The Key Performance Indicators (KPIs)

The KPIs are segregated into different categories accordingly as follows: Supply Chain and Logistics:
The network of retailers, distributors, transporters, storage facilities and suppliers that participate in
the sale, delivery and production of a particular product.

• % of time spent picking back orders: Number of hours spent on picking back orders as a
percentage of working hours.

• Sales order by FTE: This indicator measures the number of customer orders that are processed by
full time employees per day. This helps evaluate the workforce cost per order.

• Scrap (or leftover) value %: Scrap (or leftover) value as a percentage of production value.

• Inventory Accuracy: Most Advanced Planning Systems calculate net inventory requirements. If the
book inventory used as the basis for these calculations has a high error, the net inventory
requirements generated will not reflect the true inventory needs. The inventory error should be
factored into the safety stock calculation to protect service levels from variance in inventory due to
inventory

count accuracy.

Assertive continuous improvement programs should be in place to support a decrease in inventory

• Inventory Carrying Costs: Inventory Carrying Cost = Inventory Carrying Rate X Average Inventory
Value

• Inventory Carrying Rate: This can best be explained by the example below

1. Add up annual Inventory Costs: Example: Storage =Rs800k, Handling= Rs400k,

2. Divide the Inventory Costs by the Average Inventory Value: Example: Rs3,400k / Rs34,000k = 10%

3. Add: Opportunity Cost of Capital (the return you could reasonably expect if you used the money
elsewhere) = 9%, Insurance =4%, Taxes= 6%. Hence, total= 19%

4. Add the percentages: 10% + 19% = 29%. The Inventory Carrying Rate = 29%

• Missed Deliveries per Million (MPM): Measures supplier on time delivery by

part reference ordered using the same logic as the quality measure PPM. Several missed categories
are defined such as; Missing part reference,

under shipped, over shipped, delivery window missed etc.

MPM = (Total number of missed deliveries / Total number of part references

ordered) x 1,000,000
• Delivery Schedule Adherence (DSA): Delivery Schedule adherence (DSA) is a business metric used
to calculate the timeliness of deliveries from suppliers.

Delivery schedule adherence is calculated by dividing the number of on time deliveries in a period by
the total number of deliveries made. The result is then multiplied by 100 and expressed as a
percentage.

• 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).

• Inventory replenishment cycle time: Measure of the Manufacturing Cycle Time plus the time
included to deploy the product to the appropriate distribution

centre.

• Material value adds: Sell price minus material cost divided by material cost.

• Supply chain cycle time: The total time it would take to satisfy a customer order if all inventory
levels were 0.

• Fill Rate: The number of items ordered compared with items shipped. Fill rate can be calculated on
a line item, SKU, case or value basis.

• On time ship rate: What percent of orders where shipped on or before the requested ship date. On
time ship rate can be calculated on a line item, SKU, case

or value basis.

• Perfect Order Measure / Fulfilment: The error-free rate of each stage of an order. Error rates are
captured at each stage (order entry, picking, delivery, shipped without damage, invoiced correctly)
and multiplied together.

• Customer order cycle time: The average time it takes to fill a customer order.

• % of backorders: The number (or percentage) of unfulfilled orders.

Inventory: Inventory is a list for goods and materials, or those goods and materials themselves, held
available in stock by a business. Inventory are held in order to manage and hide from the customer
the fact that supply delay is longer than delivery delay, and also to ease the effect of imperfections
in the manufacturing process that lower production efficiencies if production capacity stands idle for

lack of materials.

• Independent demand ratio: For manufacturers that also supply replacement parts and
consumables this metric helps to define the % mix of demand for an item from independent (outside
sources) vs dependent (inside sources). The ratio is calculated by dividing the unit usage for
customer orders by the total unit usage

of the item from all sources (work orders, sales samples, destructive testing,
inventory adjustments, etc.)

• Early receipts to MRP date (required date): Early receipts to MRP date - This is a measure on your
Planning efficiencies. Some planners or warehouse personnel may request that the material be
brought in long before the plant/operators need the parts. Reasons for doing so may be quality, lead
time variance, buffer stock etc. Early receipts to MRP produce higher levels of inventory that are not
required yet. In a way, this is at the other end of the scale than JIT. Measure: MRP due date

vs Receive to Dock (stores) date.

