Which Supply Chain Metrics Are Right For Me?
Life is like a box of supply chain metrics.
Normally when I’m selecting the images to go with my articles, I shoot for something that’s funny or alluring. But in this case, the graphic is spot on. There so many versions of metrics and so many ways to slice and dice them. It can be overwhelming. Metrics are here to help, not to enable paralysis by analysis.
In today's world, it's a given that every company needs to measure its performance and within the universe of supply chain metrics, you can find the essentials tool in doing that.
But which metrics should you measure? What do they mean? And how can you use them to improve your company’s performance.
Every metric gives a slightly different view of your supply chain and your company. Ultimately, it’s up to you to prioritize which supply chain metrics are important and how they will be used. A lot of companies use supply chain metrics that might be easy to calculate but don’t help drive improvements. And some companies use a variety of sometimes complex metrics that may not be telling them anything useful.
When you’re trying to decide which metrics to focus on, consider the following:
Is It Easy To Understand? – Metrics should be understood easily without too much study. Is it easy to understand what the metric is actually measuring? For instance, is it on-time delivery from you to your customer or your supplier to you?
Is It Data Driven? – Supply chain metrics should be based on an objective value, so even if the metric is something as simple as red/yellow/green – it’s based on hard data.
Does It Measure What is Important? - Some metrics might look critical, but before deploying metrics they should be vetted against your company’s needs. A cost of goods metric may not matter to a warehousing team.
Is It Actionable? - Metrics should identify and make your company take corrective actions, if needed.
For example, if a metric shows number of orders processed per day, then that metric should be measured against a target and identify a corrective action, such as increase the number processed.
Are The Metrics Easy To Collect? – Does your company select complex performance metrics that are very time consuming to collect and require time t taken away from staff to prepare? Avoid these types of metrics and find easier to collect data that can easily be output from your materials resource planning system or other databases.
And when you’re considering which supply chain performance metrics to deploy, think in terms of time, cost and quality.
Time - When companies look at selecting supply chain performance metrics, they usually will examine those metrics that relate to time, as they are easily calculated, easily understood, and clearly show operational effectiveness. Metrics that express the level of on-time deliveries, on-time receipts, time to process purchase orders, and time to fulfill an order are clear measures of time-based metrics.
Cost – Cost-based metrics can help your company improve margins and the overall bottom line. Cost-based metrics can identify where in the business the improvements can be made.
Inventory carrying costs is a popular cost-based metric that help companies figure out the total cost of ownership of their products. Cost-based metrics can help you identify where you can make changes to improve cash flow and making your company more profitable.
Quality - For companies that want to improve customer satisfaction, supply chain metrics focused on quality (along with on-time and cost metrics) are important. Although the metrics around delivery times are important to customer service, improvements in the quality of the product can significantly improve customer satisfaction. Understanding your customer’s specifications and meeting their expectations helps reduce customer returns and increase your customer’s confidence in your capabilities.
Supply chain metrics should easy to collect, provide useful information that helps drive performance improvement and customer satisfaction.