Things to keep in mind:

1. Tracking your Metrics allows you to view your performance over time and guides you on how
to optimize your Supply Chain. It allows management to identify problem areas. It also allows
for comparison to other companies through like industry benchmarking.
2. Certain metrics, such as Inventory Turns, have a widely accepted definition. Other metrics,
such as Backorders, may need to be customized for your particular industry or logistics business
model.
3. Measurements alone are not the solution to your weak areas! The solution lies in the
corrective actions that you take to improve the measure. The solution comes from process or
system improvements. 
4. Measurements should have owners....people or departments that are responsible for
achieving a target on the metric. Supply Chain Management needs to encourage and support
the process changes to achieve the desired targets.

How can you use Supply Chain Metrics to improve your logistics operation?

Try following these basic steps....

1.The first step is to identify the metrics that you want to use. Do not use every metric
available. Rather, focus on the vital measurements the mean the most to your business.
2. Next, you need to understand the meaning of these metrics. It is not enough for
management to simply view these measurements, they must also understand the meaning
behind them. 
3. The next step is to learn the mechanics behind the measurements. What drives
them...positive & negative. Try to understand the various factors that influence your results.
4. Using this information, identify weakness or areas of improvement in your current processes.
5. Set goals based on these improvement areas. The goals should be aggressive, but yet
obtainable.
6. Put corrective action in place to improve your processes. Make sure all affected areas have a
clear understanding of the changes.
7. Monitor your results. Did your corrective actions yield your desired results? If so, what is your
next area for improvement? If you did not get the desired results, what went wrong?
Supply Chain Balanced Scorecard

The Supply Chain Balanced Scorecard tracks a limited number of key metrics. These metrics
should be closely aligned to the company’s strategic objectives. The measurements usually
cover 4 areas:
1. Financial - Example: The cost of manufacturing, warehousing, transportation etc.
2. Customer - Example: Order Fill Rate, Backorder Levels, On Time Delivery
3. Internal Business - Example: Adherence-To-Plan, Forecast Error
4. Training: Example: In house Training Hours, APICS Membership/ Certification.

While the Balanced Scorecard approach was not specifically designed for the Supply Chain, it
does give a good guidance for your core measures. The central idea is to focus on key metrics
that have real meaning to your company. You don't want to get lost in a sea of numbers that
don't really mean anything. The Balance Scorecard approach helps you to keep your measures
aligned with your objectives. These measures should be tracked over time (usually monthly)
with specific targets for each. 

Cycle Time Measurements

Here are just a few of the many Cycle Times you should consider for your Supply Chain. All of
these measures should not only calculate the days (or hours) from the start and finish, but also
between the various steps in between. 

Customer Order Promised Cycle Time:

The anticipated or agreed upon cycle time of a Purchase Order. It is gap between the Purchase
Order Creation Date and the Requested Delivery Date. This tells you the cycle time that you
should expect (NOT the actual)

Customer Order Actual Cycle Time:

The average time it takes to actually fill a customer’s purchase order. This measure can be
viewed on an Order or an Order Line level. The measure starts when the customer’s order is
sent/received/entered. It is measured along its various steps of the order cycle. Through credit
checks, pricing, warehouse picking and shipping. The measure ends at either the time of
shipment or at the time of delivery to the customer (sometimes tracked by using an EDI #214).
This "actual" cycle time should be compared to the "promised" cycle time.

Purchase Order Cycle Time:

Measured from the creation of the PO to the receipt at your location (Distribution Center, Hub
etc). One of the keys here is not having your RDD (Requested Delivery Date) exceed the agreed
to lead time. If it does, it may artificially inflate your Lead Time.
Additionally, any in-between points available will add value to the metric. Example: Creation of
the PO, Shipment from the Vendor, Receipt at the DC. This will tell you the manufacturing time
vs. the transit time.

Inventory Replenishment Cycle Time:

Measure of the Manufacturing Cycle Time plus the time included to deploy the product to the
appropriate distribution center.  