• Early PO Receipts to PO due date: Early receipts to PO date - This is a measure on your suppliers
and their diligence to supply per the contract date. Early

receipts to PO produce unexpected deliveries turning up, congested goods inwards and of course
higher that projected inventory levels. Measure: PO due date vs Receive to Dock (stores) date.

• Sell through %: A percentage of units sold during a period and is equal to Units sold divided by
(units sold + on hand inventory). This can also be described as Units sold divided by Beginning
Inventory Quantity.

• Inactive Stock: Products with Stock (in units or Rs), and without movement-sales in a given period
of time (depending on movement of the market). Useful to define continuity of a specific product-
size (SKU), or promotion campaigns. Most useful in companies with a big number of SKUs.

• Average age of inventory: The (average) age of each product in stock. For example, product
received in Jan, but remains until Aug.

• Unit Cost per batch: Unit Cost per batch = (Cost/Quantity) for each batch Primarily used in FIFO
(First in First Out) Method Assumes an inventory of nonunique goods (that is, everyone is similar to
every other one) Generally preferred inventory valuation method. Assumes inventory is sold in the
order that it is stocked, with the oldest goods sold first and the newest goods sold last. Uses the unit
cost per batch of acquired/produced goods and counts the inventory backwards from the newest
batch.

• Inventory Value: Inventory Value = (Average Unit Cost) x (Units of current Inventory)

• Stock cover: Stock cover is the length of time that inventory will last if current usage continues.

• Stockouts in period: Stockouts indicate where a demand cannot be met due to the absence of the
required inventory.

• Inventory lead time: Lead time is the length of time it takes to obtain inventory from suppliers.

• Inventory Turnover: The number of times that a company’s inventory cycles or turns over per
measurement period (month, quarter, year).

• Inventory months of supply: Inventory on Hand / Avg Monthly Usage

SCOR: The Supply-Chain Operations Reference-model (SCOR) is a process reference model that has
been developed and endorsed by the Supply-Chain Council as the cross-industry standard diagnostic
tool for supply-chain management. SCOR enables users to address, improve, and communicate
supply chain management practices within and between all interested parties.
• Order fulfilment cycle time: Order Fulfilment Cycle Time is a continuous measurement defined as
the amount of time from customer authorization of a sales order to the customer receipt of product.

• Total supply chain management cost: Total Supply Chain Management Cost is a discrete
measurement defined as the fixed and operational costs associated with the Plan, Source, Make, and
Deliver supply chain processes.

• Upside supply chain flexibility: Upside Supply Chain Flexibility is a discrete measurement defined as
the amount of time it takes a supply chain to respond to an unplanned 20% increase in demand
without service or cost penalty.

• Direct Product Cost: Sum of costs associated with manufacturing a specific

product.

• Direct Labour Cost: Sum of costs associated with payment of the employee insurances, taxes etc.

• Direct Material Cost: Sum of costs associated with acquisition of support material.

• Time needed to recruit/hire/train additional labour: Amount of time required to achieve a certain
substantial improvement concerning the number of employees.

• Time needed to obtain additional capital: Amount of time required to achieve a certain substantial
improvement concerning capital.

• Time needed to obtain additional equipment: Amount of time required to achieve a certain
substantial improvement concerning equipment acquisition.

• Finished product cycle time: Average time associated with finalizing activities, such as: package,
stock, etc.

• Test cycle time: Average time associated with testing and trying out activities.

• Cost of managing processes: Periodic costs of managing processes, usually based on the number of
FTEs involved in management functions for processes.

• Cost of goods sold (COGS): Cost of Goods Sold includes all expenses directly associated with the
production of goods or services the company sells (such as material, labour, overhead, and
depreciation). It does not include SG&A.

• Perfect Order Measure / Fulfilment: The error-free rate of each stage of an order. Error rates are
captured at each stage (order entry, picking, delivery, shipped without damage, invoiced correctly)
and multiplied together.

