Key KPIs that drive supply chain effectiveness

We discussed about supply chain resilience, sustainability and traceability and the various techniques to achieve that. But how do we understand the current state of the supply chain and what is the impact that each of these techniques bring in. So there is a need to measure certain characteristics or performance indicators in an efficient way so as to drive effectiveness. Is it only this or it provides data which by measuring solves other organization level issues. They help in reducing operating costs, ensuring safety & compliance, maintaining competitive edge in the industry, keeping customers happy out of the many more.

So, what are these characteristics or performance indicators? We term them as KPIs or Key Performance Indicators which are nothing, but critical metrics focused on key elements of business to assess their performance and efficiency to achieve a predetermined goal or required standard of performance. These indicators can be multi-level depending on the granularity of the information needed where one level focuses on the executives whereas the others focus on the next levels to highlight the causes of fluctuations, if any. Now the question that arises if how we measure them and what are its pre-requisites. Data extraction with accuracy, historical context, and timing to have an option of their evaluation to achieve correct results is a must. Moreover, a target needs to be determined for each of these indicators. Before we going into data extraction, we need to determine what are the parameters that we need to measure for our organization. For suggesting that or finalizing that we need to come up with a gameplan or rules that needs to be considered.

–         KPIs should be aligned with company’s business objectives.

–         Should have an owner – either individual or team

–         Need to be designed to derive correct outcomes.

–         Should have a target or minimum acceptable criteria.

–         Should be actionable providing timely & accurate data.

With this concept of measuring performance and having the gameplan in place, I felt these are some of the KPIs which organizations need to monitor for a high performing and sustainable supply chain. Now the KPIs can also be grouped into production, inventory, shipping, and sales &cash. But it is not important that all KPIs would fall into these categories.

a)     On-Time Delivery (OTD): Measures the percentage of orders delivered to customers on or before the promised delivery date.

b)     Order Fill Rate: The percentage of customer orders that are fulfilled completely without any shortages or backorders.

c)      Inventory Turnover: Shows how quickly inventory is moving through the supply chain.

d)     Inventory Accuracy: Measures the precision of recorded inventory levels compared to actual physical inventory.

e)     Perfect Order Rate: Tracks the percentage of orders that are error-free, from initial order entry to final delivery.

f)       Supply Chain Cycle Time: Measures the time it takes for a product or service to move through the entire supply chain, from raw material acquisition to delivery to the customer.

g)     Supplier On-Time Delivery (SOTD): Evaluates the punctuality of suppliers in delivering raw materials or components.

h)     Cash-to-Cash Cycle Time: Measures the time it takes for a company to convert its investment in inventory back into cash after sales.

i)       Return Rate or Reverse Logistics Metrics: Tracks the percentage of products returned by customers and the effectiveness of the reverse logistics process in managing returns and repairs.

j)       Warehouse Utilization: Measures the efficiency of warehouse operations by evaluating the percentage of available space being utilized for storage.

k)     Supplier Lead Time: Measures the time taken by suppliers to fulfill orders once they receive them.

l)       Sustainability Metrics: Various environmental and social indicators, such as carbon emissions, energy consumption, waste management, and ethical sourcing, may be tracked to assess the supply chain’s sustainability performance.

This is not an exhaustive list. There can be many more and it is not specific that all these KPIs would be measured in all organizations. It depends on company’s strategic objectives, industry and supply chain challenges. But using these KPIs to review the current status and take corrective actions helps organizations to move into the next level of maturity. So, what KPIs is your organization measuring? Can you evaluate the outcomes and work towards improvements? Let’s discuss if you would like to dig more in detail.

Please share your feedback / questions in the comments section or via email.

Author Details

Arijit Pramanik

Arijit has 20+ years of consulting, project management, and pre-sales experience. His expertise includes Oracle Cloud as well as applications for supply chain management and procurement. He has vast implementation experience with global clients in North America, Europe, and Asia. He is the product owner and anchor for the Infosys Oracle Cloud’s Stratos Hi-tech solution. He is also an Oracle Panelist & Presenter for B-school and Lateral recruitments. He is a Thought leader in Oracle space having published multiple whitepapers in various forums.

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