by | May 13, 2019 | Sales Solution, supply chain | 0 comments

Various KPI’s are implemented to measure the performance of Supply Chain Managers and Warehouse Managers. The KPI’s tare intended to drive the behaviour of the supply chain.

But do they?

Reduce Inventory Levels

Productivity KPI’s are designed to drive behaviour to manage supply chain costs. We measure performance with things such as Cost of Goods Sold (CoGS) (Kenton, 2017), Total Supply Chain Management Cost (APQC (American Productivity & Quality Center) , n.d.), and Cash-to-Cash Cycle Time (Zigu, 2015).

A reduction in inventory levels will reduce CoGS (less inventory, less costs), Total Supply Chain Management Cost (less inventory, less costs), and Cash-to-Cash Cycle Time (less inventory, shorter time to receive revenue for inventory). Supply chain costs are reduced by reducing inventory levels, .

Increase Inventory Levels

Service level KPI’s are designed to drive behaviour to ensure a reliable, responsive and agile supply chain. We measure things such as Perfect Order Fulfilment (Dwyer, 2008), Order Fulfilment Cycle Time (Marr, 2012), and Supply Chain Adaptability (Anon., 2014). How can these KPI’s be improved?

An increase in inventory levels will positively impact Perfect Order Fulfilment (more inventory, more availability), Order Fulfilment Cycle Time (more inventory, shorter lead time), and Supply Chain Adaptability (more inventory, less fragile). Responsiveness and agility can be improved by increasing inventory levels reliability,

Spot The Problem

Are these not two conflicting expectations, then? Is it even possible to manage supply chain costs, reliability, responsiveness, and agility?

Currently the way they attempt to achieve both, is to make decisions based on forecasts. Forecasting attempts to predict future events based on historic events, combined with management experience. Teams of planners are employed with high-end software solutions in an attempt to make more accurate forecasts.
Are the forecasts ever right? Every item that goes on sale because of an abundance of stock or that is not available when a customer desires it, is a forecast failure.

Find a REAL Supply Chain & Logistics Solution

Using a type of forecast, the “starting” inventory levels are determined. Thereafter, the supply chain becomes reactive, within the granularity of a day, to what is happening and not to what we predicted will happen. The reactiveness of the supply chain enables the supply chain management to continuously improve, to make the supply chain more and more profitable. The short feedback loops implemented allow for quick and informed decision-making and allow SCM’s and WM’s to focus their limited management attention on exceptions. Wondering if this is really true?

Manage Better for Better Results

Supply Chain Managers and Warehouse Managers need to make informed decisions daily, these decisions ultimately need to serve the main goal of the system they manage – to be profitable. The goal of the system has two main drivers – productivity and service levels.

We have more than 20 years’ experience in implementing strategies to improve supply chain management performance. These strategies have been  implemented in various industries.



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