Supply Chain Cycle Time:

The total time it would take to satisfy a customer order if all inventory levels were zero. It is
calculated by adding up the longest lead times in each stage of the cycle.

FILL RATE

Fill Rate definitions and calculations can vary greatly. In the broadest sense, Fill Rate calculates
the service level between 2 parties. It is usually a measure of shipping performance expressed
as a percentage of the total order.

Sample Fill Rate Metrics:

Line Count Fill Rate:

The amount of order lines shipped on the initial shipment versus the amount of lines ordered.
This measure may or may not take into consideration the requested delivery date (see On Time
Delivery)
Example-  ABC Company orders 10 products (one order line each) on its Purchase Order #1234.
The manufacturer ships out 7 line items on March 1 and the remaining 3 items on March 10.
The Fill Rate for this Purchase Order is 70%. It is calculated once the initial shipment takes
place.
Calculation: Number of Order Lines Shipped on the Initial Order* / Total Number of Order Lines
Ordered (7/10 = 70%)

SKU Fill Rate:

The number of SKU's (Stock Keeping Units) ordered and shipped is taken into consideration.
Above, we consider each Order Line to have an equal value (1 ). Here, we count the SKU's per
Order Line.
Example: If on Line 1, the order was for 30 skus of product "AB" and on line 2, they ordered 10
skus of item "AC". If Line 1 ships on April 1 and line 2 on April 20, the SKU Fill Rate is 75%
Calculation: Number of SKUs Shipped on the Initial Shipment / Total Number of SKUs Ordered
(30/40 = 75%).
Case Fill Rate:

The amount of cases shipped on the initial shipment versus the amount of cases ordered.
Example- ABC Company orders 6 products that total 200 cases. The manufacturer ships out 140
cases on 3/1/01 and the remaining 60 cases on 3/10/01. The Fill Rate for this Purchase Order is
70%. It is calculated once the initial shipment takes place. The number of Order Lines is not
considered in this calculation. This Fill Rate measure gives "weight" to the order lines that are
shipped out.
Calculation: Number of Cases Shipped on the Initial Order / Total Number of Cases Ordered.
(140/200 = 70%)

Value Fill Rate:

Same as above, except the order line value is used instead of cases.
Calculation: Value of Order Lines Shipped on the Initial Order / Total Value of the Order  
($400/$500 = 80%)

What happens if a customer orders 10 products, but then decides to expedite out just one of
them? Should the other 9 products be counted as a Fill Rate "miss"? ( 1 shipped / 10 ordered =
10%). The answer is no. You should factor rushed lines out of your Fill Rate calculation. This can
usually be done by identifying the routing code (as in an ERP system) or by the carrier (FEDX).

*NOTE:  "Shipped on the Initial Order" - usually refers to the first shipment out of the primary
warehouse. Therefore, if an order line ships out of an alternate shipping facility and it ships out
on/before the first shipment out of the primary warehouse, then it is considered a + to the Fill
Rate.

Inventory Record Accuracy

A common calculation is:

Stratify SKU's: (annual usage X standard cost)

A items= items representing the top 80% of total dollars
B items= items representing the next 15% of dollars
C items= items representing the bottom 5% of dollars

Cycle count items (usually daily) using a random sample, within the following groupings:
A items = 4 times per year
B items = 2 times per year
C items = 1 time per year

Items considered accurate if the actual on-hand quantity matches the perpetual inventory
quantity, within the following tolerances:
A items = plus or minus 1% quantity variance from perpetual balance
B items = plus or minus 3% quantity variance from perpetual balance
C items = plus or minus 5% quantity variance from perpetual balance

Target should be absolute minimum of 95% for MRP/DRP to function effectively; 99% for best-
in-class

