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A living ecosystem that ensures smooth, efficient, and consistent movement of products from a supplier-end to consumer-end, i.e. Supply chain, is essentially the backbone of every business. Supply chain management requires complex dependencies between the teams, departments, and partner organizations. This is a natural area for metrics.
According to recent studies, about 79 percent of companies with high-performing supply chains earn a higher revenue growth despite the evident advantages, while 40 percent of the companies aren’t looking at the supply chain performance to improve the processes.
Whenever a company wants to look at the performance of the supply chain, various metrics can be used, but the main decision lies in prioritizing these metrics.
Measuring the Supply chain Performance: Key Metrics
Cost reduction is one of the important things in measuring supply chain performance, but other measurements such as procurement, transportation, inventory, warehousing, and customer service should also be kept in mind.
That said, for lucidity in measuring supply chain performance, we need to focus on the following three main things:
1. Inventory measurement
Inventory management is a critical step in measuring supply chain performance. The goal for effective inventory management is to keep the inventory levels as low as possible to meet consumer needs.
It is believed that in the inventory management process, a pull system is better than the push system.
2. Working capital
Working capital refers to the cash a business requires for its day to day operations. Optimization of the working capital is not only about slashing the inventory levels and running the business on shoestring.
The handful of companies that are in the top quartile of the working capital performance have working capital expenditures between 6 percent and 10 percent of the overall revenues and poor performing companies have capitals about 23 percent to 39 percent.
3. Real-time Analytics
Investing in Real-time supply chain analytics helps businesses gain inventory and forecasting metrics to combat the volatility of the markets. Real-time Analytics also helps in driving cost optimization. Also increasing operational costs inevitably affect budgets, working capital, cost of end-product, and cash flow.
Again, cost reduction isn’t the indicator of poorly measuring supply chain performance, but it is not the only thing to measure when it comes to transportation. Other areas that should be measured for supply chain management are:
Minimizing the lost sales
Transit time should be efficient
Measuring Supply Chain Performance: Soft Metrics
We are all in business to be successful and profitable, aren’t we? Therefore, we should also focus on non-cost based measurements for supply chain management.
1. Collaboration and Communication:
The supply chain is becoming increasingly collaborative, making communication an important factor in the measurement of supply chain performance. The supply chain entities are taking note of how collaboration between supply chain partners, including those considered at one time as a competitor.
Such activities help build trust with consumers, maintain compliance with authoritative entities, and ensure transparency across the organization.
2. Customer service levels
Consumer service levels in a supply chain depend upon several different performance indices. Offering the best consumer services is essential to keep your client retention rate good.
Net Promoter Scores or NPIs are a globally recognized metric to measure the consumer satisfaction score. NPI measures how willing your consumers are to recommend your services.
3. Effective, successful Key Performance Indicators (KPIs)
Key performance indicators or KPIs are a set of quantifiable, measurable values that demonstrate the effectiveness of your business concerning its objectives. Businesses often track multiple KPIs to evaluate how successful they are at reaching targets.
Effective KPI management starts with many key areas such as to have both parties understand the importance of these metrics. KPIs are the core principles that will guide the rest of the more detailed and statistical KPIs found in the Service Level Agreement.
4. Using supply chain technology to aid in measurement & efficiency
Because of the relentless competition going in today’s marketplace, it becomes important for businesses to innovate new ways to streamline the supply chain and optimize productivity.
Due to modern supply chain technologies, you can make your supply chain more transparent and ensure better visibility within your supply chain. Technology can help to simplify your process of supply chain management, which would help your business to operate more efficiently.
5. Risk Management methods
Supply chain risk management and resiliency are important parameters for assessing the performance of the supply chain. As the supply chain continues to grow in complexity and regulations, the opportunities for problems and other negative events will grow at an exponential rate.
Therefore, the supply chain entities need to understand the process of risk management and how resiliency applies to both negative and positive situations in a business.
6. Supply Chain Visibility
One of the biggest challenges and the greatest goal for any organization is inducing visibility into its supply chain. These days, however, there is hardly any transaction that doesn’t produce data that helps the organization to understand what is going in their supply chains.
Therefore, Supply chain visibility is an important factor in determining the performance of the supply chain.
To sum up, the global supply chain is evolving at an exponential rate. Other than these key and soft metrics for assessing the supply chain performance, two of the major ingredients are People and the technology. IT systems and tools also play a great role in enhancing the supply chain.
After understanding the metrics involved in the performance management of the supply chain, are you looking for robust and reliable solutions to enhance your supply chain? Keep your worries at a bay, as we have got you covered.
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