Acumatica recently published an informative white paper on Key Performance Indicators for Distribution. If you’re in the distribution business, it’s a highly-recommended read. The paper will help you understand KPIs as they apply to a distribution. Here are some highlights.
What is a KPI, anyway?
A Key Performance Indicator (KPI) is a measurement of some aspect of your distribution business’s performance that you consider critical to how the business is doing overall. It could be something as simple as rate of revenue growth. If you’re hitting the number you had in mind, you’re performing the way you want. Other times, KPIs can be more obscure, but no less meaningful. A KPI for distribution might be the rate of product returns or the number of complaint calls handled per hour. KPIs are based on data from the business, typically coming from the Enterprise Resource Planning (ERP) system and other enterprise software applications. KPIs compile ERP data into usable forms, e.g. graphical displays that visualize the data.
KPIs as a solution to data overload
KPIs are helpful in managing a wholesale/distribution business because they keep you focused on what’s important. They get you out of the trap of data overload. With modern ERP software, it’s easy to generate literally hundreds of reports at any given time. You can get caught in “analysis paralysis” or focus too much on metrics that don’t matter as much as you might imagine. Worst case, you’ll miss an early warning of an impending problem.
Types of KPIs
There are three main types of KPIs: Historical, real time and predictive. All three tend to feature the same kinds of information. They report financial results such as sales, orders, profit and loss and o forth. They track operational metrics like orders shipped, backorders, route miles driven and customer service calls answered. Depending on how you display your data, i.e. your data visualization dashboard, you might have all three types visible at the same time:
- Historical KPIs – what happened in the business, showing trends and highlights like peak sales growth over the last 5 years
- Real time – what’s happening right at the moment (or that day)
- Predictive – what might happen, if historical trends are any indicator, e.g. anticipating a shortage of certain products during an upcoming peak season
Predictive KPIs are where modern data analytics tools can really shine. Not all solutions have predictive capabilities, however. This is an advanced feature, one that may take some professional help in setting up.
KPIs for Distribution
Distribution businesses have developed their own distinctive KPIs. In addition to basic financial KPIs, a distribution business tends to focus on operational metrics that reflect critical business functions—often tied to profitability. They include:
- Inventory Turnover Ratio – comparing inventory turns for low-turnover and high-turnover items. This KPI is useful for purchasing managers, as it should inform the volume of future buying.
- On Time Shipping Ratio – comparing on-time shipping performance for custom orders at multiple warehouses over a period time.
- Profitability by Item – revealing which customers and products are the most profitable.
It can take some focus and internal research to determine the best KPIs for your distribution business. We can help. We have guided distribution companies through the process of setting up data analytics and KPI dashboards.
To download the Distribution KPI white paper, visit https://www.ccstechnologygroup.com/resources/kpis-for-distribution/.