3/17/03

Supply Chain Metrics by Kelly Wright, SCRC

What are supply chain metrics and how are they most useful?

Beginner Readers: Do you know what it means to have a Perfect Order Measure of 94%? How about an On Time Line Count of 70%? Do you know how many FG’s are leaving the NDC in LTL quantities?

Supply Chain Management is full of metrics and acronyms that can be confusing to even the most seasoned professional. During my research I’ve discovered a great website called supplychainmetric.com. This site describes some measurements used to assess the quality of any supply chain.

Metrics the site describes:

Fill Rate Measure
On Time Shipping/Delivery
Performance to Promise
Backorder Reporting
Cycle Time
Perfect Order Measure
Inventory Turns
Inventory Accuracy
Transportation
Balanced Scorecard

The site also suggests ways to use metrics most efficiently in analyzing your supply chain operations, one of which is benchmarking (which you can read more about in the 2/13/03 Lessons Learned article). Acronyms from ABC to WIP are spelled out to assist you in translating “supply-chain-ese.”

Advanced Readers: Can supply chain measures from one firm be accurately compared to those of another? Is it worthwhile to compare inventory turns from the retail level to the same metric from the supplier level?

There are multiple opinions regarding the best way to formulate and analyze supply chain metrics. Two are summarized here, but each article can be accessed in its entirety by interested readers.

Douglas Lambert and Terrance Pohlen, in an article titled Supply Chain Metrics (1), contend “there is no evidence that meaningful performance measures that span the supply chain actually exist.” They give numerous reasons for their argument including lack of access to detailed information and competitive information, as well as complexity in capture and use of data. Many companies, they say, use internal logistics type measurements which invite error into the benchmarking process. Warren Hausman, in a chapter (2) from “The Practice of Supply Chain Management” calls these measurements “single dimensional.”

For example, it is irrelevant to compare inventory turns from different members within a supply chain, as in retail versus supplier data. Because risk and cash investment increase as goods get closer to the customer, inventory is worth much more at the retail level. Increasing inventory turns at that level would be worth much more than the same action further up the chain. Lambert and Pohlen suggest that total inventory carrying costs would be a more appropriate performance measure (1).

Hausman’s approach is to become “multi dimensional” when defining supply chain metrics. This requires analysis across multiple companies instead of focusing internally. The Internet allows for easier information sharing and collaboration. Three types of metrics should be created: service, assets, and speed (2).

Lambert and Pohlen “propose a framework that aligns performance at each link (supplier-customer pair) within the supply chain.” The framework involves mapping the chain, analyzing links, developing P&L statements, and creating individual performance measures that support supply chain goals. Non-financial metrics should be established as well (1).

Supply chain performance metric benchmarks can be found in two articles from CIO magazine. One discusses median and best in class numbers for computers & electronics, consumer packaged goods, defense & industrial, pharmaceuticals & chemicals, and telecommunications industries. The other suggests more general benchmarks. Although the information is dated (from 2000) it may give readers a starting point for locating industry data.

References
(1) Lambert, D. and Pohlen, T. (2001). Supply Chain Metrics. The International Journal of Logistics Management, 12 (1), 1 – 19.

(2) Hausman, W. (2002). New Earnings Strategies for Retail Supply Chains - Supply Chain Performance Metrics. The Practice of Supply Chain Management. Kluwer Academic Publishers.

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