In today's fast-paced and ever-changing business landscape, supply chain managers are constantly striving to optimize their procurement processes to remain competitive. To achieve this objective, supply chain managers rely on metrics for supply chain performance to measure key performance indicators (KPIs). Procurement teams can track metrics to identify areas that require improvement and analyze data to make data-driven decisions. In this blog, we will discuss the supply chain metrics that matter to supply chain managers and how to measure supply chain performance.
Supply chain managers have the daunting task of balancing inventory levels, cost, quality, and lead times. Tracking these metrics is essential to ensure the supply chain is efficient and cost-effective. Below is a brief overview of the metrics that matter to supply chain managers.
Supply Chain Key Metrics
Supply chain managers face the challenging task of balancing inventory levels, cost, quality, and lead times. Therefore, it's essential to track key metrics to ensure the supply chain is efficient and cost-effective. Below are the metrics for supply chain that matter:
Inventory Metrics
Inventory metrics track the quantity and value of goods held by the organization. Understanding inventory metrics enables supply chain managers to optimize inventory levels, reduce carrying costs, and prevent stockouts.
Examples of inventory metrics that matter to supply chain managers include inventory turnover, days inventory outstanding (DIO), and stockouts.
Inventory turnover
Inventory turnover is the number of times inventory is sold and replaced during a specific period. A higher inventory turnover ratio indicates efficient inventory management, while a lower ratio indicates excess inventory.
Days inventory outstanding
DIO calculates the number of days inventory is held before it is sold. A shorter DIO means faster inventory turnover and lower carrying costs.
Stockouts
Stockouts occur when there is insufficient inventory to meet demand. Tracking the frequency and duration of stockouts helps managers understand the impact on the business and take corrective action.
Cost Metrics
Cost metrics measure the financial performance of the procurement process. Understanding cost metrics helps supply chain managers optimize spending and reduce procurement costs.
Examples of cost metrics that matter to supply chain managers include cost savings, cost of goods sold (COGS), and total cost of ownership (TCO).
Cost savings
Cost savings track the amount of money saved from the initial budget. Procurement teams can negotiate better prices with suppliers to increase cost savings.
Cost of goods sold
COGS measures the direct costs associated with producing or purchasing goods. Understanding COGS helps supply chain managers identify cost-saving opportunities and optimize spending.
Total cost of ownership
TCO is the total cost of a product or service, including acquisition, maintenance, and disposal costs. Considering TCO when making procurement decisions can result in significant cost savings over the product lifecycle.
Lead Time Metrics
Lead time metrics measure the time taken to deliver goods or services from the supplier to the organization. Understanding lead time metrics enables supply chain managers to optimize inventory levels, reduce stockouts, and improve customer satisfaction.
Examples of lead time metrics that matter to supply chain managers include supplier lead time, order lead time, and delivery lead time.
Supplier lead time
Supplier lead time is the time taken for suppliers to fulfill orders. Shorter supplier lead times enable supply chain managers to respond to changes in demand more quickly.
Order lead time
Order lead time is the time taken to process an order from the time it is placed to the time it is delivered. Understanding order lead time helps supply chain managers optimize inventory levels and reduce stockouts.
Delivery lead time
Delivery lead time is the time taken for goods to be delivered to the organization. Shorter delivery lead times can improve customer satisfaction and reduce stockouts.
Quality Metrics
Quality metrics measure the level of quality of the goods or services procured. Understanding quality metrics enables supply chain managers to identify quality issues and take corrective action.
Examples of quality metrics that matter to supply chain managers include defect rate, customer complaints, and warranty claims.
Defect rate
Defect rate measures the percentage of defective products in a batch. A higher defect rate indicates poor quality and can result in increased costs.
Customer complaints
Customer complaints track the number of complaints received from customers. Understanding customer complaints can help supply chain managers identify quality issues and take corrective action.
Warranty claims
Warranty claims track the number of returns that occur after the warranty period has expired, as this can indicate potential quality issues with the product that were not apparent during the warranty period.
Sustainability Metrics
Sustainability has become an increasingly important consideration in supply chain management. In addition to the environmental benefits of sustainable practices, there are also potential cost savings associated with reducing waste and improving efficiency.
Some examples of sustainability metrics that supply chain managers may care about include carbon footprint, water usage, and waste reduction.
Carbon footprint
The carbon footprint measures the amount of greenhouse gases emitted during the production and transportation of a product. By reducing the carbon footprint, companies can reduce their impact on the environment and potentially reduce costs associated with emissions.
Water usage
Water usage measures the amount of water used during the production process. By reducing water usage, companies can reduce their impact on the environment and potentially reduce costs associated with water consumption.
Waste reduction
Waste reduction measures the amount of waste generated during the production process. By reducing waste, companies can reduce their impact on the environment and potentially reduce costs associated with waste disposal.
How to Measure Supply Chain Performance
Measuring supply chain performance is critical to achieving optimal supply chain management. By monitoring KPIs, supply chain managers can identify areas for improvement and make data-driven decisions. To measure supply chain performance, supply chain managers can use the following steps:
- Define KPIs: Identify the supply chain key metrics that matter to your organization.
- Collect data: Collect data on the identified KPIs, either manually or by using automated systems like Amplio.
- Analyze data: Analyze the data collected and identify trends and areas that require improvement.
- Take corrective action: Based on the analysis, take corrective action to improve supply chain performance.
- Monitor KPIs: Continuously monitor KPIs to ensure supply chain performance is optimal.
Amplio's Role in Driving Better Outcomes
Measuring metrics is an important part of procurement and supply chain management, as it provides valuable insights that can be used to improve processes and drive better outcomes. However, measuring metrics can also be a time-consuming and complex process, especially when dealing with large volumes of data.
This is where tools like Amplio are invaluable. Amplio provides procurement teams with the needed tools for measuring key metrics more effectively. If you’re interested in learning more about how Amplio can streamline your procurement processes with future-gen BOM analytics tools, contact us today.
