Supply chain optimization increases efficiency, effectiveness and quality for manufacturers. When you are trusted and dependable, your business will be on par with the commitments of your prospects and clients. But how do you establish a robust relationship with your suppliers? Start by setting and measuring the right supply chain KPIs.
With a centralized system in place to monitor the supply chain metrics of your suppliers, you are likely to gain meaningful insights into their operations. You can capture data using standard metrics and review the results using a scorecard to determine if your suppliers are excelling.
Your supplier scorecard needs to be highly transparent – it should allow you to visualize their customers and their relationship history. Keep a close check on their supply chain performance metrics to gain insight into their operational processes and maintain strong ties with the suppliers with a “green” record.
Also referred to as key performance indicators (KPIs), supply chain KPIs indicate the parameters your procurement experts use in grading the performance of the suppliers. Typically, the buyers and sellers participating in the supply chain need to develop KPIs at the beginning of their working relationship. With well-defined metrics, buyers and suppliers can keep a tab on these performance metrics, making them remain solid and strategic in achieving their respective goals and objectives.
Top Three Supply Chain Metrics
Let us take a brief dive into the top three supply chain metrics to keep a close eye on:
Responsiveness is a term used to describe how fast you respond to communication with your buyers. This could range from acknowledging a purchase order, accepting or rejecting an order or simply providing answers to your buyers’ questions, inquiries and concerns. You may think this seems simple, but you should not make any mistakes. You must be committed to a high responsiveness score for your supply chain to succeed.
According to a survey conducted by SourceDay, there will always be a 40% change in the order and all those changes are managed through phone calls, emails and spreadsheets. Your supply chain is at risk when you have a low responsiveness score. Every order change needs to be reviewed, discussed and approved, and the process should be transparent to other team members.
Arguably the most crucial supply chain KPI to measure is on-time delivery. Your delivery schedule can make or break the efficiency of your business. The supply chain that maintains an optimum on-time delivery of 90% mark often keeps its machines running, maintains a low inventory and increases customer satisfaction. On-time delivery is the most crucial metric in operations, and suppliers with solid on-time delivery rates can contribute significantly to company revenue.
Every department is affected when there is a slow delivery time from a supplier. Buyers and suppliers must prioritize on-time delivery; for instance, when there is a complicated order with multiple delivery schedules at intervals. Would the on-time delivery metric positively affect the delivery of the first shipment? Is the entire order required to arrive simultaneously to count towards the on-time delivery?
On-time delivery could mean different things to different parties. So, the supplier and the buyer should agree on the specific KPI to address and clarify these differences.
The acknowledgment rate represents the confirmation of the supplier’s receipt of a purchase order. In most cases, suppliers must acknowledge orders 48-72 hours after the order is placed. However, many businesses need to check or keep track of their order acknowledgment rates.
Businesses need to set the standard of 100% acknowledgment rates for their purchase orders. With this benchmark, suppliers would recognize and respond to every purchase order, drastically reduce or eliminate emails for missing orders and improve order receipts.
Achieving a 100% order acknowledgment rate can be challenging to measure or quantify your order acknowledgment rate through email. That is why you need a centralized system that helps manage your purchase orders and the entire supply chain operation communications to hold the buyers and suppliers accountable. A centralized system will ease the measurement of your supply change KPIs, improve the communications between your buyers and suppliers, hold each of them accountable and stabilize your supply chain management processes.
Maintaining Good Supply Chain KPIs
Responsiveness, on-time delivery and acknowledgment rate only indicate the foundational supply chain metrics to help you achieve a strong, smooth, and strategic buyer-supplier relationship. Over time, other metrics you should add include quality checks, productivity and regulatory compliance. Enterprise Resource Planning (ERP) systems can help improve supply chain responsiveness by centralizing and automating key supply chain processes such as procurement, inventory management and order fulfillment. This allows companies to have real-time visibility into the entire supply chain, make informed decisions and respond quickly to changes in demand or supply disruptions. Additionally, ERP systems can integrate with other technologies such as IoT sensors, transportation management systems and supplier management software to further enhance the supply chain’s responsiveness.
If you need to better understand your supply chain capabilities, standardize your processes and manage budget and costs, Withum can accelerate the success of your supply chain.