This post offers Part 2 of a two-part series about some anecdotal scenarios where some of the main principles of supply chain management are demonstrated. While real-life can be much more complicated than these anecdotal stories, the lessons are clear.
Lesson 6: Bottlenecks exist, and they may cause supply chain issues through no fault of your own.
In Part One, we discussed how clearing customs issues could create problems that can have solutions to avoiding bottlenecks at the border. But sometimes uncontrollable events can create a damaging bottleneck.
Shipping requires various forms of transportation such as by sea, air, rail, and truck. Each of these forms regularly has accidents and breakdowns that-at the wrong time-can do some serious damage to the last mile effort. The supply manager can’t foresee any such events, but the time is approaching when new big data programs will help prognosticate accident probabilities, but before that happy day, supply managers need to assess the unforeseen transportation bottleneck-particularly when there is a need to make sure delivery is not interrupted. One way to hedge is to diversify the modes of transportation to reduce the risk of being dependent on one mode of delivery.
Lesson 7: Keep decision-makers close to the action.
The integrity and performance of the supply chain should be of great importance to the “C-Suite” and its inhabitants.
Some of the key Metrics all supply managers should know:
- Perfect Order Measurement: The percentage of error-free orders.
- Cash to Cash Cycle Time: The number of days between paying for materials and getting paid for the product.
- Customer Order Cycle Time: Measures how long it takes to deliver a customer order after the purchase order (PO) is received.
- Fill Rate: The percentage of a customer’s order filled on the first shipment. This metric can be represented as the percentage of items, SKUs, or order value included with the first shipment.
- Supply Chain Cycle Time: The time it would take to fill a customer order if inventory levels were zero.
- Inventory Days of Supply: The number of days it would take to run out of supply if not replenished.
- Freight Bill Accuracy: The percentage of error-free freight bills.
- Freight Cost Per Unit: Usually measured as the cost of freight per item or SKU.
- Inventory Turnover: The number of times that a company’s inventory cycles per year.
- Days Sales Outstanding: A measure of how quickly revenue is collected from customers.
- Average Payment Period for Production Materials: The average time from receipt of materials and payment for those materials.
- On-Time Shipping Rate: The percentage of items, SKUs, or order value that arrives on or before the requested ship date.
- Inventory Turnover Ratio (ITR): ITR helps us to measure the number of times we sell or turn our average inventory kept in the warehouse.
- Turn-Earn Index (TEI): TEI helps us to combine the gross margin and turnover.
- Gross Margin Return on Investment (GMROI): GMROI represents the amount of gross profit earned for every AED (or $, £, € ) of the average investment made in inventory.
- Days of Supply (DOS): DOS is the most common KPI used by managers in measuring the efficiency in supply chain
- Inventory Velocity (IV): IV is the percentage of the inventory we are projecting will be consumed within the next period.
