Wednesday, September 26, 2012

My favorite Key Performance Indicators to measure the SAP supply chain - Service Ratings

In this blog series, I attempt to list some KPIs which may help to evaluate your SAP supply chain. I realize that there are many key figures, KPIs, characteristics and measures available in the general supply chain area. Many are a bit confusing and it is sometimes hard to pick the right ones out of all the various options. Here I want to discuss some of those that I deem very important and helpful.

Let me start out with what I would like to call the Service Rating. Some call it Service Level others Service Grade and in MTS it's also called Fill Rate. In the end it's a measure which informs about how well a source or a supply delivers to a consumer or customer. I often see this indicator applied only in Sales; how good are we delivering product to our customer!?

But in a supply chain there are many sources, suppliers, customers or consumers. A production line may be the supplier to the warehouse. The production line in turn, might be the consumer to a work center making fabricated parts. Or the external vendor can be the source to that work center - which now becomes the customer.

In that sense we can rate the service for every supplier - customer (source - consumer) relationship separately. To further this thought, I'd like to list the possible Service Ratings in a supply chain as follows:

- supplier to purchased parts (raw materials) orders: This indicates how well your individual suppliers perform to orders they receive from your buyers.

- purchased parts (raw materials) warehouse to production (lines or work centers). This measures how well your purchasing department performs to supply your production.

- fabrication of semi-finished products to assembly, measures production-internal performance.

- final assembly (finished goods production) to warehouses and distribution centers for sellable products. A rating on how well the production schedulers perform to forecast and planning.

- warehouse and distribution center to customer. Here we can tell how good the forecast and planning was executed.

Each one of these Service Ratings should be measured as a percentage and everytime a request could not be fulfilled the rating should degrade. You can measure this either by quantity or on time but don't forget that if any given source (supplier) "cheats" by putting up excessive inventories, they will get good ratings. But these are, of course, very costly.

You should therefore always relate the Service Rating with the Inventory Holding.

As an example: if you sent a forecast for 100 pieces to your production scheduler and they delivered 97 on time; the schedulers had achieved a service rating of 97%. The next question you then need to ask is how much resources did they consume to achieve this rating. Overtime? Extra capacity? What was the yield from the line? Waste? Etc.

These are different KPI's but they must be considered if you want to really know how good your Service Ratings are.