As I mentioned in my previous post, Sales Dashboards – 16 Metrics for Manufacturers, a strategy for measuring business performance should also incorporate metrics that focus on the supply chain and other operational areas of the enterprise.
Supply chain metrics and key performance indicators (KPIs) are sometimes a bit tougher to compile than sales metrics. Nevertheless, measuring supply chain performance is critical for a manufacturing concern.
As with any analytics project, start small and work your way towards your goal. Remember that the KPI you want to measure today, may not be the one you want to measure tomorrow. Times are a changin’, so gather information, leave room for flexibility and don’t worry if the measurement is not perfect. You can refine as you go!
Some of the supply chain metrics that our customer use and that we’ve seen deployed as part of other supply chain initiatives are highlighted below. This list is in no way exhaustive, but it’s a good starting point as you think through how to digitally manage your supply chain more effectively.
Inventory Turns and Sales-to-Inventory Ratio
Both Inventory Turns and Sales-To-Inventory Ratio can help you better understand a number of different facets of your business – a key one being your planning and fulfillment processes and strategies. We often see organizations analyze these metrics by year and by rolling x periods – both of which can be easy to do in a reporting application like Silvon’s Stratum solution if you keep snap shots of your inventory at regular intervals.
DSO – Days Sales Outstanding
Assessing DSO is another key supply chain metric – one for which you’ll need AR data that’s generally easy to access. Beyond the obvious “how long to collect” aspect of this metric, you can use DSO as a part of an internal customer scorecard when evaluating customers. DSO also is part of the Cash-to-Cash Cycle Time KPI – a more complex KPI featured in many supply chain dashboards. I address this particular KPI is more detail later below.
Sales to Forecast and Sales to Outlook
The Sales to Forecast and Outlook metrics are easy ones that allow for basic comparison of sales (and orders) to the forecast and/or plan. From these simple metrics you can determine where you are vs. where you expected to be – looking at it year to date, over time, current period etc.
The Outlook lets you take expected sales (e.g., existing booked orders, the forecast, and anything else you might want to include like open CRM opportunities that are x% along) to determine how the remainder of the year might play out. One caveat, though – be careful with the Outlook if you are off your forecast and have not made adjustments to future forecasts!
Past Due Orders
Another simple supply chain metric that can help you pinpoint problem products, vendors and processes is Past Due Orders. To calculate this metric, the only data you’ll need is open orders and your definition of what is ‘past due.’
Return amount and quantities – with reason codes if possible
Metrics related to returns not only allow you to assess return rates (as a ratio of sales, for example), but they can help you identify why returns are happening. Some of this information can also be used if you pursue the Perfect Order Rate, which I discuss in a few paragraphs below. At Silvon, we’ve seen metrics around Returns take on more importance for our customers as retailers impose stiffer penalties on manufacturers for all products that require returns.
Now on to two valuable, but more complex, KPIs for the supply chain:
Cash-to-Cash Cycle Time
The shorter the better is the general look at the Cash-to-Cash Cycle Time measure. As a matter of fact, working to decrease this metric can help improve all parts of the supply chain – from procurement to sales. In order to calculate it, you’ll need 3 ratios: Days of Inventory, Payables and Receivables.
Perfect Order Rate
The Perfect Order Rate metric is one we’ve seen Gartner and others talk about quite a bit. In practice it can be a little elusive to quantify, but it’s a great KPI to work towards as it requires a number of metrics to create and each of those is valuable in and of itself. The Perfect Order Rate is the measurement of your supply chain’s ability to deliver the right stuff at the right time with no issues and the right documentation. Monitoring this metric along with its components can be an effective way to reduce penalties from your customers (we often see this used by automotive suppliers and CPG companies selling through retail channels).
If you’re a manufacturer, these are just some of the metrics that you can leverage using data you may already have in your business systems or in a central repository that’s used to support your company’s performance metrics and reports (like the data hub that Silvon offers in our Stratum app).
Categorised in: Intelligent Analytics
This post was written by Frank Bunker