Supply Chain Metric

Supply Chain measurements or metrics such as Inventory Turns, Cycle Time, DPMO and Fill Rate are used to track Supply Chain performance. Commonly used by Supply Chain Management, metrics can help you to understand how your company is operating over a given period of time. Supply Chain Measurements can cover many areas including Procurement, Production, Distribution, Warehousing, Inventory, Transportation, Customer Service - any area of the supply chain. However, a good performance in one part of the Supply Chain is not sufficient. Your Supply Chain is only as strong as its weakest link. The solution is for you to focus on the key metrics in each area.

As you view the links to the left, there are a few things to keep in mind:
 1. Tracking your Metrics allows you to view your performance over time and guides you on how to optimize your Supply Chain. It allows management to identify problem areas. It also allows for comparison to other companies through like industry benchmarking.
2. Certain metrics, such as Inventory Turns, have a widely accepted definition. Other metrics, such as Backorders, may need to be customized for your particular industry or logistics business model. 
3. Measurements alone are not the solution to your weak areas! The solution lies in the corrective actions that you take to improve the measure. The solution comes from process or system improvements. The measurements should be used to track the results of your improvement efforts.
4. Supply Chain Performance Measurements should have an owner. A person or department that is responsible for achieving an agreed uopn target on the metric.
5 . Supply Chain Management needs to encourage and support the process changes to achieve the desired targets.

 But how do you optimize your Supply Chain performance? How can metrics lead to an improved logistics management of your Supply Chain?  How do you calculate Inventory Turns, Fill Rate or Backorders? Using the correct performance measures will not only let you know your current performance, it will also lead you to change processes to become more efficient. Supply Chain measures of effectiveness should be considered critical to any improvement plan.

Although metrics do vary, we give you a general overview of some common Supply Chain Measurements in use today. 
f Just click on the links to the left to learn more about the basics of Supply Chain Management Metrics.

  How can you use Supply Chain Metrics to improve your operation? 
Try following these basic steps....
1.The first step is to identify the performance metrics that you want to use. Do not use every metric available. Rather, focus on the vital measurements that mean the most to your business.These can be considered your KPI's (key performance indicators). You should have 3-5 KPI's per functional area. If you decide to include numerous measurements, you may encounter "analysis paralysis". 
2. Next, you need to understand the meaning of these metrics. It is not enough for management to simply view these measurements, they must also understand the meaning behind them. 
3.The next step is to learn the mechanics behind the measurements. What drives them...positive & negative. Try to understand the various factors that influence your results.
4. Using this information, identify any weak areas or areas of improvement in your current processes.
5. Set goals based on these improvement areas. The goals should be aggressive, but yet obtainable. Goals can be based on benchmarking against "like" companies or goals can be set to reflect a specific percentage improvement over past performance. As an example, improving your results by X% every year.
6. Put corrective action in place to improve your processes. Make sure that these corrective actions do not negatively effect other areas. Also, check that all effected areas have a clear understanding of the changes.
7. Monitor your results. Did your corrective actions yield your desired results? If so, what is your next area for improvement? If you did not get the desired results, what went wrong? Try to identify the root cause of your undesired results, then brainstorm new corrective actions.

Once you have this metric(s) in place, then consider how your end customer views your success. You should then establish a metric to rate how your customer views your performance (fill rate, on time shipments etc).

For over 14 years (since February 2001), SupplyChainMetric.com has been the leading Supply Chain performance measurement site on the web. If you would like to contribute a metric to our site, please email us.