Defining Supply Chain Metrics: A Review

Defining supply chain measures starts with identifying key result areas (KRAs) where performance has a significant impact on organizational success, says Dr. Edward Marien, professor emeritus at the University of Wisconsin. These KRAs are further defined with specific metrics. For on-time delivery, for example, the metric might be customer delivery within plus or minus 30 minutes of the promised delivery time.

Marien spoke about supply chain metrics along with several other panelists during one of the educational programs at this year’s TransComp and Intermodal Expo in Ft. Lauderdale this week. The tradeshow and conference is co-sponsored by The National Industrial Transportation League (NITL), the Intermodal Association of North America (IANA) and the Transportation Intermediaries Association (TIA).

Once the metrics are defined, actual performance measures need to be tracked and recorded, e.g., percentage of shipments delivered on time as promised for a given month. If these measures are further identified as top priorities for organizational improvement, Marien says they should be linked to organizational goals as key performance indicators (KPIs). Defining measures and setting KPIs says a lot about the aspirations of an organization.

For example, there’s a lot more to on-time delivery than meets they eye, adds John Gentle, a consultant who was formerly with Owens-Corning (Toledo). Measuring on-time delivery to promise date is one thing. It’s more difficult, but perhaps more important, to measure performance to customer request date.

“Are you just measuring to what you say you can do, or are you measuring to what the customer really wants?” asks Gentle. After answering such questions, organizations must then track year-over-year improvement, he says, so that managers can show that they’re actually making progress on the things that customers think are important. Measuring overall success in this area gets tricky when, in listening to customer needs, one customer’s definition of on-time delivery is different than another customer’s definition.

He divides key result areas into four key categories: customer satisfaction, financial returns, business development and productivity, and supply-chain relationships. Customer satisfaction measurements include product quality measures (warranty performance) and response times (to backorders, inquiries, or breakdowns). They also include order fill rates and related measures like stockouts and backorders, as well as customer retention and customer loyalty.

The effectiveness of supply-chain relationships is another area that can be measured. This can be done by documenting the depth and time commitment of supplier assistance programs, cross-functional team activity, the amount of cost and profit sharing, as well as the number and length of contracts. In the transportation arena, measuring supply chain relationships may include tracking the accuracy of carrier capacity forecasts, the number of meetings between shippers and carriers to address issues, annual carrier and shipper performance reviews, truckload turnaround time/driver waiting time.

In summary, good measures should be specific and meaningful to the organization, controllable and tied to a goal, and timely enough that they can be used for improvement. Organizations should track a reasonable number of measures that reflect a balanced performance scorecard inside as well as outside the organization.

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