Common Metrics Used To Measure The Supply Chain
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There are various metrics that can be used to measure the supply chain all of which can help to provide an overview of how the supply chain is performing, not just in terms of spend and cost, but also in terms of supplier information as well as operational aspects.
The fundamental or common metrics that are ubiquitous in most organizations are typically included to ensure that the performance of the supply chain meets the general requirements of the business. Less common metrics tend to be used to measure individual aspects of the supply chain that are relevant to that particular company or industrial sector.
Key common supply chain metrics
Delivery:
Delivery is critical to the supply chain, so on time delivery (or on time in full (OTIF)) can be a very useful metric to measure whether or not the supply chain is performing as well as it should be. Schedule Adherence can be measured for both supplier and a customer deliveries.
Cost:
Costs should be a common metric because cost is imperative to the efficacy of the supply chain. The costs need to be looked at in terms of the purchase costs, travel and transportation costs, the costs of storing items when they are delivered, the cost of administering supplies and revenue/capital costs as well.
Many organizations will utilize a material variance analysis which will look at actual vs predicted costs.
Forecast Accuracy:
Forecasting the needs for items to be supplied in the supply chain is critical if the supply chain is to operate effectively. Inaccurate forecasting will lead to a number of problems later down the line, so there is a real need for accurate forecasting and for the accuracy to be measured to ensure that it is as accurate as possible.
Quality/Defects:
Right first time is a critical feature within the supply chain. Deliveries, not just on time but also in terms of quality are vital;. Were rejects kept to an acceptable level? A standard measure is PPM or Defects in Parts Per Million.
Stock outs:
Stock outs are expensive because they cause delays in the supply chain and affect its overall performance to the customer. The number of stock outs will impact greatly in terms of costs, transportation issues etc, so it deserves to be listed as a specific metric to be used within any analysis of the supply chain.
Productivity:
Measuring the output of your organization in relation to its staff has become a key indicator that many companies measure. This might be in turns of products manufactured or even purchase order raised. Productivity indicators can be key to understanding the efficiency of your organization and help you to better understand where improvements are required.
Purchase orders are obviously vital to the operations of any business procuring either materials or services but with the purchasing process fraught with inefficiency and bureaucracy, how can you ensure that your business is as ‘sharp’ as possible when processing purchase orders?
1. Automate where possible.
Electronic ordering can reduce administration dramatically –utilizing methods such as Purchase to Pay (P2P) technology can not only streamline your process but also help in contract adherence, budget control and cash flow.
2. Use your ordering system effectively!
This may sound too obvious, but ensuring your using your ERP/MRP or other procurement system properly can streamline the process by reducing rework and corrections downstream. No system is perfect but ensuring that everyone is trained to effectively use what you do have is a good start
3. Ensure your authorisation process is effective
Reduce bottlenecks in terms of the authorisation chain. If your purchase orders have to be authorised by the world and his wife, then it is very likely that it will take a long time to process the purchase order. So place your trust in people and ensure that the authorisation chain is quick, simple and has no bottlenecks.
4. Raise PO’s when necessary
Consider when your organization needs to raise a purchase order – do you raise PO’s for everything? From a postage stamp to capital equipment – do you order on every “buy” signal or can you batch up minimizing orders – reviewing your ordering mechanisms can help reduce administration.
5. Improve access to information
Ensure your buyers or order administrators have the right information at hand in order to raise their order swiftly. Do they require technical specifications, do they have ready access to the approved suppliers list – can you help with improving access to pricing information?
6. Is that paper copy really necessary?
Purchasing processes can produce vast amounts of paper – consider its use – do you take file copies of your Purchase Orders? How much of your process could you run electronically?