Introduction to Supply Chain Management: Supply Chain Indicator System
Introduction to Supply Chain Management: Supply Chain Indicator System
The core components of supply chain management consist of three major flows: product flow, information flow, and capital flow, which together form the basic framework of supply chain management and guide the direction of management activities. In today's business environment, the importance of the supply chain is becoming increasingly significant and has become an indispensable lifeline for many enterprises. With the expansion of enterprise scale and the enhancement of its strength, its supply chain system is also becoming more complex. Faced with this complexity, the effectiveness of supply chain management has become the key to the development of enterprises, directly related to the success or failure of the enterprise.
The introductory series of supply chain management will be divided into three chapters, aiming to provide you with an easy to understand interpretation of the essence of supply chain management. Here is an overview of the twelve themes:
Chapter 1: Cognition and Strategy
Build a supply chain strategic framework, deeply understand the essence of the supply chain, and develop a strategic blueprint that adapts to the development of the enterprise.
Channel and network design, carefully layout the supply chain network, and create efficient and smooth logistics channels.
Measure core factors through indicators and use key performance indicators to accurately evaluate supply chain efficiency.
Chapter 2: Operations and Optimization
Ensure safe supply of inventory, implement scientific inventory management strategies, and ensure supply chain stability.
Master market demand and supply-demand relationship, keep up with market dynamics, optimize supply-demand balance, and improve response speed.
Control the source of supply, strengthen procurement management, and ensure the quality and stability of raw materials supply.
Establish a quality system, enhance the reputation of merchants, and build a comprehensive quality management system.
Identify the precise target audience, gain a deep understanding of customer needs, and accurately locate the target customer group.
Expand broad channels, actively expand sales channels, and enhance market share and brand influence.
Plan transportation routes, optimize logistics networks, and improve transportation efficiency and cost control capabilities.
Chapter 3: Innovation and Control
Promote the application of technology, utilize cutting-edge technology, and drive the development of intelligent and automated supply chains.
Prevent unknown risks, establish a comprehensive risk management system, and ensure supply chain security and sustainable development.
Through this series of learning, you will be able to comprehensively master the core knowledge and practical skills of supply chain management, laying a solid foundation for the long-term development of the enterprise. In this section, we will introduce channel and network design.
In order to better develop and improve supply chain performance, enterprises will establish relevant indicator systems, and the establishment of indicator systems is conducive to evaluating business status. This chapter provides a detailed introduction to the supply chain indicator system.
Supply Chain Indicator System
In today's complex and diverse business landscape, various industries are like ecosystems with different forms, and their supply chain operation models are vastly different. Correspondingly, supply chain indicators also have their own characteristics. Next, this article will carefully sort out the common supply chain indicator systems to help readers gain insight into the key aspects of supply chain management. Given the diverse business characteristics and demands of different industries, in practical application, you can flexibly and adaptively reduce and adjust these indicator systems based on the unique context of your industry, so as to accurately fit the rhythm of your own operational development.
Considerations for System Design:
1. Supply planning coordination and support strategic business objectives, such as customer service, inventory location, and cost reduction
2. Evaluate supply chain performance, proactively take corrective measures, and take actions in critical processes
3. Ensure compliance with integrated planning processes and trust in inputs/outputs
4. Clear definition of the use of key performance indicators, role responsibilities, and measurement frequency
The following diagram lists the framework of the supply chain indicator system, which needs to be customized according to the different needs of the enterprise.
Next, we will list common supply chain management indicators:
management
Finance: gross profit margin, net profit margin, growth rate
Service: User Satisfaction
Implementation layer
Procurement: inventory turnover rate, inventory turnover days, out of stock rate, procurement lead time, expansion quantity
Warehousing: inventory accuracy, timely delivery, delivery accuracy, delivery time, storage space utilization, warehouse cost
Logistics: timely delivery rate, package damage rate, maximum throughput, logistics cost
Manufacturing: One pass rate, production pace, human efficiency
Sales: Transaction amount, average order value, return rate, customer volume during the period
Procurement indicators
Inventory turnover rate
Definition: Inventory turnover rate is a key indicator for measuring the efficiency of enterprise inventory management. It reflects the frequency of turnover of inventory goods during a certain period of time. The higher the inventory turnover rate, the faster the inventory turnover speed of the enterprise, the lower the level of capital occupied by inventory, and the stronger the liquidity.
