5 Key Performance Indicators for a Supply Chain Business Continuity Plan

In this quickly evolving world of epidemics and international friction, organizations are now focusing on creating and improving their supply chain business continuity plans. 

But to meet this objective, organizations need to have an accurate baseline of their current performance along with a method that continuously tracks performance. Key performance indicators, also known as “KPIs,” can be a great tool to use.

KPIs are used to measure performance and depict how effective an organization is at accomplishing its established goals. KPIs can be either quantitative (number-based) or qualitative (subjective) can be measured over days, months, and even years. For the goal of establishing an accurate baseline of internal performance and overall supply chain resilience, quantitative KPIs can be more suitable than qualitative KPIs. Quantitative KPIs are data-driven, and therefore provide an unbiased approach to measuring a supply chain department’s performance. Though quantitative KPIs are data-driven, the importance of setting realistic and meaningful goals is also critical. Goals that are set too high, will not be achieved and can create further despair and confusion; while goals that are set too low, will provide a false sense of accomplishment and impede progress.

 Are you wondering what are some quantitative KPIs you can use to be better prepared for the next emergency? Well look no further, here are examples of 5 KPIs used by organizations worldwide to track the internal performance and efficiency of their supply chains. You can utilize these KPIs yourself while creating or reviewing your business continuity plan to create a supply chain that operates in the toughest of conditions.

Customer Order Cycle Time

This KPI is a measurement of the lead time from when a customer’s purchase order is received and when the order is delivered to the customer. What is considered “long” or “short” varies and is dependent on each company’s industry and situation. This KPI is important for building a resilient supply chain because the longer a customer must wait for their order, the greater the chances a customer will cancel or not place a reoccurring order; which wastes valuable time and increases production costs. During a crisis, this cycle time can be extended drastically and can lead to an extremely unhappy customer. The shorter the customer order cycle time, the more of a safety margin you and your organization’s supply chain will have to respond to abrupt changes.  

Inventory KPIs

There is no shortage of KPIs that measure inventory, here are 2 important KPIs in particular that can assist with preparing you supply chain for the next disaster

Inventory Turnover

This metric measures how often an organization completely sells off its entire inventory in a selected period (usually a year). This calculation is used by numerous organizations to identify possible excess inventory or if there is a lack of sales. This KPI requires balance since both low and high turnover rates can signal an issue within the supply chain. A low turnover rate may be an indication of obsolescence, product issues, or higher than needed inventory levels. On the contrary, high turnover may indicate insufficient inventory levels and possible stock-outs.

Inventory Days of Supply

Balancing having sufficient inventory to meet the fluctuations in customer demand while also limiting the financial impacts associated with having too much inventory can be a difficult task. The inventory days of supply metric measures the time it would take for an organization to deplete its current inventory without replenishment and can be used while preparing for a potential disaster. This KPI is important while developing or refining a supply chain business continuity plan because it provides an idea of how long an organization can keep their inventory before they start losing money which can be caused by unsalable items and provides insight into what needs to be sold and bought to maintain optimum inventory levels.  Safety stock levels should also be considered in this metric, especially for those surprise emergencies.

On-Time Delivery

When it comes to maintaining your customers’ happiness, having your product available and delivered at the appropriate time is crucial. Especially with the expanding acceptance of JIT inventory practices, failing to deliver your product or service on time can lead to a loss of customers, late fees, and negative operational complications. This metric is primarily used by organizations to measure how proficient it is at meeting the customers’ requested delivery date and is particularly helpful because it provides insight into possible inefficiencies within multiple areas of a supply chain.  It can be an indication of inaccurate forecasts, ambitious sales, incorrect lead-times and/or safety stock levels, quality issues, underperforming supplier(s) to name a few

Supply Chain Cycle Time

When it comes to measuring the overall resilience of your supply chain, the supply chain cycle time KPI is all-encompassing. This KPI is the best indication of how efficient and agile a supply chain is because it analyzes the entire cycle time of a customer order with all inventory levels set at zero. A supply chain that can react quickly to a change in customer demand and source the required inventory quickly, will have the ability to recover from emergency quickest. By adding up the longest lead times of the cycle being measured with zero product in stock, this KPI assesses supply chain performance from a worst-case scenario. When developing a business continuity plan, hoping for the best while planning for the worst will help ensure your supply chain is efficient enough to survive even the worst of emergencies.  

With these tools at your disposal, you can now take action to effectively analyze your supply chain using a quantitative approach. The information means absolutely nothing if the information presented by the KPIs are either ignored or interpreted incorrectly. That is why I want to emphasize again, that the goals designated for each KPI must be methodical and logical. KPIs are meant to not only track progress towards a goal, but also promote innovation and improvement. With the proper use of KPIs, you can be confident that your supply chain is performing to the best of its abilities.

Final Thoughts...

If you found this information helpful, click on the link below to learn more about the Supply Chain Resilience "how to program." Take your knowledge another step further by learning how to apply military principles and techniques to transform your supply chain into a lean, mean, fighting machine. This program is set up to provide valuable insight into building an effective business continuity plan for supply chains that will improve your emergency preparedness. If you’re new to Supply Chain:

I would like to take this opportunity to welcome you to the start of a new future in your professional career as a supply chain manager in the supply management industry. You should be commended for seeking to better your professional opportunities for the future. You are taking the first step toward a bigger goal in life, and I wish to congratulate you.

Learning and understanding supply chain resiliency is taking the first step.

To those Supply Chain veterans continuing your learning:

I would like to take this opportunity to thank you for your continued efforts and professional development in your career as a Supply Chain Professional.

We can never learn too much & shouldn’t stop learning.

To all of those who found this helpful – don’t hesitate to contact me to review your supply chain’s business continuity plan to improve your emergency preparedness.