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KPIs in Supply chain Management

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List the KPIs that you think are the most important KPIs to track the health and efficiency of your supply chain system. Also why do you think that the lsted KPIs are important to measure ?

Khalil Ahmed
29 months ago

28 answers

3

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.)
Chris Horan
29 months ago
Nice - Dr. David E. 8 months ago
2

%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
Focus areas
Flexibility-responsiveness-safe-efficient

Tim Scott
29 months ago
A good product list, thanks - Dr. David E. 8 months ago
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Thanks @Tim. %Storage capacity. Do you think that the visibility on one centre place of all the products in storage through a system would be beneficial to make informed and on time decision ?

Khalil Ahmed
29 months ago
YES-especially for fungible goods - Dr. David E. 8 months ago
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Here are some I have used with companies that have been successful focus points:

  1. Storage Space Utilization - storage space in use / available space
  2. On Time In Full - Measure of orders shipped on time and in full
  3. 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?
  4. Transportation Fill Ratio - If you are using your own transportation, are you filling the space to a maximum?
  5. Perfect Order Metric - On Time x Complete x Damage Free x Accurate Invoicing = Perfect Invoice
  6. Performance to Plan
Ben Hershey
29 months ago
Hi @Ben. Thanks for your list. What about KPI for profitability of supply chain ? - Khalil 29 months ago
Regarding your second point: on time in full: have you considered whether this is measured against a customer request date or a confirmed ship date? - Andrea 29 months ago
Hi Andrea - this depends on what constitutes a customer. In a Made to Stock scenario, the forecast is generated to identify the required stock of each SKU at the point of primary sales before the start of the sales period. Quantity delivered in full before that due date constitutes OTIF. In a granular version, standard lead time is used to calculate whether the shipment reached in time (contd.) - Abhijit 24 months ago
(contd.) there is actually a very limited version of OTIF definition in such case. In Made to Order, it is obviously the date of receipt for customer as per the Incoterms (e.g. FOB, CIF, etc.) - Abhijit 24 months ago
Thanks - Dr. David E. 8 months ago
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Hi @Ben. Thanks for your list. What about KPI for profitability of supply chain ?

Khalil Ahmed
29 months ago
Khalil Ahmed - it is useful to understand how the supply chain can be considered as a profit center. In my opinion, there are only cost considerations unless revenue is one of the KPI for the supply chain. - Abhijit 24 months ago
I agree with the KPI's that have been listed. What I haven't seen however are links to other related financial metrics around working capital. This includes receivables, high receivables are an indication that the market is over stocked and therefore even if ones inventories are low they are simple elsewhere. Linked to this are payables. If they are too low, one may be paying suppliers too quick - Charles 20 months ago
Thanks - Dr. David E. 8 months ago
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Returns
Inventory shrinkage

VOLKER HOEHNE
29 months ago
Good - Dr. David E. 8 months ago
0

Khalil,
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.

Joe Baker
29 months ago
Thanks - Dr. David E. 8 months ago
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Thanks @Joe Barker. I might not have presented my question very well. Actually I was discussing the profitability of a distributor supply chain as distributor relies more on supply chain so should a distributor measure profitability as an important KPI for its business ?

Khalil Ahmed
29 months ago
Some time it may be even more so. - Dr. David E. 8 months ago
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In today's fast pace e-commerce world, in my experience, the top KPI's are:

  1. Same Day Order Fill Rate (SLA)
  2. Order Accuracy
  3. Inventory Accuracy
  4. Lead time between order placement and order receipt (Last Mile Delivery)
Juan Domenech
29 months ago
Good list - Dr. David E. 8 months ago
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Hi @Juan. Thanks for your answer. You are absolutely right according to current fast pace environment. What Tools/Systems do you recommend are best for inventory accuracy and visibility in one place ?

Khalil Ahmed
29 months ago
JIT rocks - Dr. David E. 8 months ago
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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.

Masoud Sharifi
29 months ago
Very nice - Dr. David E. 8 months ago
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That's great input @Masoud. Thanks for sharing. Considering point 2 as an important factor isn't it good idea to estabilish CRM system where we can get feed back and manage them accordingly.

Khalil Ahmed
29 months ago
Bilateral CRM is key - Dr. David E. 8 months ago
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@Chris, just wanted to add one thing with Total supply chain cost and revenue generated by supply chain would be most important KPIs, specially for finance.

Khalil Ahmed
29 months ago
OK - Dr. David E. 8 months ago
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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
  • etc.

Only once this is satisfied can a supply chain company focust on profits, cost reductions, etc.

Jon Newsome
28 months ago
Thanks - Dr. David E. 8 months ago
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Mine were fill rates of 95% or better- no backorders, cost savingss, invetory turns, and quality measures

Jeff Flansbaum
28 months ago
OK - Dr. David E. 8 months ago
0

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

Morten Heedegaard
27 months ago
Good lisk - Dr. David E. 8 months ago
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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.

Bruce Klafter
26 months ago
Thanks - Dr. David E. 8 months ago
0

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?

Glenn Frommer
26 months ago
Agree - Dr. David E. 8 months ago
0

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.

Holly Borrego
24 months ago
G0od thoughts - Dr. David E. 8 months ago
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Limiting your portfolio of suppliers also helps. I had over 80 suppliers in the beauty industry that I am still looking for a job

Jeff Flansbaum
24 months ago
Quality NOT Quantity - Dr. David E. 8 months ago
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Regardless of how much technology has been embedded on the distributor work center there is always some labor integrated into that part of the supply chain, therefore I would add the following KPi´s:
1.- Productivity and
2..- Cost of HC/Net Income

Armando Leyva
23 months ago
YES - HR is costly, too - Dr. David E. 8 months ago
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RM:Raw Materil Cost
PM:Packaging Material
Mnf:Production Cost (Labour+Energy...)
Cost of Good Sold
+Profit
+Tax
+Financing cost
+Company Overheads
+Distrubutor Cost+Profit
+Retailer cost+profit
+Transportation To home
.....waste cost

Dilsat Uyguroglu
23 months ago
OK - Dr. David E. 8 months ago
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Follow the money. You cannot go wrong.

Glenn Frommer
23 months ago
Agree - Dr. David E. 8 months ago
0

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
Forecast Error
Finished good inventory value
Inventory osolescence
OTIF

Paul Ellison
20 months ago
Thanks - Dr. David E. 8 months ago
0

inventory turnover
rate of return
% of out of stock products
order status
back/perfect order rate
warehousing/transportation costs
cost of inventory
supply chain cost per unit sold

Paolo Beffagnotti
20 months ago
OK - Dr. David E. 8 months ago
0

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.

Sam Rabi
20 months ago
Excellent - Dr. David E. 8 months ago
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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.

David Whiting
16 months ago
Well said - Dr. David E. 8 months ago
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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.

Dr. David E. M
8 months ago

Have some input?