The Ultimate Guide to SCM Planning KPIs and Metrics
Learn about the most important SCM planning KPIs and metrics that can help your business optimize its supply chain performance. This ultimate guide covers everything you need to know to improve your SCM planning.
Efficient supply chain management (SCM) is critical for any business that aims to improve its profitability and customer satisfaction. However, to optimize your supply chain performance, you need to track and measure the right SCM planning KPIs and metrics. This ultimate guide will take you through the most important SCM planning KPIs and metrics that can help you assess and improve your supply chain management.
What is SCM Planning?
SCM planning involves creating a strategy that aligns the supply chain with the overall business goals. It requires businesses to determine how to source, produce, and distribute their products most cost-effectively and efficiently. To optimize SCM planning, businesses need to track and measure key performance indicators (KPIs) and metrics that allow them to assess their performance.
Why are SCM Planning KPIs and Metrics Important?
SCM planning KPIs and metrics allow businesses to measure and track their supply chain performance. They provide insight into how the supply chain is operating and help businesses identify areas that need improvement. This information can be used to optimize the supply chain, reduce costs, and improve customer satisfaction.
SCM Planning KPIs
Order Lead Time
This KPI measures the time it takes for an order to be processed and delivered to the customer. A shorter lead time means faster delivery and happier customers.
An example:
Let's say a customer places an order for a product on January 1st, and the product is delivered to the customer on January 15th. The order lead time, in this case, would be 14 days (January 15th minus January 1st).
To calculate the order lead time, you would subtract the date the order was placed from the date the order was delivered to the customer. This will give you the number of days it took to fulfill the order and deliver it to the customer.
Order Lead Time = Date of Delivery - Date of Order Placement
In this example, Order Lead Time = January 15th - January 1st = 14 days
By tracking the order lead time for all orders, businesses can identify trends and areas for improvement in their supply chain. For instance, if the order lead time is consistently longer than expected, businesses can investigate the causes and make changes to improve their order fulfillment processes, such as optimizing inventory management or improving shipping and delivery processes.
Order Cycle Time
This KPI quantifies the duration required to process a particular order, commencing from the moment it is received to its ultimate delivery to the intended recipient. A reduced cycle time is indicative of a more streamlined operational workflow, resulting in expedited delivery.
An example:
Let's say a customer places an order for a product on January 1st, and the next time they place an order for that same product is on January 30th. The order cycle time in this case would be 29 days (January 30th minus January 1st).
To calculate the order cycle time, you would subtract the date of the first order from the date of the second order. This will give you the number of days between orders.
Order Cycle Time = Date of Second Order - Date of First Order
In this example, Order Cycle Time = January 30th - January 1st = 29 days
By tracking the order cycle time for all orders, businesses can identify trends and areas for improvement in their supply chain. For instance, if the order cycle time is consistently longer than expected, businesses can investigate the causes and make changes to improve their ordering and fulfillment processes, such as optimizing inventory levels or improving communication with suppliers.
Inventory Turnover
This KPI measures how many times a business sells and replaces its inventory over some time. A high inventory turnover means a business is selling its products quickly and efficiently.
An example:
Let's say a business has an average inventory value of $100,000, and its cost of goods sold (COGS) for the year is $500,000. The inventory turnover for the year would be 5.
Inventory Turnover = Cost of Goods Sold / Average Inventory Value
In this example, Inventory Turnover = $500,000 / $100,000 = 5
This means that the business sold and replaced its entire inventory five times during the year. A high inventory turnover ratio generally indicates that a business is efficiently managing its inventory levels and selling its products quickly. On the other hand, a low inventory turnover ratio can indicate that a business is struggling to sell its products or is holding onto too much inventory, which can tie up cash flow and increase storage costs.
By tracking inventory turnover over time, businesses can gain insight into the effectiveness of their inventory management and make adjustments to optimize their supply chain performance.
Perfect Order Rate
This KPI measures the percentage of orders that are delivered to the customer without errors or delays. A high perfect order rate means better customer satisfaction.
An example:
Let's say a business fulfills 1,000 orders in a month, and out of those 1,000 orders, 950 were delivered on time, 920 were delivered with no damage, and 940 were delivered with the correct quantity and specifications. The perfect order rate for the month would be 91.0%.
Perfect Order Rate = (Number of Perfect Orders / Total Number of Orders) x 100%
In this example, Perfect Order Rate = [(950 x 920 x 940) / 1,000] x 100% = 91.0%
A high perfect order rate indicates that a business is successfully delivering products that meet customer expectations, which can lead to increased customer satisfaction, repeat business, and positive word-of-mouth referrals.
On the other hand, a low perfect order rate can indicate that a business is struggling to meet customer expectations and may need to make improvements to its supply chain processes, such as better quality control or improved shipping and delivery procedures.
By tracking perfect order rates over time, businesses can gain insight into the effectiveness of their supply chain processes and make adjustments to optimize their performance and customer satisfaction.
SCM Planning Metrics
Supply Chain Cost
This metric measures the total cost of the supply chain, including transportation, storage, and labor costs. Businesses can use this information to identify areas where they can reduce costs and improve efficiency.
An Example:
Let's say a business has the following costs associated with its supply chain for a year:
Cost of Goods Sold (COGS): $1,000,000
Transportation Costs: $100,000
Warehousing Costs: $50,000
Packaging and Handling Costs: $20,000
Customs and Duties: $5,000
Other Costs (such as inventory carrying costs and overhead): $75,000
The total supply chain cost for the year would be $1,250,000.
