Key Supply Chain Performance Indicator Paper
Supply chain management through the use of key performance indicators (KPI’s) offers organizations improved profit margins and lower costs. Saxena (2009) comments “KPI initials could stand for “keep players informed” because the right set of key performance indicators can go a long way toward making sure companies and their third party logistics are truly on the same page” (p. 22, para. 3). Measuring key performance indicators in a quantifiable manner is used to evaluate, measure, and compare different organizations in a similar manner for matches in strategic and operational goals. As illustrated below in the hierarchy of supply chain metrics, Miles (2010), a supply chain’s health is measured by foundation blocks or key performance indicators. Failure to identify, measure, or assess, diagnose, and correct through the use of key performance indicators such as on-time delivery, inventory turns, and inventory carry costs prevent the supply chain from reaching its full potential.
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On-time delivery is a significant supply chain performance indicator measurement. As organizations expand globally, superior quality and delivery timeliness becomes crucial. According to ElMaraghy and Majety (2007) “The cost of on-time delivery captures the impact of supplier’s late deliveries” (p. 372, para. 4). Continuing ElMaraghy & Majety (2007) comment “The total cost of on-time delivery is calculated as the product of percent late delivery, production quantity, and base penalty rate (the cost penalty for every late delivered part)” (p. 372-374, para. 4). To measure accurately on-time deliveries among various organizations several factors are considered to ensure the evaluations are comparing similar issues. Among the factors to measure on-time deliveries include lead times, variability of lead times, and minimum order quantity. Failure to control on-time deliveries adds to the total cost of the entire supply chain that decreases efficiency and productivity through shortages, delays, and stoppages as part of the bullwhip effect.