A supply chain is the process of smooth, effective, and consistent practice of providing products or services to the customer by the buyer. The entire business regime is dependent on an effective and productive supply chain. It takes a lot to build and maintain a plan for the supply chain that works. And you need to make sure you increase your productivity over time. This can be done by effective communication, determining a hierarchy of importance, empowering the workforce, creating procedure standards, and enacting a robust training program.
The entire supply chain process consists of 5 significant functions: Plan, Source, Make, Deliver, and Return. So to increase the productivity of a supply chain, you need to target these aspects of the supply chain. A perfect example to understand this fiasco is- Company A is based in the FMCG sector and produces biscuits. With the uncertain situation prevailing in the country, the demand for biscuits has risen to the highest level due to fear of lockdown. Hence productivity is highly dependent on the inventory held by the Company.
Some essential things that can be done to improve supply chain activity by enhancing Key Performance Indicator are-
1. Order Index
An ordered index is used to measure the rate of the supply chain. An ideal order index should eliminate any errors to measure the process with the utmost effectiveness. The method includes a composite metric used in a way that ends up calculating the overall performance indicator. The process is not full proof, and getting the correct number is not usually the case. But you get an average idea of which direction you need to work in to improve your productivity.
2. Cash Conversion
This is the period between the time the Company pays its supplier and receives cash from its customers. It is mainly done by rotating the money you receive from the customer to pay your supplier and providing the product you receive from your supplier to your customer. The critical points, including days of inventory, payables, receivables, etc., are used to calculate this compound metric process. The shorter the cash conversion process, the higher the profitability and productivity of your supply chain.
3. Inventory Accuracy
It is a tool used to measure the efficiency of workers in fulfilling orders. The starting point is receiving the order, and the ending point is when you send the final packaged order to the freight people for shipping and delivery. You must get a high rate for this calculation because this calculation directly signifies customer satisfaction by showing whether the correct products are going to the right customers. A low rate may lead to losses, and you might also end up losing your customers.
4. Cycle Time of Supply Chain
This method measures the time to provide your customers with the end product if you start your process at zero inventories. The point of this all-encompassing metric system of management is to determine the most extended period it would take to provide your customers. This process determines if your supply chain is flexible, agile, and responsive or not.
5. Demand Satisfaction Rate
This measurement method determines how many customer demands can be met with the existing stock. It does not include the backorders or lost sales. This process of fill calculating DSR, which is also known as Fill Rate, helps in the calculation, leading to shipping accurately ultimately and meeting of timely orders.
6. Inventory Turnover
It measures the time in which your entire inventory can be sold. It shows an accurate, comprehensive, and precise picture of the efficiency of your supply chain. A low rate can signify two things: you have too much inventory or weak sales.
Like art and inspiration, everywhere you look, you will find data. It can be found in the simplest of things. But these can be very important, especially in businesses run by numbers. These data and metric systems help you realize whether you are using available resources optimally, adding more resources, chaining certain things, etc. As long as your Key performance indicators are high, you’re going well. Still, suppose the Key performance indicators are low. In that case, it’s time to buckle up and work towards improving your supply chain productivity.