On-time delivery is vital to have a good relationship with customers. To know about the factors that contribute to delivery performance and how to improve delivery performance, read out this article.
What is delivery performance?
Delivery Performance is the level that measures how much the supply of goods and services by an organization has met the standards expected by its customers.
It is an essential aspect of supply chain management(SCM) as it indicates the existing potential of the firm to deliver the goods on time by using the resources as planned and at no extra costs to the business.
The KPI (key performance indicator) measures delivery performance. Each crucial contributing factor is taken into account, and overall delivery performance is estimated.
What are the factors that contribute to the overall delivery performance?
Factors that contribute to the overall delivery performance are on-time delivery, proper manufacturing schedule, good inventory management, and best transportation.
1. On-time and in-full delivery from the suppliers
Once an order is placed, it is equally important that the vendors provide the required items as promised without any changes in the quantity.
That will ensure a smooth production process. To improve on-time delivery, the organization has to boost the process of all the departments by improving planning, monitoring, and working efficiency.
2. Preparing proper manufacturing schedules
Here, the firm will break down its overall production into various segments and concentrate on fulfilling each segment’s needs to ensure uninterrupted manufacturing at all times.
3. Inventory management
This is very important as it ensures that there are enough raw materials for production and enough finished products to dispatch customer orders.
4. Transportation requirements
This will help to calculate and check the number of times the logistics were correct and, if they were wrong, how the business can aim to correct them to ensure no further mistakes.
Delivery performance metrics
Number of deliveries: It means the number of completed deliveries in a month. It may be the number of deliveries within a quarter or week also. You can also consider the average number of deliveries.
Number of on-time deliveries: deliveries that are carried out on time to the customer. It is a significant key performance indicator to check the quality of the delivery performance.
Accuracy in order fulfillment: It can be measured by calculating the order accuracy rate. That is a comparison of total orders and orders with errors.
Order accuracy rate formula is as follows.
Order accuracy rate = (Total orders – Error orders) / Total orders * 100
Transportation time: This metrics gives an overview of the time taken to transit the products from pick up place to drop up location. That helps to measure the speed of the drivers and the efficiency of the transporting routes.
Capacity of the means of transportation: It measures the capacity of the vehicle that transports the products. Calculate vehicle capacity by comparing available capacity and the total capacity of that vehicle. That helps to know the inefficiency in loading the products.
Average time per delivery: It means the average time taken to complete a delivery. It helps to measure the efficiency of the supply chain network.
Average cost of the delivery: It is calculated depending on the distance, products, type of vehicle.
Delivery performance formula
On-time delivery is one of the essential key performance indicators to measure delivery performance.
Generally, on-time delivery is measured as a ratio of the number of products on time divided by the number of total products shipped monthly. The below image shows the on-time delivery calculation.
Calculation of On-time delivery rate
Importance of on-time delivery
- It is a major KPI of delivery performance.
- It helps to monitor and analyze the delivery performance and hence increases efficiency.
- It helps to build the trust with your customer.
- It helps to satisfy the customer and improves customer relationship.
- It indicates the efficiency of supply chain.
- Enhances your reputation in customer place.
How to achieve on-time delivery?
- Track and analyze the reason for previous late delivery.
- Analyze the factors that contribute to late delivery and find out the root cause.
- Take corrective actions and concentrate to process it to avoid late delivery.
- Define a plan and implement it for corrective actions.
- Observe the result and update it accordingly.
How to improve delivery performance?
Late deliveries lead to poor delivery performance. Delivery performance can be improved by following things.
- Have good forecasting
- Have purchase orders without errors
- Maintain accurate inventory
- Maintain good standard operating procedures
- Reduce production errors
- Reduce the picking and packing errors in the shipping department
- Do on-time delivery
- Maintain accurate shipping records
- Set realistic deadlines
- Provide online tracking to your customers for their orders
Once the business ascertains an optimal performance level, the firm must evaluate and take appropriate measures to maintain the benchmark as it is important for its credibility.
By creating a learning index the company will be able to identify its weak areas and stress on improving the same. Constant improvement policies will lead to an overall improvement in the delivery.
What is Key performance indicator?
A key performance indicator is a measuring tool used to measure how an organization achieves key business objectives efficiently. In addition, it measures the overall long-term performance of an organization.
Here are a few tips for developing key performance indicators (KPI).
- Have SMARTER KPI. That means an organization should do the following steps.
- Have specific objectives
- Frequently measure the objectives
- Set attainable real-time objectives
- Have relevant objectives for your organization
- Have a proper time frame to achieve your objectives
- Finally, evaluate and re-evaluate your objectives
- Share KPI with your employees. If you share KPI, they have a clear vision about the goals that have to be reached.
- Analyze KPI on a monthly basis. Monthly once or if required, weekly once track your progress to be aware of the success of your KPI.
- Check the applicability of KPI. To make your KPI applicable evaluate your goals, analyze the target with your team, set short and long-term targets, evaluate your performance, and readjust it if required.
Get more definitions about Delivery performance and other ERP-related terms here.