KPIs in Supply chain Management
The suggestions provided are worth measuring. The metrics I value are:
- Forecast Accuracy and Variability, Supply Plan Stability
- Supply (Production) Variability (e.g. Production Plan Performance - Adherence to Schedule, Yield, etc.)
- Delivery Performance (OTIF, Span, etc.)
- Finished Goods Order Lead Time
- Inventory Days on Hand (in units)
- Total Supply Chain costs (inc. logistics, transportation, invenotry carrying costs, write-offs due to expiry and obsolescence, lost sales due to stock outs, supply chain organization overhead, etc.)
%Net revenue - warehouse+ transportation+ overhead
%storage capacity - optimize use of space
Case fill% - service/customer experience
Cost per case - productivity / budget
Case/pallet / hour - productivity / continuous improvement
Lines per order complexity
Ontime shipping/delivery - customer experience
Days supply - capital/inventory turns
Safety TIR/LTIR/behavior observation
Here are some I have used with companies that have been successful focus points:
- Storage Space Utilization - storage space in use / available space
- On Time In Full - Measure of orders shipped on time and in full
- Total Delivered Cost/Margin - How many times do you send a small order and you have not even covered the shipping costs or the costs of pulling the order?
- Transportation Fill Ratio - If you are using your own transportation, are you filling the space to a maximum?
- Perfect Order Metric - On Time x Complete x Damage Free x Accurate Invoicing = Perfect Invoice
- Performance to Plan
Others have already convered many of the KPI's I have used. I would only add a couple comments: 1) Different industries value different characteristics in their supply chain. For example, one business may place a very high value on the supplier's ability to cost reduce the product or the process in a creative way that still provides the required form/fit and function. Other customers just want the same product cheaper, faster and on time. Allowing your supplies to understand what you are trying to accomplish provides better value because they know more about their products than you do. 2) It's not your responsibility to assure the profitability of any one supplier but it is vital to know the financial condition of that supplier at all times. Some times you can get a feel for a supplier's financial condition if they are not supplying you on time - they could be having cash flow problems and can' order enough material at any one point in time to fill your order.
I think we need to also consider the following KPI's:
1- Net Working Capital % of Sales (or Net Revenue)
2- I think Case Fill rate % itself does not refelect the customer satifaction. So, SCM should establish a Customer Satisfaction Feedback Report based on technology, and gain direct feedback from customer itself.This is a two way evaluated KPI not just a one way assumption based evaluation as in case "Case Fill Rate%". For instance, high number of stock return, failure in after delivery service can impact Supply Chain Management as well as whole business while still the Case Fill rate could be still high.
3- YOY (Year over Year) complex reduction . A complex SCM results is frustration and impacts business Gross Margin. This ensures a process in place that take cares of supply chain complex reduction
4- % of Bad inventory (short shelf life/ Nonmoving /Slowmoving ) vs total inventory.
5- % of successful New Products vs Planned
6- Forecast Accuracy % : is a main factor for product and materials planning
7- Capacity availability: need to be reviewed on annual basis for budgetary purpose
8- Cost Saving as "% of Gross Margin vs NR" (Net Revenue). Supply Chain plays a significant roll in cost saving and process improvement that results in saving, and accordingly GM improvement
9- Number of NCR (Non Conformance Report) : Even though it is a QA KPI, but SCM plays a significant role in preventive/ corrective actions.To me a transparent organization will encourage NCRs to be recorded as they are sources towards business improvement.
This is a great discussion and all of the KPIs mentioned are very imprtant as well as crtitical to success. I do see that in the changing market where customers expectations continue to increase that the most critical one is Perfect Order Fullfillment - Right item at the right time with no errors or flaws. Everything else can be measured as a sub-component of this:
- Acquistion Lead tiime
- Transportation time
- % returns for damage or wrong item
Only once this is satisfied can a supply chain company focust on profits, cost reductions, etc.
Taking a holistic yet generic approach to the value chain, I would prioritize as follows:
1) Health & Safety incidents
2) OTIF (measured in the most 'brutal' way: Line fill rate against initial customer request)
3) OEE - including KPI tree 2-3 levels down
4) Working Capital (broken down into relevant details on Warehouse value across the entire value chain, AR and AP)
5) Forecast Accuracy on a relevant time horizon compared to lead times in the process
6) Waste & Obsoletes
Customers are increasingly concerned with social and environmental responsibility, so I would add "ethical" sourcing to the list of KPIs. This can be measured in terms of percentages (based upon numbers or spend) that have been audited and passed (i.e. a passing score). Some customers also look for suppliers that have registrations under ISO 14001 (environmental), OHSAS 18001 (safety) or other management systems. In addition, on the product side, companies are typically measuring whether suppliers are responsive to required product declarations such as conflict minerals and product environmental schemes like RoHS. This can all be added to the safety metrics that were proposed earlier to create a SER (social & environmental responsibility) dashboard.
While I appreciate that some customers use the ethial and KPI information to make choices, I am cynical in regards to the VW / diesel scandal and how quickly the public seems to have forotten. To be clear, who would use and pay for performance of these KPIs? Are costs absorbed into the prodcut / service price?
When supply chain savings are measured in the service industry, many procurement departments focus on the price of an implement instead of the total cost of completing the job with the implement. Operations has been left out of the purchasing process in many cases when they have extremely valuable information that could save the company much more than purchasing a tool at a cheaper cost (no matter how well the supply chain is managed). Measuring the cost of a hammer vs. the cost of a nail gun is one example. If procurement is not measuring the entire process of putting on the roof, then they may be costing the company more money than they save. This is exactly what happens in the service industry when suppliers are chosen as the "preferred" supplier with all avenues cut off to other suppliers who may have innovations that can improve processes and save much more money. Procurement needs to get the operators back in the room and include them in the purchasing process.