Calculation formula: Inventory turnover rate=Cost of sales ÷ Average inventory balance. The cost of sales refers to the production or purchase cost of products sold, and the average inventory balance can be calculated by dividing (opening inventory balance+ending inventory balance) by 2. For example, if a company's annual sales cost is 8 million yuan, the inventory balance at the beginning of the year is 1 million yuan, and the inventory balance at the end of the year is 600000 yuan, then the average inventory balance is (100+60) ÷ 2=800000 yuan, and the inventory turnover rate=800 ÷ 80=10 times.
Meaning: Help enterprises optimize inventory levels, reduce inventory backlog and capital occupation. A high inventory turnover rate may mean that the procurement, sales, and inventory management processes of the enterprise are well coordinated, and can quickly convert inventory into sales revenue.
Inventory turnover days
Definition: Inventory turnover days refer to the number of days that an enterprise experiences from acquiring inventory to consuming and selling it. It is an interrelated indicator with inventory turnover rate, reflecting the turnover speed of inventory from another perspective.
Calculation formula: Inventory turnover days=365 ÷ Inventory turnover rate (assuming a year is calculated based on 365 days). For example, in the above example, inventory turnover days=365 ÷ 10=36.5 days, which means that the enterprise's inventory turnover occurs on average every 36.5 days.
Meaning: To provide enterprises with a more intuitive understanding of the time cycle of inventory turnover, facilitating comparison with industry standards or historical data of the enterprise itself. Longer turnover days may indicate issues with inventory management, such as excessive purchases and poor sales.
Be Out of Stock Rate
Definition: Shortage rate refers to the number of times a company experiences a shortage of goods or the proportion of out of stock goods to the total demand for goods during a certain period of time. It reflects the ability of a company's inventory to meet customer demand.
Calculation formula: Out of stock rate=Out of stock frequency ÷ Customer demand frequency × 100% or Out of stock quantity ÷ Customer demand quantity × 100%. For example, if a customer requests a certain product 100 times within a month and the company is out of stock 5 times, the out of stock rate is 5%; Alternatively, if the customer requires 1000 units of the product and 50 units are out of stock, the out of stock rate will also be 5%.
Meaning: It has a direct impact on the sales and customer satisfaction of the enterprise. A high out of stock rate may lead to customer churn, as customers are unable to purchase the required goods in a timely manner. Enterprises need to reduce out of stock rates through reasonable inventory management and procurement strategies.
Purchase Lead Time
Definition: Procurement lead time refers to the time required for a company to place a purchase order and receive the goods. It includes multiple stages such as the time for suppliers to process orders, production time (if it is customized products), transportation time, etc.
Meaning: Accurately grasping the procurement lead time is crucial for enterprise inventory management. If the procurement lead time is too long, the enterprise may need to maintain a high safety stock to avoid stockouts; If the lead time for procurement is too short, companies may have more opportunities to make small batch and high-frequency purchases, reducing inventory costs. Enterprises need to closely communicate with suppliers, accurately understand and make reasonable use of procurement lead time, in order to optimize inventory and procurement decisions.
Expand product quantity
Definition: Expansion quantity usually refers to the quantity of new product varieties or specifications added during the procurement process. For example, the company originally purchased 10 types of products, but now it has increased to 12 types, resulting in an expansion of 2 types of products.
Meaning: Increasing the quantity of products can enrich a company's product line, meet diverse customer needs, and enhance the company's market competitiveness. At the same time, new requirements have also been put forward for procurement management, such as the need to find new suppliers, evaluate the quality and cost of new products, etc.
