Performance Metrics for Supply Chain

Manish Jain | June 27,2011 10:56 am IST

This paper aims to provide some very fundamental metrics for measuring performance of a supply chain. These metrics will give a basic level of understanding to the reader about measuring the performance of a supply chain and will also help him to identify improvement areas in supply chain.

These metrics can be considered as barometer of supply chain and by measuring these you can measure how well or bad your supply chain is performing.


For simplicity I have considered a manufacturing organization which buy raw material from its vendors and converts it into finished goods and distribute directly to the end customer.


Further I have divided these metrics into different categories to have a more focused approach. I would discuss metrics which will be a measure of following categories:
• Customer Service
• Cost
• Productivity
• Planning
• Supplier Performance

 

1) Customer Service: Undoubtedly this is the most important and critical thing for any organization. Following are the general performance indicator by which it can be measured:
a) Response time: Time taken from receipt of customer Purchase Order (PO) to the time when customer receives the goods. This should be as small as possible. Response time depends upon how fast you can the raw material, convert it into finished goods and sell to customer.

Unit of measurement: days
Purpose: It is an indicator about how soon you can serve your customer


b) Back orders: These are the customer PO’s which have passed their scheduled delivery date and still are pending for delivery
Unit of measurement: numbers
Purpose: It is a measure of an organization service level towards its customers


c) On time in full (OTIF): This measures how many customers has been delivered on time in full.
For eg- if a customer wants 100 nos on 30th January and you deliver him only 90 nos on 30th January then it means you have delivered on time but not in full on the other hand if you deliver full 100 nos on 30th January then it means you have delivered on time in full. OTIF is a ratio of number of PO’s which are delivered on time in full to the total nos of PO delivered
Unit of measurement: %
Purpose: it measures how efficiently you are serving your customers


d) Outbound transit time : Time taken by the logistics provider to deliver goods from your factory to customer. Time take will majorly depend on mode of transport eg- road,air,sea,train and to some extent it also depend on how efficiently your logistics partner is working. You have to select mode of transport by making a trade-off between customer response time and cost.
Unit of measurement: days
Purpose: It is an indicator of performance of your outbound logistics partner 

 

2) Cost: It means cost incurred to produce finished goods in terms of direct material cost ,direct labour cost ,direct machine cost & indirect cost
a) Indirect Material Cost %: (Total indirect cost/overall cost): This cost is not directly involved in manufacturing of the goods but is incurred to support the production. For eg- consumables, spares, IT requirements comes under this category. It can be measured as ratio of total indirect cost material and overall cost
Unit of measurement: %
Purpose: for cost control


b) Direct Material Cost% (total direct cost/overall cost): Most of the manufacturing organization incurs approx. 60~70% of their cost towards directs raw material, and hence it is imperative to know exact details of this cost. To analyze this, we need to know total break-up of this cost across various categories of raw material. eg- for a consumer durable company raw material will generally have following categories : semiconductors, plastic moldings, sheet metal, castings, transformers, packing items etc.. A hypothetical analysis is shown here to clarify on this. In the graph you can see the value of expenditure on each type of category and hence by doing this analysis you can identify the categories on which you have to focus for better cost control.

 

                    Annual supply spend

 

The example illustrated above is only for understanding purpose, actual figures and categories will vary from case to case.By doing such analysis you can quickly identify the focus areas for raw material cost.
Unit of Unit of measurement: %
Purpose: For cost control 

 

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Manish is a post graduate in Supply Chain & Operations from NITIE , class of 2005. He is currently working in Nokia India Ltd as purchasing Manager in Chennai.He has over “6” years of experience in supply chain & operations. In past he has worked in TVS Electronics & Fibcom India Ltd. ...

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Comments


manish jain on 06/27/11 at 04:38 pm

hi