Supply Chain Performance & Metrics

An Overview of Supply Chain
Performance MetricsPerformance Metrics

Performance measurement is an important but complex
subjectsubject
Companies see the need for metrics. . .
. . . but developing the “right” set of
metrics is a challengemetrics is a challenge
• “If you can’t measure, you can’t
manage, you can’t motivate”
• Establishing the proper measures
• No commonly used “model”.
• Business issues that warrant
performance measurement:stab s g t e p ope easu es
within an organisation enhances
continuous
performance measurement:
– Differ between industries.
– Differ within industry.
– Change overtime.Linking strategy
Assigning
accountability
to take action
Focus
Accountabilityto action
to take action
when needed
Communication
Measuring progress
towards goals through
There is no one “right” answer
towards goals through
interactive
communication and
education
- 4 -
This document’s an initial step in the right direction.
This document is a partial preview. Full document download can be found on Flevy:
http://flevy.com/browse/document/supply-chain-performance-and-metrics-673

We began with a brainstorming session on the key drivers
for quality time and costfor quality, time and cost
W l k d t th l h i f th t ’ ti• We looked at the supply chain from the customer’s perspective.
• We brainstormed on “what could go wrong along the supply chain”:
– What are drivers of performance from a quality, time and cost point of view.
Quality Time Cost
Price Service Product
quality
Product
quantity
Product
delivery
Late
arrival
Late
delivery
Inventory
cost
Product
cost
Produc-
tion cost
Delivery
cost
Customer
service
cost
The complete picture can be found in the appendix.
- 7 -
The complete picture can be found in the appendix.

Proposed Supply Chain KPIsProposed Supply Chain KPIs
Total Supply
Chain
Forecasting Purchasing Inbound Logistics Manufacturing Maintenance
Inventory
Management
Marketing & Sales Customer Service
Outbound
Logistics
Accuracy (as %
of sales)
Customer
satisfaction
% of satisfied
% of products
delivered
according to
customer order
(quantity/quality)
% of customers
satisfied with
service
% of products
ordered already
in stock
Defect rate of
products as % of
production
% of goods
delivered
according to
order
(quantity/quality)
by supplier
Quality
% of active
suppliers that
account for 90%
of total purchase
value
Need to
identify
M&S KPIs
% o sat s ed
customers
Total cycle time
Time from order placement to reception
of goods
Time from production order to delivery
into finished product warehouse
BEWARE of
inter
Time (for
customer) from
placing order to
receiving goods
% of products
d li d
Downtime as %
of total
production time
% of goods delivered on time by supplier Time
inter-
relationships
delivered on
time
Total supply
chain cost as %
of sales
Cost as % of
sales
Cost as % of
sales
Cost as % of
sales
Cost as % of
sales
Cost
KPI’s help to identify “where” the performance problem is within the supply
Cost per
product sold as
% of sales
Number of stock
turns/years
Cost
- 10 -
KPI s help to identify where the performance problem is within the supply
chain, and steer towards areas to explore “why”.

Given the multitude of metrics we suggest to analyse
supply chain performance using a hierarchy of measuressupply chain performance using a hierarchy of measures
Type of
Measure
Example
Highest Level
Use
Who Uses ItObjective
Key KPI
Measure Use
• Forecasting
accuracy (as %
of sales)
• Integrated
supply chain
• Generic
• Consultant
• Top management
Supply chain
• Find “where” the
problem is within
the supply chainy of sales) • Generic
benchmarking
• Supply chain
stage manager
• % of suppliers • Supply chain • Consultant
the supply chain
• Identify the
Supporting
Metrics
% of suppliers
connected via
EDI
Supply chain
stage
diagnostic
Consultant
• Supply chain
stage manager
Identify the
“why” within the
supply chain
stage
Other
Operational
Measures
• A-goods as a
% of inventory
• Supply chain
stage
diagnostic
• Supply chain
stage manager
• Give more in-
depth information
about supply
chain stage
di i th h th l t t i b i f
Measures chain stage
- 13 -
. . . digging through the causal tree to improve business performance.

