Supply Chain Indicators Study

What is not defined cannot be measured. What is not measured cannot be improved. What is not improved always deteriorates. (William Thomson Kelvin (Lord Kelvin), British physicist and mathematician (1824–1907))

The importance of measuring your supply chain

One of the main characteristics of successful business organizations is based on incorporating support elements for managing and controlling their activity. These elements make it possible to immediately evaluate the different processes, avoiding deviations through the creation of corrective actions.

The supply chain is one of those fundamental pillars within successful organizations, above all because they have understood that the supply chain is not a “commodity” but a true differentiating value compared to their competitors. As a result, we are witnessing a process of greater control and measurement of the supply chain; indicators such as KPIs (the English acronym for Key Performance Indicator) are already on everyone’s lips.

We have to measure, but what do we measure?

Metrics help us identify the performance of the strategy we have defined as a company; the different measurements make it possible to take a “snapshot” of the level of achievement against the objectives set. The theory is relatively simple and clear, but when we begin the process we can make the mistake of not applying the right indicators.

Within the supply chain we can find a very large number of indicators of all kinds that perform a wide variety of measurements. One of the most common mistakes is trying to use all indicators, completely losing sight of their purpose; this is when the purpose of the indicators becomes solely feedback. We must avoid this situation: failing to choose the right indicators can create a risk of too little or too much information, which leads to longer decision-making times or even an incorrect conclusion. 

Once we have identified and determined which indicators and metrics of our supply chain we want to control, the next step is to decide how we want them to be presented. In this second step, the most common mistake is using different ways of displaying the data, when the best choice is to have all indicators in one place: a dashboard or management cockpit that, in a visual way, allows us to carry out global monitoring of our supply chain.

Within the supply chain, all actions are measurable and therefore manageable, which puts us in the position of defining which indicators are the most interesting ones we want and need to visualize. It is clear that the indicators and metrics that have the greatest impact on our company must be present, as well as the indicators we consider most relevant for measuring the performance of the different departments of the company that are related to the supply chain (purchasing, sales, administration, accounting, etc.).

The 6 main supply chain indicators

When we monitor a supply chain, we may end up using between 40,000 and 50,000 different KPIs, which forces us to determine very carefully which ones we want to be part of that dashboard that allows us to control activity.

All those KPIs can be divided into 6 major groups, the 6 main supply chain indicators:

1. Suppliers: All indicators that provide us with information about our suppliers and that are related to the purchasing area. We find indicators for spend, units, quality, delivery times, etc.

2. Transport: The second major group includes all indicators that refer to transport, both external (stock inbound and outbound) and internal (movements within the organization). The indicators show orders handled per day, frequencies and quantities of inbound/outbound movements, etc.

3. Warehousing: Warehousing indicators refer to warehouse management: its efficiencies, working times and speeds, inventory turnover, or space utilization. Depending on the company’s activity, the importance of some indicators may vary, but generally metrics such as order picking rates or the number of transactions per item and order are taken into consideration.

4. Inventory management: As the name suggests, these are the indicators that provide information on the management of stored inventory. The most commonly used indicators refer to stock levels, inventory management and holding costs, average inventory value, etc.

5. Marketing and sales: This group includes the indicators that help us work on sales forecasting. Sales prediction using historical data and assessments from marketing and sales teams are what are typically used in this group.

6. Customer Service: We must not forget that the ultimate objective of business activity is to achieve a satisfactory purchase for the customer. That is why the sixth group of indicators provides information on customer relationships, from the number of orders and orders delivered correctly on time and in full, to damaged products or return rates.

The 6 main indicators fully cover the entire supply chain, which is why it is essential to reflect them in a single management cockpit or dashboard. To develop this cockpit, at LISDATA we work on creating these dashboards based on a new concept of data-driven Logistics Consulting and leveraging new technologies such as Big Data and Artificial Intelligence.

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