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KPIs in Supply chain Management
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 ?
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.
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 ?
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.