 2 times per year
C Items = 1 time per year

Items considered accurate if the actual on-hand quantity matches the perpetual inventory quantity, within the following tolerances:
A Items = plus or minus 1% quantity variance from perpetual balance
B Items = plus or minus 3% quantity variance from perpetual balance
C Items = plus or minus 5% quantity variance from perpetual balance

Target should be an absolute minimum of 95% for MRP/DRP to function effectively; 99% for best-in-class
   
  Inventory Turns (or Turnover)
  Inventory Turns
The number of times that a companies inventory cycles or turns over per year

Calculation: A frequently used method is to divide the Annual Cost of Sales by the Average Inventory Level.

Example: Cost of Sales = $36,000,000. Average Inventory = $6,000,000.
$36,000,000 / $6,000,000 = 6 Inventory Turns

OR Inventory Turns Can be a Moving Number.

Example: Rolling 12 Month Cost of Sales = $16,000,000. Current Inventory = $4,000,000
$16,000,000 / $4,000,000 = 4 Inventory Turns

Projected Inventory Turns
Divide the "Total Cost of 12 Month Sales Plan" by the "Total Cost of Goal Inventory"

Example: The Total Cost of 12 Month Sales Plan is $40,000,000. Total Cost of Goal Inventory = $8,000,000
$40,000,000 / $8,000,000 = 5 Projected Turns

Although results vary by industry, typical manufacturing companies may have 6 inventory turns per year. High volume/low margin companies (like grocery stores) may have 12 inventory turns per year or more.

   
  On-Time Shipping Performance
 

On-Time Shipping Performance is a calculation of the number of Order Lines shipped on or before the Requested Ship Date verses the total number of Order Lines. Throughout the following text, I refer to "shipped" On-Time. But, if actual "delivery" data is available, it may be substituted and compared to the Requested Delivery Date. (such as with an EDI#214 ).

*On-Time: Shipped on or before the requested ship date (except if the receiving party does not accept early shipments).

Sample On-Time Metrics:

On-Time Line Count
The amount of order lines shipped On-Time* verses the amount of lines ordered.

Example: ABC Company orders 10 products (one order line each) on its Purchase Order #1234. The Order has a Requested Ship Date of March 1. The manufacturer ships out 5 line items on February 28 and 2 items on March 1 and the remaining 3 items on March 10. The On-Time LineCount for this Purchase Order is 70%. It is calculated based on the Requested Ship Date OR, if available, substitute actual Delivery Date vs Requested Delivery Date.

Calculation: Number of Order Lines Shipped on or before the Requested Date / Total Number of Order Lines Ordered
(7/10 = 70%)

On-Time SKU Count
The number of SKUs (Stock Keeping Units) ordered and shipped is taken into consideration. Above, we consider each Order Line to have an equal value (1 ). Here, we count the SKUs per Order Line.

Example: If on Line 1, the order was for 30 SKUs of product "AB" and on line 2, they ordered 10 SKUs of item "AC". The Requested Ship Date is April 1st. If Line 1 ships on March 28th, and line 2 on April 20th, the the SKU Fill Rate is 75%

Calculation: Number of SKUs Shipped On-Time / Total Number of SKUs Ordered (30/40 = 75%).

On-Time Case Count
The amount of cases shipped On-Time verses the amount of cases ordered.

Example: ABC Company orders 6 products that total 200 cases, on its Purchase Order #1235. The manufacturer ships out 140 cases on 3/1/01 and the remaining 60 cases on 3/10/01. The Requested Ship Date is 3/1. The Case On-Time Rate for this Purchase Order is 70%. The number of Order Lines is not considered in this calculation. This On-Time measure gives "weight" to the order lines that are shipped out.

Calculation: Number of Cases Shipped On-Time / Total Number of Cases Ordered . (140/200 = 70%)

On-Time Value Rate
Same as above, except the order line value is used instead of cases.

Calculation: Value of Order Lines Shipped On-Time / Total Value of the Order ($400/$500 = 80%)

   
  Perfect Order Measurement
  The Perfect Order Measure calculates the error-free rate of each stage of a Purchase Order. This measure should capture every step in the life of an order. It measures the errors per order line.

But how do you capture errors? Let's look at what happens when an error occurs. Say for example, your warehouse picks and ships the wrong item. Once the customer receives the order and notices the error, they contact the manufacturer and notify them of the mistake. The manufacturer then enters a credit for the item not shipped and an invoice for the item shipped in its place. For almost all errors that occur, a corrective credit is issued. It is through an analysis of these credits that you derive your metric. Most systems require a "reason code" to be used when entering a credit. Tracking these reason codes and assigning them to a category allows you to group them for the Perfect Order Measure.

