Supply Chain Management
In its simplest forms Supply Chain can be defined as a defined sequence of processes that are carried out one after another for the purpose of production and distribution of commodities. Supply chain has been around since the beginning of producing goods, and has seen a boom since the advent of globalization, where the concepts of manufacturing, inventory management, warehousing, logistics etc., have become much complicated (Coyle, 2016). To ensure a smooth production and transit line it is imperative to have an efficient and optimized supply chain that not only reduces the cost of goods sold but also decrease the production and supply time.
To maintain an efficient system, just designing one would not suffice. It is necessary to make sure that the performance is consistent and improving for which several metrics. Metrics allows the user to understand the possible lags and weak areas that need to be improved to ensure an optimized system (Lu, 2015). Below mentioned are few such metrics that help in determining how well a supply chain is being managed.
Key Metrics
Metrics can be divided in to two kinds. Once is the soft metrics and the other is the core metrics. Soft metrics correspond to several subtle yet important activities such as communication, security systems etc., which are not the core of the supply chain but an integral part of it. Core metrics are those that directly determine the working worth of supply chain.
Core Metrics
- Perfect Order Measurement: This defines the percentage of orders that were produced error free. This metric is one of the core metric in supply chain management as it determines the error rate and the quality of the products produced (Rushton, 2014). The measurement is expected to be above 98% for most of the products and plays a vital role in batch rejection tests. The mathematical formula for the same is as below
((Total Orders – Error Orders)/Total Orders)*100
- Customer Order Cycle time: This is the end to end time taken for a product to be delivered. The best example for the same can be an order placed on Amazon. From the moment the order is placed to the time the requested product is delivered, the entire time is considered as one cycle. This time has to be as minimum as possible, making sure that the product is of superior quality (Stangl, 2015). Some of the key performance indicators here are the
- Order placing time: The amount of time it takes for the system to register the request and send an order to the production house.
- Delivery time: The time taken for transit of the finished good to the customer
- Delivery date – Purchase order date would give us the value of the cycle time
- Inventory days of supply: It often happens in case of miscalculated inventory, the goods are in surplus or scarce. The entire concept of inventory management has been designed to make sure the same does not happen. In case of a surplus inventory, the shelf life of the product has to be more while in case of depleted inventory orders would not be fulfilled in time. Hence it is crucial to balance the inventory to make sure that the amount of goods available are just the right number (Monczka, 2015). Inventory days to supply helps determine the number of days the goods in the inventory would last if not replenished.
Inventory on hand / average daily usage determines the same. The key reason to calculate the same is to reduce operational cash flow which usually results due to surplus inventory.
- Forecast Accuracy: This metric determines how well the current forecasting method is. Demand forecasting is done for almost every month to quarter to determine the rate and quantity of production. At the end of a period the forecast made is compared to the actual sales to determine the forecasting accuracy. It also helps in correcting forecasting method in case of high range errors.
Soft Metrics
Though soft metrics do not deal with the product directly they play a key role in ensuring that the business and the supply chain runs smoothly. One of the key soft metric is communication between the various stakeholders of the supply chain. Communicating to the customer about delays in delivery, contacting the production site for inventory replenishment, Vendor quotation selection time etc are all key in a supply chain (Ellram, 2014). Imagine an order is delayed due to transit issues and the customer is not informed about the delay or the mail send to the warehouse to replenish essential goods is not delivered bottlenecks can rise in no time. Soft metrics hence are essential drivers in supply chain efficiency and work along with core metrics
References
Coyle, J. J., Langley, C. J., Novack, R. A., & Gibson, B. (2016). Supply chain management: a logistics perspective. Nelson Education.
Ellram, L. M., & Cooper, M. C. (2014). Supply chain management: It's all about the journey, not the destination. Journal of Supply Chain Management, 50(1), 8-20.
Lu, L. X., & Swaminathan, J. M. (2015). Supply chain management.
Monczka, R. M., Handfield, R. B., Giunipero, L. C., & Patterson, J. L. (2015). Purchasing and supply chain management. Cengage Learning.
Rushton, A., Croucher, P., & Baker, P. (2014). The handbook of logistics and distribution management: Understanding the supply chain. Kogan Page Publishers.
Stangl, T., & Thonemann, U. W. (2015). Equivalent Supply Chain Metrics. A Behavioral Perspective.
