Dimensions of Supply Chain Performance Metrics

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Before we talked about Performance metrics we need to understand the difference between measure, metric and an index. Normally, measure was used to denote any quantitative output of an activity or process. Nowadays, the term measure is not use frequently, today, metric is a term more used. A measure is easily defined with no calculations and with simple dimensions. Logistics examples would include units of inventory and backorder dollars. A metric is more complex to define and usually involves calculation or a combination of measurements, often in the form of a ratio. Logistics examples would include inventory future days of supply, inventory turns, and sales dollars per stock-keeping unit. An index combines two or more metrics into a single indicator. Usually an index is used to track trends in the output of a process. A logistics example of an index is a perfect order.It is very import to knows what the most imports characteristics for are take a good metric. Many questions need to be asked to help to determine if a metric is appropriate for the intend use.

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Important questions for a Good Measures are:

  • Is quantitative
  • Easy to understand
  • Encourage appropriate behavior
  • Is visible
  • Defined and mutually understood
  • Encompasses both outputs and inputs
  • Measures only what is important
  • Multidimensional
  • Uses economies of effort
  • Facilitates trust.

Many organizations will have a few strategic metrics to manage their logistics operations. These metrics will represent productivity, utilization, and performance in a balanced approach to managing their logistics process.

Evaluating current or potential logistics metrics is critical to a sound metrics program. Also, important to note is that metrics need to change over time; not only the performance standard – for example 85 percent – but also the individual metric – for example, percentage of orders ship on time. With regard to first example, the standard might change to 90 percent as new process and/or technologies are introduced that enable the organization to consistently exceed the old standard. Advocates of the Six Sigma concept have stressed the focus on continuous improvement, which should result in increasing performance expectations over time.

Inventory Turnover

Inventory turnover is the best inventory metric utilized by any business. This KPI estimates how quick you are moving your inventory. You need to have the COGS (Cost of Goods Sold) and normal inventory an incentive with a specific end goal to calculate this metric.

Inventory to Sales Ratio

This straightforward stock metric estimates the productivity of your stock framework and store network when all is said in done. It measures and compares about the level of your inventory in connection to your sales volume for the period. It is calculated by separating your Average Inventory Value for whenever period by the Sales of that time period.Here is the formula:Inventory to Sales Ratio = Average Inventory Value / Sales.

Backorder Rate

Backorder Rate estimates the rate of client’s orders arranges that the organization cannot satisfy on the grounds that the goods in item order by the clients are not in stock. In such a circumstance the organization needs to arrange the items and ship the request with some deferrals for the client. Since this drives consumer loyalty and maintenance and additionally lost deals – this is essential metric for your business. Backorder Rate can be ascertained by partitioning the quantity of delay purchases by the aggregate requests for the period.

Formula for Backorder Rate: Backorder Rate = Number of Backorders / Total Number of Orders

Lost Sales

Lost sales are critical to monitor because the business is losing income because the goods ordered by the clients are on in stock. This happens when at the time client puts in an order you are not ready to backorder because the client isn’t ready or ready to hold up any more and clients need to make a buy from your competitors. This is critical since one lost deal can result in a lost client in the event that you don’t have a relationship with the client – your competitor can get the client forever.

Cycle Time

This is a metric which estimates how much time or to what extent is required for your association to fulfill the entire order process from client placing in the order to the final delivery of the products to the customer. You can define this KPI in many different ways based on your supply chain management. For instance, you can have various time metric measuring different stages in your cycle management process with a specific end goal to track all the procedure associated with your system.

Item Fill Rate

This metric monitors the percentage of customer orders that you were able to fulfill in a certain period. This is the difference between total orders one hand and the lost sales and backorders on the other hand. You can use all of these three metrics together on your dashboard.

Inventory Accuracy

You should definitely measure the accuracy of your inventory system with periodic inventory counts and measuring the percentage of accuracy at each inventory count. If your actual inventory level is way different compared to your inventory system you should work on fixing and improving your accuracy %. You can focus on more frequent inventory counts on your top selling items and do more frequent sampling in case you need to improve your accuracy.

Out of Stock Items

This inventory metrics measures how many items were out of stock at the time customers placed an order during a defined period. You can calculate Out of Stock Items as a ratio between out of stock items and total number of items in stock.

Carrying Cost of Inventory

Carrying cost of your inventory is the cost associated with managing, holding and storing your inventory over a certain time period. This is generally what most people refer to when talking about cost of inventory however minimizing the carrying cost of inventory is only one of the objectives in supply chain management and this metric should not be monitored in vacuum but it must be reported and tracked along with your other inventory metrics.

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