  Note: Do NOT do a simplified Cycle Count, adding the positives and negatives, then comparing the sum to the total
stated inventory.
Example:
Item ABC: Stated Inventory = 100, Cycle Count = 95
Item BCD: Stated Inventory = 100, Cycle Count =105
In this example, if you add the Stated Inventory it equals 200. The Cycle Count sum equals 200 also. This does NOT
mean that you have 100% accuracy.
This may sound obvious, but I've encountered many companies that use this method.
If the items above are A or B items, the the actual Cycle Count Accuracy is 0% (Neither item is correct. Both are 5%
off)

Inventory ABC Classification 

A way to categorize/group your products. There are a few different ways to set up an ABC
Ranking, such as Velocity (times sold), Quantity sold/Consumed or by Margin. But the most
common method I have seen is the Annual Sales Volume ranking. This method will allow you to
identify the small amount of products that usually account for most of your sales dollars (think
80/20 rule)

 Here's one quick method for determining your ABC ranking based on Annual Sales Volume: 

1.  Calculate the 12 month dollar usage for all of your products (volume X cost).
2.  Rank the items in descending order by the dollar usage.
3.  The "A" items are the top 80% of the total annual usage dollars.
4.  The "B" items make up the next 15% of total annual usage.
5   The "C" items are the remaining items are the remaining 5% with >0 usage in the past 12
months
6.   Label zero-usage items can be labeled as "D".

You will also need to make a special consideration for your newer products. If you don't have a
full year of Sales Volume to reference, you need to use a yearly forecast estimate instead.

There are also other considerations, such as "critical items" that may have low usage, but need
special monitoring because you can't run out of stock due to a customer agreement. So your
definition of A items may need to be customized.

Some companies use A, B, C, C-

 A = 80%, B = 15%, C = 4%, C- = 1%
On Time Performance

On Time Shipping Performance is a calculation of the number of Order Lines shipped on or

before the Requested Ship Date versus the total number of Order Lines. Throughout the
following text, I refer to "shipped" on time. BUT if actual "delivery" data is available, it may be
substituted and compared to the Requested Delivery Date. (such as with an EDI#214 ).

*On Time: Shipped on or before the requested ship date (except if the receiving party does not
accept early shipments).

Sample On Time Metrics:

On Time Line Count:

The amount of order lines shipped On Time* versus the amount of lines ordered.
example-  ABC Company orders 10 products (one order line each) on its Purchase Order #1234.
The Order has a Requested Ship Date of March 1. The manufacturer ships out 5 line items on
February 28 and 2 items on March 1 and the remaining 3 items on March 10. The On Time Line
Count for this Purchase Order is 70%. It is calculated based on the Requested Ship Date OR, if
available; substitute actual Delivery Date vs. Requested Delivery Date.
Calculation: Number of Order Lines Shipped on or before the Requested Date / Total Number of
Order Lines Ordered
(7/10 = 70%)

On Time SKU Count:

The number of SKU's (Stock Keeping Units) ordered and shipped is taken into consideration.
Above, we consider each Order Line to have an equal value (1 ). Here, we count the SKU's per
Order Line.
example: If on Line 1, the order was for 30 skus of product "AB" and on line 2, they  ordered 10
skus of item "AC". The Requested Ship Date is April 1st. If Line 1 ships on March 28 and line 2 on
April 20, the SKU Fill Rate is 75%
Calculation: Number of SKUs Shipped On Time / Total Number of SKUs Ordered (30/40 = 75%).

On Time Case Count:

The amount of cases shipped On Time versus the amount of cases ordered.
example-  ABC Company orders 6 products that total 200 cases, on its Purchase Order #1235.
The manufacturer ships out  140 cases on 3/1/01 and the remaining 60 cases on 3/10/01. The
Requested Ship Date is 3/1. The Case On Time Rate for this Purchase Order is 70%.  The number
of Order Lines is not considered in this calculation. This On Time measure gives "weight" to the
order lines that are shipped out.
Calculation: Number of Cases Shipped On Time / Total Number of Cases Ordered. (140/200 =
70%)
On Time Value Rate:

Same as above, except the order line value is used instead of cases.
Calculation: Value of Order Lines Shipped On Time / Total Value of the Order   ($400/$500 =
80%)

Performance to Promise Dates

When a Distributor places a Purchase Order against a Manufacturer, he has certain

expectations on when he will receive the items ordered. His original expectation is the On Time
Delivery Metric. However, the manufacturer may give him a revised estimate as to when they
expect to fill the order. The manufacturers promise is called the "Performance to Promise Date
Metric".

