Many business owners and operations managers find that their supply chain is awash with a sea of data. But what are the top metrics that executives in this industry should be looking at in order to evaluate the health of their supply chain? It can be a little bit confusing and overwhelming.
There are a great many supply chain management software options out on the market, but what tools are the most critical in order to equip business executives with the data necessary to perform this type of evaluation? Let's take a look at the most important metrics to help sustain a healthy and efficient supply chain, and what tools a software applications should provide in order to produce such metrics.
Data is only valuable if it brings about additional clarity and provides actionable results. Supply chain management requires consistent monitoring and continuous improvement, all of which can be aided by an effective grasp on the important metrics throughout the business.
Many issues facing the industry include the price of commodities, the supplier base, cost inflation, and the cost of raw materials. The following set of metrics focuses on increasing growth and profitability, reducing cycle time, and lowering complexity. Each of these areas must receive a balanced focus in order to support a healthy business. Keeping a close eye on the following metrics can help business owners and executives maintain such a balance and gain a comprehensive overview of the health of their business.
- Year over year sales growth
- Return on invested capital
- Operating margin
- Inventory turns
- Revenue per employee
- Selling, general, and administrative expense margin
In addition, calculating the return on invested capital can help provide a measurement of a company's effective use of capital and help businesses increase their overall returns. This calculation can be performed by adding up the operating income and income tax total, and then dividing that number by the total shareholder's equity.
Valuable Software Tools
Analytics and forecasting should be available all the way down to the product level, allowing business executives to track inventory from production all the way to the sale. This allows for a review of historical trends and forecasting of future performance so that adjustments can be made in order to increase efficiency throughout the process.
Analysis tools should cover all key aspects of the business, including procurement, purchasing, operations, finance, inventory, and sales. With such analytics also comes visibility, and that visibility allows everyone from the supplier to the distributor to review their workflow and lower costs wherever and whenever possible. It also allows for a bird's-eye view of the production process, offering the opportunity to reinvent practices and keep the entire distribution process expedient, affordable, and sustainable. A good supply chain management software application should offer the following helpful tools:
- Data discovery tools to help unearth hidden costs, and monitor operational KPIs.
- Scenario analytics to help review potential outcomes of capital investments in order to offer greater confidence during the decision-making process.
- A risk scoring system to provide the ability to review historical data and reduce exposure to company and supply chain risks, such as compliance violations or raw material shortages.
- Sales estimation tools to help provide a clear roadmap for sales and operations, and allow for demand forecasting.
- Margin management and key performance indicators (KPI) review to help negotiate better margins with suppliers.
- Sales channel analysis and customer profit prediction to help prioritize marketing efforts.
- Alerts to help identify outlying data and notify the appropriate contact so that deviations can be corrected shortly after they are recognized.
Evaluating a supply chain via key metrics can help business executives anticipate risks, increase efficiency, and lower costs. The proper technology, key performance indicators, accurate alerts, and forecasting tools can help offer a clearer view of the notable numbers necessary to help keep a supply chain running optimally at all times.