Cash Conversion Cycle (CCC): A metric that expresses the length of time, in days, that it takes for a
company to convert resource inputs into cash flows. The cash conversion cycle attempts to measure
the amount of time each net input dollar is tied up in the production and sales process before it is
converted into cash through sales to customers. This metric looks at the amount of time needed to
sell inventory, the amount of time needed to collect receivables and the length of time the company
is afforded to pay its bills without incurring penalties. Also known as “cash cycle”. Calculated as: CCC
= DIO + DSO - DPO Where: DIO represents days inventory outstanding, DSO represents days sales
outstanding, DPO represents days payable outstanding. Usually a company acquires inventory on
credit, which results in accounts payable. A company can also sell products on credit, which results
in accounts receivable. Cash, therefore, is not involved until the company pays the accounts payable
and collects accounts receivable. So, the cash conversion cycle measures the time between outlay of
cash and cash recovery. This cycle is extremely important for retailers and similar businesses This
measure illustrates how quickly a company can convert its products into cash through sales. The
shorter the cycle, the less time capital is tied up in the business process, and thus the better for the
company’s bottom line.

Improvement Opportunities in Retail Logistics

In general, the logistic decisions taken by the retailer can be improved by

increasing:

• the level of differentiation when controlling the operations;

• the level of sophistication in the Decision Support Systems;

• the level of integration of multiple decisions (made by the retailer company

and/or its supply chain partners). Below, several examples are given to illustrate how each of these
general

guidelines can be translated into specific solutions, considering the fact that different retailers
and/or different products need different logistic solutions.

The Level of Differentiation when Controlling the Operations Different types of items need different
ways of replenishment. For example, ABC classification, based on the perception that items with
large turnover (A-items) need to be treated differently compared to items with low turnover (C-
items). While there is some value in this approach, we propose a different classification for retail-
items. We distinguish the following five main product categories:

1. Phasing-in/out items (including items with a short Product Life Cycle)

2. Promotion items

3. Purchasing driven items

4. Capacity driven items

5. Regular items

Below, each of these five product categories is discussed in more detail. The phasing-in/out items
(including items with a short product life cycle) are different from other items since there is either
very little demand history available, or it becomes very risky to carry inventory due to obsolescence.
Thus, for these items, special attention is given to issues like demand forecasting and inventory
management in an environment with high risk of obsolescence and/or markdown policies.
Improvement opportunities reported in the literature are:

• Using similarity in forecasts made by different individual people as an indicator

of forecast accuracy when no sales data are available yet;

• Using early sales data to improve demand forecasts in the case of style goods;
• Using repeat rate information from customer cards to improve demand

forecasts when new products are introduced;

• Using optimal markdown policies to reduce the risk of obsolescence.

Top 5 KPIs for Service Excellence companies:

 Call volume and queue

 First contact resolutions

 Item fill rate

 Perfect order

 Delivered full / on time.

Product Excellence

Companies with a focus on operational excellence view all aspects of the supply chain holistically.
The focus is driving costs out of each leg of producing and selling goods. Apple and technology
leaders are typically product-oriented. These companies are generally focused on commodity goods
and delivering the best value at minimal cost. On a daily basis, Product Excellence companies are
primarily concerned with the supply chain’s flow, its
reliability, and its cost.

Top 5 KPIs for Product Excellence companies:

 Total cost of goods sold

 Supply chain cost per unit sold

 Labour utilization

 Warehousing and transportation costs

 Enterprise software performance

Operational Excellence

Lean organizations focus on eliminating waste in their supply chain at every stage. Following lean
management principles, KPIs are mapped by seven categories of waste and inefficiency in a
business: Excessive waiting, Overproduction, Rejects, Motion, Processing, Inventory, and Transport.
Lean KPIs tend to be the most tactical and daily-oriented. One of the keys to cost efficiency is
anticipating supply chain problems early using system data and then acting before the problems
impact financial performance.