Example:  ABC Company Orders 2 Products on Purchase Order #1234, with a Requested Ship
Date of June 10.
The first item is in-stock and ships on June 10th..
The second item is on backorder. The manufacturer estimates that the 2nd item will ship by
July 1.
The item is manufactured and ships out on June 28.
The Performance to Promise Date is 100% (items ship on time or early)
*However, if the 2nd item does not ship till July 2nd, then it's late. The Performance to Promise
Date is 50%.

Transportation Metrics:

Freight cost per unit shipped: Calculated by dividing total freight costs by number of units
shipped per period.  Useful in businesses where units of measure are standard (e.g., pounds). 
Can also be calculated by mode (barge, rail, ocean, truckload, less-than-truckload, small
package, air freight, intermodal, etc.).

Outbound freight costs as percentage of net sales:  Calculated by dividing outbound freight
costs by net sales.  Most accounting systems can separate "freight in" and "freight out." 
Percentage can vary with sales mix, but is an excellent indicator of the transportation financial
performance.

Inbound freight costs as percentage of purchases:  Calculated by dividing inbound freight costs
by purchase dollars.  It is important to understand the underlying detail.  The measurement can
vary widely, depending on whether raw materials are purchased on a delivered, prepaid, or
collect basis.

Transit time:  Measured by the number of days (or hours) from the time a shipment leaves your
facility to the time it arrives at the customer's location.  Often measured against a standard
transit time quoted by the carrier for each traffic lane.  Unless you are integrated into your
customers' systems, you will have to rely on freight carriers to report their own performance. 
This is often an important component of lead-time. Transit times can vary substantially, based
on freight mode and carrier systems.

Freight bill accuracy:  Calculated by dividing the number of error-free freight bills by the total
number of freight bills in the period. Errors can include incorrect pricing, incorrect weights,
incomplete information, etc.  Generally measured in total and for each carrier.

Accessorial as percent of total freight: Calculated by dividing accessorial and surcharges by total
freight expenditures for the period. Many freight carriers will charge extra fees for trailer
detention/demurrage, re-delivery, fuel increases, and other expenses or extra services.  Often,
these are extra costs incurred due to inefficient processes.

Percent of truckload capacity utilized:  Generally used for shipments over 10,000 lbs.  Calculated
by dividing the total pounds shipped by the theoretical maximum.  For example, assume your
trucks can hold 40,000 lbs. of product.  During the prior month, there were 675 shipments
totaling 22.95MM lbs.  The percentage utilization was 85%.  The 15% unused capacity is an
opportunity for more efficiency.

Mode selection vs. optimal:  This is calculated by dividing the number of shipments sent via the
optimal mode by the total number of shipments for the period.  To measure this, each traffic
lane must have a designated optimal mode, based on freight costs and customer service
requirements.

Truck turnaround time:  This is calculated by measuring the average time elapsed between a
truck's arrival at your facility and its departure. This is an indicator of the efficiency of your lot
and dock door space, receiving processes, and shipping processes.  This also directly affects
freight carrier profits on your business.

Shipment visibility/traceability percent:  Calculated by dividing the total number of shipments

via carriers with order tracking systems, by the total number of shipments sent during a period. 
This is an indicator of the relative sophistication of your carrier base, and one measure of the
non-price value available from your carrier base.

Number of carriers per mode: Calculated by counting the total number of freight carriers used
in a given period, by mode (ocean, barge, rail, intermodal, truckload, LTL, small package, etc.). 
This is an indication of your volume leverage and control over the transportation function.

