Supply Chain Management KPI's

Effective Supply Chain Management (SCM) can provide your business with a competitive advantage by lowering costs, improving efficiency, and generating higher levels of customer satisfaction. Every effective supply chain has the common practice of measuring, tracking, and reporting key performance indicators (KPI's). These indicators are foundational to supply chain efficiency. Today's technology, with the use of RF ID tags, we are able to track shipments electronically and merge this information into order management and reporting systems.

The technology is available today to provide us with the ability to track individual shipments through the supply chain and maintain data on product, serial codes, description, quantity and so on. Combining RFID data with barcode information creates even more information that can be collected and used to better manage the flow of goods from origin to the ultimate consumer.

The reality is that there are no standard and consistent data sets for KPI's which create a bit KPI complexity based on the large choice of metrics from which to choose. In order for KPI is to be effective every organization must ensure that managers fully understand how the KPIs are calculated and what the information means in terms of its utilization as a decision-making tool. The best metrics are those that combine information in a ratio form such as combining delivery time with order value which would give us an index of how well we are getting our order pipeline to our customer base but the smoothing effect of the ratio may hide long delivery times for low value products which may mean decrease rather than increase overall customer satisfaction.

Choosing the right quality and quantity of metrics is essential in any effective KPI scorecard system. The Pareto Principle holds that 80% of the benefit will be derived from 20% of the activity and the same applies to metrics. Scorecards with twenty or more metrics are going to overload decision makers with confusing and sometimes contradictory information. Metrics should be limited such that only the most essential and actionable information is provided to decision makers.

Allowing the metrics to be reduced means that managers can gain a far more intimate knowledge of what a metric is actually trying to tell them and this makes the difference between using the dashboard for a simple performance against target check and really unleashing the diagnostic and management power of a the KPI metrics. Supplied Chain Management systems collect and collate an enormous amount of data which makes it tempting to overload the dashboard, however, studies show that KPI Systems where metric selection is rigorously held to a minimum consistently provide more successful managerial decisions than their counterparts operated in a complicated and overloaded metric dashboard.

Focus your attention on the 20% of metrics that affect 80% of the overall activity. Ensure that the metrics are actionable and that the decision makers understand clearly want each metric represents and how it can be used to positively impact overall supply chain performance.

If you would like to learn more about how to setup effective KPI seen your organization contact any of our supply chain experts for a free consultation.

Dr. Edward F. Knab
Productivity Constructs, Inc.
800 660 8718 office
949 413 7333 mobile
ed@edwardknab.com
www.productivityconstructs.com

Dr. Knab is an academic practitioner and seasoned Global Supply Chain expert whose company, Productivity Constructs, is focused on driving cost and inefficiency out of the Global Supply Chain. Dr. Knab can be contacted for speaking engagements, coaching, or consultation at efk@productivityconstructs.com, ed@ewardknab.com or www.edwardknab.com.