Top 5 Include:

 Asset utilization rate

 Defect and acceptance rates

 Queues and wait times

 Stock levels and safety stock

So what orientation does your company have? Many of our customers say “well, a little bit of each.”
Fair enough. In fact, the Supply Chain Operations Reference (SCOR) model published by the Supply
Chain Council outlines core attributes common to any business with a supply chain and associated
core (or “Level One”) metrics There are two ways to choose your KPIs. Before that though, your
supply chain measurement program must be based on some idea about your end goals. Pick a
particular attribute as the main emphasis. While other metrics can be measured, KPIs are only useful
to the extent they can promote positive change in an organization, and most organizations can focus
on only one or two areas at a time. Next, how do you assess performance? KPIs that show
performance relative to industry benchmarks and peer performance are usually strategic KPIs that
may be assessed monthly or quarterly. SCOR Level 1 Metrics are good examples of measures that
have longer-ranging focus. However, many companies are focused more on real time/right time
metrics that can be updated daily and provide greater opportunity for faster reaction to operational
issues and opportunities. These fall into three categories: demand, supply, and operations.

Daily demand characteristics that should be measured are changes in market conditions or leading
indicators that suggest a shift in demand is moving through the supply chain. These metrics are
designed to help address the “bull whip” effect of small moves in end buyer activity rippling back
through the supply chain in unexpected ways. Demand KPIs should, by nature, be predictive.
Historical sales and customer activity are key inputs to a more refined measurement or forecast of
where

Daily supply KPIs are related to the interaction between your suppliers, procurement and
production. With the world demanding more responsive supply chains, there is greater focus on
suppliers who can work with your firm’s capabilities and limits. If you are less responsive in your
flexibility, then choosing suppliers who can augment your operations can be KPI

D mart KPI

PRODUCT QUALITY

PRODUCT QUALITY is one of the most important metrics to retain customers. The customers always
expect better quality at lower prices. product quality as an important metric for SC performance
measurement. The product quality is also associated with the process quality. The use of efficient
processing technologies shall help to mitigate wastage and ultimately the product quality shall be
better. The use of statistical process control, root cause analysis of poor quality, improvement in
process capability, staff training and development of facilities shall help to improve

PROCESS QUALITY

process quality as an important metric for better [Link] response time is the time taken to
handle customer queries. The customers visit retail stores to collect the products for their
requirements. They shall ask questions regarding product variety, quality, availability and prices. A
prompt response shall help to attract and retain customers. Hence, it is also an important metric for
measuring SCP

RETURN ON INVESTMENT (ROI) is also one of the important indicators that shall be calculated over a
period of time. It gives the overall business outcome for which the retailers look for good results.
Nuthall (2003) and Morgan (2004) revealed ROI as one of the important indicators for measuring
SCP.

SALES PROFIT is the gain over the quantum of goods sold. It shall be calculated when goods are sold
for the satisfaction of customers. Nuthall (2003) identified it as an important SCP indicator. Here, it is
pertinent to mention that not only the sale but also the sales profit, helps to evaluate OGR business
success. Stakeholders are the investors, customers, employees, regulators and suppliers who play an
active role in the business. The wants and needs of stakeholders should be satisfied for the business
success. Neely et al. (2002) considered stakeholder value as the focal point of the performance
measurement process. The collaboration among stakeholders plays an important role in business
growth.

COCLUSION

knowledge of the KPIs both customer service and the capacity utilization in retail chains can be
increased by improving the logistic decisions taken by the retailer. New technologies allow the
retailers to improve their logistic decisions by increasing either the level of differentiation, the level
of sophistication and/or the level of integration in their decision-making. We have described the KPIs
by dividing it into different categories of its respective field: Supply Chain and Logistics, Inventory,
SCOR (Supply-Chain Operations Reference-model), Cash Conversion Cycle (CCC). All these metrics
aids in the supply chain management of the retail sector. In this paper, we described the meaning,
formula and significance of each KPI. In many retail chains, different items need different logistic
solutions. In this paper, we distinguished five product categories: items that are phasing-in/out,
items that are on promotion, items that are driving the utilization of capacities, and regular items. All
these categories require a different way of controlling the operations