The sole use of traditional financial and cost performance measures does not adequately reflect the performance of an organization or guarantee success. A measurement of processes is required in order to continuously improve and provide value for the customer.
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Expand each of the following to learn more about some supply chain performance metrics, as well as other procurement metrics.
Order Fulfillment metrics are a true measure of supply chain excellence and includes measurements for on-time delivery, and responsiveness.
- Time to market for new products – measures procurement’s ability to provide necessary components on time to achieve the new product introduction schedule
- On-time delivery – measures the percent of shipments or services meeting schedule requirements ◦ Request date versus actual ship date◦ Scheduled or promised due dates versus actual receipt dates◦ Tolerances for acceptable early or late arrivals for certain commodities◦ Quantities received versus ordered◦ Reductions in expediting activities and costs◦ Reductions in % of stockouts and shortages
- Cycle time reduction – metrics around purchase order processing times, transportation, etc.
- Responsiveness – a measurement of flexibility and agility for how the supply chain recognizes and responds to demand changes, design changes, problem resolution, etc.
- Internal customer satisfaction – satisfaction with purchasing’s ability to serve internal customers’ needs, communications, knowledge and capabilities
Logistics metrics are the reduction of costs associated with inbound transportation.
- Actual transportation costs vs. planned
- Demurrage and detention costs
- Total dollars spent on inbound transportation
- % of cost of goods sold or sales revenue
- Premium transportation $ or % of overall transportation cost
Quality metrics measure the conformance to requirements and the level of allowable defects.
- Six Sigma – Product quality and improvements based on PPM (parts per million)
- % and # of defects per supplier, by individual product as well as across all items supplied by that supplier, including tracking by type of defect
- Failure rates in the field – failure incidents once end product is in use by customer; measured by number of failures against total installed products
- Dollar value of rejected items versus total dollar value of shipments
- # of parts received versus number of parts rejected
- Dollars recovered from suppliers due to poor quality
- Warranty costs associated with supplier defects
- % of quality-certified suppliers to total # of suppliers
Supplier management metrics measure procurement’s performance in managing supplier relationships.
- Spend visibility and analysis of suppliers, product categories, commodities, etc. to determine opportunities for savings and improvement
- Managing and developing local, regional, and global suppliers
- Furthering the integration and development of key suppliers
- Initiating supplier cost-reduction programs
- Maintaining and improving the quality of supplier relationships
- Optimizing the supply base to an appropriate number of suppliers
- Early supplier involvement in new product design
- % of budget committed to on-site supplier visits
- Supplier satisfaction measures
Technology and Innovation
Technology and innovation metrics measure how procurement uses technology to streamline the purchasing process.
- Use of e-procurement and e-transactions systems to minimize paper-based transactions ◦ % of suppliers and dollars using e-transactions◦ Dollar value and % of orders◦ % of ASN’s compared to total number of inbound shipments◦ Use of trading exchanges, electronic auctions and other B2B models
- Pull systems/shared schedules/vendor-managed inventory (VMI) ◦ # or % of suppliers with these types of purchasing relationship◦ $ of inventory spend managed this way
- Incorporation of new innovations ◦ number, frequency and dollar impact
- Use of demand-sensing technologies to analyze and translate demand patterns
- Standardization of components to reduce complexity ◦ Reduction of unique purchased items◦ % of new product products or services made up of current components◦ Number of industry-standard items used◦ Savings achieved from part number reductions and standardization
Risk management metrics include the identification, measurement, and mitigation of risks related to procurement activities, such as security of supply.
- Supplier financial risk
- Logistics disruption
- Supplier geographical disaster risks (e.g., typhoons, earthquakes)
- Political conditions
Strategic performance metrics includes the ability of purchasing to support and contribute to overall corporate goals.
- Participating in/leading value analysis efforts
- Creating early supplier involvement initiatives
- Contributing to new product development efforts
- People development based on number of hours of training per year
- % of suppliers considered strategic
- % of dollars linked to long-term contracts
Review your understanding of supply chain metrics by dragging and dropping the type of metric to the area of performance it measures.