Storage indicators
Inventory accuracy
Definition: Inventory accuracy refers to the degree to which inventory records match the actual inventory quantity. It is a key indicator for measuring the accuracy of inventory management, ensuring that enterprises can have a clear understanding of the true status of inventory at all times.
Calculation formula: Inventory accuracy=(number of SKUs where the actual inventory quantity matches the recorded inventory quantity ÷ total number of SKUs) × 100%. For example, if there are 1000 different SKUs (inventory holding units) of goods in the enterprise warehouse, and after inventory, it is found that 980 SKUs have actual inventory that matches the recorded inventory, then the inventory accuracy is (980 ÷ 1000) × 100%=98%.
Meaning: Inventory accuracy directly affects the operational decisions of enterprises. If the accuracy of inventory is low, it may lead to stockouts or inventory backlog in the enterprise, increase operating costs, and affect customer satisfaction. High inventory accuracy helps enterprises to arrange production, procurement, and sales plans reasonably.
Timely delivery rate
Definition: The on-time delivery rate refers to the percentage of orders completed within the specified time to the total number of orders. It reflects the timeliness of a company's response to customer orders and is an important indicator for measuring the efficiency of logistics and distribution processes.
Calculation formula: Delivery timeliness rate=(number of orders shipped within the specified time ÷ total number of orders) × 100%. For example, if a company receives 100 orders within a day, and 90 of them are shipped within the promised delivery time, the timely delivery rate is (90 ÷ 100) × 100%=90%.
Meaning: Timely delivery can meet customers' demand for product timeliness, improve customer satisfaction and loyalty. Enterprises with high timely delivery rates have a greater advantage in market competition and help establish a good corporate image.
Delivery accuracy
Definition: Shipping accuracy refers to the proportion of actual shipped goods that fully match the goods requested in the customer's order. This includes the accuracy of the variety, specifications, quantity, and other aspects of the product.
Calculation formula: Shipping accuracy=(number of correctly shipped orders ÷ total number of orders) × 100%. For example, the company processed 500 orders within a week, and upon inspection, it was found that 480 orders were shipped completely correctly, with a shipping accuracy rate of (480 ÷ 500) × 100%=96%.
Meaning: Low shipping accuracy may lead to customers receiving incorrect products, causing customer complaints and returns, and increasing reverse logistics costs. Ensuring high delivery accuracy is an important manifestation of enterprises providing high-quality services.
Delivery time limit
Definition: Outbound delivery time refers to the time it takes from receiving the shipping instruction to the actual departure of the goods from the warehouse. It reflects the efficiency of the warehouse operation process, including the speed of picking, packaging, review and other links.
Meaning: Short delivery time can accelerate the delivery speed of goods and improve the overall efficiency of logistics. Enterprises can shorten the delivery time by optimizing warehouse layout, adopting advanced warehouse management systems and automation equipment.
Storage space utilization rate
Definition: Storage space utilization rate refers to the proportion of the actual volume or area of stored goods in a warehouse to the effective volume or area of the warehouse. It measures the efficiency of warehouse space utilization.
Calculation formula: Storage space utilization rate=(actual volume or area of stored goods ÷ effective volume or area of warehouse) × 100%. For example, if the effective volume of a warehouse is 1000 cubic meters and the actual volume of stored goods is 700 cubic meters, then the utilization rate of storage space is (700 ÷ 1000) × 100%=70%.
Meaning: Reasonable utilization of storage space can reduce warehouse rent and operating costs. Enterprises can improve space utilization by planning warehouse layout reasonably, adopting appropriate shelves and storage methods.
Warehouse cost
Definition: Warehouse cost refers to the total cost incurred within the warehouse, including depreciation of storage equipment, personnel salaries, utilities, storage losses, etc. It is an important indicator for measuring the economic efficiency of warehouse operations.
Meaning: Enterprises need to effectively control warehouse costs by optimizing operational processes, improving efficiency, and reducing costs. For example, reducing labor costs through automated equipment and minimizing warehouse losses through effective inventory management.
