Business Automation and Software Blog

An Introduction to Distribution KPIs

Posted by Robert Baran on Wed, Aug 16, 2023 @ 11:00 AM

Hand with marker writing KPI - distribution KPI

If you own or manage a distribution business, you’re already aware that it is a thin-margin venture. It’s not unusual to lose money on many of the items you have in inventory. The entire wholesale-distributor industry achieves an average net profit of 4% annually (The National Association of Wholesalers and Distributors). Distribution companies that achieve these profit levels (or higher) rely on monitoring distribution KPIs (Key Performance Indicators) to control expenses and maximize profits.

Monitor Distribution KPIs to Improve Profits

In nearly all industries, there has been an increased push toward tracking and analyzing metrics to improve business practices. Metrics provide data from which companies can make better decisions.

Tracking distribution metrics can help you improve:

  1. Productivity: Inventory management, order entry, and warehouse activities are all critical areas where companies should capture and track metrics to improve efficiency. Such metrics can be used to improve efficiencies throughout the warehouse. For example, high-demand products may be moved closer to packing stations to move orders out faster. Order-entry data may be used to analyze staffing and shipping needs for the warehouse. Each data element captured can be used to understand and adjust processes to improve efficiencies.
  2. Customer Loyalty: Understanding customer metrics can help you assess customer loyalty. Repeat business is more profitable than constantly acquiring new customers. Knowing your companys metrics around repeat business can lead to strategies to increase this number and improve profits.
  3. Cost Management: To increase profitability, business owners know they need to increase sales, decrease costs, or both. Costs are often the most neglected aspect of the equation. Measuring all costs can help you reduce them so that you can increase profits even if sales remain the same.
  4. Risk Management: The KPIs associated with aging stock can be used to better understand product sales patterns and reduce the risk of overbuying. Safety data can be used to reduce employee risks throughout the warehouse.
  5. Better Data for More Accurate Decisions: Timely and accurate data can be used to improve decision-making throughout the organization. Capturing warehousing and distribution metrics ensures every area of the company is being optimized.

Common Mistakes Made with Distribution KPIs

Distribution companies often make the same mistakes when it comes to metrics. By understanding these mistakes, you can avoid making them in the future.

  1. Failing to Capture Enough Data

Unless you have the right software in place, it can be impossible to capture enough data. Manually trying to collect and record important data can be enormously time-consuming.

  1. Capturing Too Much Data

The flip side of this mistake is capturing too much data. Not every piece of data is critical to your long-term success. Understanding the types of data available in a warehousing and distribution business and making strategic choices around the information to capture and analyze is important, too.

  1. Collecting Bad Data

Bad data can include mistakes, such as mistakes keyed into the system during data entry, or poor data collection from different points in the organization. For reports to be accurate, they must have accurate data to begin with. Bad data can lead to poor decisions.

  1. Lack of Strategic Alignment

Metrics should be aligned to key performance indicators (KPIs) for them to be valid. If metrics aren’t linked to goals, they probably aren’t important enough to capture.

  1. Failure to Review Lagging and Leading Indicators

Lagging always means what happened; leading means what might happen. It’s important to look at both to understand the industry, the market, and the potential business opportunities available.

  1. Failure to Review Internal and External Benchmarks

There are two types of benchmarks that must be known for metrics to be meaningful. First, internal benchmarks provide you with a way to gauge progress within your company. Knowing where you began and where you are today provides a helpful way to assess progress.

But external benchmarks are also critical to understand whether your business is progressing as it should. Knowing industry-leading benchmarks, such as the 4% statistic which led off this article, is important so you can assess your business’ help in comparison with peers. If you only knew that your company’s profit margin was 2%, you might think this a great number, especially if last year it was 1.75%. It looks like progress, and it is. However, you’re still behind the industry average of 4%. And remember that an average means some companies are much higher than this figure. This may be the inspiration you need to try harder and do better.

Metrics and Service Offerings

We briefly mentioned loyalty metrics or collecting metrics that assess repeat customers. Understanding metrics can also open the doors to new service offerings and potential profits. This, in turn, can make your company more competitive.

For example, a high return rate for a product may mean opportunities. How? Well, if the product is hard to assemble, difficult to use, or challenging for people to begin using, perhaps you might offer training or assembly as an add-on or free service to encourage product sales. By offering a training package that costs $50, you may offset a $200 return expense. Examining the situation from all angles means looking at product sales, return rates, costs, and opportunities, and then making decisions based on what may lead to the most profitable and positive outcome for all.

Choose the Right Software for Accurate Distribution KPIs

Companies that wish to capture and use distribution KPIs often have difficulty if they don’t have the right software in place to assist them. Hopefully, by now you agree that using the right KPIs is important. Check out this on-demand webinar by SYSPRO to learn more: KPIs—Measuring Your Companies Vital Signs to Have it Stay Healthy.

PositiveVision can help you find the right software to meet your needs today and ensure that your business has room to grow. Contact us today to learn how PositiveVision can help you monitor your distribution KPIs by helping you choose the right solution.

Topics: distribution KPI