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What are Supply Chain KPIs and Why Are They Important?
Updated: Mar 29
What are Supply Chain KIPs?
A supply chain KPI, or Key Performance Indicator, is a measurable metric that is used to evaluate the performance of a supply chain. KPIs are typically used to measure the efficiency, effectiveness, and overall performance of the different processes involved in a supply chain. There are a wide range of KPIs that can be used to measure supply chain performance, depending on the specific goals and objectives of the organization.
Why are Supply Chain KPIs Important?
Accurate supply chain KPIs can provide numerous benefits to organizations, including:
1. Improved Visibility: KPIs can provide a clear view of the performance of the supply chain, enabling organizations to identify areas for improvement and take corrective actions. This can help organizations to reduce lead times, improve delivery performance, and enhance customer satisfaction.
2. Better Decision Making: Accurate KPIs provide insights into the supply chain's performance, enabling organizations to make informed decisions about inventory levels, production schedules, and transportation modes. This can help organizations optimize their supply chain, reduce costs, and improve efficiency.
3. Increased Efficiency: By measuring supply chain performance, organizations can identify areas where processes can be streamlined or improved. This can lead to increased efficiency, reduced lead times, and lower costs.
4. Enhanced Collaboration: KPIs can help to align the goals and objectives of different departments and stakeholders involved in the supply chain. This can promote collaboration, improve communication, and foster better relationships between organizations and their suppliers, customers, and partners.
5. Improved Risk Management: Accurate KPIs can help organizations to identify potential risks in the supply chain, such as disruptions in transportation or delays in production. This can enable organizations to take proactive measures to mitigate risks and ensure continuity of supply.
Overall, accurate supply chain KPIs can help organizations to optimize their supply chain, reduce costs, and increase efficiency. By using KPIs to measure and evaluate supply chain performance, organizations can make informed decisions that support their business objectives and improve customer satisfaction.
How to Set Key Supply Chain KPIs
Setting important supply chain KPIs involves a structured approach to identify the metrics that are most critical to the success of your supply chain. Here are some steps that can help you set important supply chain KPIs:
Identify your business objectives: Start by identifying your organization's overall business objectives. This could include improving customer satisfaction, reducing costs, increasing efficiency, or improving supplier performance. These objectives will help you to determine which KPIs are most relevant to your organization.
Map your supply chain: Map out your supply chain processes, from the procurement of raw materials to the delivery of finished goods to customers. Identify the key stages and processes involved in your supply chain, as well as the stakeholders and partners involved.
Define your KPIs: Based on your business objectives and supply chain mapping, define your KPIs. Ensure that your KPIs are specific, measurable, achievable, relevant, and time-bound (SMART). Examples of important supply chain KPIs include inventory turnover, order cycle time, on-time delivery rate, and total logistics cost as a percentage of revenue.
Align KPIs with stakeholders: Ensure that your KPIs are aligned with the objectives and expectations of all stakeholders involved in your supply chain. This could include your customers, suppliers, logistics partners, and internal departments such as procurement, production, and customer service.
Monitor and evaluate KPIs: Once your KPIs are defined, set up a system to monitor and evaluate them regularly. This could involve using dashboards or scorecards to track progress against KPIs, and conducting regular reviews to identify areas for improvement.
By following these steps, you can set important supply chain KPIs that are aligned with your business objectives and help you to improve the performance of your supply chain.
Find out how we've helped companies set KPIs and align their data, insights and actions to achieve higher supply chain performance: cutting financial, time and environmental waste.