Logistics indicators
Delivery timeliness rate
Definition: Delivery timeliness refers to the percentage of orders that successfully deliver packages or goods to customers within a specified time frame, compared to the total number of delivery orders. It is one of the key indicators for measuring the quality of logistics and distribution services.
Calculation formula: Delivery timeliness rate=(number of orders delivered on time ÷ total number of delivery orders) × 100%. For example, if a logistics company delivers a total of 10000 orders within a month, of which 9000 orders are delivered to customers within the specified time, then the delivery timeliness rate is (9000 ÷ 10000) × 100%=90%.
Meaning: High timely delivery rate means better meeting customers' expectations for the timeliness of goods, which helps to improve customer satisfaction and loyalty. In the fiercely competitive logistics market, companies with high delivery timeliness are often more competitive.
Package damage rate
Definition: Package damage rate refers to the percentage of damaged packages in the total number of transported packages during logistics transportation and delivery. It reflects the effectiveness of packaging and transportation protection measures in the logistics process.
Calculation formula: Package damage rate=(number of damaged packages ÷ total number of transported packages) × 100%. For example, if a certain courier company transported 50000 packages in a quarter, and 500 of them were damaged to varying degrees, then the package damage rate is (500 ÷ 50000) × 100%=1%.
Meaning: Damaged packages can cause damage to customers' goods, leading to customer complaints and claims, and increasing the operating costs of the enterprise. Reducing the rate of package damage can enhance the service quality and brand image of enterprises.
maximum throughput
Definition: Maximum throughput refers to the maximum quantity or volume of goods that logistics facilities (such as warehouses, distribution centers, ports, etc.) can handle per unit of time (usually one day, one week, or one month). It is an important indicator for measuring the processing capacity of logistics facilities.
Meaning: Understanding the maximum throughput of logistics facilities helps enterprises plan logistics resources reasonably, such as arranging storage space in warehouses, determining the number and workload of loading and unloading equipment, etc. If the throughput is insufficient, it may lead to a backlog of goods, affecting logistics efficiency; If the throughput is too high, it may be necessary to consider the expansion or optimization of facilities.
Logistics cost
Definition: Logistics cost refers to the monetary manifestation of various living and materialized labor consumed in the spatial movement or time occupation of products. It includes transportation costs, warehousing costs, packaging costs, loading and unloading costs, circulation and processing costs, distribution costs, information processing costs, and other aspects.
Meaning: Logistics costs are an important component of a company's operating costs and have a direct impact on its profits. Enterprises need to reduce logistics costs by optimizing logistics processes, integrating logistics resources, and selecting suitable logistics service providers. For example, reducing packaging costs through centralized procurement of packaging materials, or choosing more economical transportation routes to lower transportation costs. At the same time, reasonable control of logistics costs also requires a balance between cost and service quality, and excessive cost reduction should not affect the quality of logistics services.
Manufacturing indicators
fpy
Definition: The first pass rate is mainly used in the production process or quality inspection stage, referring to the ratio at which a product can meet quality standards during the first quality inspection. This is a key indicator for measuring the stability of the production process and the effectiveness of quality control.
Calculation formula: One pass rate=(number of products that pass the first inspection ÷ total number of products inspected) × 100%. For example, on a certain electronic product production line, a total of 1000 mobile phones were produced in one day. In the first quality inspection, 950 mobile phones met the quality standards. Therefore, the pass rate is (950 ÷ 1000) × 100%=95%.
Meaning: A high first pass rate means high reliability of the production process, minimal quality fluctuations, and can effectively reduce rework, scrap, and other situations, thereby reducing production costs. At the same time, this also reflects the maturity of production processes and the effectiveness of quality control systems, which helps to improve the overall quality of products and the market competitiveness of enterprises.
Tact Time
Definition: Production cycle refers to the time interval between the continuous completion of two identical products (or two services, or two batches of products) on a production line. It is a tool that sets production speed based on customer needs, reflecting the rhythm of the production line or process.
