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 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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Measuring relevance of the supply chain units to profitability is ultimately the main purpose why managers embrace the use of metrics for rating supply chain performance. But there is actually more to just knowing how profitable the supply chain activities are. Scorecards and other supply chain measuring applications are implemented to control company service delivery and related aspects.  By using such system, managers are able to know the performance of the warehouse and delivery points, manufacturing, customer satisfaction which should all be seen from both financial and marketing viewpoints.

Among the most commonly used supply chain measurements are customer order promised cycle time, on time line count, transit time, on time pick ups, freight cots, claims percentage, monthly inventory and supply, and defects per million opportunities. Knowing only about a single good performance of any of the supply chain departments such as customer service, transportation, inventory, warehousing, distribution, productions, and procurement is utterly insufficient. The manager must make sure that all of these supply chain unites are producing good results.

But opting to know how many of these supply chain units is doing good is only half of the real challenge. What managers basically should do is identify the most appropriate metrics to use. The managers may apply all the given metrics but not all of these may be helpful, in fact, not all my show the performance of all the units. The process actually starts by making careful considerations and setting goals

Before choosing any metrics for measuring the performance of all supply chain units, here are the most important things to bear in mind. Managers should only consider indicators that will keep them track of supply chain optimization, indicators that identify challenging areas and allows for relationship comparison through industry benchmarking. Managers should also consider the customizability of the metrics. Some metrics like inventory turns are more generic while others like backorders are customizable, allowing you to change the factors based on the logistics or industry business model,.

Managers should also remember that metrics are not the solutions to the problem but rather means to help them solve a crisis. It is how managers digest and translate the data that aid them in coming up with sane and effective decisions. And lastly, managers should delegate the metrics to all supply chain units. For example, the “customer order promised cycle time” metric should be owned by the customer service unit. In short, supply chain measurements should have their own owners.

Supply chain metrics are generally classified into four: inventory months of supply, inventory rationalization, material value, and upside flexibility. But these metrics would go to waste without the goal. Managers therefore, should see to it that the company goals are specific, measurable, achievable, practical, and time-bound.

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