Supply Chain Management 101 Basics

Supply Chain Management 101 Basics

Supply Chain Management (SCM) requires management of complex dependencies between teams, departments and partner companies across international boundaries. It is a natural area for metrics.

Supply Chain Metrics may include measurements for procurement, production, transportation, inventory, warehousing, material handling, packaging and customer service. There are hundreds of metrics that can be used to score Supply Chain Management performance. The following are some of the most common.

12 Key Metrics for Supply Chain Management

1. Perfect Order Measurement

The percentage of orders that are error-free.

((total orders - error orders) / total orders) * 100

This is often broken down by stage:

• Procurement 99.99% perfect
• Production 99.12% perfect
• Transportation 99.02% perfect
• Warehousing 99.98% perfect

The Perfect Order Measure calculates the error-free rate of each stage of a Purchase Order (error in order forecasting for procurement, error in warehouse pickup process, error in invoicing and error in shipping orders etc.).

2. Cash to Cash Cycle Time

The number of days between paying for materials and getting paid for product.

materials payment date - customer order payment date

• typically averaged for all orders for a week, month, quarter etc.
• many materials are usually required — a weighted average materials payment date can be calculated

Cash to cash measures the amount of time operating capital is tied up. During this time cash is not available for other purposes. A fast cash to cash indicates a lean and profitable supply chain.