Metrics, Scorecard, KPIs

If you have your supply chain management all laid out as it should be, then this would give your company or business a huge competitive advantage. With lowered costs, enhanced efficiency, and a vast improvement of customer satisfaction due to the fact that you are able to get the goods that they order faster and in excellent condition, there is just no knowing the limits of competitive advantage here. Apart from that, there are also a lot of advancements in technologies surrounding the supply chain – the use of RFID tags, for starters – that the aspect of supply chain management in any business has just become an avenue for the creation of more and more competitive advantages. With that being said, it then becomes a must to take into serious consideration the supply chain KPIs being used to evaluate the system.

In the arena of KPIs or key performance indicators, it is actually a common mistake of companies to use a whole lot of these indicators. Of course, this is not done with the intention of making things complicated; however, this is the exact effect you can expect when you choose to use a lot of KPIs for your supply chain. Thus, you have to be extremely selective when choosing which KPIs to use and you need to go with relevance here.

The use of KPIs for your supply chain is made more effective when your managers completely understand what these KPIs are telling them. Thus, it is needed to use only the KPIs that are extremely relevant. When dealing with KPIs for your supply chain, it is actually better to go with the ones that are in ratio form. But then again, you would have to deal with the fact that with ratio combinations, there is also that loss of underlying raw data trends. For instance, when you combine delivery time with the KPI of order value, that you then give you the index of how well the order pipelines are processed and delivered to the company’s customer base. However, this particular ratio has a smoothing effect when it comes to long delivery times for the products that have low value. This, in turn, would decrease customer satisfaction, thereby leading to resulting effects on contact center KPIs, as well as customer care KPIs. There is indeed a relationship when you use these ratios and you need to determine the nature of the ratios so that you can interpret them thoroughly and take the proper courses of action.

You need to keep in mind Pareto’s Principle when you are in the process of creating your KPIs for your supply chain. The principle stipulates that roughly 80% of your benefits will actually come from just 20% of the activity going on inside your organization. Thus, it follows that only 20% of your supply chain KPIs would dictate the flow of the activities within your supply chain itself. This way more effective managerial decisions would be made and there would be clearer analysis and interpretation of data gathered by the dashboard itself.

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The balanced scorecard or BSC is another managerial tool that is comprised of key performance indicators. The BSC was developed during the 1980’s, primarily to determine the impact of small business on corporate goals and objectives. Now, it has become an important tool for management in measuring efficiency and effectiveness of organizational and business processes. The supply chain balanced scorecard, in this sense, is a management-measuring tool to determine the efficiency of the supply chain system in delivering goods and services to customers at a most opportune time.

The supply chain BSC will contain anything that is relevant to maintaining an excellent record in meeting customers’ demands. This means that it is not limited to matters concerning to stocking and delivery and how efficiently these functions are done. Before goods and services can be delivered, you have to have the goods and services to deliver. So, naturally, the supply chain BSC will involve aspects of production, finance, and training. These are internal factors of the scorecard, but since supply chain involves customers, it should include external aspects as well.

The external aspects will include information about the ability of the organization to fill orders and customer back order levels. These tell managers the ability of the market to absorb increased production or perhaps the effectiveness of the sales force. These are very important in determining manufacturing and sales levels, sales strategies, after sales services, and delivery methods.

Each area in the supply chain system from manufacturing, stocking, storage, delivery, finance, to training will have its own balanced scorecards. But they are prepared in coordination with each other, to ensure that objectives or forecasts and mediating activities are focused on one thing – generating sales and profit. The individual supply chain BSCs, of course, are based on the general goals and objectives of the organization. Some organizations will have strategic plans and the scorecards are especially useful in breaking down long-term objectives and targets into workable specific targets.

The financial aspect of efficiently delivering goods and services are fully integrated into each scorecard so that all angles of operations are fully covered,  which means that objectives, targets, and mediating activities  are formulated in accordance with the principle of eliminating extraneous expenses and maximizing financial resources.

These balanced scorecards make monitoring of the performance of departments or sections, and even individual employees involved in the supply chain, very easy. Employees can keep track of how well they are doing based on expected outputs and can then make the necessary adjustments. Managers can have a bird’s eye view of what is happening and developing in the supply chain by simply referring to them anytime or during periodic organizational assessments conducted to determine whether plans and targets are being accomplished in the most efficient manner.

Many business organizations become waylaid by the opposition because they make decisions in the dark, decisions that are not based on concrete internal and external conditions. With supply chain balanced scorecards where all aspects involved in efficiently delivery goods and services are considered and ease in monitoring accomplishments is provided, they won’t have to stay in the dark much longer.

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