Supply Chain Measurements
Benchmarking Supply Chain Capability
Supply Costs as a Percentage of Sales
Benchmarking your total supply chain costs against industry standards will point you to opportunities to improve your performance.
| Supply Chain Expense Category | % of Sales |
|
Transport |
2.7% |
|
Warehousing |
1.5% |
|
Inventory Charge |
2.5% |
|
Customer Service and Administration |
0.9% |
| Total | 7.6% |
Inventory Levels to Support Projected Sales
One effective measure of supply chain health is the percentage of existing inventory that will be consumed by the forecast, orders, and planned production in the next 30 days. This metric can account for product substitutions, and the ability to move material between one location and another. World class supply chains operate at an inventory velocity that is in excess of 75%
Forecast Accuracy
The longer the timeframe, the less accurate a forecast becomes. The table below provides provides some indication as to the forecast error experienced at the SKU level. If your forecast errors are much greater than these at the SKU level, there is significant opportunity for improvement.
| SKU FORECASTING ERROR AT 4 DIFFERENT FORECAST HORIZONS | |
|
1 Year Ahead |
39% |
|
1 Quarter Ahead |
34% |
|
2 Months Ahead |
30% |
|
1 Month Ahead |
28% |
Table extracted from Benchmarking Forecasting Errors; by Chaman L Jain - The Journal of Business Forecasting, Winter 2005 -2006.
Delivery Performance & Fill Rates
The most important test of your supply chain effectiveness is the accomplishment of its purpose; delivering product on time to your customer. On time delivery (OTD) performance to your original promise date tells you how the system is performing. Poor OTD indicates your process is unstable and requires immediate attention.
If you're delivering off the shelf, then calculating fill rates, the number items shipped within your standard lead time is the true measure of supply chain performance.
Creating Supply Chain Metrics
According to AMR research, supply chain metrics are placed in a hierarchy manage assessment, diagnostic and correction activities. Each of these measures highlight a different dimension of supply chain performance.
