The Supply Chain is a complex, integrated web of relationships among suppliers, distributors, and customers that a company relies on to make and sell their products. Many of these relationships are difficult to measure or assess in terms of usefulness, quality of performance or value added. The Supply Chain can be viewed as a portion of a typical Enterprise Requirements Planning (ERP) environment. This article identifies some key metrics that can be used to help measure performance in managing the Supply Chain in an ERP environment.

Supply Chain Management (SCM) is defined by the Supply Chain Council as the direct linkage of your product delivery processes to those of your customers and their customers, and to those of your suppliers and their suppliers. A customer-centered supply chain works together to provide a common product and service to the marketplace that the customer desires, and is willing to pay for, throughout the life cycle of the product and service. A customer-centered supply chain strives to achieve customer satisfaction through quality and on-time delivery.

Properly managing the supply chain provides a number of tangible benefits including: reduced inventory requirements, greater inventory turns, ability to deal with shorter product/service life cycles, reducing product costs and improving customer satisfaction. Companies that properly manage their supply chain find themselves at a competitive advantage. It enables the creation of leaner, more nimble organizations that can respond more quickly to an ever-changing environment.

The new paradigm for many new, lean organizations is to place efforts and energies on the processes that a company does best and to rely on Supply Chain Management and subcontracting for the rest. The planning function is the starting for this analysis. What does the market want? What are your customers’ requirements, and those of your potential customers? What is the best way to obtain and array resources to satisfy the market? The answers to these questions define how to operate production facilities, manage distribution warehouses and run purchasing. They also drive Make/Buy and outsource decisions.

Speed to market with new products can be the major factor in the success or failure of companies in today’s marketplace. Engineering must work hand-in-hand with manufacturing during the design process. This helps minimize time, cost and effort of the source and make steps of the manufacturing process.

The sourcing step includes the following activities: identifying where to obtain raw materials and sub-components; identifying and qualifying suppliers; ordering, receiving and issuing to production. Vendor issues to considered include: quality of delivered goods; vendor received dollars, on-time delivery performance; pre-inspection by vendor; concurrent engineering with vendor (Product Data Management facilitates this); frequency of delivery; use of Kanban and direct vendor replenishment; vendor-managed inventory; pre-pack to unit of measure issue/storage; simplification of invoicing. Simplified order policies, vendor discount agreements and direct vendor replenishment can help streamline the purchasing function.

Manufacturing is the transformation of raw materials into finished product. Key issues in the make process include accuracy of Bill of Materials, Routing (Bill of Operations) and Inventory. Focusing on cycle time reduction helps improve throughput. Analysis of capacity requirements on critical work centers by time period can help with this process. Measuring work center productivity (actual to earned) can assist in identifying bottlenecks or other manufacturing problems. Regular checking for inventory with no authorized cost can help insure correct measurement of costs of goods sold in total and by product line.

You have purchased all the raw materials and completed the manufacturing process. What is left? Delivery to the customer. After quality and price, the delivery process is where customers critically evaluate your business. Attempt to measure the direct costs of supply chain management as a portion of total revenue. How do you improve this process? By critically measuring quantitative information by time period whenever possible. Improved cycle times in the manufacturing process assists reducing delivery lead times. Migration to build-to-order and/or configure-to-order instead of build-to-stock is visible evidence of this trend. Measuring sales order line fulfillment against delivery schedule on sales orders can give you a clear overview of your performance. Reducing delivery lead times and manufacturing cycle times provide tremendous benefits including: increasing returns on working capital, improving cash-to-cash cycles, and reducing inventory while maintaining customer service levels.

To provide accurate and timely top level management information, it is necessary to code key files properly at the individual record level. Examples of this coding include commodity coding, product coding, product structure, and customer segmentation. Assigning commodity codes (resistors, wood, sheet metal, etc.) to purchased parts provides the dual benefit of categorizing your purchases by type as well as providing the ability to assign parts by commodity to specific buyers, thereby streamlining the purchasing process. Finished goods end items can be used to "send" product coding down the entire product structure so that all part numbers have a product code. Widely used components and subassemblies can be coded as "universal" for reporting purposes. Parent product grouping techniques allow reporting of multiple product codes as corporate level lines of business. This allows for general ledger accumulation of costs of goods sold, inventory value, purchase price variance, and invoiced dollars by product code. Product structure relates to the identification of finished goods, buy-furnished, expense parts, components and other types of material. If you have multiple warehouses your "Finished Goods" dollars should relate to product structure (i.e., Part Use Code) rather than to inventory code in terms of available nettable value. Accurate customer coding provides the ability to measure business, and profitability, by sales channel, geography, customer class (or groups of classes), price code, territory, etc.

Your database currently contains information, which can yield data useful for measurements and statistics. In many cases, adequate reports are already provided. To maximize your company’s reporting and analysis ability, additional tools may be required. Periodic reporting and historical maintenance, of key statistical measures can be useful. The following are examples of these measurements:

Transaction level reporting of Material-Labor-Overhead-Outside Costs.

Table driven standard-cost locking during data entry.

What-if simulations of future requirements/shortages.

Vendor dollars received by month, by vendor and/or commodity code.

Purchase price variance history, unaffected by re-rolls of the authorized cost.

Vendor on-time delivery, in volume and dollars.

Inventory turns by product.

Forecast inventory dollars by month using scheduled receipts and requirements.

Cycle time/lead time analysis.

Shop floor labor efficiency by variance for key work centers.

Analysis of obsolete inventory per usage/future demand.

Negative inventory wall-to-wall reporting.

Organized materials exceptions reporting (shrink, scrap, vendor returns, outside processing, inventory adjustments).

Min-Max methodology to use Order-Point techniques to handle high-volume, low-cost "C" parts outside of MRP, whether purchased or built.

Vendor discount programs.

Buy-Card view for each vendor for a single part (last scheduled date, price, and purchase order number).

Sales order linefill measurement by scheduled date rather than shipped date.

Daily wall-to-wall cycle counts.

Wall-to-wall summary reporting for physical inventories.

Certification (approval) by part, by vendor, to bypass receiving inspection.