Some of the Key Performance Indicators that we use to measure success and efficiency are as follows:
Order Fill Rate
Unit Fill Rate
Line Fill Rate
% in stock
Backorder value trend
# of new product launches vs plan
Finished good inventory value
Most of the contributors to the post here have listed a significant amount of KPIs that I believe are great in measuring supply chain health and efficiency. I would suggest that you need to choose a mixture of lead and lag measures as part of measuring the health of your supply chain.
I would just add that if you look towards the SCOR model there are actually a substantial list of KPIs to choose from that you can apply based on the relevance and ease of calculating within your business.
One metric that has not been mentioned is Total E2E Cycle Time or even product cycle time. This is a measure of the total time it takes from order to fulfillment or the total time it takes to process a product through the business. The benefit of the measurement is that it shows where your wastage is and allows you to focus efforts to approve your agility to respond to your customers.
We all need to pay specific attention to managing third party risks, KPIs for a global Selecting the right KPIs, collaborating across the supply chain as well as with internal functions to take appropriate action will lead to a more competitive supply chain, positive customer experiences and a healthier business.
Managing third party risk is becoming an increasingly complex challenge, especially for organizations operating in EMEA and APAC.
Supply chain transparency, beneficial ownership, the credibility of external information sources and politically motivated anti-corruption regimes, are just some of the new challenges organizations must navigate to truly understand their risk exposure with third party engagements.
While many organizations operating within EMEA and APAC consider third party risk as one of their top risk areas, and a significant concern for their business, organizations need to pay more attention to managing these risks, particularly where current programs are at a basic or reactive level.
The Personal Financial Ratios:
- Basic Liquidity Ratio = liquid assets / average monthly expenses. Should be 4-6 months, or even longer, in the case of a medical professional employed by a financially insecure HMO. In a low interest rate environment, iMBA Inc offers 12-24 months for consideration.
- Debt to Assets Ratio = total debt / total assets. A percentage which is high initially, and should decrease with age as the medical professional approaches a debt free existence
- Debt to Gross Income Ratio = annual debt repayments / annual gross income. A percentage representing the adequacy of current income for existing debt repayments. Medial professionals should try to keep this below 25-30%.
- Debt Service Ratio = annual debt re-payment / annual take-home pay. Medical professionals should try to keep this ratio below about 40%, or have difficulty paying down debt.
- Investment Assets to Net Worth-Ratio = investment assets / net worth. This ratio should increase over time, as retirement for the medical professional approaches.
- Savings to Income Ratio = savings / annual income. This ratio should also increase over time, especially as major obligations are retired.
- Real Growth Ratio = (income this year – income last year) / (income last year – inflation rate). It is desirable for the medical professional to keep this ratio growing faster than the core rate f inflation.
- Growth of Net-Worth Ratio = (net worth this year – net worth last year) / net worth last year – inflation rate. Again, this ratio should stay ahead of inflation.By calculating these ratios, perhaps on an annual basis, the medical professional can spot problems, correct them, and continue progressing toward stated financial goals.
59 months ago
- On-Time Delivery Performance:
- Why: Timely delivery is crucial for customer satisfaction. Monitoring on-time delivery helps assess the efficiency of your supply chain in meeting customer expectations and avoiding disruptions.
- Inventory Turnover:
- Why: High inventory turnover indicates effective inventory management, reducing carrying costs. It reflects the supply chain's ability to balance stock levels with demand, preventing overstock or stockouts.
- Order Accuracy:
- Why: Ensuring orders are accurate minimizes returns and enhances customer trust. Tracking order accuracy is vital for maintaining a positive customer experience and reducing operational costs associated with order corrections.
- Lead Time:
- Why: Efficient supply chains minimize lead times, enhancing responsiveness to market changes. Monitoring lead time helps in optimizing procurement, production, and distribution processes.
- Supplier Performance:
- Why: Evaluating suppliers' performance in terms of quality, reliability, and adherence to deadlines is critical. It ensures a stable and reliable source of materials, reducing the risk of disruptions.
- Cost per Order:
- Why: Calculating the cost per order provides insights into operational efficiency. Lowering this cost without compromising service quality indicates a streamlined and cost-effective supply chain.
- Cash-to-Cash Cycle Time:
- Why: This KPI measures the time it takes for invested cash to be converted back into cash through sales. A shorter cash-to-cash cycle time improves liquidity and overall financial health.
- Return on Assets (ROA):
- Why: ROA evaluates how effectively assets are utilized to generate profits. A higher ROA indicates efficient use of resources in the supply chain, contributing to overall business success.
- Supplier Lead Time Variability:
- Why: Consistency in supplier lead times is essential for maintaining a predictable production schedule. Reducing lead time variability minimizes the risk of production delays and improves overall supply chain reliability.
- Customer Order Cycle Time:
- Why: Monitoring the time it takes from order placement to delivery provides insights into the efficiency of order fulfillment. A shorter cycle time enhances customer satisfaction and competitiveness in the market.
By tracking these KPIs, businesses can gain comprehensive insights into the health and efficiency of their supply chain systems, enabling them to make informed decisions, enhance customer satisfaction, and maintain a competitive edge in the market.
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