SCM Champ: A Supply Chain Management Blog

SCM Champ: A Supply Chain Management Blog
Supply Chain Management: Its Not About Technology, Its About Economy

Friday, November 9, 2012

Supply Chain Metrics and KPIs

Supply chain metrics are the measurements to track and evaluate supply chain performance. It enhances our understanding about how our supply chain is operating and performing over a period of time. One thing that everyone needs to understand is that merely having a scale of measurement is not the solution to the gray areas, the real solution is developing a course of corrective actions which can be used to minimize or totally remove the gaps between the our benchmarks and measurements.

The scope of supply chain performance enhancements and optimization encompasses several supply chain areas such as Procurement, Inventory, Warehousing, Operations, Distribution, Order fulfillment, Delivery, Transportation and logistics and Customer Service etc. through the Key Performance Indicators (KPIs) of each of these areas.

The most effective use of KPI's is only possible when one first selects the right metrics to measure and ensure that managers fully understand what those metrics are actually explaining them. The best metrics to use are those that combine in a ratio form and this means that we lose some of the underlying raw data trend that is available. Combining delivery time with order value will give us an index of how well we are at getting our order pipeline to our customer base but the smoothing effect of the ratio will hide long delivery times for low value products which may increase rather than decrease overall customer satisfaction leading to a knock on effect in customer care and contact center KPI's. Otherwise what one will have is a huge choice of metrics to choose from resulting in a KPI overload with metrics duplicating information and business trends leading to information overload for management which is a perfect KPI disaster recipe and a nightmare for supply chain performance management team.

Development of right KPI’s that are both relevant and effective at measuring Supply Chain performance and progress towards strategic goals is very important. The process links Strategy to Critical Success Factors (CSF's) for the business and then to the development of a set of KPI's that will both:
  • Measure progress towards the business strategy, 
  • Provide visibility for all levels of the business as to their contribution to the business strategy
 Remember Pareto's 80-20 Principle, 80% of the benefit will be derived from 20% of the activity - the same applies with our supply chain metrics.

Some Important Key Result Areas and their associated KPIs are as below:

Supply Chain Management Input KPIs

Company Profile
  1. Sales
Supply Chain Management
  1. Existence of Business Plans
  2. Deployment of Business Plans
  3. Who reports to who in the Supply Chain
  4. Existence of Service Level Agreements
  5. Frequency of employee survey
  6. Performance of MRP-II process
  7. Number of times product is handled
  8. What Cross functional KPIs
  9. Software used to support Supply Chain
  10. Electronic commerce used in what activities
Procurement and Supplier Management
  1. Procurement Policy Document
  2. Where does Procurement Manager report
  3. Strategic Supplier Base Analysis
  4. Supplier Evaluation Program
  5. Number of joint improvement programs
  6. Rationalizing Supplier Base
  7. Number of Sole Suppliers
  8. Length of contacts with Suppliers
  9. What KPIs to manage procurement
  10. No. & Value of Purchase Orders
Inventory Management
  1. Inventory Policy document
  2. Pareto analysis of Inventor
  3. Customer and Product profitability
  4. Stock turn performance standards
  5. How often lead times reviewed
  6. Who owns Finished Goods Inventory
  7. Who owns Sales Forecast
Distribution Centre / Warehouse Management
  1. Frequency of stock taking
  2. Random storage in DC
  3. Barcodes and scanners used in DC
  4. Picking documents printed in printing sequence
  5. Batch Picking
  6. Products ordered together stored together
  7. Timeslotting in DC
  8. KPIs used to manage DC
Transport Management
  1. How many transport contractors used
Customer Service
  1. Number of customers
  2. Customer Service Policy Document
  3. When is invoice created
  4. Customer Research into Service Performance
  5. Use customer research to develop SC strategies
  6. Customer payment terms
  7. Customer Service KPIs used

Supply Chain Output KPIs

Procurement & Supplier Management KPIs
  1. Number of suppliers managed / purchasing FTE
  2. Supplier in full
  3. Supplier on time
  4. Supplier rejections
  5. Average variable cost of placing order with supplier
  6. Cost of purchasing as % of gross sales
  7. Total procured spend as % total business costs
  8. Account payable days
Inventory Management & Forecasting
  1. Number of SKUs / Line Items
  2. Stock turn over - finished goods
  3. Stock turn over - raw materials
  4. Level of accuracy in Catalogue
  5. Stock available at customers first request
  6. Sales Forecasting Accuracy by SKU and volume
  7. Inventory obsolescence
  8. Inventory management cost as % of gross sales
  9. Inventory holding costs (IHC) as % of gross sales
  10. Interest charge for IHC
  11. Inventory holding costs (IHC) as % of inventory value
  12. Average inventory value
  13. Raw material days (if relevant)
  14. Work in progress days (if relevant)
  15. Finished goods days
Warehouse / DC KPIs
  1. Number of order processed in DC per day / FTE
  2. Time product availability for sales after receipted
  3. Order picking accuracy rate
  4. Service level - DIFOT (delivery in full on time)
  5. Inventory items incorrectly located
  6. Inventory items with incorrect stock balances
  7. Warehouse shrinkage
  8. Total warehouse time lost per person thru injury
  9. How many times is product handled
  10. Picking productivity by pickers and all staff
  11. Inventory accuracy rate at Item level
  12. Average lead time in DC
  13. Number of DC in network
  14. DC / Warehousing cost as % of gross sales or GP 
Transport KPIs
  1. Number of customers order despatched per day / FTE
  2. How often are trucks fully loaded
  3. Amount of backloading
  4. On time deliveries
  5. Total Cost as a % of gross sales or GP
Customer Service KPIs
  1. Number of customers order processed per day / FTE
  2. Average lead time for all orders
  3. Order entry accuracy
  4. Delivered in full to customer - by case / unit
  5. Delivered in full to customer - by line / SKU
  6. Delivered in full to customer - by order
  7. Delivered on time to customer
  8. Time window that defines on time
  9. In full - on 1st request or negotiated or std?
  10. Percentage of customer claims
  11. Product returns
  12. Product Damage
  13. Invoice accuracy
  14. Customer Service Cost as a % of gross sales or GP
  15. Accounts receivable days
  16. Retrieval of signed PODs
  17. Stock Outs 
Supply Chain KPIs
  1. Total logistics cost as % of gross sales or GP
  2. Cost / Order despatched
  3. Cost / Line despatched
  4. Cash Cycle
  5. Logistics Cost / Customer
  6. Cost as a % of COGS
  7. Gross Profit
  8. Cost as a % of Gross Profit
Production KPI's
  1. Production adherence to plan weekly

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