As a result of supply chains growing in complexity over the years, many multi national corporations today actively manage performance through measurable Key Performance Indicators (KPIs). Let’s look at a list of KPIs that supply chain managers can look at to get a better insight into where opportunities for improvement exist.
- Purchase Order Management. This is a measure of how well executed every order is. This KPI can be broken up into stages to give 4 different measurements. These could measure the error rate in activities such as forecasting, pick and pack processes, invoice generation or in shipping routes.
- Cash to Cash Measurements. This is a measure of operational capital hold up. This is a measure of how much and how long cash is held up between paying for inventory and getting paid for sales. The shorter amount of time and lesser amount of cash that is held up, the more profitable the company’s supply chain is.
- PO to Delivery. This measures how long it takes to fulfill a customer order.
- Line Fill Rate. This measures what percentage of order lines on invices are delivered on time. This metric too can be divided to give several measurements, such as total percentage of lines filled and percentage of orders with all lines filled.
- No Buffer Fulfillment Time. This measures how long it takes to fulfill an ad hoc order that was not forecasted or expected.
- Inventory Supply Buffer. This measures the number of days that supply can sustain pending orders if no replenishment is available.
- Transport Invoice Accuracy. This measures the number of freight bills that are received error free.
- Transport Cost Per Part. This is a measure of the average cost it takes to transport a single part. It can also be measured as transport cost per kilogram or pound. It can be measured for a single SKU shipped to multiple customers or across all SKUs that the company ships.
- Inventory Refresh or Turnover. This is a measure of how frequently the inventory in the warehouse is refreshed completely. The more frequent, the better for profitability.
- Revenue Receipt Cycle. This measures how quickly payments are received from customers.
- Payments Made Cycle. This measures how quickly or slowly the company pays suppliers. It is important to note that longer payment lead times are usually favorable to companies.
- Requested Delivery Date Targets. This measures how many orders are delivered on or before the required delivery date.
- Inventory Turn Over Ratio (ITR). ITR is a measure of the Cost of Goods Sold divided by the average cost of inventory. This KPI measures the potential to earn profits.
- Turn-Earn Index (TEI). TEI is a derivative measurement allows the company to monitor whether parts high enough inventory turn over ratios.
- Days of Supply (DOS). DOS allows supply chain managers to have a strong understanding of what kind of stock levels they need to keep in the warehouse in order to meet forecasted sales.
- Inventory Velocity. This is a measure of the inventory that is forecast to be consumed within the next measurement period. This measurement helps companies validate forecast methodology used.
- Return Reasons. This measure helps companies to identify if any areas for improvement exist with regards to handling and/or transportation packaging processes.
- Transport Budget Projections. Monitoring expenditure on transportation against the allocated budget will allow companies to adjust budgets as necessary instead of making large and difficult adjustments towards the end of the fiscal year.
The above list is by no means exhaustive and other KPIs can be introduced where necessary. Collecting extensive data at all levels of the supply chain can however be a resource intensive process, so automated solutions should be explored where possible.
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