12 Key Metrics For Supply Chain Management
Supply Chain Management (SCM) requires management of complex dependencies between teams, departments and partner companies across international boundaries. It is a natural area for metrics.
Supply Chain Metrics may include measurements for procurement, production, transportation, inventory, warehousing, material handling, packaging and customer service. There are hundreds of metrics that can be used to score Supply Chain Management performance. The following are some of the most common.
1. Perfect Order Measurement
The percentage of orders that are error-free.
((total orders – error orders) / total orders) * 100
This is often broken down by stage:
- Procurement 99.99% perfect
- Production 99.12% perfect
- Transportation 99.02% perfect
- Warehousing 99.98% perfect
2. Cash to Cash Cycle Time
The number of days between paying for materials and getting paid for product.
materials payment date – customer order payment date
- typically averaged for all orders for a week, month, quarter etc..
- many materials are usually required — a weighted average materials payment date can be calculated
Cash to cash measures the amount of time operating capital is tied up. During this time cash is not available for other purposes. A fast cash to cash indicates a lean and profitable supply chain.
3. Customer Order Cycle Time
Measures how long it takes to deliver a customer order after the purchase order (PO) is received.
actual delivery date – purchase order creation date
A variant of this is the promised customer order cycle time:
requested delivery date – purchase order creation date
4. Fill Rate
The percentage of a customer’s order that is filled on the first shipment. This can be represented as the percentage of items, SKUs or order value that is included with the first shipment.
(1 – ((total items – shipped items) / total items)) * 100
Fill rate can be important to customer satisfaction and has implications for transportation efficiency.
5. Supply Chain Cycle Time
The time it would take to fill a customer order if inventory levels were zero.
Sum of the longest lead times for each stage of the cycle
Supply chain cycle time indicates the overall efficiency of the supply chain. Short cycles make for a more efficient and agile supply chain. Analysis of this critical metric can help recognize pain points or competitive advantages.
6. Inventory Days of Supply
The number of days it would take to run out of supply if it was not replenished.
inventory on hand / average daily usage
SCM seeks to minimize inventory days of supply in order to reduce the risks of excess and obsolete inventory. There are other financial benefits to minimizing this metric — excess inventory tends to tie up operational cash flow.
7. Freight bill accuracy
The percentage of freight bills that are error-free.
(error-free freight bills / total freight bills) * 100
Billing accuracy is key to profitability and customer satisfaction.
8. Freight cost per unit
Usually measured as the cost of freight per item or SKU.
total freight cost / number of items
SCM seeks to minimize freight cost per unit.
9. Inventory Turnover
The number of times that a company’s inventory cycles per year.
cost of goods sold / average inventory
Another metric that indicates how much inventory is sitting around. A higher inventory turnover indicates an efficient supply chain.
10.Days Sales Outstanding
A measure of how quickly revenue can be collected from customers.
(Receivables/Sales) * Days in Period
A low days sales outstanding indicates a more efficient business.
11. Average Payment Period for Production Materials
The average time from receipt of materials and payment for those materials.
(Materials Payables/Total Cost of Materials) * Days in Period
It is in a company’s best interests to pay its suppliers slowly. The longer the average payment period the more efficient the business.
12. On Time Shipping Rate
The percentage of items, SKUs or order value that arrives on or before the requested ship date.
(Number of On Time Items / Total Items) * 100
The on time shipping rate is key to customer satisfaction. A high rate indicates an efficient supply chain.