For maintenance, commonly used supply chain
performance metrics relate to time and cost
Key KPI’s
Suggested Supporting
Metrics
Other Operational
Measures
performance metrics relate to time and cost
y
Metrics Measures
Quality
• Number of service contract
• Number of training days
for maintenance staff yfor maintenance staff
• Downtime as % of total
production time
• Downtime due to parts
shortage (or stock outs in
l) Timegeneral)
• Hours of unplanned
downtime
Cost
• Cost as % of sales
• Cost per unit produced
• The quality of maintenance is commonly measured by lag measures in terms of cost
or as a production measure (downtime).
• We suggest the use of two lead measures that proactively monitor maintenance
performance
- 16 -
performance.
• . . .

Purchasing Data: KPIs & BenchmarksPurchasing Data: KPIs & Benchmarks
Industry Sector Benchmarking
Range/Best Practice
(Validate source)
Average
Manufacturing
(Validate source)
Chemicals Best
Practice
(Validate source)
Global Chemical
Purchasinga
Measure
Automotive
(Global)a
Pharma.
(Global)a
Eng./Constr
. (Global)a
• % of correct orders placed
LITY
% of correct orders placed
• # of alternative sources of supply
• # of suppliers involved in product
development/innovation
• # of active suppliers per purchasing professional
• # of vendors products ordered
• % of all active suppliers that account for 90% of
total purchase value
50–87
20%
6–182 9–267
5–75%
165
7.9%
(18% xxx)
22
26
272 30
21
QUAL
total purchase value
• % of purchases handled by purchasing
department
• Purchasing head count as % of total head count
• % purchases handled by purchasing function
• % spend on long-term basis (>2yrs)
• % firms using consortium buying
1–10%0.3%–4.5%
(18% xxx)
82
1.4%
82%
50%
1%
97%
0.4%
27%
26% 5.5%
E
• Training per purchasing professional
• % of accounts payable handled before due
date
• % of accounts payable handed in 1–30 days
• % of accounts payable handled in 31–60 days
• % of accounts payable handled in 61–90 days
% f t bl h dl d i 90 d
65%
29%
4%
1%
1%
50%
42%
6%
1%
1%
42 hrs
0 06%–3 0% 0 30%
TIME
• % of accounts payable handled in over 90 days
• % of suppliers connected via EDI
• Average actual time to developed/negotiate a
contract
• % goods delivered on time by supplier
• Time from order placement to receipt of goods
• Cost as % of sales
1%
9 weeks
59%
2–26 weeks
1%
61%
11% 79% 33% 1%
19%0.06% 3.0% 0.30%
COST
Cost as % of sales
• Cost as % of total costs
• Cost of orders purchased (range
• Cost of vendor transactions (range)
• Cost of expedite repair materials
• Purchasing spend per supplier
• Purchasing spend per purchasing
59%
$24.8m
61%
26.5
19%
26 4
- 19 -
a: CAPS Research: Chemical Purchasing Benchmark 1997; H. Cook shop research.
• Purchase Dept. expense (¢ per $ sales) 31/100 ¢
18 cos £12bn
15/100 ¢
!0 cos $23bn
10/100 ¢
19 cos $3.5bn
59/100 ¢

Cost
Purchasing Cost Customer
Service CostInventory Cost Delivery CostProduction Cost
Too Much
Stock
Obsolete
Stock
Human
Resources
Costs
Used More
Expensive
Materials
Materials
Arrived Late Human Failure Technical
Failure
Human
Resource Cost
Maintenance
Cost ComplaintsUsed More
Raw Materials
Wrong Type of
Products
Infrastructure
Stock
Wastage Planning People Systems
Higher Cost
Than
Competitor
Ordered Late Different
Materials Skills Product MOT
Same
Suppliers
Worse Deal
Different
Suppliers
- 22 -
Promotion
Sales Volumes
Lower
Don’t Know
How to
Negotiate
Many
Suppliers

These operational metrics should be used with careThese operational metrics should be used with care
• Ideally they should support key KPI’s by explaining why performance is
meeting/below expectations.
They should also give an in depth picture into how well each supply chain• They should also give an in-depth picture into how well each supply chain
stage is performing.
• However, their use calls for judgement:However, their use calls for judgement:
– They vary across companies and industries (which explains the large quantity of metrics available).
– Many are not directly linked to key KPI’s but are useful secondary indicators of performance.
They do not necessarily link to performance at just one stage in the supply chain (but accountability– They do not necessarily link to performance at just one stage in the supply chain (but accountability
must be assigned to someone within one stage).
– For example: inaccurate order making could lead to more time being spent on puchasing, suppliers
delivering the wrong goods and/or suppliers delivering the goods late.
- 25 -

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