“The most valuable commodity I know of is information.” This quote from Wall Street’s Gordon Gecko, while not used by a moral or righteous character, is something that holds true for every business. Information matters, and no matter your industry, your ability to turn data into useful information is something that determines your success or failure now and in the future.
Unfortunately, with more and more data to measure and manage with each new supplier, customer, and product, it becomes harder for today’s distribution firm to get meaning from it.
In a world where too much data can be worse than having too little data, financial professionals often get buried in reports that they miss the important details and trends that indicate where the business is and where it’s heading.
Key performance indicators: The right information for each situation
As a finance professional, you abide by GAAP. You can answer the basic managerial needs—profit and loss, cash flow, inventory turns, and the like. However, there’s more to your business than just being able to measure necessary information and generate reports. This is where key performance indicators, or KPIs, come into play. These represent a wide variety of measurements unique to a specific industry, that can unlock the true health of a business and uncover previously unknown opportunities or challenges that traditional reporting measures fail to address.
Managing and tracking these, however, presents challenges with an ever-expanding pool of data. While new technologies such as the industrial internet of things (IIoT) present new levels of visibility, they also create more sources of data you need to track, often requiring finance professionals to spend more time trying to distill it into something useful.
Types of KPIs
Whether you are trying to see where you are or where you need to be, there are many types of KPIs you need to track.
Financial vs. Operational KPIs
Among the most common, as well as the easiest to track and understand KPIs are financial, as this is the most common language of business decisions. Common financial KPIs in every industry monitor sales, costs, margins, cash flow, and asset utilization.
However, for product-focused businesses like distribution in which relationships and reputation rely on on-time shipments and inventory availability, operational measures come into play. These metrics are inherently non-financial, but play a major role in the present and future of your business: transportation schedules, inventory, on-time delivery, backorders, customer service and more.
Historical and Predictive KPIs
In addition to this, KPIs can tell you not only where you’ve been, but where you are or may be heading.
Historical KPIs can be set up with alerts and warnings that monitor and detect exceptions, calling attention to issues or “push” alert messages sent via email or text.
On the other hand, predictive KPIs can make it easier to see where you may be heading at a glance. Leveraging internal and external data, these can help you order smarter and plan for where you need to be. Predictive KPIs for distribution may use economic indicators, demographic trends, or specific industry indicators.
The basics: Three things to track closely
When it comes to your distribution firm, it pays to know which items are being ordered, how fast each item is being shipped, and which items are profitable, with each of these accessible in real time:
- Inventory turnover ratio: Shows the current status in the familiar ratio format as well as some key indicators that a purchasing manager might want to watch like open POs and purchasing trends.
- On-time shipping ratio: Compares the on-time shipping performance for different warehouses, items, and trends. For example, are your warehouses getting better or worse at getting items shipped on time? Is it location-specific or systemic?
- Profitability by item: Savvy distributors are well-advised to periodically review the relative profitability of customers, markets, channels and products as they formulate sales and distribution plans and budgets to optimize overall business plans and strategies. Being able to slice and dice information to see exactly who and what is profitable is a necessity.
Going further: More than out-of-the-box KPIs
Distribution ERP should be able to deliver these out of the box, but once you get comfortable, your business serves to benefit from finding relevant and customized KPIs, making it easy to generate new reports without a ton of additional labor. Out-of-the-box is one thing, but your system needs to be flexible enough to handle it and usable enough for each end user to generate reports without much extra coding.
Free guide: Selecting and utilizing KPIs that matter for your business
In a recent whitepaper, Acumatica explored even more about the KPIs for distribution companies, discussing how the right measurements can deliver a clearer picture of your business with less effort.
In “Key Performance Indicators for Distribution,” you’ll learn:
- What historical and predictive KPIs can tell you about your business.
- Which three distribution KPIs to track most closely.
- Why out-of-the-box KPIs aren’t enough to improve performance.
- How to systematize your KPI process.
- The ideal number of KPIs to track on a daily basis.
Finding a distribution solution for your business: Get to know NexTec
NexTec Group specializes in helping a wide range of distributors to get what they need and want out of the solutions they use. No matter what unique focus your business has, we have the experience and expertise to deliver what you need. Get to know more about our work with Acumatica, read customer testimonials, and contact us for a free consultation.
Additional distribution resources
ERP and Business Intelligence in the distribution industry
Multi-warehouse woes: challenges in maintaining visibility
Distribution: How to control cash flow alongside product flow