On-time pickups: Calculated by dividing the number of pick-ups made on-time (by the freight
carrier) by the total number of shipments in a period. This is an indication of freight carrier
performance, and carriers' affect on your shipping operations and customer service. Various
Other Supply Chain Metrics

Inventory Months of Supply:

 Inventory On Hand / Avg Monthly Usage
(the Avg Monthly Usage is typically the yearly forecast divided by12)

Inventory Rationalization:
An analysis that categorizes your inventory by various categories. Examples-
- Current Inventory levels of A,B,C products
- Inventory turns of A,B,C
- Value of Slow Moving product (those products you may have more than "x" number of weeks
worth)

Upside Flexibility:
 The ability of a manufacturer to meet additional demand requirements. This is usually
compared as a percentage over the original order. This is protection for the buyer. It allows for
the actual demand to be higher than the forecasted quantity.

Setting Goals for your Supply Chain Metrics:

Once you have an understanding of basic Supply Chain Metrics, focus on a limited number of
measurements that add value. Choose those metrics that will track your company’s true
performance. You don't want to get into the trap of "analysis paralysis". Over-analysis leads to
confusion and sometimes conflicting goals. I would recommend picking 5 - 7 key measures per
functional area. These measures are often referred to as KPI's or Key Performance Indicators.
Once you have identified these metrics, you can then set your goals. This will enable your
organization/department to track it's performance to expectations. But how do you set these
goals? How do you determine what to target? At what point have you achieved Supply Chain
optimization?
Your overall company goals should be considered when setting your Supply Chain targets. You
want to make sure that your Supply Chain goals do not conflict with your company objective.
Targets can reflect how aggressive you want to be in pursuing change.

Some Guidelines.....
First, make sure you understand exactly what it is your measuring. What drives this measure?
What causes failure? Where do you need improvement? . Once you can answer these
questions, you're in a better position to set your goals.
 Some companies use a guideline of 10% improvement per year. But, this is a very general
guideline.

Benchmarking: One way to set your goals is Benchmarking. There are various benchmarking
services, that for a fee, will compare your company to other "like" companies. You submit your
answers to a set of questions. Those answers are averaged in with other companies
submissions. Averages are calculated and World Class levels are set.
As an example, if the average Fill Rate for your industry is 93% and your performing at a 80%
level, then it's obvious you need to set an aggressive goal. However, if the industry average is
93% and you're at 94%, you may want to target a minimal gain. Your aggressive efforts should
probably be focused in other areas. The caveat here is defining "like" industries. Make sure the
comparison your making is a fair one. In my experience I've often found it difficult to find true
"like" industries.

SMART Goals:

Specific: Provide enough detail so that there is no question on what is being measured and no
question how the metric is calculated. You should be specific as to the measurement, goals and
responsible people/department.

Measurable:  Here is where you use your metric. Make sure you have a reliable system in place
that will accurately measure your performance 

Attainable: Will the Supply Chain projects you have scheduled for the year produce results that
will achieve your goal? The person setting the goal and the person responsible for achieving the
goal should agree with the target. If results are un-attainable or unrealistic, they will have a de-
motivating effect on your employees.

Realistic: Don't plan to do things if you are unlikely to follow through. Better to plan only a few
things and be successful rather than many things and be unsuccessful. Your Supply Chain goals
should be challenging, but realistic in relation to the improvement projects you have in place.

Time frame: Identify when your targeting to hit your goal.

Example: Your current Fill Rate is 87% and your Supply Chain projects should improve your
measure to 93%. But is the 93% goal for the final month of the year OR is it averaged out over a
specific timeframe?

Customer Service Policy:

Additionally, make sure that your Supply Chain goals are aligned with your Customer Service
Policy.
Example: Your agreement to your customer might be a 95% Fill Rate, with an Order Cycle Time
of 10 days. Make sure that your goals reflect these customer agreements.

Supply Chain optimization is difficult to achieve. But with the right metrics in place and proper
goals set, you now know where to focus your improvement projects. You have just gotten
closer to Supply Chain optimization.