Supply Chain Operations Leaders

 
 
 

Are your metrics strategic and diagnostic?

Supply Chain Operations Leaders

 

Definition of Strategic Supply Chain Metrics:

Strategic Supply Chain Metrics measure the degree of the overall health of the organizational supply chain. Another type of metric is Diagnostic Metrics, which sheds light on areas for improvement.

In this article, we will provide a Supply Chain Metrics Framework derived from various sources. It is important that we reflect on what we as Procurement Leaders are measuring.

Table 1: SCOR (ASCM) | Open Source | NLPA Metrics and Performance Assessment Matrix

Scor

Sources: Open Source: https://orwiki.org/SCPM | NLPA: https://www.nextlevelpurchasing.com/ |  ASCM: https://www.ascm.org/about-ascm/

The following are explanations and formulas for some of the strategic and diagnostic metrics noted in Table 1.

Order Fulfillment Cycle Time:

The measurement of the average time required to fulfill customer orders. It is the manifestation of the speed at which an organization can satisfy the demand of its customers/clients.

Degree of Importance

Organizations with short Order Fulfillment Cycle Times (OFCT) are more responsive to customer needs and requirements. Lengthy OFCTs may result in poor customer experiences and loss of market share.

Formula

(Sum of Actual Cycle Times for All Orders Delivered) / (Total Number of Orders Delivered) in days

Data Collection

This data is collected from Source, Make, and Deliver Process Elements

*******************************************************************************************************************************

Perfect Order Ratio:

is the measurement of the ability to deliver products and services as required, contracted, and promised. It is the % of orders delivered in-full, undamaged, and defect-free, on-time, as a percentage of the total orders delivered.

  • In-full
  • Damage-free
  • Defect-free
  • On-time
  • Error-free paperwork & documentation

A Perfect Order meets all 5 of the above criteria.

Degree of Importance

A low % Perfect Order Fulfillment score is indicative of supply chain issues that require immediate corrective actions and customer dissatisfaction.

A high % Perfect Order Fulfillment score is indicative of a supply chain that is capable of delivering products and services as required, contracted, and promised.

Formula

(Total Perfect Orders) / (Total Number of Orders) x 100%

Data Collection

The measurement or calculations of supply chain performance are usually derived from Deliver Process Elements, with an impact on Delivery Enable Process Elements.

The documents necessary for the support of the supply chain process should be scored across the set of Deliver process elements.

*******************************************************************************************************************************  Upside Supply Chain Flexibility:

Is the measurement of the number of days needed to accomplish an unplanned and sustainable 20% increase in quantities delivered to customers.

Degree of Importance

Organizations that are flexible increase the probability of realizing a competitive advantage

Formula

After consideration of the constraints of Make, Source, and Deliver dimensions, it is the minimum time required to achieve an unplanned sustainable increase in demand.

Data Collection

The data is taken from the actual planning activities realized in devising the actions to be taken to accommodate the increased quantities that are required

Upside Supply Chain Adaptability:

Is the maximum sustainable % increase in delivered quantities of products and services that can be realized within 30 days.

Degree of Importance

Organizations that are adaptable increase the probability of realizing competitive advantage, profitability, and customer satisfaction

Formula

After consideration of Return, Source, Make, and Deliver processes, Supply Chain Adaptability is the least quantity sustainable.

Data Collection

Adaptability metrics can be based on assumptions or historic events. Adaptability metrics are based on the actual number of returns compared to the maximum number of returns which can be realized within 30 days.

Downside Supply Chain Adaptability:

is the reduction in ordered quantities sustainable at 30 days before delivery with zero cost or inventory penalties.

Degree of Importance

Organizations that are adaptable increase the probability of realizing competitive advantage, profitability, and customer satisfaction

Formula

Downside Source Adaptability + Downside Make Adaptability + Downside Deliver Adaptability Downside Supply Chain Adaptability.

Data Collection

Adaptability measures are assumptions based on historic events.

Overall Value at Risk:

Is the determination and management of the degree of impact risk possess on an organization’s value creation mechanisms.

Degree of Importance

Organizations robust Risk Management Processes increase the probability of realizing competitive advantage, profitability, and customer satisfaction

Formula

Supply Chain Risk VAR ($) = VAR $ (Plan) + VAR $ (Source) + VAR $ (Make) + VAR $ (Deliver) + VAR $ (Return)

Data Collection

***********************************************************************************************************************************   Cash-to-Cash Cycle Time:

is the time it takes for an investment made on expenditures on raw materials to flow back into an organization. For service-oriented firms, it represents the time from the point where an organization pays for the resources consumed in the performance of a service to the time that an organization receives payment from clients/customers for those services

Degree of Importance

Organizations robust Cash to Cash Cycles increase the probability of realizing competitive advantage, profitability, and customer satisfaction

Formula

Cash-To-Cash Cycle Time = (Days Sales Outstanding) + (Inventory Days of Supply) – (Days Payable Outstanding) in days

Data Collection

  • Accounts Payable
  • Accounts Receivable
  • General Ledger
  • Production Reporting System
  • Customer Relationship Management (CRM) System
  • Purchasing System

*************************************************************************************************************

Return on Supply Chain Fixed Assets:

measures the return an organization receives from its investments on capital in supply chain fixed assets. This includes the fixed assets used in Return, Plan, Source, Make, and Deliver activities.

Degree of Importance

Organizations with robust Return on Supply Chain Fixed Assets Processes, increase the probability of realizing competitive advantage, profitability, and customer satisfaction.

Formula

Return on Supply Chain Fixed Assets = ((Supply Chain Revenue) – (Total Cost to Serve)) / (Supply Chain Fixed Assets)

Data Collection

  • Accounts Payable
  • Accounts Receivable
  • General Ledger
  • Production Reporting System
  • Customer Relationship Management (CRM) System
  • Purchasing System

Return on Working Capital:

is a metric that determines the magnitude of an investment relative to an organization’s working capital position vs the revenues generated from its supply chain activities. Components include inventory, accounts payables, accounts receivables, supply chain revenues, cost of goods sold,, and supply chain management costs.

Degree of Importance

Organizations with robust Return on Working Capital Processes, increase the probability of realizing competitive advantage, profitability, and customer satisfaction.

Formula

Return on Supply Chain Fixed Assets = ((Supply Chain Revenue) – (Total Cost to Serve)) / (Supply Chain Fixed Assets)

Data Collection

  • Accounts Payable
  • Accounts Receivable
  • General Ledger
  • Production Reporting System
  • Customer Relationship Management (CRM) System
  • Purchasing System

 

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Copyright 2020. This article is the property of the Next Level Purchasing Association and may not be copied or republished in any form without the express written consent of the Next Level Purchasing Association. Click here to request republishing permission.

By David Millington, SPSM, SPSM2, SPSM3 - Director of Education (Next Level Purchasing Association)

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