Executive Briefings

Supply Chain Kpi's - Understanding Supply Chain Metrics And Choosing The Right Kpi's To Measure

Getting your supply chain management right can give your business competitive advantage by lowering costs, greater efficiency and improving customer satisfaction by getting goods to customers faster. The impact of technology with the use of RFID tags to track pallets and shipments electronically and merging this into the stock and order management system is making the SCM aspect of a business an area of substantial opportunity for creating competitive advantage.

Now that all sounds fantastic with the ability to track individual shipments through the supply chain and maintaining data on product, serial codes, description, quantity and so on. Combining RFID data with barcode information creates even more information that can be manipulated and collected.

In truth though, what we have is a KPI nightmare with such a huge choice of metrics to choose from we are at serious risk of KPI overload with metrics duplicating information and business trends leading to information overload for management.

Remember that using KPI's effectively means that you first must select the right metrics to measure and ensure that managers fully understand what those metrics are actually telling them. The best metrics to use are those that combine in a ratio form and this means that we lose some of the underlying raw data trend that is available. Combining delivery time with order value will give us an index of how well we are at getting our order pipeline to our customer base but the smoothing effect of the ratio will hide long delivery times for low value products which may increase rather than decrease overall customer satisfaction leading to a knock on effect in customer care and contact center KPI's.

With any KPI scorecard system, choosing the right metrics is essential and less is also more. Remember Pareto's Principle, 80% of the benefit will be derived from 20% of the activity - the same applies with your metrics. Scorecards carrying twenty or thirty metrics are going to overload decision makers using the dashboard so keep it simple and reduce the metrics being used to those that are essential.
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. With the massive influx of data that is being collected and collated by an SCM system, it is very tempting to rush headlong into trying to use all of this information. The fact is that in those KPI systems where metric selection is rigorously kept to a minimum, managers tend to make more successful decisions that their counterparts operating a complicated, metric overloaded dashboard.

The adage here is that less is more and following Pareto's Principle, 20% of your metrics are going to give you 80% of the SCM information you really need to make effective management decisions.
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Getting your supply chain management right can give your business competitive advantage by lowering costs, greater efficiency and improving customer satisfaction by getting goods to customers faster. The impact of technology with the use of RFID tags to track pallets and shipments electronically and merging this into the stock and order management system is making the SCM aspect of a business an area of substantial opportunity for creating competitive advantage.

Now that all sounds fantastic with the ability to track individual shipments through the supply chain and maintaining data on product, serial codes, description, quantity and so on. Combining RFID data with barcode information creates even more information that can be manipulated and collected.

In truth though, what we have is a KPI nightmare with such a huge choice of metrics to choose from we are at serious risk of KPI overload with metrics duplicating information and business trends leading to information overload for management.

Remember that using KPI's effectively means that you first must select the right metrics to measure and ensure that managers fully understand what those metrics are actually telling them. The best metrics to use are those that combine in a ratio form and this means that we lose some of the underlying raw data trend that is available. Combining delivery time with order value will give us an index of how well we are at getting our order pipeline to our customer base but the smoothing effect of the ratio will hide long delivery times for low value products which may increase rather than decrease overall customer satisfaction leading to a knock on effect in customer care and contact center KPI's.

With any KPI scorecard system, choosing the right metrics is essential and less is also more. Remember Pareto's Principle, 80% of the benefit will be derived from 20% of the activity - the same applies with your metrics. Scorecards carrying twenty or thirty metrics are going to overload decision makers using the dashboard so keep it simple and reduce the metrics being used to those that are essential.
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. With the massive influx of data that is being collected and collated by an SCM system, it is very tempting to rush headlong into trying to use all of this information. The fact is that in those KPI systems where metric selection is rigorously kept to a minimum, managers tend to make more successful decisions that their counterparts operating a complicated, metric overloaded dashboard.

The adage here is that less is more and following Pareto's Principle, 20% of your metrics are going to give you 80% of the SCM information you really need to make effective management decisions.
http://www.articlebliss.com