For an extremely complex system, the overall goals of a supply chain are relatively simple: Satisfy customers, make a profit. Easy enough, no?
Supply chains comprise many aspects of a business — various departments, specialties, markets, and regions are involved in supply chain and logistics management.
So how can we even begin to evaluate the efficiency and performance of a system so complex and vast?
Isolating the Right Metrics
Customer satisfaction and overall system profitability can be broken down into countless subcategories, with a wide range of unique metrics: speed, quality, flexibility, cost effectiveness, sales growth, inventory management, and market share are just the beginning of potential areas for analysis.
Is the supply chain providing for customers on all levels? Is it timely? Is it meeting goals for the organization as a whole? Is it enhancing value for the company and those it serves?
For manufacturers, there are a few key performance indicators, listed below, that can help managers tackle specific goals and keep an eye on a supply chain’s overall health.
- Storage space — How much of your space is being put to effective use? By evaluating a facility’s warehouse and storage capacity, managers can identify and remove obsolete technology, products, and materials in order to streamline operations and determine whether material flow is working properly.
- Order fill rates — What percentage of orders can be readily filled with on-hand inventory? This will help in beginning to evaluate inventory balance, sales rates, and potential for customer satisfaction.
- Timely delivery — Much of a supply chain revolves around time management. Lead time, transit time, processing time, turnaround time, receiving time, and queue time all play into the big ticket: delivery time. If your product is on schedule in transit and properly reaches satisfied recipients, this is a sign that the system is running smoothly.
- Perfect order metric — A dynamic metric with its own calculation system, this calculates comprehensive scores for supply chain evaluations. The perfect order approach takes a more holistic approach to individual deliveries, evaluating success based on combined factors such as timeliness, completion, damages, and accurate payment with a single formula.
Making the Grade
While supply chains involve a long list of variables, there are two particular process reference models offering useful analyses for operations, supply chain, and logistics management.
- The supply chain operations reference (SCOR) model operates on a cross-functional framework that integrates performance metrics, specific practices, business processes, and people skills into a single unified structure. SCOR is a hierarchical measuring system, and is interactive and interlinked.
- The balanced scorecard (BSC) method is a strategic planning and management system used around the world. It’s designed to help companies make connections across big-picture strategies — customer service and profit, for example — and operational objectives, critical measures, target goals, and initiatives. The BSC can be adapted and customized to serve businesses, governmental organizations, and nonprofits well beyond the reaches of logistics and supply chains.
Comprehensive Analysis, Optimal Results
Every system is unique, and the best metrics and tools for managing a particular supply chain will vary greatly by scale, industry, and individual strategy and goals.
Consistent, though, is the need for comprehensive analysis. Without it, the likelihood of wasted resources, duplicative initiatives, and unaligned goals skyrockets. No matter what its final form, a well-structured, carefully designed hierarchical framework will help immensely in organizing and managing company strategy across the various aspects of a supply chain.
Resources:
- SCOR Supply Chain Operations Reference Model | SCOR – APICS
- What is the Balanced Scorecard? – Balanced Scorecard Institute
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