What Are Supply Chain KPIs and Why Are They Important?

Supply chain reliability refers to the degree to which the supply chain produces consistent performance. Improving reliability, reducing inventory and preparing for demand are among the top priorities for supply chain professionals.

At the most basic level, a responsive supply chain will be flexible and agile enough to respond to customer wants, while still providing a reliable and efficient model for your company’s specific needs. In fact, the needs of a responsive supply chain are similar to those of a value chain model that promotes efficiency.

After reading, do not forget to take our survey on this important subject. You’ll get to see the results, too. 

Critical KPIs All Cannabis Cultivators Need to Know

Inventory Turnover

Measuring the number of times your inventory has sold within a specified period of time is called inventory turnover. This KPI comes into play when a wholesale manufacturer, for example, creates a product that is to be sold to distributors. By calculating the ratio of distribution/sales over the average stock on hand, it is possible to make sure you have enough inventory (or not too much) for the expected demand. A best-practice target value for packaged product inventories is 10-20 turns per year.

This metric provides an accurate sense of the efficiency of the entire supply chain process and helps you understand what needs to be tweaked. It is recommended this metric is revised two times per year to identify products that aren’t turning as quickly as others, i.e. that are taking a bite out of your profitability.

Perfect Order Index

When it comes to the cannabis industry, having a perfect order index in place is one of the most critical supply chain KPIs. This index measures a company’s ability to deliver orders such as extracts, edibles or vapes to dispensaries, seamlessly and incident-free. 

While adding exception tracking to the order process can initially take time, it is vital to your business’s future and success. 

Having a system in place to monitor your perfect order rate will ultimately help you capture and iron out issues, such as inaccuracies, damages, delays, and inventory losses. It is vital to remember that your perfect order index has a direct impact on the loyalty of your customers, so the closer to 100 percent, the better.

Warehousing Costs

The cost distribution, plus the management of the time and space of your inventory are critical in establishing a healthy supply chain. While such costs vary from warehouse to warehouse, it’s important to measure this indicator and review it regularly in order to identify opportunities and decrease unwanted costs. 

Tracking this can be as basic as [total of all stock keeping cost] divided by [total square footage], or costs may be correlated to the value of inventory items on hand.

The management of the warehouse costs includes various aspects such as labor costs, warehouse rent, utility bills, equipment costs, material, and information-handling systems. It also pertains to costs related to supplies, ordering, picking, and storing the goods.

Keeping the costs on the lower side of the spectrum starts with being well informed regarding all the processes that are happening at the warehouse facility and exactly how it operates. That way, you will have a better chance to reduce unnecessary costs and introduce steps to manage operations more efficiently. This also provides an easier way to adjust when needed. Besides, if you collect transactional information continuously with the help of a professional online reporting tool such as Regrow, you can rely on your reports and make faster, more accurate business decisions.

Fill Rate

Meeting customer demand determines the fill rate, a KPI that your customer sees directly. This rate analyzes the order quantity that is met on the customer’s due date through stock availability, without backorders or lost sales. It is vital for cannabis businesses to monitor inventory performance because it allows them to showcase which sales it can save and products where it must improve service. One of the most common pathways to improvement in the cannabis industry is taking a deeper look into your inventory data’s underlying order-fill problems. 

When your cannabis business has more insight into what is currently in inventory and what the demand pattern could happen in the future, you can put together a better process that starts at cultivation and flows all the way through to shipping timely orders – which ultimately improves customer satisfaction along the way. 

Designed to keep track of this information automatically, our Regrow platform has one of the most robust and powerful inventory planning and order management systems available. If you would like to see how it works, please click here.

Gross Margin Return on Investment (GMROI)

Gross Margin Return On Investment, or GMROI, is one of the most important profitability metrics for cannabis distribution channels. It measures how productively you’re turning inventory into gross profit. A GMROI ratio greater than one means you’re selling inventory at a price greater than the cost of acquiring it. A higher GMROI indicates greater profitability and increased inventory efficiency.

Here’s how you calculate Gross Margin Return On Investment:

GMROI=[Period $Gross Profit] / [(Opening Stock $Value-Closing Stock $Value) / 2] X 100

No matter how efficiently you manage your inventory levels, you’ll likely end up with some amount of excess inventory that just hasn’t sold. While this is common, overstock merchandise is holding back your business. 

Each day spent waiting for that old unit to sell is another day that cash is tied up, unable to be put toward the business. To help automate this, it is vital to find a software that provides you with insight into your inventory. One that will enable your organization to identify poor performers and replace them with more profitable products – much like Regrow.

Inventory Velocity

If you’re managing a cannabis business’ supply chain and want to understand the percentage of inventory that’s expected to be sold within its lead time to make more, you calculate inventory velocity. This is a KPI that provides useful insights about your advance planning and helps you optimize your inventory levels, meet customer demands effectively, and reduce risks of excess and outdated inventory.

Here’s how you calculate inventory velocity:

Inventory Velocity = [Opening Stock+Planned receipts] / Next Period’s Sales Forecast

Within cannabis manufacturing facilities, we recommend keeping your inventory velocity above 80 percent but no higher than 120 percent. This can lead to a bit of a balancing act. High end item velocity combined with active ingredients that take months to grow can lead to shortages. The important thing to remember is to ensure you are gaining insight into your inventory velocity, something Regrow can do for you easily.

You can categorize each SKU according to its inventory velocity, fill rate, or GMROI, and label items as fast-moving, slow-moving, or continuous-moving (Just-in-Time) items. Analytics will automatically flag items that are outside your predefined control thresholds for these values.

On-time Shipping

While this KPI seems very straightforward, on-time shipping is essentially the percentage of items that arrive on time. This metric is a key indicator of an efficient supply chain that many cannabis operations need to keep an eye on to be successful in this growing industry. 

Ensuring on-time shipping and consistent shipping quality is essential for keeping customers happy and coming back to purchase more. Overpromising and under-delivering on delivery times are one of the first things to make customer loyalty dwindle. If you’re noticing once happy customers are not reordering, take a deeper look, using Regrow’s integrated tools, to make sure there is no issue with this KPI. 

Here’s how you calculate on-time shipping:

(Quantity Delivered On-Time / Total Quantity Ordered) * 100

It’s Time to Get Streamlined!

While most cannabis operators can see the importance of keeping track of supply chain KPIs, they also understand that doing this alone can be extremely daunting. Luckily, from inventory turnover to GMROI, on-time shipping to inventory velocity and sales ratio, Regrow has the automated tools available to ensure each of these important metrics is recorded and executed seamlessly.

Now that you have a deeper understanding of the cannabis industry’s supply chain KPIs, and how to monitor them, do not forget to take our survey on this important subject. Once you complete it, you will be able to see other answers as well to get a pulse on the industry.

If you find your cannabis operation is lacking metrics to these supply chain KPIs, schedule a demo with us. We’ll walk through how to make sure your operation is running a successful supply chain. No strings attached.