Evaluating Your Supply Chain: A Practical Guide to Smarter Decisions

The Supply Chain Rollercoaster

If you feel like managing your supply chain has been more unpredictable than a game of whack-a-mole lately, you’re not alone. With global disruptions, labor shortages, and unpredictable demand shifts, manufacturers have had to think on their feet. But here’s the good news: evaluating your current supply chain doesn’t have to be a headache. In fact, it’s the first step toward turning those logistical nightmares into a well-oiled machine.

Your supply chain plays a critical role in inventory management, directly affecting stock levels, replenishment times, and order fulfillment. An efficient supply chain ensures that materials arrive on time, production runs smoothly, and customer demands are met without excessive stockpiling or shortages. Poor supply chain management, on the other hand, can lead to stockouts, increased holding costs, and unhappy customers. By taking a close look at key performance indicators (KPIs) and leveraging software like PrismHQ, you can spot inefficiencies, cut costs, and boost profits. Let’s dive into five crucial indicators that will help you in evaluating your supply chain performance and improving your inventory management.

If you’re just getting started digitizing your inventory management, we can help you with a FREE Google Sheet template.

1. On-Time Delivery Rate: Are You Keeping Your Promises?

On-time delivery rate measures the percentage of orders that arrive at their intended destination within the promised timeframe. This KPI is crucial in evaluating your supply chain because late deliveries can lead to customer dissatisfaction, production slowdowns, and financial penalties. For manufacturers, ensuring timely delivery requires coordination between suppliers, logistics providers, and internal teams. If shipments frequently arrive late, it could indicate deeper issues such as inefficient logistics planning, unreliable suppliers, or bottlenecks in the production process.

How It’s Measured

• Percentage of orders delivered on or before the promised date.
• Formula: (On-time shipments / Total shipments) x 100

How to Improve It

For example, using AI-driven logistics tools like predictive analytics can optimize delivery routes. A company like Amazon utilizes AI-powered forecasting to achieve an impressive 97% on-time delivery rate. Additionally, implementing GPS tracking and route optimization software can help logistics teams proactively avoid delays caused by traffic, weather, or other disruptions. Improving warehouse efficiency through automation is another effective strategy, as it can significantly reduce order processing times, ensuring shipments leave on time.

Problems to Watch For

Of course, even the best-laid plans can be derailed. Unexpected disruptions like bad weather or port congestion can create delays that are out of your control. Inconsistent supplier performance is another hurdle—if raw materials don’t arrive on schedule, production gets pushed back. Finally, outdated tracking systems make it difficult to pinpoint where delays occur, making it harder to implement corrective actions.

2. Supplier Performance: Are Your Partners Reliable?

Supplier performance measures the reliability and consistency of suppliers in delivering raw materials or components. A supplier who frequently misses deadlines or delivers defective goods can disrupt production schedules and increase costs. Evaluating supplier performance helps manufacturers identify weak links in their supply chain and take corrective action, such as renegotiating contracts or finding alternative suppliers. Factors such as communication, responsiveness, and adherence to quality standards are all essential in determining supplier reliability.

How It’s Measured

• On-time delivery rate from suppliers.
• Quality defect rate (percentage of received materials that are defective).
• Responsiveness to issues and communication effectiveness.

How to Improve It

Using supplier management software like SAP Ariba can help track supplier performance in real time. Establishing clear performance expectations and regular review meetings can also keep suppliers accountable. Furthermore, diversifying supplier networks reduces reliance on a single source, helping to mitigate risks. If a supplier consistently underperforms, renegotiating contracts or seeking alternative vendors may be necessary to maintain efficiency.

Problems to Watch For

That said, supplier management is easier said than done. Long-term contracts with unreliable suppliers can be difficult to renegotiate. Additionally, a lack of real-time supplier data may make it hard to identify performance issues early. Finally, communication gaps—especially with overseas suppliers—can lead to misunderstandings and delays that impact production.

Related: Localizing Supply Chains: A Manufacturer’s Guide to the Benefits and Risks

3. Inventory Turnover: Are You Stockpiling or Selling?

Inventory turnover is a measure of how efficiently a company moves its stock. A high turnover rate suggests that products are selling quickly, reducing the risk of excess inventory tying up capital. Conversely, a low turnover rate can indicate overstocking, poor sales, or inefficiencies in production planning. This KPI is particularly important when evaluating your supply chain for manufacturers managing raw materials, as slow-moving stock can lead to waste, higher storage costs, and potential obsolescence.

