We must be able to measure the existing supply chain performance and we also should able to see if the performance has improved.
In general, there are two ways that we can use to measure the performance of the supply chain, i.e. objective measure and subjective measure. Objective measure based on facts, preferably in the form of numbers. To be able to measure objectively, it requires setting up ways of recording for the performance of physical flow and information flow. Measurement of the performance of physical flow can be done through delivery performance, we need to record all request for goods/materials, when orders are placed, when orders are delivered/received, orders that are not delivered/received completely, etc. Measurement of the performance of information flow can be done through record all information concerning requests, delivery, returns/reverse or any information relating to the physical flow of goods / material.
There may be some aspects of performance which are either too difficult or not possible to measure in objective way. For these aspects, we have to use subjective measures. For example, subjective measures includes the views or perceptions of the people that cannot be supported by hard facts, this includes customers satisfaction surveys that can be done through questioners or direct interview.
With both ways as above, we then can make a matrix that focuses on the internal performance and the external performance. External performance is performance that is done to the customer / buyer as well as the performance of all links in the supply chain. Internal performance will focus internally on the efficiency of the process, particularly the cost of carrying out all of the process.
Below is a simple way to measure the external performance:
1. Customer service, measurement includes:
- Percentage of requests and orders fulfillment. The most used definition is on time, in full and error free. On time are orders delivered on or before date requested. In full are complete orders, and error free usually means complete based on the specification of the request, correct labeling and not damage.
- Quality of the service provided. Included here is the information provided to the customer/buyer on the status of the goods / materials that are required/requested.
- The flexibility provided.
2. Performance of supply chain links.
- It is also important to measure different parties/actors involved in managing the whole supply chain. If these different parties/actors have different views what is required and they are using different matrix to manage and measure the performance, this can have a significant impact on the performance of the whole/total supply chain.
A simple way to measure the internal performance
Providing good customer service also must be done efficiently. Purely focused on managing and measuring customer service can lead to inefficiency and unnecessary costs. Below are simple ways to measure cost efficiency on the supply chain process:
- Total costs. These are the sum of all the supply chain costs including people who involved in the process and management costs.
- Inventory costs. Total costs of holding inventory in the whole supply chain.
- Inventory value. The value of inventory being held in the whole supply chain.
- Order management costs. Total costs involved in processing and managing orders.
- Cost of waste. Total costs involved in managing, returning and disposing of goods/materials which for different reasons are never used by the buyers/customers. This can include wrong goods/materials, damaged goods, expired goods, or goods/materials that arrived too late in the buyers/customers place, etc.