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Performance Measurement in Supply Chain Operations

Determine the key indicators your company needs to focus on.

Experienced supply chain managers and the global Supply Chain Council (SCC) have built a model that defines and links key performance indicators (KPIs) with processes, best practices and people management. With the basics of the hierarchical SCOR® model, available on the SCC website, you can review your supply chain KPIs and consider whether or not you are measuring the right indicators.

In the model, there are six Level 1 management processes that encompass all phases of demand satisfaction: Plan, Make, Source, Deliver, Return and Enable

Each has been broken down into performance attributes: reliability, responsiveness, agility, costs and asset management. The model also includes a talent management category that defines critical people management processes. It aligns those processes with roles, responsibilities and jobs in the performance categories. That helps managers assess the knowledge, skills, aptitude and training required for each job.

Using the model's structure, you can compare your key performance indicators with some of these:

Reliability: The ultimate supply chain target is perfect order fulfillment. Some KPIs that might work for you include the percentage of complete orders delivered, meeting the customer commit date, accuracy of documentation and the percentage of orders delivered undamaged.

Responsiveness is focused on the velocity of the order-fulfillment cycle time. How long are cycle times for sourcing (contracting, purchasing and delivering of materials) and delivery to the customer (from building orders, picking, validating and documenting orders, routing and scheduling, and shipping)?

Agility measures flexibility and adaptability on the upside and on the downside through all the stages of the overall cycle--sourcing, making and delivering, plus retrieving and transporting returns.

Risk is measured by the overall value at risk (VAR) to both the supplier and customer at each stage of the plan, source, make, deliver and return cycle.

Costs to measure include the cost of sourcing (authorizing payment, receiving product, scheduling delivery and transferring of the product), delivery (order management and delivery) and the cost to return (sourcing and delivering). The cost of mitigating risk at each stage of cycle is another supply chain KPI to consider.

Asset management: High-level asset-related KPIs start with the cash-to-cash cycle time and include return on the supply chain fixed assets used to source, deliver, make, plan and return goods.

A guide like the SCOR model can give you a good structure for assessing your supply chain performance management indicators. The most useful KPIs for your company can differ from the model and vary from one department or function to another. You make the decisions based on your business goals and analysis. To take a closer look at the SCOR model and see if it's right for you, visit the SCC website at www.supply-chain.org.

 

SCOR® is a registered trademark of the Supply Chain Council.


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