Link (Non)Financial To Supply Chain Performance Metrics

Link (Non)Financial to Supply Chain Performance Metrics Measuring the right things and measuring it right Anand Subramaniam

“ Isn't it interesting that the same people who laugh at science fiction listen to weather forecasts and economists? ”
- Kelvin Throop III

Highlights
Metric – Overview
Metrics – Supply Chain & (Non)Financial

Metrics - Overview

Enterprise-Wide Supply Chain Management Planning Evaluating Selecting Purchasing/ Contracting Revenue Management Using Disposing Distributing Processing Storing Warehousing Managing Inventory Receiving/Accounts Payable Supply Chain & (Non)Financial metrics

Problems with traditional metrics
Failure to meet customer expectations
Sub-optimisation of some metrics at the expense of others (due to poor internal alignment)
Conflict within the supply chain (due to poor external alignment)
Missed opportunities to outperform the competition

Example: Measuring Inventory Turns Inventory Turns The problem is that not all inventory turns are equal Inventory is usually cheaper further back in the supply chain Many companies use inventory turns as a measure of its efficiency !! Caveat: this might not be the case if the cost of money varies between firms in the supply chain Inventory turns also doesn’t consider risk and the value of post-ponement Typically, an improvement in inventory turns close to the retailer is more valuable than one further back

Metrics - Supply Chain & (Non)Finance Why? To allocate benefits and burdens between functions and between firms To align activities and share performance goals To extend the “line of sight” in the supply chain To determine the relationship between corporate and supply chain performance To differentiate the supply chain & to obtain a competitive advantage Is a prerequisite to successfully implement a supply chain strategy To encourage cooperative behavior both between functions and between firms

Steps - Develop SC & (Non)Finance Metrics 1. Map the supply chain 3. Develop customer & supplier P&L statements 4. Realign processes & activities to achieve the objectives 5. Establish (non)financial measures / metrics 6. Compare shareholder value & market capitalisation across firms 2. Analyse each link & determine where value can be created

Metrics – Supply Chain & (Non)Financial

“ Good judgment comes from experience and experience comes from bad judgment .”
- Barry LePatner

SC Metric - Customer
DRP performance
Customer complaints
% resolution on first call
Overall customer satisfaction
Efficient
Demand variability
Planning cycle time
Service system flexibility
% of customers sharing information
Effective

SC Metric - Customer (Contd.)
Lost sales
Query time
Time to market
Perceived value
Efficient
Shelf space
Forecast accuracy
Utilisation of POS data
Payment (invoice) accuracy
Effective

Financial Metric - Customer
Sales
Discounts
Gross Margins
Days Sales Outstanding
Sales / Sale Rep Labor Hours
Efficient
Market Share
Same Store Sales
Customer Disputes (Warranty, returned goods etc.)
Effective

SC Metric - Distribution
Line Item Fill
On-Time Delivery
Invoice Accuracy
Inquiry response time
Over / Short / Damaged (Warehouse fill rate and quality)
Efficient
Order fill rate
Quantity fill rate
Returns Handling
Stock-outs / Backorders
Range of Products/Services
Order cycle time and variance
Effective

Financial Metric - Distribution
Freight Costs
Cash to Cash Cycle
Efficient
Total Delivery Cost
Effective

SC Metric - Receiving
Time to Market
On-Time Delivery
Incoming Material Quality
Efficient
Returns Handling
Processing Accuracy
Receiving Cycle Time
Effective

Financial Metric - Receiving
Total Receiving Cost
Order / Lines Stocked per Labor Cost Unit
Efficient
Overtime Labor
Cost of Returns
Receiving Cost Variance
Effective

SC Metric - Procurement
Forecast Accuracy
Processing Accuracy
Orders Processed/Labor Unit
Deviation from Primary Vendor
Cost Deviation from Contract Price
Efficient
Order Cycle Time
Order Cycle Time Variance
Effective

Financial Metric - Procurement
Unit Costs
Landed Cost
Expediting Costs
Efficient
Total Procurement Cost
Effective

SC Metric - Fulfillment
Lines Picked per Hour
Quality of Documentation
Efficient
Supplier Inventories
Channel Inventories
Combined Shipments
Effective

Financial Metric - Fulfillment
Labor Utilisation
Inventory Turns
Inventory Value
Warehouse Utilisation
Inventory Carrying Costs
Efficient
Logistics Cost / Unit
Inventory Reduction
In-Transit Inventories
Inventory Obsolescence
Inventory Count Accuracy
Effective

SC Metric - Transport
Damages
Driver Reliability
Shipment Accuracy
On-Time Shipment
Efficient
Delivery Times
Carrier Choices
Urgency/Responsiveness
Effective

Financial Metric - Transport
Truck Freight Cost
Inbound Freight Cost
Outbound Freight Cost
Efficient
Back Hauls
Freight Audit
Continuous Moves
Total Transportation Cost
Effective

Conclusion
A good measurement system is critical to drive the desired performance and to achieve the goals of the supply chain strategy
The metrics need to be aligned not only within the firm, but between firms as well
Both customer and supplier P&Ls should be used to measure the impact of improvements

“ Facts are facts and will not disappear on account of your likes .”
- Jawaharlal Nehru

Good Luck
http://www.linkedin.com/in/anandsubramaniam

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Link (Non)Financial To Supply Chain Performance Metrics

by Anand Subramaniam

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Link (Non)Financial To Supply Chain Performance Metrics Presentation Transcript