Measuring supply chain management performance
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Measuring the supply chain management performance is an essential task when attempting to optimize the supply chain for your business. Supply chain management is a melting pot of different business functions and through utilizing Key performance indicators (KPIs), measurements or metrics used by management, issues can be captured and efficiencies targeted.
The American Production and Inventory Control Society (APICS) defines Supply Chain Management as an intertwined business processes that involves the “ design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and measuring performance globally.’’ It covers a wide array of business functions and work with the objective of long term improvement in the processes to make it more efficient and viable. This involves measurement and analysis of key performance indicators of different aspects involved in the supply chain.
Schedule Adherence
Delivery of goods from the supplier is measured and analyzed using the Delivery Schedule Adherence (DSA) metrics. It is commonly included in the quality, cost, and delivery groups of performance indicators of the supply chain. This metric is a percentage representation of the goods delivered on time versus the total deliveries. It indicates the percentage of on time deliveries of the supply chain. Management uses this metric to rank the different contributors within the supply chain and plays an important role in decision making.
Quality Performance
Performance of the supply chain can be measured and analyzed using key performance indicators or metrics on its ability to adhere on the customers’ requirement and value. Although, mathematical indicators tends to show superficial values, quality of supply chain’s performance can be represented by numerical metrics based on the critical processes, customers’ requirements, ability to correct mistakes and adherence to target. Percentages based on the total performance of the supply chain can be computed and used by the customers for their selection.
Cost Reduction
Cost as metrics is highly measurable and can be analyzed as a key performance indicator of the supply chain’s purchase cost, transportation costs, inventory storage cost, administrative cost, and capital cost. This is probably the most important factor in the management’s evaluation of a supply chain. Comparing the actual and predicted cost through material variance analysis, can establish the efficiency of a supply chain. Cost as a common metrics among the supply chains is essential in establishing the business’ viability.
Productivity of manpower
Production output in relation to number of employees of the supply chain is a key performance indicator to determine the efficiency of the supply chain’s manpower.
The turns of product manufactured and purchased order raised are part of the performance indicators considered. The management uses this KPI to determine the supply chain’s performance, and also serve as an indicator to instill improvements.
Forecast accuracy
Forecast of materials required by the supply chain is metric that can be measured and can be used as a key performance indicator. Wrong or inaccurate forecasting can result in so many issues down the line and management ensures that this is as accurate as possible. It is a critical piece of the puzzle supply chain management has to address.
Key performance Indicators are the metrics that management use in analyzing the processes within the supply chain. It is important indicator for management uses to create a cost effective supply chain.