Critical KPIs for proper supply chain management

Critical KPIs for proper supply chain management

The efficiency or, rather, the effectiveness of a business’s supply chain management can be measured in several ways, and these metrics—the measurements chosen by the supply chain manager—are often tailored and specific to the kind of corporate activity being carried out, so they can take into account those aspects and metrics of efficiency, effectiveness, and productivity which happen to be most important to the business. As per previously discussed by David Kiger when he mentioned the importance of including different statistical techniques that can improve a business’s supply management, KPIs are of high importance as well. For instance, a business solely focused on transportation would probably want to pay special attention to on-time deliveries, whereas a company solely focused on sales would certainly want to measure inventory against customer service.

Generally speaking, the KPIs (Key Performance Indicators) chosen by businesses and companies to keep track are a perfect depiction of the gap between planning and execution activities in the supply chain, and act as metrics used to monitor one—and even more—of the following issues: costs, overhead, value, service and waste.

The aforementioned categories embody more than two different key performance indicators commonly found within the realm of the supply chain: they are indeed critical and have a direct impact on how well a business is really doing or performing. Here are several KPIs that are amongst the most traditionally used key performance indicators and metrics irrespective of the nature of the business activity being carried out:

Total Cost

This is perhaps one side of the two enterprise-level key performance indicators (the other is commonly referred to as customer service) that allows companies to determine overall profitability for their businesses. Pondered into this indicator are other metrics such as operating costs, demand and supply variability and, of course, inventory and stock. One simple way to provide this KPI measurement with support is by using a complementary metric on total cycle time, which takes note of how much time it takes for a good to pass throughout the whole supply chain.

Customer Service

This key performance indicator is also supervised at the enterprise level and represents the second side of those measurements whose nature relates to the aforementioned level. Customer service is comprised of other variables such as demand and supply variability and overall performance to plan. Be that as it may, the selected approach to assessing customer service in its broadest connotation and sense is with measurements and indicators for on-time full deliveries or line item fill rate, which, of course, are normally the most vital aspects and issues of customer service.

The general goal of the aforementioned two enterprise level key performance indicators is to manage both customer service and total cost against the previously determined strategic goals of the business.

Supply Variability

This indicator is responsible for measuring the status of stock and inventory against conformance to lead times and promised dates. Included here are other metrics, measurements and indicators for overall performance around the production plan, schedules, asset usage, capacity, deliveries and, of course, item availability at all different stocking facilities and locations (including that of the customer).

Demand Variability

This key performance indicator is made out of metrics for inventory, lead times, process capability, improvement to overall process capability, compliance to plan, current demand versus demand forecasts (and its accuracy and errors).

Operating Costs

All costs, the general overhead, are all included in this indicator, where distribution costs, procurement costs, storage costs, transportation costs, and manufacturing costs are also included. The aforementioned metrics allow businesses to estimate and calculate the cost of goods sold, cost per unit and even cost per kilogram, which are all useful key performance indicators normally relative to the general overhead.

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Performance to Plan

In the realm of Performance to Plan, the most commonly used key performance indicators are all those metrics for how well a business is complying with the procurement schedule, the distribution schedule, the storage schedule, the manufacturing schedule and the transportation schedule.

Inventory

These are metrics responsible for supporting the whole inventory key performance indicators, and that can be found in the area of the total stock. Included here are total inventory, obsolete inventory, working and non-working inventory amongst other metrics.

Thus, under today’s landscape, it is pretty much evident that companies have got to define not only the proper KPIs in order to scale up their businesses while minimizing waste, but also to learn how to measure and interpret those measurements. A myriad of KPIs can be used to tack and assess business performance, but as mentioned earlier the reason behind using them is to provide insights on what has been planned by a company and what is being really executed. Otherwise, a wrongful interpretation could hinder any attempt to thrive at it.

* Featured Image courtesy of Pixabay at Pexels.com

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