Therefore, it is even more important to be aware of all processes and parties in the supply chain and to monitor and optimize them continuously. Key performance indicators (KPIs) are any supply chain managers’ way to success: When the relevant information is collected and analyzed, they can identify flaws or bottlenecks in the ecosystem and develop measures that contribute to corporate growth.
Challenges in Supply Chain Management
Supply chain managers are currently facing more hurdles in their job than ever before. These include:
- Creating more supply chain transparency: The challenge is to analyze the daily flood of structured and unstructured data to make better business decisions in the long term.
- Minimize risks: This includes not only threats due to the Corona pandemic or the Suez Canal crisis, but also a demand for more sustainability and less CO2 emissions.
- Keeping an eye on costs: Whether it’s spontaneous rescheduling of routes, wage increases, or rising transportation costs – there are many factors that increase costs and complexity.
- Manage global challenges: While globalization offers many new opportunities, it also brings new risks including longer lead times, unreliable deliveries, or quality deficiencies.
Benefits of Supply Chain KPIs in Logistics
To efficiently address these challenges and achieve company-specific objectives such as a fast and cost-effective delivery, smooth transport, or the constant availability of goods, supply chain KPIs provide both strategic and operational support.
On a strategic level, KPIs enable cost-benefit decisions, investment analyses and ROI determinations as well as the risk assessment of entrepreneurial decisions. At an operational level, KPIs help to continuously evaluate day-to-day business. Can production maintain its productivity level? Are there any alerts that daily targets cannot be accomplished? Have certain parameters – technical problems, a sudden increase in the order numbers or supplier delays – changed and staff need to be redeployed accordingly?
Thus, in summary, KPIs provide more visibility of a company’s performance and enable an objective quantitative and qualitative assessment.
Which Supply Chain KPIs are relevant?
KPIs become a key performance indicator when they are linked to certain objectives for a fixed period of time and a specific issue. Therefore, say good-bye to any “one size fits all” approach. Instead, they must be individualized for each of the company’s challenges.
To define relevant KPIs, supply chain managers can follow the SMART principle. In this context, the KPIs must be specific, measurable, achievable and time bound. In the next step, it is time to align the KPIs with the overall business objectives. Important: Do not define too many KPIs, the focus is on KEY factors.
The following will help you with the selection process:
- Each KPI should be assigned to a responsible person or team
- KPIs should be traceable, actionable, and provide timely, accurate data that can be interpreted and used by the responsible parties
- KPIs should be linked, but not negatively affect each other
- Each KPI should have a target or threshold that indicates the minimum performance level
- KPIs should be constantly updated as they may become less relevant over time
Examples of Supply Chain KPIs
Key figures from the areas of order entry, inventory management, purchasing and supplier management, production and manufacturing, warehousing, and transportation are suitable for creating relevant KPIs.
In inventory management, it is for example important to enable a fast delivery while keeping capital commitment as low as possible. Accordingly, key figures regarding the inventory fill level, the inventory value, the procurement time or the error rate with the resulting manual corrections and transfer postings come in handy.
In the category order entry, KPIs regarding the delivery rate, shipping costs and, at the operational level, key figures for the individual work steps per hour, as well as qualitative criteria such as inventory security and incorrect picks, play a decisive role.
In the area of transport, the punctuality of transports, the susceptibility to disruptions and the associated costs become relevant. At this point, we at Synfioo provide cross-modality support with the help of innovative machine learning algorithms. We incorporate transport-specific data with historical sources as well as over 70 disruption sources into our calculations. Therefore, supply chain managers can coordinate transports and all related processes more accurately through our precise estimated time of arrival forecasts.
Photo by Tobias Rademacher on Unsplash