The Key Metrics for the Management of Supply Chain
Supply chain management requires that there be management of the complex relationship of dependency among various teams and departments as well as the different partner companies that may be spread globally. This is what is known as supply chain metrics. Supply chain metrics may include the scales of measurement for important areas that include procurement and production besides transportation, inventory, warehousing, handling of materials and packaging and also customer service. Supply chain management solutions must include the most convenient among the large number of metrics that one could use to score the performance of supply chain management. Some of the more common ones among supply chain metrics are discussed.
One Size Does Not Fit All
Peter Drucker the consultant and famous author rightly said “you can’t manage what you can’t measure”. This is so important and valid today just as it was years ago and will be valid in the years to come as well. This is because you do not know you are successful unless you have set some milestones or markers that will judge that. One way to measure is by using the perfect order or 100% to be totally free from errors. Using this marker you could say that if the total orders free from errors equal 100 then one could break this down stage-wise and indicate the metrics for procurement, production, warehousing and transportation where the metrics would be a shade short of 100%.
A metric could be the measure of the speed with which revenue could be collected from your customers. Therefore, if you notch a low figure in day’s sales outstanding, it would indicate that the day’s business has been good. Often the performance level of one function may directly impact the performance level of another function. If you consider maximizing the efficiency of the factory you might find this may lead to surplus levels of inventory. Similarly, if you wish to minimize the expense of distribution you may need to target an option of low cost incurred in shipping while extending shipping times may cause customer service to be negatively impacted.
It is important to note that in a supply chain the outputs are sequentially arranged as inputs. That is, the output of one is quite frequently the input for another function. Therefore, for the management of the supply chain from one end to the other it is necessary that you use metrics at the higher level to both align as well as synchronize the activities as measured by the metrics at the lower level.
There is a fair amount of dependency for any supply chain. Most of the supply chain data is dependent on agencies that are outside the operating system of the company. Therefore, a large chunk of the supply chain data could come from the transportation partners or suppliers. It is, therefore necessary to factor all these variable inputs for accurate planning. It is only when you plan seamlessly after a proper combination of both internal and external data that you can get a hold on the supply chain and satisfy your customers. Setting realistic supply chain metrics will help you assess your efficiency in achieving your end result.
Incentives need to be aligned across the entire supply chain in order to ensure a successful implementation of the metrics. Supply chain analytics require that individual sections manage their own functions so that the relevant metrics are maximized. It is therefore imperative to set up a hierarchy of metrics that are aligned to support the overall performance of the company while also seeing to it that the functional performance levels are duly monitored and tracked.