Supply chain measurements allow the company leadership to identify weak and problem areas in the supply chain, and work out corrective actions to improve the current performance.
Supply chain monitoring is a complex procedure because it involves a wide range of operational processes and requires data from various internal and external partners. However, creating a set of efficient measurements (metrics) provides a framework for implementing manageable solutions, streamlining routine processes, integrating data across the organization, as well as fast and reliable data sharing with trading partners. Identifying right metrics ensures that supply chain performance works alongside the company"s business goals.
Supply Chain measurements include Inventory Turns, Cycle Time, Fill Rate and other key supply chain metrics. These metrics help the company"s management to locate problem areas, or analyze the company performance through industry benchmarking.
Efficient supply chain metrics should contain all necessary details about the measurement criteria, as well as current objectives and goals. The measurement should also specify the department (employee) in charge of the measured process. Each metric should contain actual and target performance indicators. It is advisable to set realistic and attainable goals for each metric, which could be achieved in short-term or long-term perspective. In this case, metrics will become a powerful motivation for the employees helping them to increase the current performance. Besides, in order to provide consistent and accurate measurement data for each metric, it is important to develop a reliable system that will measure supply chain performance.
The Balance Scorecard approach allows the company management to align core supply chain measurements (key performance indicators) with current business objectives. This is a good way to focus on key metrics that have direct influence on the company performance.
The supply chain balanced scorecard measurements cover three major areas:
The first category includes such key metrics as Manufacturing Cycle Time (The time period from the firm planned order until the final production is reported), Number of Inventory Turns (The annual cost of sales divided by the average inventory cost level), Truckload capacity utilized (Total pounds shipped divided by the theoretical maximum for each traffic lane, multiplied by 100), On-time pickups (The number of pick-ups made on-time divided by the total number of shipments in a period, multiplied by 100) and some others. These metrics enable monitoring of key performance indicators for all major supply chain processes.
Customer satisfaction category includes the following measurements: Order Fill Rate (The amount of order lines shipped on the initial order divided by the amount total amount of lines ordered, multiplied by 100), Transit time (The number of days from the time a shipment leaves the facility to the time it arrives at the customer's location vs. standard transit time quoted by the carrier for each traffic lane), Backorder (The amount of order lines that are not confirmed and past the requested delivery date divided by the total amount of lines ordered, multiplied by 100), On-Time Line Count (The amount of order lines shipped on or before the requested delivery date divided by the total amount of lines ordered, multiplied by 100), and Customer Order Promised Cycle Time (The "time gap" between the purchase order creation date and the requested delivery date).
Financial performance category provides for the measurements of Cash to Cash Cycle Time, COGS Percentage, EBIT Percentage, as well as Year over Year Dynamics in COGS, etc.
Balanced Scorecard approach in supply chain measurements is an efficient way to align supply chain metrics with long-term and short-term strategic objectives. This is a good way to compare actual and anticipated performance in core supply chain areas.
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