Before we start on this subject it is important to understand supply chain segmentation and the myriad of forms this can take depending on the industry that the supply chain is operating in.
For the purpose of this article I will talk about supply chain metrics of FMCG (Fast Moving Consumer Goods) companies.
Broadly speaking two main categories are evidenced in FMCG type operations
LEAN SUPPLY CHAINS, these typically support high volume, mass market products with a greater emphasis on value.
AGILE-FULLY FLEXIBLE SUPPLY CHAINS, typically deliver premium goods whereby service over rides cost considerations.
Some of the more common metrics used in these type of supply chains are listed below.
- Cash to cash cycle time, this measures the amount of time capital is tied up, meaning that during this time cash is not available for other purposes. A fast cash to cash cycle usually indicates a profitable supply chain.
Customer order cycle, measures how long it takes to deliver the customer order after the purchase order (PO) is received.
- Fill rate, the percentage of a customer’s order that is filled on the first shipment, usually represented as a percentage of SKU’s or percentage of order value. This is a good measure for customer satisfaction as well as an indicator of transport efficiency.
- Inventory days of supply, the number of days it would take to run out of supply if it was not replenished, good supply chain management practice is to reduce days of supply because it helps reduce the risk of SLOB (Slow and obsolete) inventory.
- Freight cost per unit, total freight cost divided by number of items, supply chain managers are always striving to minimize this cost.
- Inventory turnover, the number of times that your inventory cycles in a year, the higher the inventory turn number the more efficient the supply chain.
- Days sales outstanding (DSO), measures how quickly you get paid, a low DSO indicates a more efficient business.
- On time shipping rate, the percentage of items, SKU’s or order value that arrives on or before the requested ship date.
- Customer satisfaction measure, a high rate equals an efficient supply chain.
As mentioned at the outset these are just a few of the specific metrics, the real benefit is measuring, because as we all know if you don’t measure you cannot understand.
These measures are another part of getting to “what good looks like” (WGL2) in your world.