Ensuring an agile, adaptable and optimal supply chain doesn’t happen by accident. Every link in the chain needs to be measured for performance both individually and holistically. A supply chain which operates under the gaze of supply chain performance metrics will, undoubtedly, be more productive and thus more profitable.
Understanding the Supply Chain and Performance Management
Each and every supply chain will have specific functionalities and characteristics that are to some degree, unique to their own industry. Effectiveness and therefore performance metrics, must take in to account individual priorities.
Nonetheless there are notable areas where key supply chain performance management metrics often referred to as Key Performance Indicators (KPI’s), can be identified.
Supply and Demand including Variability
The hardest element for those managing supply chains is taming the beast of the unknowns. Better performance is achieved when the unknowns of supply and demand are minimised and the two matched together. This involves looking closely at a myriad of areas and systems including sourcing, procurement, conversion and logistics. Demand variability can be understood and better predicted through adherence to protocols, accurate lead times, close assessment of actual versus forecast demand, as well as minimising error and increasing accuracy. Supply variability requires a close assessment of conformance, attainment versus plan, asset and capacity utilisation and availability throughout the regions of the supply chain. Collaboration between the supply and demand elements of the chain leads to increased competitiveness.
Communication, Integration and Collaboration
The danger to a supply chain’s holistic performance is how easy it is for a supply chain to become fragmented. A key performance management metric has to include measuring communication, integration and collaboration between every link in the chain. Communication improves efficiency and importantly, the productivity of all the supply chain operations. Therefore systems should be in place for accurate sharing of information and the key relationships involved.
Likely the most tangible supply chain performance management metric involves accurately assessing, measuring and recording cost. This involves scrutinising all costs involved in the supply chain from operating costs, distribution costs, procurement costs, warehousing costs, transportation costs and manufacturing costs. With accurate systems it is therefore possible to come up with a cost per unit which can be measured against the business plan.
Measuring the supply chain against customer service expectations is essential to the overall measuring of the performance against the business plan. For most supply chains this will involve assessing factors such as on-time deliveries or line item fill rates. The ‘end of chain’ outcome is essential to the overall success of the chain.
Performance Management Metrics should also focus on the inventory throughout the chain, both in terms of total inventory and accurate recording but specifically in terms of factors such as obsolete inventory as well as working and non-working inventory.
Key Supply Chain Performance Metrics are Essential
Profitable, productive, optimal performance is essential in any supply chain. Measuring every key element of the chain enables you to hone in on areas for improvement, ultimately benefiting your bottom line.