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Cost of goods sold Total logistics cost Cross-functional KPIs should be constructed in such a way that each function can see its contribution towards the overall supply chain performance.
At the beginning of this article, I stressed the importance of not having too many KPIs. In the course of my consulting activity, I come across this issue repeatedly.
The most common cause is a state of confusion about what really constitutes a KPI. Let me try to clarify. A KPI is a metric… but not just any metric. However, it is beyond realistic to expect anyone to monitor them closely on a day-to-day or even week-to-week basis.
KPIs should comprise a handful of metrics that CAN be realistically monitored and reacted to on a continuous basis. How Many is Too Many? In determining your supply chain KPI suite then, the secret is to identify performance elements critical to those with the power to influence them, and to develop appropriate KPIs for that audience.
At no level in a function, or cross-functionally though, should anyone need to try to monitor more than a few KPIs. Exactly how many is hard to say and will in any case vary from business to business, but frankly, if you are tempted to ask if you have too many KPIs, you probably do.
The Importance of Hierarchy Another reason not to have too many KPIs is the need to apply various levels of detail to each one. Because of this particular necessity, the development of even half a dozen logistics KPIs will actually result in two to three times this number in total… at the very least.
Therefore, as you might imagine, the implementation of many KPIs will soon see your portfolio approaching the volume of the aforementioned telephone directory, resulting in associated difficulties with monitoring and acting on the mass of data generated.
Nevertheless, it is essential to have a hierarchy of KPIs, since, as already mentioned, a level of granularity suitable for one level of management will be either too general, or too detailed, for another.
At the same time, it is probably not wise to have too many levels in your hierarchy, two to three being optimal. The Two-Level Hierarchy If you wish to keep things as simple as possible, you should find that two levels, or tiers, of logistics KPIs are sufficient.
The primary tier KPIs would be the ones monitored at executive level in your company, and would perhaps include metrics like: Logistics costs as percentage of sales Inventory turns Source-to-deliver cycle time the time from sourcing raw materials to delivery of finished goods DIFOT At the secondary level, you would have KPIs that provide more granularity and highlight the causes of fluctuations in tier 1 metrics.
Examples of these secondary KPIs could include:The best supply chains aren’t just fast and cost-effective. They are also agile and adaptable, and they ensure that all their companies’ interests stay aligned. Global Supply Chain Ecosystems: Strategies for Competitive Advantage in a Complex, Connected World - Kindle edition by Mark Millar.
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Use features like bookmarks, note taking and highlighting while reading Global Supply Chain Ecosystems: Strategies for Competitive Advantage . IntroductionIn the struggle for marketplace advantage, organizations, consultants, practitioners and academics have attempted to organize and integrate supply chain management (SCM) concepts and practices into their business processes.
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