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

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