How It’s Measured

• Formula: Cost of Goods Sold (COGS) / Average Inventory Value
• Industry benchmarks vary, but a turnover of 5-10 is generally healthy for manufacturers.

How to Improve It

To start, leveraging inventory management software like PrismHQ can provide real-time insights and prevent overstocking. Additionally, implementing demand forecasting tools allows you to better predict customer needs and adjust inventory levels accordingly. Strengthening supplier relationships to secure just-in-time (JIT) deliveries is another way to keep inventory lean. Lastly, offering promotions or discounts on slow-moving products can help clear out excess stock efficiently, keeping cash flow healthy.

Problems to Watch For

However, maintaining an optimal turnover rate isn’t always straightforward. Sudden demand fluctuations can result in either excessive overstock or costly stockouts. Inaccurate sales forecasts may lead to poor purchasing decisions, while supply chain disruptions can cause bottlenecks and leave you scrambling to fill orders.

4. Order Accuracy: Are You Sending the Right Stuff?

Order accuracy measures how often customers receive exactly what they ordered in the correct quantity. This KPI is crucial because incorrect orders lead to returns, additional shipping costs, and damaged customer relationships. Errors in order fulfillment can stem from picking and packing mistakes, mislabeled inventory, or miscommunication between departments. Ensuring high order accuracy minimizes wasted resources and improves overall customer satisfaction.

How It’s Measured

• Formula: (Accurate orders / Total orders) x 100
• Benchmark: 99%+ accuracy is ideal.

How to Improve It

To improve order accuracy, consider investing in warehouse automation like RFID tracking and barcode scanning. Companies like Walmart use automated fulfillment centers to ensure near-perfect order accuracy. Additionally, implementing warehouse management systems (WMS) can streamline picking and packing processes, reducing human error. On top of that, employee training programs focused on order accuracy and quality control can further improve performance.

Problems to Watch For

However, even with automation, mistakes can happen. Human error in manual order picking can lead to increased returns and customer complaints. System glitches in warehouse management software may cause incorrect order fulfillment. Moreover, SKU mix-ups — especially in high-volume environments — can create costly errors and inefficiencies.

5. Cost of Goods Sold (COGS): Are You Making Money or Bleeding Cash?

COGS represents the total cost of producing goods, including materials, labor, and overhead. Keeping this figure under control is vital for maintaining profitability. High COGS can indicate inefficiencies in production, expensive raw materials, or excessive labor costs. By analyzing COGS when evaluating your supply chain, you can identify areas where you can cut costs without sacrificing quality.

How It’s Measured

• Formula: Direct Materials + Direct Labor + Manufacturing Overhead
• Industry benchmarks vary, but reducing waste can improve profitability.

How to Improve It

Using cost-tracking software like QuickBooks or Microsoft Dynamics can help monitor expenses. Lean manufacturing techniques, like those used by Honda, can reduce waste and lower costs. Additionally, switching to cost-effective raw materials without compromising quality and automating production processes to reduce labor expenses can further optimize COGS. Negotiating better pricing with suppliers or bulk purchasing can also yield savings.

Problems to Watch For

Nonetheless, keeping COGS in check is an ongoing battle. Rising raw material costs due to global shortages can impact profitability. Inefficient production processes may lead to excessive waste and unnecessary costs. Plus, hidden expenses in supply chain operations—such as storage fees or equipment maintenance—can quietly eat away at margins.

Small Changes, Big Impact

Evaluating your supply chain isn’t just a one-time fix—it’s an ongoing strategy that can transform your business. By tracking these key performance indicators, you’ll gain valuable insights that help you streamline operations, reduce costs, and keep customers happy. The right technology and data-driven decision-making can turn supply chain headaches into competitive advantages. So, why not start today? Your future, more efficient self will thank you!

We Can Help

If you’re ready to take the first steps towards a faster and easier way to manage your business, PrismHQ provides a simple and flexible solution to streamline production, increase visibility, and improve communication across departments. Our mission is to serve growing manufacturers by providing a single, affordable solution that automates inventory management and integrates it with daily business processes for increased productivity and lower overhead. Contact us today to learn more!