Example:
Order Entry Accuracy: 99.95% Correct (5 errors per 1000 order lines)
Warehouse Pick Accuracy: 99.2%
Delivered on Time: 96%
Shipped without Damage: 99%
Invoiced Correctly: 99.8%

Therefore, the Perfect Order Measure is 99.95% * 99.2% * 96% * 99% * 99.8% = 94.04%
   
  Performance to Promise Dates
  When a Distributor places a Purchase Order with a Manufacturer, he has certain expectations about when he will receive the items ordered. His original expectation is the On-Time Delivery Metric. However, the manufacturer may give him a revised estimate as to when they expect to fill the order. The manufacturer's promise is called the "Performance-to-Promise Date Metric".

Example: ABC Company Orders 2 Products on Purchase Order #1234, with a Requested Ship Date of June 10.
The first item is in stock and ships on June 10th..
The second item is on backorder. The manufacturer estimates that the 2nd item will ship by July 1.
The item is manufactured and ships out on June 28.

The Performance-to-Promise Date is 100% (items ship on-time or early)
*However, if the 2nd item does not ship till July 2nd, then it's late. The Performance to Promise Date is 50%.
   
  Transportation Metrics
 

Freight Cost Per Unit Shipped
Calculated by dividing total freight costs by number of units shipped per period -- Useful in businesses where units of measure are standard (e.g., pounds) -- Can also be calculated by mode (barge, rail,ocean, truckload, less-than-truckload, small package, air freight, intermodal, etc.)

Outbound Freight Costs as Percentage of Net Sales
Calculated by dividing outbound freight costs by net sales -- most accounting systems can separate "freight in" and "freight out." Percentages can vary with sales mix, but, it is an excellent indicator of the transportation financial performance.

Inbound Freight Costs as Percentage of Purchases
Calculated by dividing inbound freight costs by purchase dollars -- It is important to understand the underlying detail. The measurement can vary widely, depending on whether raw materials are purchased on a delivered, prepaid, or collect basis.

Transit Time
Measured by the number of days (or hours) from the time a shipment leaves your facility to the time it arrives at the customer's location -- Often measured against a standard transit time quoted by the carrier for each traffic lane -- Unless you are integrated into your customers' systems, you will have to rely on freight carriers to report their own performance. This is often an important component of leadtime. Transit times can vary substantially, based on freight mode and carrier systems.

Claims as Percent of Freight Costs
Calculated by dividing total loss and damage claims by total freight costs -- Generally measured in total and for each carrier -- A high number generally indicates packaging problems, or process problems at the carrier.

Freight Bill Accuracy
Calculated by dividing the number of error-free freight bills by the total number of freight bills in the period -- Errors can include incorrect pricing, incorrect weights, incomplete information, etc. Generally measured in total and for each carrier.

Accessorials as Percent of Total Freight
Calculated by dividing accessorial and surcharges by total freight expenditures for the period -- Many freight carriers will charge extra fees for trailer detention/demurrage, re-delivery, fuel increases, and other expenses or extra services. Often, these are extra costs incurred due to inefficient processes.

Percent of Truckload Capacity Utilized
Generally used for shipments over 10,000 lbs -- Calculated by dividing the total pounds shipped by the theoretical maximum -- For example, assume your trucks can hold 40,000 lbs. of product, during the prior month, there were 675 shipments totaling 22.95MM lbs, the percentage utilization was 85%. The 15% unused capacity is an opportunity for more efficiency.

Truck Turnaround Time
This is calculated by measuring the average time elapsed between a truck's arrival at your facility and its departure. This is an indicator of the efficiency of your lot and dock door space, receiving processes, and shipping processes. This also directly affects freight carrier profits on your business.

Shipment Visibility/Traceability Percentage
Calculated by dividing the total number of shipments via carriers with order tracking systems, by the total number of shipments sent during a period -- This is an indicator of the relative sophistication of your carrier base, and one measure of the non-price value available from your carrier base.

Number of Carriers Per Mode
Calculated by counting the total number of freight carriers used in a given period, by mode (ocean, barge, rail, intermodal, truckload, LTL, small package, etc.) -- This is an indication of your volume leverage and control over the transportation function.

On-time Pick-ups
Calculated by dividing the number of pick-ups made on-time (by the freight carrier) by the total number of shipments in a period -- This is an indication of freight carrier performance, and carriers' affect on your shipping operations and customer service.

   
  Service Metrics
 

Utilization Rate
Utilization Rate measures an organization's ability to maximize its billable resources. The Utilization Rate is calculated by taking the total number of hours billed in a given year, divided by the total number of billable hours in a year (2,080 hours). This calculation can be analyzed per employee or for the entire organization.

Realization Rate
Realization Rate is the ratio that ties utilization and billing rate to actual revenue produced. The Realization Rate is the percentage of dollars generated versus the total dollars that should have been generated.

Labor Multiplier
Labor Multiplier represents the average factor by which billable personnel can be charged over their fully loaded labor cost. Labor Multiplier is calculated by taking the total dollar amount of personnel hours billed, and dividing by the fully-loaded labor cost.

Revenue Per Head
Revenue Per Head (RPH) is defined as the average revenue generated per full-time equivalent employee. RPH is calculated by total services revenue divided by the number of full-time equivalent employees. Don't forget, if you count subcontracted revenue in your total, you must also count subcontracted employees.

   

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