Calculation method: The production cycle is usually calculated based on the speed of customer demand. For example, if the daily demand for a certain product in the market is 1000 pieces, and the enterprise works for 8 hours (480 minutes) per day, then the production cycle time=480 minutes ÷ 1000 pieces=0.48 minutes/piece. This means that in order to meet market demand, companies should produce a product every 0.48 minutes.
Meaning: Production rhythm can help enterprises arrange production resources reasonably, including equipment, personnel, raw materials, etc. Producing according to the production pace can avoid inventory backlog or insufficient production, making the production process smoother and improving production efficiency. At the same time, it is also an important basis for enterprises to balance production lines and plan production capacity.
Human efficiency (per capita efficiency)
Definition: Human efficiency refers to the amount of work or value created by each individual within a unit of time. It is an important indicator for measuring the efficiency of human resource utilization, which can be used to evaluate the individual work efficiency of employees, as well as to compare the utilization of human resources between different departments, teams, or enterprises.
Calculation method: The calculation method of human efficiency varies depending on the industry and job content. Generally speaking, human efficiency=output results ÷ (number of personnel x working time). For example, in a clothing processing workshop, 10 employees produced a total of 5000 pieces of clothing in one month. Assuming a monthly working time of 20 days and 8 hours of work per day, the labor efficiency=5000 pieces ÷ (10 people x 20 days x 8 hours)=3.125 pieces/(person · hour).
Meaning: The level of human efficiency directly affects the production costs and economic benefits of enterprises. By improving human efficiency, companies can increase output without increasing the number of personnel, or reduce personnel costs while maintaining output. At the same time, human performance indicators also help companies identify problems in human resource management, such as insufficient personnel training and unreasonable workflow, and make targeted improvements accordingly.
sales target
Transaction amount during a specific period refers to the total amount of transactions reached through commercial activities such as selling goods or providing services. For example, the total amount paid by all customers for goods purchased by an online store during the period from November 1st to November 30th is the transaction amount for that period. It is an important indicator for measuring the sales performance of enterprises or merchants, which can intuitively reflect the revenue scale of the business during the corresponding time period.
Unit price per customer: refers to the average amount of goods or services purchased by each customer. The calculation method is usually obtained by dividing the transaction amount during the period by the number of customers. For example, if a clothing store has a transaction amount of 50000 yuan within a month and has received a total of 500 customers, then the unit price per customer is 50000 ÷ 500=100 yuan. The unit price helps to understand the customer's purchasing power and level, and can also provide reference for merchants to formulate pricing strategies, product combinations, etc.
Return rate: It reflects the proportion of the quantity or amount of goods returned by customers to the total sales quantity or sales amount within a certain period of time. There are two common calculation methods. If calculated based on sales quantity, the return rate is equal to the number of returned goods divided by the total number of sold goods multiplied by 100%; If calculated based on the sales amount, the return rate is equal to the amount of returned goods divided by the total amount of sold goods multiplied by 100%. For example, if an e-commerce platform sells 1000 items in a certain quarter, and 100 of them are returned, the return rate calculated by quantity is 100 ÷ 1000 × 100%=10%. The return rate can reflect the quality of the product, customer satisfaction, and sales service. A higher return rate often indicates that there may be issues that need improvement.
Customer quantity: refers to the total number of different customers who purchased goods or services during a specific period. The emphasis here is on different individuals, and multiple purchases by the same customer are generally only counted as one customer. For example, if a restaurant receives 1000 diners in a week, but after statistics, it is found that 800 different customers come to consume, then the customer volume for this week is 800. Customer volume is one of the key indicators for measuring a company's customer base, market coverage, etc. It is of great significance for analyzing market share, customer expansion, and other aspects.
Supplier indicators
The supplier management indicator system mainly consists of seven dimensions: Quality, Cost, Delivery, Service, Technology, Asset, and People and Process. Collectively known as QCDSTAP.
The first three items are hard indicators, commonly used in the industry, and easy to calculate. The last three are soft indicators that are difficult to quantify.
