Supply Chain Council Guidance on KPIs
This blog was first published on Brook Software Solutions' blog: http://insights.brook.ie/blog/7-critical-kpis-for-the-best-supply-chain-management-process
We thank Stephanie Davies from LinkedIn for her contribution!
The effectiveness of a company's Supply Chain Management acumen (Member Support note: On our site we use the Value instead of Supply) can be measured in different ways, and the measurements chosen by a company are usually specific to the kind of business being done, so they will include those aspects of effectiveness which are most important to the business. For instance, a company focused on transportation would probably want to measure it on-time deliveries, and a company focused on sales might prefer to measure inventory against customer service. In general though, the Key Performance Indicators (KPI's) established by a company illustrate the gap between planning and execution in the supply chain, and are metrics set up to monitor one or more of the following: cost, value, service, and waste.
Within these broad categories, there are more than 200 KPI's identified by the Supply Chain Council as being critical to supply chain management and having a direct bearing on how well the company is performing. Here are seven of them that are among the most commonly used KPI's, and are relatively independent of the kind of business being conducted.
Critical Key Performance Indicators
Total Delivered Cost. This is one of the two enterprise-level KPI's (the other being Customer Service) that helps determine overall profitability for a company. Factored into this high level metric are operating costs, demand variability, supply variability, and inventory. One of the ways to support total delivered cost measurements are with a complementary metric on total cycle time, which measures the total amount of time it takes for a product to pass through the supply chain.
This KPI is also monitored at the enterprise level and is comprised of demand variability, supply variability, and performance to plan. The favored approach to measuring customer service in its broadest sense is with metrics for on-time full deliveries or line item fill rate, which are the most meaningful aspects of customer service. The overall goal of the two enterprise-level KPI's is to manage total delivered cost and customer service against the strategic goals of the company.
Supply variability KPI's measure the status of Inventory against conformance to lead times and promise dates. Included are metrics for performance to the production plan, schedule attainment, asset utilization, capacity utilization, vendor deliveries, and item availability at all stocking locations (including the customer's location).
Demand variability is comprised of measurements for inventory, lead times, adherence to process capability, improvement to process capability, conformance to plan, actual demand versus forecast demand, forecast accuracy, and forecast error.
All departmental costs are rolled up in this metric, including distribution costs, procurement costs, warehousing costs, transportation costs, and manufacturing costs. From these, it is possible to calculate cost of goods sold, cost per unit, or cost per kilogram,which are all useful KPI's relative to total cost.
Performance to Plan
Within Performance-to-Plan are measurements for how well the company has adhered to the procurement schedule, the distribution schedule, the warehousing schedule, the transportation schedule, and the manufacturing schedule.
Metrics which support the Inventory KPI are in the areas of total inventory, inventory turns, record accuracy, obsolete inventory, working inventory, non-working inventory (along with working inventory, this measures the quality of your inventory), and item availability.
A whole catalogue of KPI's can be used to measure performance, but as stated above the whole purpose of using them is to shine a light on the difference between what is planned by a company and what is really executed in its Value Chain Management execution. Making best use of these indicators should help a company to improve on and correct weaknesses identified in the value chain.
If you would like to contribute to this discussion with a post, survey or Blog, please let u know at Member Support chvaluechains (at) gmail (dot) com.
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