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Your Supply Chain Analysis: Are Dark Days Ahead?

Michael Wilson | Jan 18, 2016

Over the summer, we wrote about the six metrics you should be tracking for insight into your supply chain’s health and efficiency. But, like a doctor’s diagnosis, supply chain ...

dark-supply-chain-analysisOver the summer, we wrote about the six metrics you should be tracking for insight into your supply chain’s health and efficiency. But, like a doctor’s diagnosis, supply chain analysis has little value if you don’t use it for continuous improvement. Unfortunately, using analysis for strategic planning can be as challenging as collecting the data is easy. 

Here are 6 tips to make the most of the data you’re collecting:

1. Perfect Order Measurement

Perfect Order Measurement is exactly what it sounds like a measure of how often the customer gets what they wanted, when they wanted it, and at a price they want to pay. And, when something goes wrong, the measurement highlights where it happened. It’s important because it’s a key indicator of customer satisfaction.

When it comes to application, Perfect Order Management shows you where to direct your improvement efforts. If a customer got the wrong product because a call center agent miskeyed the order, you know your call center agents may need further training. If the right order was entered but the wrong order picked, you may need additional to invest in technology that will improve accuracy. If products arrive damaged, you know that you need to take a look at your packing and shipping processes or partners. 

2. Inventory Days of Supply

If your supply chain analysis is missing inventory days of supply, you’re in trouble. This number lets you know how long your inventory would last if you weren’t able to order any more. The goal is to get the number as low as possible without negatively affecting customer service. The key to applying this metric is to compare it to industry standards. If your number is higher than industry best practices, you can investigate ways of reducing inventory levels, whether that’s shipping product back to the supplier, delaying future orders, or implementing better just-in-time strategies. If it’s lower than average, you can find out whether it’s impacting service and, if it is, investigate ways to increase inventory levels at minimal cost.

3. Freight Cost per Unit 

This measurement is also pretty self-explanatory: It tells you the total cost of shipping a single unit. It’s important because you can use it as a guide for cutting costs. If the freight per unit cost has risen over time, that could mean you have a case of “creep” – costs edging up so gradually that you don’t realize it. You can then use that knowledge to identify exactly where the creep is coming from and to get things back on track. It’s also great for benchmarking: If your cost per unit is higher than that of comparable organizations, it’s a signal to identify opportunities for improvement. 

4. Value of Unusable Stock

The next important number to evaluate in your supply chain analysis is the value of unusable stock. This number measures the dollar value of inventory that will never be sold. That could be the result of things like a recall, outdated technology, dated goods (like New Year’s Eve 2015 products) or expired perishable goods. It indicates the accuracy of your forecasting and planning. If the number is too high, you can re-examine your processes to find out why you thought you would sell more than you did or why you held on to inventory until it expired.

5. Value of Wasted Stock

Wasted stock includes things like scrap or damaged goods. It’s an important indicator of functions that need improvement. Whether these items need to be placed on a higher/lower shelf or packaging needs to be improved, eliminating waste is one of the key purposes of lean manufacturing initiatives, and it can produce significant reductions in cost and increases in revenue.

6. On-Time Arrivals 

This metric is just what it sounds like and encompasses both deliveries to your facility and to your own customers. The reason for capturing this measurement is to identify areas for improvement. For example, a low number of on-time arrivals could be an opportunity to work with your supplier to either improve processes or renegotiate terms. If the number is low for deliveries to your own customers, it’s a signal that you need to find and fix the bottleneck in your processes before they head for your competitors.

Knowing you have high blood pressure doesn’t make a difference if you don’t take steps to exercise more and eat a healthier diet. Likewise, measuring all the right numbers doesn’t do your organization any good if you just briefly look at them and say, “Well, I guess that’s OK.” The secret to supply chain analysis is in the application of what you learn. Are you getting the most out of your metrics?

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