The average Supply Chain management professional measures their Supply Chain by reviewing cost reduction. Is cost reduction all that there is in measuring Supply Chain performance? Sure, supply chain cost reduction is important in reducing the cost of goods sold (COGS) and increasing profit, but there are other measurements which should not be forgotten.
3 Key Metrics for Measuring Supply Chain Performance Beyond Cost Reduction
If cost reduction is not the only thing to measuring supply chain performance, that begs the questions: “Maybe we should be measuring other Supply Chain Management activities and what would they be?”
- Inventory measurement is critical and it is money after all in that it took a capital expense to procure. The goal is to keep inventory levels at a minimum to meet customer needs. A pull system is better than a push system. Review Inventory turns and Return on Assets.
- What about measuring working capital in the Supply Chain? The handful of companies in the top quartile of working capital performance had working capital expenditures as a percentage of overall revenues of between 6% and 10%. In comparison, the poorest-performing companies in the lowest quartile had a range of working capital between 23% and 39% as a percentage of revenues.
- Isn’t time important? Shouldn’t time, both international and domestic, be measured? Absolutely time is a critical component of measuring supply chain performance. What kinds of “time” measurements exist?
- Promise time,
- lead time,
- cycle time,
- transit time,
- delivery time,
- unloading time,
- processing time,
- queue time,
- quality assurance time,
- processing time,
- turnaround time,
- receiving time,
- and shipping time to the customer, (and I bet you could think of more “times” to measure!).
For clarity, in measuring supply chain performance, we should be focusing on:
- working capital,
- and time.
Cost reduction is still very important. We just can’t forget cost reduction. It is the main measurement benchmark in measuring supply chain performance, isn’t it?
Transportation is measured just as a cost rather than what it does for the rest of the organization. Again, not saying cost reduction is an indicator of poorly measuring supply chain performance, but it’s not the only thing to measure when considering transportation. Other areas to consider measuring as it relates to transportation:
- Managing inventory
- Ensuring that lost sales are minimized
- The supply chain is efficient by transit time
We still focus on costs. We are all in business to be successful and profitable, aren’t we?
We should not forget that non-cost based measurements could prove to be beneficial to Supply Chain professionals.
10 Soft Metric Considerations in Measuring Supply Chain Performance
- Collaboration and frequent communication between Supply Chain partners, including those considered at one time as a competitor: the supply chain has become increasingly collaborative, and supply chain entities are taking note of how collaboration between once-perceived enemies and competitors can actually help build trust with consumers, maintain compliance with authoritative entities, ensure transparency across the organization, be applied and implemented through different software, and further drive customer-centric focus. Read more.
- Customer Service Levels: When it comes to how a shipper defines the value of a logistics provider or 3PL to the bottom line, there are often several Key Performance Indicators (KPIs) and Logistics Metrics taken into consideration. Every company knows customer service is important, but it is seldom well-defined, and even more rarely measured in logistics operations. Read more.
- Effective, successful Key Performance Indicators (KPIs)/A balanced scorecard: Effective KPI management starts with some key areas to have both parties understand. These are core principles which will guide the rest of the more detailed and statistical KPIs found in the Service Level Agreement. Read More.
- Using supply chain technology to aid in measurement & efficiency: In today’s highly competitive marketplace, it’s imperative for businesses to innovate new ways to streamline their supply chain and optimize productivity. With the aid of modern supply chain technology applications, you can create better visibility within your supply chain, which will enable you to have more control over your business and stay ahead of the competition. Technology can help to simplify your supply chain management, which will enable your business to operate more efficiently, give you more visibility and control over your inventory, and help to reduce your operational costs. Read More.
- RFID, AIDC, and IOT Systems: The advantages of using RFID-, AIDC-, and IoT- based technologies seem fairly simple. Each of these logistics technologies provides a benefit that meets the demands of its respective driving forces. However, these technologies are poised to give benefits throughout the industry in several other ways as well. Read More.
- Risk Management methods: Supply chain risk management and resiliency are hot-button topics in the industry. However, minute supply chain entities do not understand how resilience relates to risk management and what it means for improving focus on the supply chain. As the supply chain continues to grow in complexity and regulation, the opportunities for problems and other events to impact operations negatively will consequently grow. As a result, supply chain entities need to understand how risk management and resiliency applies to both good and bad situations and how an organization can improve supply chain risk management and resiliency processes. Read More.
- Cyber Security Systems: We are all now familiar with the concept of the Internet of Things and if you take the manufacturing industry, for example, many manufacturers are now widely operating in an increasingly connected environment and making the most of the Industrial Internet of Things. Read More.
- GPS: Global Positioning System (GPS) is a navigation system that depends on satellites to locate vehicles anywhere on Earth. It was originally developed by the United States Defense Department at an unknown cost. The first such satellites were launched in 1979. A few years later, the GPS system was made available for civilian use. As of November 2013, there were 31 GPS satellites in operation. Read More.
- Supply Chain Visibility: Supply chain visibility has long been a goal supported by supply chain professionals. Until recently, however, technologies that could make this goal a reality have not been available. Today, however, there is hardly an activity that doesn’t produce some kind of data that can help companies understand what is going on within their supply chains. As the ability to see more clearly and deeper into supply chains improves, supply chains will become safer and more secure. Lora Cecere, of Supply Chain Insights writes, “Today 1/3 of fruits and vegetables and poultry products are thrown away due to spoilage. Companies struggle with counterfeit goods. In the future, I expect the automation of the chain of custody with better control of temperature and secure handling.” Read more.
- Staying abreast of the state-of-the art in Supply Chain Management: extended Lean initiatives in the Supply Chain, Robotics, and Voice of the Customer (VoC) to improve Supply Chain performance. View our Trends Category to stay up to speed.
But, we should never forget the major ingredient in measuring supply chain performance: PEOPLE. PEOPLE make it all happen. IT systems and tools truly enhance the Supply Chain, but without PEOPLE communicating and collaborating, there is no Supply Chain Management success.