Key Indicators to Measure Supply Chain Performance
This Article first appeared in Logistics Brief on February 19, 2020.
There is a lot of metrics to keep track in the varies function, but a supply chain should focus the essential or real Key Performance Indicators (KPIs) which will display the most important headlines immediately. It should not be difficult to determine which KPIs to capture, nonetheless, every industries and environment is unique, it is not prescriptive here but merely a guide for majority organization for a most reliable source of actionable performance data. They were namely – Perfect Orders, Fill Rates, Cash to Cash Cycle Time, Inventory Days of Supply, Customer Order Cycle Time and Total Supply Chain Management Cost as Percentage of Sales.
Performance Indicator Order Fulfilment
Always aim for perfect orders, results in associate with your performance, provide an insight of challenges impacting services, cost and supply chain effectiveness.
The key components are:
- On time delivery – a calculation that determined by the percentage of sales orders that delivered on time.
- In full delivery – the percentage of sales orders that are delivered as per promised, in good contents categorized under quantity and quality of the say the contains.
- Damage-free delivery – measurement can be incorporated into full metric as above or stand-alone.
- Accurate documentation – the percentage of sales orders which is accomplished with required documents throughout. Documents may vary but commonly includes advance shipment notification, labels and invoices. In some cases, heat test, milling certificates, certificates of origin, certificates of free sales, etc. are essential and normally imposed with a fine for not providing them on time.
Performance Indicator of Fill Rate
It is always good to keep records of the fill rate which allows you to move ahead on the full performance. It can be important to customer satisfaction and has implications for transportation efficiency.
The key components are:
- Order fill – the percentage of orders successfully delivered on the first attempt.
- Line fill – the percentage of order lines successfully delivered on the first attempt.
- Unit fill – the percentage of items delivered on the first attempt.
Cash Conversion Cycle Time
Cash Conversion Cycle Time may not always be a financial KPI but provides other aspects of supply chain health.
Reduced cycle time is a good indication that leanness is increasing, releasing your capital spend that comes along with your business’ profitability which also as a guide to how well your supply chain assets are being utilised.
Inventory Days of Supply
Thwe KPI tells you the number of days your inventory would last without replenishment, before running out yet always seeks to minimize inventory days of supply in order to reduce the risks of excess and obsolete inventory. Other financial benefits to minimizing this metric are that excess inventory trends to tie up operational cash flow.
This indicator measures how long it takes to deliver a customer order after the purchase order (PO) is received, actual delivery date – purchase order creation date. A variant of this is the promised customer order cycle time: date – purchase order creation date, requested delivery date – purchase prder creation date. The customer order cycle time KPI is useful for evaluating customer service and supply chain responsiveness, it measures the number of days between receipt of a purchase order and completion of the customer’s delivery. Customer order cycle time also helps when diagnosing issues with the cash to cash cycle, espically of the latter is increasing over time.
Importance of Performance Indicators
KPIs were used for performance measurement to ensure business activity are always evaluating against a static benchmark. One is able to visualise the fluctuations immediately for a quick respond and if performance moves in the desire results. If consistently meeting or exceeding the required goals, you may set a higher standard by raising the bar to achieve your business improvement strategy. It also plays a part in attracting and retaining customers. In any business, it is also tied into agreements or contracts as a service level agreement to provide visibility of performance, objective quantitative and qualitative evaluation, align them with goals and sharpen the focus on improvement. Should performance fall below have agreed levels, probable application of penalties may apply.
Cross-Functional and Functional KPIs
Functional KPIs offer values typically goes under the heading of order-to-cash (OTC) fulfilling a customer’s order. comprises a few sub-processes like Customer-order capture, Order picking and packing, Dispatching, shipping, and delivering the order, Billing the customer and Receiving and recording the customer’s payment.
For the warehouse, the percentage of orders picked with errors – incorrect quantity, Percentage of orders picked with errors – incorrect product, Percentage of order lines picked with errors – incorrect product, Percentage of order lines picked with errors – incorrect quantity, Percentage of order lines picked with errors – incorrect product.
The picking-performance measurement will allow you to see trends and patterns in picking accuracy, simple problem may lie with that product’s markings, labels, storage location, or proximity to a similar product in the slotting plan.
It is important to align all KPIs with all your overall business objectives and should be actionable, providing timely, accurate data that owners can interpret and utilise. Do ensure each KPI has an “owner”, whether that is an individual or a group of people. Design each KPI as a leading metric, able to assist with the prediction of performance issues nd each KPI should be easy for its owners to understand, reinforce and/or balance others but not contradict or undermine the others. Preferred to be target or threshold indicating a minimum-acceptable level of performance, while each KPI is proved stable and effective, it should be reinforced by incentives or compensation. Not forgetting all data to be updateable, as they will lose relevance over time.