How to Choose and Implement Distribution KPIs

To measure operational performance and improve outcomes, distributors need the right tools: distribution key performance indicators (KPIs). But knowing which KPIs will benefit you most is challenging—and it’s only half the battle. The other half is implementing these metrics correctly, so they deliver actionable insights you can use to transform and grow your business.

But, as the saying goes, this is easier said than done.

The sheer number of distribution KPIs you could track can be overwhelming. So can managing, and knowing what to do with, the huge amounts of data these metrics return.

That’s why today we’re providing informative, easy-to-digest advice on why metrics matter, how to choose the best distribution KPIs for your business, and how Acumatica can support your vital KPI journey.

Why the Right KPIs Matter

In the simplest terms, KPIs are metrics that quantify how well your company is meeting its operational goals. Measuring specific activities that relate directly to improving business performance helps you protect margins, improve cash flow, and increase customer loyalty. Informed decision-making based on facts also improves efficiency while helping you align every department, from finance and sales to warehouse and operations, around the same objectives.

However, more is not always better. Tracking a lot of distribution KPIs can quickly lead to “data overload.” This frustrates rather than simplifies your efforts to streamline your business for the greatest results: happy employees, satisfied customers, and a strong bottom line.

The best course of action is to choose a few goal-aligned metrics that you can easily monitor, and then expand that list when data quality, quantity, and value are stable.

To choose the right metrics, make sure that they align with your corporate goals (e.g., expanding in the market, reducing costs, gaining new customers, etc.). The KPIs you track must help you meet these goals.

Let’s look at how you can acquire the most value-filled mix of KPIs for distributors.

How to Choose the Right KPI Mix: Strategy First

Selecting and mapping out easy-to-reach, relevant, and tangible metrics is critical to your success. So, too, is using the metrics and their outcomes to compare your results with your competitors’, which will help you determine your next steps.

Build a Simple KPI Tree

As you choose your metrics set, one of the best ways to visualize it is by building a KPI tree. A KPI tree is a diagram that lays out your metric expectations in picture format. It ensures all departments and team members are on the same page. Because KPI trees can get complex, make sure you keep it as simple as possible.

A KPI tree should include four groups/columns, representing different levels of granularity:

1. 1. Objectives: The overarching corporate goals you want your KPIs to help you achieve
   2. Strategies: The major actions you plan to take to ensure those corporate goals are achieved
   3. Tactics: Separate steps that make up the overall strategies
   4. KPIs: The metrics you need to track to make sure your tactics are working—which means the strategies are working and ultimately means the objective is attainable

Below is an example of a simple KPI tree for distribution:

KPI Groups and Priority Metrics

What KPIs should you be prioritizing? Below are 12 critical metrics for achieving lasting distribution success.

Financial Metrics

1. 1. Inventory Carrying Cost is key to financial clarity because most of your capital as a distributor is tied up in your inventory. This metric will show you how much it costs for you to hold that inventory (e.g., storage and insurance fees), so you can find areas to reduce costs, optimize inventory to prevent overstocking and stockouts, and improve purchasing and warehousing strategies.
   2. Days Sales Outstanding (DSO) can provide early warnings about problems in your cash conversion cycle. DSO is the average time it takes for your customers to pay you for your product. A lower DSO = positive cash flow.
   3. Cash Conversion Cycle (CCC) measures the amount of time it takes you to convert inventory into cash. A shorter cycle means your company is more operationally efficient and in a stronger financial position.
   4. Gross Margin Return on Investment (GMROI) is a more granular KPI that shows you how much gross profit you earn for every dollar you invest in inventory. It is another strong way to optimize purchasing strategies.

Sales & Marketing Metrics

1. 5. Lead Response Time measures the average amount of time it takes you to respond to a new lead. The shorter this duration is, the better, because it can greatly increase your chances of making a sale.
   6. Sales Cycle Length indicates how long it takes you to close a sale. Knowing this can help you improve revenue forecasting, optimize resource allocation, and, if cycles are short and smooth, improve the customer experience and secure more sales.
   7. Conversion Rate is directly impacted by both Lead Response Time and Sales Cycle Length. It shows what percentage of leads turn into buying customers, which is, of course, the center point of profitability.

Inventory & Warehouse Metrics

1. 8. Inventory Turnover Rate measures how quickly you sell and replace inventory, presenting a clear picture of how well your inventory is optimized and how effectively you are meeting customer demand. By knowing what is and is not selling, you can focus your capital on the movers.
   9. Order Accuracy Rate shows what percentage of orders are filled fully and correctly. A high order accuracy rate reduces cost by minimizing returns/exchanges, boosts customer satisfaction, and drives repeat business.
   10. On-Time Delivery (OTD) Rate tells how many orders are delivered on or before the projected delivery date. A high rate builds a positive brand reputation, strengthens customer loyalty, and is a sign of internal process efficiency.

Customer Metrics

1. 11. Customer Lifetime Value (CLV) assesses the total amount of revenue your business can expect from a single customer for as long as they remain your customer. This provides the data you need to optimize customer acquisition and retention investments, predict revenue, and tailor marketing and outreach to the correct audiences.
   12. Net Promoter Score (NPS) gauges your company’s health according to customer feedback and how likely your customers are to recommend you to others. NPS helps you identify areas where you are succeeding and where you need to make improvements. The higher the score, the higher the probability of customer retention and referrals.

Streamlining Distribution KPIs with Acumatica

To support the mix of KPIs you choose, you’ll need accurate, timely data from a single source. Trying to gather information from multiple spreadsheets and disconnected systems only leads to confusion, unnecessary complexity, and unreliable data. With an enterprise resource planning (ERP) solution like Acumatica, you have assured data quality in a centralized database that helps you store, organize, and analyze that data. The system does much of the work for you through generic inquiries, reporting capabilities, customizable dashboards, and intelligent analysis functionality (e.g., AI with machine learning).

With personalized dashboards, custom configurations, alerts, and workflows, you can implement an array of KPIs via Acumatica’s intelligent design. You can also:

• • Use Acumatica’s built-in functionality (data capture, role-based dashboards, Generic Inquiries) and any needed integrations (e.g., Power BI) to visualize and analyze KPI measurements.
  • Apply Acumatica’s trend, target, and variance alerts, standard and fully customizable reports, and collection of built-in Generic Inquiries to translate your data into confident action.
  • Use automatic low-stock and late shipment alerts to quickly make corrective, customer-relationship-enhancing decisions.

Securing Distribution Success

Participating in a highly competitive, volatile marketplace requires implementing focused, strategic distribution KPIs that are aligned with your business’s goals and backed by strong data. Fortunately, with Acumatica’s comprehensive business management solution, purpose-built for the distribution industry, you can effectively manage your KPIs to secure a successful future.

To learn more about distribution KPIs and Acumatica, download our complimentary eBook, Distribution Metrics That Really Matter, and contact our experts with any questions.