Supply Chain KPIs (Key Performance Indicators)
There are many K.P.I.s (Key Performance Indicators) in the Supply Chain. Companies set their goals for the year and keep track of it periodically (weekly, monthly, quarterly) to see how they are going and what they need to focus on more to achieve end-year targets.
KPIs are not always meaningful by themselves. You need to have a balanced scorecard in order to manage your supply chain processes successfully. When you challenge each other in the supply chain, overall results are better for the company. For example when Production Planning is working for high “On Time” delivery ratios, they may want to make some of the productions earlier than the requested delivery date and keep them in stock. In the meantime, warehouse has stock*days KPI targets and they will not agree having such early production as it will have a negative effect on their stock*day results. Sometimes it is for the better to keep both KPIs in both teams’ scorecard so everyone can feel on board with it. This really depends on your company culture and the business field you are in is much related to it. Especially FMCG companies are very challenging as they are mostly demand driven companies and they everyone to challenge each other to focus on the KPI targets so sales demands can be supplied.
KPIs allow a company to keep track of what is going on and how well they are doing about main supply chain processes. Also it shows what you are “not so good at” so you can have a chance to focus and improve what needs to be done better.
There are so many KPIs that can be used in the Supply Chain. Companies can even create their own Supply Chain KPIs. I will only try to give some examples to give a general idea.
One of them is OTIF performance. It means “On Time in Full” and it shows the percentage of demands which has been fully supplied on time.
In the photo you can see how proud Leonardo diCaprio felt when he was able to produce the demanded products on time with no missing qtys.
Stock*days (Inventory in Days) basically shows you for how many days your inventory can be enough to cover your sales.
For example let’s say this cat eats 2 fish a day. If it has 90 fish in stock, it means it has 45 days’ worth fish. It has 45 stock*days inventory.
Of course there are many other constraints when you talk about inventory. These fish needs to be kept in stock with special equipment that provides the optimum temperature and humidity, otherwise it will get worse in 2 days causing huge financial destruction.
If you don’t have proper environment for the stock, you should keep stock levels minimum.
If you work for a company producing durable goods, its inventory management is totally different than an FMCG company and you can have higher Stock*days KPI goals.
Inventory Accuracy is basically the percentage of your physical inventory units’ consistency with the electronic records. You need to compare real stocks you have (Qr) with the system data (Qe).
Usually the Mean Difference is used as a metric (Mean Absolute Error) MAE = | Qe – Qr |
All discrepancies are risks to lower your service risk. You may sell some products in reliance upon system data, but when it’s time to deliver you may face big problems if your stock was not accurate and you actually don’t have it in stock. You’ll have to supply it which causes late delivery and customer dissatisfaction.
In the picture system shows a box of chocolates in the warehouse but in reality you don’t have it, instead you have a box of puppies! K, this discrepancy is acceptable due to the cuteness of the puppies, I admit. It wasn’t a good example.
This shows how many times in a year can you sell your entire inventory. It can be calculated. Let’s say your Average Inventory is
Average Inventory = (Beginning of Mont Inventory + End of Month Inventory)/2
Cost of Goods Sold ÷ Average Inventory Value
Units per Transaction
You can use this both for your purchase transactions as well as your sales transactions. This can be meaning ful when you campare the value with past years (or months). Also this is very beneficial to benchmark with your rivals.
# of units sold (or purchased) ÷ # of transactions
This is the units shipped vs the units requested with the cutomer order. It is one of the most common service related KPI metrics. This can be calculated using SKUs (Stock Keeping Units) or value based. It depends on your product type.
This can be used as a warehouse performance metric to show how many of the products or materials in the warehouse get damaged. It can simply be calculated
No of damaged codes ÷ Total no of codes
Also this can be calculated value based if you don’t have countable stocks in yur warehouse.
Perfect Order Metric
This is everything at once. You basically multiply On Time, Complete, Damage Free, Accurate Invoicing orders percentages. For example;
95% * 95% * 95% * 95% = 81.4% Perfect Order