Supply Chain Cost = COGS + Transportation Costs + Warehousing Costs + Packaging and Handling Costs + Customs and Duties + Other Costs
In this example, Supply Chain Cost = $1,000,000 + $100,000 + $50,000 + $20,000 + $5,000 + $75,000 = $1,250,000
By calculating supply chain costs, businesses can gain insight into the true costs of their supply chain processes and identify areas for improvement to reduce costs and increase efficiency.
For instance, if transportation costs are higher than expected, businesses can investigate the causes and look for ways to optimize their transportation routes or negotiate better rates with carriers. Similarly, if warehousing costs are high, businesses can look for ways to optimize their inventory levels or improve their warehouse layout and processes to reduce storage costs.
Fill Rate
This metric measures the percentage of orders that are filled completely and on time. A high fill rate means better customer satisfaction and fewer delays.
An example:
Let's say a business receives 1,000 customer orders in a month, and out of those 1,000 orders, 980 were fulfilled completely and accurately. The fill rate for the month would be 98%.
Fill Rate = (Number of Orders Fulfilled Completely / Total Number of Orders) x 100%
In this example, Fill Rate = (980 / 1,000) x 100% = 98%
A high fill rate indicates that a business is successfully fulfilling customer orders, which can lead to increased customer satisfaction, repeat business, and positive word-of-mouth referrals. On the other hand, a low fill rate can indicate that a business is struggling to fulfill customer orders, which can lead to decreased customer satisfaction and lost sales.
By tracking fill rates over time, businesses can gain insight into the effectiveness of their supply chain processes and make adjustments to optimize their performance and customer satisfaction. For example, if fill rates are consistently low, businesses can investigate the causes and look for ways to improve their inventory management or order fulfillment processes to increase their fill rates.
Order Accuracy
This metric measures the percentage of orders that are delivered with the correct products and quantities. A high order accuracy rate means better customer satisfaction and fewer returns.
An example:
Let's say a business received 500 customer orders in a month, and out of those 500 orders, 480 were fulfilled completely and accurately. The order accuracy rate for the month would be 96%.
Order Accuracy Rate = (Number of Orders Fulfilled Accurately / Total Number of Orders) x 100%
In this example, Order Accuracy Rate = (480 / 500) x 100% = 96%
A high order accuracy rate indicates that a business is successfully fulfilling customer orders with the correct products, which can lead to increased customer satisfaction and repeat business. On the other hand, a low order accuracy rate can indicate that a business is struggling to fulfill orders accurately, which can lead to decreased customer satisfaction and lost sales.
By tracking order accuracy rate over time, businesses can gain insight into the effectiveness of their supply chain processes and make adjustments to optimize their performance and customer satisfaction.
For example, if order accuracy rates are consistently low, businesses can investigate the causes and look for ways to improve their order fulfillment processes, such as improving quality control measures or providing additional training to staff.
On-Time Delivery
This metric measures the percentage of orders that are delivered on time. A high on-time delivery rate means better customer satisfaction and fewer delays.
An example:
Let's say a business fulfilled 100 customer orders in a month, and out of those 100 orders, 90 were delivered to customers on or before the promised delivery date. The on-time delivery rate for the month would be 90%.
On-Time Delivery Rate = (Number of Orders Delivered On or Before Promised Date / Total Number of Orders) x 100%
In this example, On-Time Delivery Rate = (90 / 100) x 100% = 90%
A substantial on-time delivery rate signifies that an enterprise is efficaciously fulfilling client expectations by supplying orders on or prior to the guaranteed delivery date, which can result in an amplified level of customer satisfaction and allegiance. Conversely, a meager on-time delivery rate may indicate that an enterprise is grappling to execute orders on schedule, resulting in a reduced level of customer satisfaction and missed sales opportunities.
By tracing the progression of on-time delivery rates over time, enterprises can obtain enlightenment into the efficiency of their supply chain operations and institute modifications to optimize their performance and customer satisfaction.
For instance, if the on-time delivery rates persistently remain low, enterprises can delve into the underlying causes and explore ways to enhance their order fulfillment processes, such as enhancing communication with customers or augmenting their logistics and transportation operations.
Common FAQs about SCM Planning KPIs and Metrics
What is the difference between KPIs and metrics?
Key performance indicators (KPIs) and metrics are two distinct methods of assessing a business's performance. KPIs are instrumental in tracking and measuring essential aspects of an enterprise, while metrics are specific data points that are employed to compute KPIs.
How can I use SCM planning KPIs and metrics to improve my supply chain performance?
Improving supply chain performance necessitates monitoring and evaluating SCM planning KPIs and metrics. This process enables the identification of areas that require improvement, allowing for adjustments to optimize supply chain performance.
Conclusion
Effective SCM planning is a crucial factor for enterprises striving to enhance their profitability and customer satisfaction. By accurately tracking and evaluating the right SCM planning key performance indicators (KPIs) and metrics, businesses can streamline their supply chain performance and reduce expenditures.
This all-inclusive manual on SCM planning KPIs and metrics provides a comprehensive summary of the most crucial KPIs and metrics that firms should closely monitor to improve their supply chain performance.
By implementing these measures, firms can gain invaluable insights into the operational status of their supply chain, identify areas for enhancement, and make data-driven decisions to optimize their supply chain. By adhering to this ultimate guide, businesses can embark on the initial phase of their journey towards improving their SCM planning and propelling success in their industry.
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