Supply Chain KPIs You’ll Want Every Morning
A quick scan of the Internet will yield a long list of “the biggest-ever supply chain disasters”. A few of the most infamous are listed below. The common thread? Each of these events was completely devastating to the company concerned. Would access to better supply chain and IT performance information have helped avert or mitigate these failures? Maybe, but what is certainly clear from the examples is that the complexity of modern supply chains requires better visibility into every phase of production and distribution. And better visibility requires data which can support the best supply chain KPIs for your business.
|Nike||1999||Poorly implemented demand planning software mis-forecasts demand for branded sneakers||$100M in lost sales and 20% drop in stock price in one year|
|Tri-Valley Growers||1997||Never completed ERP/SCM implementation||Contributed heavily to company closure|
|FoxMeyer||1996||Failed SCM implementation causes shipping errors||Bankruptcy|
|Adidas||1996||WMS failure causes Adidas to under ship by 20%||Significant loss of market share. Huge loss of IT talent|
|Cisco||2001||Demand planning systems unable to forecast demand-slowing associated with economic meltdown||$2.2B in inventory write-down and 20% drop in stock value|
Every company today runs on data – the key to using your data is choosing the right metrics for visibility into your supply chain. While Key Performance Indicators (KPIs) may be reviewed quarterly or monthly, the speed with which supply chain operations occur makes a daily view of more tactical and operational metrics a growing necessity.
In our experience across hundreds of implementations, we find that while every company has its own unique dynamics that must be measured, most businesses fall into one of three operational types – and these types can be grouped by a focus on customers, products, or operational efficiency.
Service Excellence companies make their primary focus the customer experience. In a consumer-oriented world, there has never been a stronger focus on service delivery. Amazon and Zappo’s typify companies that create competitive advantage and loyalty with their delivery and return arrangements. Generally, product companies that offer high value-add fall into this category.
Service Excellence companies should have their finger on the pulse of their customers and their competitors every day. Their supply chains must be flexible and responsive to customer and market needs. Management must be cognizant of issues of procurement, manufacturing, inventory, and distribution that impact satisfaction and loyalty.
The top five supply chain KPIs for Service Excellence companies are:
- Call volume and queue
- First contact resolutions
- Item fill rate
- Perfect order
- Delivered full / on time
Companies with a focus on operational excellence view all aspects of the supply chain holistically. The focus is driving costs out of each leg of producing and selling goods. Technology leaders like Apple are typically product oriented. These companies are generally focused on commodity goods and delivering the best value at minimal cost. Daily, Product Excellence companies are primarily concerned with the supply chain’s flow, its reliability, and its cost.
The top five supply chain KPIs for Product Excellence companies are:
- Total cost of goods sold
- Supply chain cost per unit sold
- Labor utilization
- Warehousing and transportation costs
- Enterprise software performance
Lean organizations focus on eliminating waste in their supply chain at every stage. Following lean management principles, supply chain KPIs are mapped by seven categories of waste and inefficiency in a business: Excessive waiting, Overproduction, Rejects, Motion, Processing, Inventory, and Transport. Lean KPIs tend to be the most tactical and daily oriented. One of the keys to cost efficiency is anticipating supply chain problems early using system data and then acting before the problems impact financial performance.
The top five Include:
- Asset utilization rate
- Defect and acceptance rates
- Queues and wait times
- Stock levels
- Safety stock
Your Supply Chain Type
So what orientation does your company have? Many of our customers say “well, a little bit of each,” and that’s completely normal. In fact, the Supply Chain Operations Reference (SCOR) model published by the Supply Chain Council outlines core attributes common to any business with a supply chain and associated core (or “Level One”) metrics.
|SCOR Attribute||Metrics||Description||Best for Type|
|Costs||COGS, Total Supply Chain Cost, Productivity, Returns Rates, Carry Cost of Inventory||Focus on measurement of total cost and its drivers||Operational Excellence|
|Responsiveness||Order Fulfillment Lead Times, Late Order, Order Accuracy, Inventory to Sales Ratio||Focus on how quickly and effectively the company delivers goods to customers||Service Excellence|
|Reliability||Fill rates, Perfect Order, Delivery Quality, Inventory turns, Order Status||Focus on getting the right product to the right customer at the right time||Product Excellence|
|Flexibility||Production Flexibility||Focus on the ability of the company to adjust operational processes to react to changing market needs||Service Excellence Product Excellence|
|Asset Efficiency||Cash-to-Cycle Time, Inventory on hand, Asset turn, Repair and Maintenance Cycle||Focus on effectively managing working and fixed capital||Operational Excellence|
There are two ways to choose your supply chain KPIs. But before that, your supply chain measurement program must be based on some idea of your end goals. Pick a particular attribute as the main emphasis. While other metrics can be measured, KPIs are only useful to the extent they can promote positive change in an organization, and most organizations can focus on only one or two areas at a time. Next, how do you assess performance? KPIs that show performance relative to industry benchmarks and peer performance are usually strategic KPIs that may be assessed monthly or quarterly. SCOR Level 1 Metrics are good examples of measures that have longer-ranging focus.
Many companies, however, are focused more on real-time/right-time metrics that can be updated daily and provide greater opportunity for faster reaction to operational issues and opportunities. These fall into three categories: demand, supply, and operations.
Daily demand characteristics that should be measured are changes in market conditions or leading indicators that suggest a shift in demand is moving through the supply chain. These metrics are designed to help address the ‘bull whip’ effect of small moves in end-buyer activity rippling back through the supply chain in unexpected ways. Demand KPIs should, by nature, be predictive. Historical sales and customer activity are key inputs to a more refined measurement or forecast of where sales are trending.
Daily supply KPIs are related to the interaction between your suppliers, procurement and production. With the world demanding more responsive supply chains, there is a greater focus on suppliers who can work with your firm’s capabilities and limits. If you are less responsive in your flexibility, then choosing suppliers who can augment your operations can be key.
Daily operational KPIs drill into machine and process performance. Queue times, rejection rates, and transport metrics such as cross-dock rates are key. The image below shows an example dashboard that managers can use to monitor supply chain performance daily. With its focus on shipment, this dashboard emphasizes service excellence. It provides a holistic view of the supply chain, process efficiency, and order outcomes.
Most companies can benefit from a review of their current metrics and KPIs. Are they being used effectively? Or are they just collecting dust? Has the organization already adjusted to these metrics so that measurements consistently fall within tolerances? If so, it may be good news for management bonuses. However, it should also signal to senior management that it is time to set the bar higher and look for newer diagnostics measures within the organization to help drive even better outcomes.
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