Industrial distributors face many uncertainties — from ongoing supply chain disruptions to increasing competition from large platforms like Amazon.
One of the best ways to stand firm against these challenges is by leveraging data to build strong business strategies.
By smartly utilizing business metrics, industrial distributors are able to pull data into a workable format they can use to make sound, strategic decisions. Today, we’ll look at how to put these metrics to work.
Types of Metrics
Metrics and key performance indicators (KPIs) are classified into four categories: descriptive, diagnostic, predictive, or prescriptive.
- Descriptive metrics look at data from a historical perspective. They explain what happened in the past and provide a foundation for other metrics.
- Diagnostic metrics explain why past events happened, often using machine learning and artificial intelligence to spot anomalies.
- Predictive metrics predict what may happen in the future. For instance, they may be used to forecast equipment failure or customer bankruptcy.
- Prescriptive metrics combine information from descriptive, diagnostic, and predictive metrics to suggest ways to prevent issues. They often rely on mathematical modeling and business rules.
Metrics and key performance indicators that look to the future are called leading indicators, and those that reflect on past events are called lagging indicators.
Strategic Distribution Metrics
Within these four categories, there are so many metrics to choose from that can drive distribution efficiency. But which are most important? Here are a few metrics industrial distributors use to fuel strategic growth.
- To manage finances, core metrics like tracking revenue, profit, costs, and operating cash flow can give a clear picture of how money moves throughout an organization. It shows how funds are (and should be) allocated to inventory, labor, shipping and transportation, packaging, warehouse and operations overhead, and more.
- For sales and marketing, monitoring quotes, leads, and customer data is a powerful way to predict future revenue and demand, maintain and grow a leads pipeline, and build the personalized relationships that turn buyers into loyal customers.
- Warehouse processes can be improved by tracking procurement, supplier performance, and purchase cycle times; monitoring inventory turnover rates, carrying costs, and gross-margin return on investment (GMROI); and evaluating order cycle times, fill and return rates, and order fulfillment efficiency and accuracy.
- And, to keep daily operations running smoothly, industrial distributors can monitor staff availability and efficiency, measure operating margins, and track the quote-to-cash cycle.
Benefits of Using Metrics
Industrial distribution metrics create companywide benefits — particularly in six areas:
- Efficiency: Capturing benchmarks for receiving, put-away, picking, and order fulfillment enables distributors to monitor changes in inventory, warehouse, and order efficiency over time, so they can track improvements and diagnose and correct problems.
- Competitiveness: Monitoring customer loyalty, total customer value, market share, and market growth empowers strategic decision-making, so distributors can understand weaknesses, fortify strengths, and capitalize on market opportunities.
- Profitability: Metrics can be used to optimize pricing based on value, demand, and competition. Sharing real-time profitability-related metrics with employees also motivates them to make those numbers better and better.
- Reduced Risk: KPIs can proactively predict and negate the risks associated with quality issues, dead stock, and inefficiencies.
- Goal Achievement: Aligning metrics with corporate goals provides a sound, numerical way of monitoring whether actions and decisions are fulfilling or hindering those goals.
- Improved Decision-making: Metrics are essential for strategic planning, such as optimizing inventory levels, determining where to invest capital, expanding into new markets, and retiring or launching products.
Common Mistakes
However, industrial distributors can easily miss these benefits if they trip into common metrics mistakes.
- First, metrics and KPIs are data dependent. They cannot provide meaningful information if they’re based on inaccurate, incomplete, and untimely data. Such data produces incorrect results, which leads to poor decision-making, unhappy customers, and missed business opportunities.
- Second, if industrial distributors focus only on lagging indicators, they won’t be able to prevent future problems. A mix of leading and lagging indicators is essential to understanding the past and making sound predictions.
- Third, KPIs should be aligned with strategic company goals. Companies should establish the goals they want to achieve and then choose metrics that measure their progress. Pursuing irrelevant metrics can pull a company off track.
Finally, it’s essential to benchmark performance against industry peers through data from associations and independent consultants. This helps businesses identify industry-established benchmarks for best-in-class performance and removes the blinders of both confidence and self-doubt.
Leveraging Technology to Implement and Manage Metrics
One of the biggest challenges to creating distribution metrics is ensuring data integrity and providing timely, meaningful information.
Relying on error-prone data collection, disjointed systems, spreadsheets, and other manual processes is a recipe for failure. Instead, today’s distributors are choosing to rely on holistic business management technologies—often cloud-based enterprise resource planning (ERP) applications—to provide a single source of real-time, accurate, companywide data.
When looking for the right technology to implement and manage metrics, industrial distributors should keep six key features in mind:
- Data Collection: The right technology will have a framework to support providing anytime/anywhere data access and serving as a single source of truth for connected devices and applications, such as barcode scanning, scales, shipping applications, EDI, and business intelligence, to name a few. The solution should also include an imbedded warehouse management system (WMS) and mobile features to directly connect warehouse activities to the ERP system so that both front office and warehouse team members can access the data they need and make decisions in a timely manner.
- Artificial Intelligence: Embedded artificial intelligence (AI) and machine learning (ML) streamline data accuracy. The technology vendor should also be exploring new ways to leverage AI to solve the real-world business problems that distributors face, such as spotting vendor pricing anomalies or margin anomalies.
- Visibility: ERP dashboards display essential data in an easy-to-access format, so users can spot trends and react to real-time issues. These dashboards should be configurable according to user roles, so everyone has the real, accurate, insightful data they need to do their jobs.
- Reports and Inquiries: The right technology should provide hundreds of standard reports and inquiries, usable out of the box, that can also be customized to suit individual needs.
- Analytics: Businesses often need to aggregate data from multiple sources, extract actionable information, and present it to stakeholders. The right technology should facilitate this with direct connections to business intelligence applications that utilize a data warehouse or data lake to store and consolidate organizational data for advanced insights.
- Notifications Workflow: Customizable notifications allow distributors to surface issues in real time and instantly send actionable notifications—like automatic tracking notices for customers or automatic low-stock alerts by location.
Managing metrics can be complicated — but not with the right technology, providing the right data, at the right time.
Dana Moffat is product manager for the distribution edition at Acumatica. To help with the process of choosing, implementing, and tracking industrial distribution KPIs, Acumatica has consolidated this information and more into a free, downloadable eBook: Distribution Metrics That Really Matter.