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Eight critical KPIs for assessing your supply chain performance

Posted by Gary Plant on Apr 4, 2016 11:00:00 AM

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After choosing a supplier to carry out the work you require, your attention should shift towards the contract, and what can be done to ensure it is fully executed. Between you and the supplier, you should be: ensuring you both fulfil your expectations of each other, manage the risk and any supply chain vulnerability, and deliver continuous improvement and learnings.

To do this, key performance indicators (KPIs) should be identified at the start, and monitored against on a regular occurrence, to ensure the supplier is performing to the standard you require. Of course, the KPIs you look to monitor against will differ depending upon the supplier’s work.

To give you a head start, here’s some objective KPIs you could look to implement:

1 - Delivery time and completion

For suppliers who will deliver goods to you or your clients, how often are deliveries made on time? How many of these deliveries result in issues, damaged or incorrect goods? The supplier should take the lead in assessing these KPIs on a frequent basis, making sure information and performance are shared in regular meetings.

2 - Level of non-conformance

Whether they’re delivering a product or service, how many times, or what percentage, has the supplier’s work resulted in something that doesn’t meet your standards. As well as recording the incidences, this KPI should also focus on what specifically has gone wrong, and what can be done to eradicate it in the future.

Non-conformance can also be attached to the controls and restraints you put in place as part of managing your suppliers. If you’ve expressed that an electrician should not enter the second floor, of the building for example, this should be recorded and fed back to the supplier’s operational team.

3 - Invoice accuracy

While financial details should have been organised from the start of on-boarding your new suppliers, the accuracy of invoices of suppliers that work with you frequently, could become a KPI to track. With so much on your plate already, the last thing you want to be doing at the end of the financial year is to be chasing suppliers for their final invoice of the year.

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Delays in invoicing, as well as inaccuracies in the amounts, can lead to disruption not just in your supply chain, but in your whole organisation too.

4 - Project milestones

One-off or infrequent suppliers would find project milestones more useful. No matter what the project, time and cost are always two of the biggest KPIs that supply managers need to keep track of.

There’s always going to be incidences that increase the money or time spent on a project, but by clearly planning and talking through the project with your suppliers, you can hold them accountable too.

5 - Customer complaints/returns

Probably one of the biggest frustrations for a supply chain manager is discovering that a customer has complained about the quality of product or service from one of your suppliers. As well as feeling let down by your supplier, the fact that your business was the ‘face’ of the purchase makes it an even hard pill to swallow.

Of course, there are always going to be complaints and returns for some products, it is a case of assessing what the natural amount of comebacks you may face, based upon the number of products or services you sell. This also provides a great learning curve for your relationship with your new supplier to eradicate problems as early on as possible.

6 - Flexibility

The ability for suppliers to change depending on yours or your customer’s needs is essential in a fast-moving economy. Can your supplier meet your two-week deadline change? Are they able to be flexible enough to change their logistics 24 hours later? Whatever your requirements, flexibility may be a KPI that suits you and some suppliers.

7 - Levels of waste

At a time when corporate social responsibility is a big part of a business’ goals, the pressure on large organisations to control what their supply chain does too is increasing. Recycling, landfill disposal, carbon footprint and CO2 emissions are just four areas that you may wish to track and monitor your suppliers on.

8 - Communication and compliance

As well as attending monthly meetings, or updating you on the latest project, you could monitor your suppliers based on their compliance feedback. Have they given you the latest version of their insurance when their last policy expired? How long have they taken to get back to you on your compliance questions? Do they still hold the industry certifications they need to undertake work?

If your suppliers fail to meet the basics of giving you compliance information, who knows what they may be hiding when it comes to the physical work you signed them up for in the process. This is why continual improvement, communication and relationships with your suppliers are important.

The right KPIs for the right suppliers

From these eight examples above, you will understand that key performance indicators have to be chosen in line with what the supplier will do for you. While you will always expect that suppliers will perform at 100% all of the time, this is un-sustainable and a suitable target KPI should be set between the two of you to deliver a quality service while giving room for continuous improvement.

To find out more about KPIs and how they can help to increase the performance of you supply chain, download our free guide, ‘Introduction to Supply Chain Compliance Best Practice’.

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Topics: Assessment Focus

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