Benchmarks, Targets, and Values for Supply Chain Costs
Total Supply Chain Cost (TSC):
This cost typically accounts for 7–15% of revenue, depending on the industry.
Efficient businesses strive to maintain this ratio at a low level while ensuring
customer service quality.
Transportation Cost:
Typically makes up 30–40% of total logistics costs.
Businesses can reduce this cost by optimizing routes, selecting cost-effective
transportation providers, or adopting smart tracking technologies.
Inventory Carrying Cost:
On average, it ranges from 20–30% of the annual inventory value.
Best-performing companies reduce this ratio through demand forecasting
optimization and effective warehouse management strategies.
Warehousing Cost:
Accounts for 25–40% of total logistics costs.
Optimizing storage space and implementing automation technologies can
significantly reduce these costs.
Performance Indicators
Each business should establish key performance indicators (KPIs) to ensure efficiency in
supply chain management. Some essential KPIs include:
On-time Delivery Rate (OTD):
Leading businesses aim to achieve 98–100% of orders delivered on time.
Order Fill Rate / Perfect Order Rate:
Top-performing companies typically achieve 95–99%, ensuring that orders reach
customers completely, on time, and with the correct items.
Inventory Turnover:
Measures how many times inventory is sold and replaced in a year.
A good benchmark is 6 times per year or more, but this varies by industry.
Supply Chain Cycle Time:
The total time from receiving an order to delivering it to the customer.
The goal is to minimize this time to improve flexibility and responsiveness to
demand.
Cash-to-Cash Cycle Time (C2C):
Measures the time required to convert inventory investment into cash from customers.
Efficient businesses strive to shorten this cycle to improve cash flow.
Order Accuracy / Error Rate:
High-performing companies maintain an error rate of below 1–2% to reduce costs
and enhance customer experience.