KPI - The Best KPI (Key Performance Indicator) for Supply Chain & Logistics

Summary

This episode of 'Supply Chain Secrets' spotlights the critical KPI of 'Probability of a Perfect Order' in supply chain and logistics. The host emphasizes the common mistake of focusing solely on 'Delivered in Full, On Time' and instead introduces a holistic approach. Key factors like order entry accuracy, inventory availability, warehouse performance, carrier delivery, customer acceptance, and timely payments are discussed. The video illustrates how multiplying these percentages reveals a mere 64% chance of a perfect order, urging companies to address weaker areas like inventory availability to improve overall customer service. The company example shared improved from 64% to 93% over two years, highlighting the power of cross-functional collaboration in enhancing supply chain efficiency.

Takeaways

• 📊 The video discusses the importance of Key Performance Indicators (KPIs) in supply chain and logistics, focusing on customer service measures.
• 💡 The presenter introduces 'Probability of a Perfect Order' as one of the best KPIs for supply chain and logistics operations.
• 🔍 Common KPIs like 'Delivered in Full, On Time' are often measured incorrectly, and the video aims to show the right way to measure it.
• 📋 The script emphasizes the need to measure order entry accuracy, inventory availability, warehouse default service level, carrier delivery, customer acceptance, and invoice payment accuracy.
• 📉 The company in the case study had an order entry accuracy of 98%, which means 2% errors were occurring right from the start.
• 📦 Inventory availability was a significant issue, with 20% of the time orders could not be fulfilled due to lack of stock.
• 🛠 The warehouse's ability to pick, pack, and dispatch products accurately was at 90%, indicating room for improvement.
• 🚚 The carrier delivery KPI was at 98%, which is often the focus but not the only aspect that should be measured.
• ✅ Customer acceptance of the order was at 95%, showing that most customers were satisfied with their orders.
• 💰 Invoice payment accuracy was at 98%, indicating that most payments were processed correctly and on time.
• 🔢 By multiplying all the individual percentages, the overall probability of a perfect order was calculated to be 64%, which is significantly lower than any individual KPI.
• 📈 The company focused on improving inventory availability to increase the overall probability of a perfect order, which eventually reached 93% within two years.
• 🤝 The 'Probability of a Perfect Order' KPI encourages cross-functional collaboration and cooperation to improve overall supply chain performance.
• 🔑 The video concludes by highlighting the effectiveness of this KPI in driving focus and collaboration across different functions within an organization.

Q & A

What is the main topic of the video?

The main topic of the video is discussing Key Performance Indicators (KPIs) in supply chain logistics, with a focus on customer service measures.

Why are KPIs often misunderstood in supply chain and logistics operations?

KPIs are often misunderstood because people either measure the wrong things or measure too many, which can lead to confusion and misrepresentation of performance.

What is the 'probability of a perfect order' and why is it considered a good KPI?

The 'probability of a perfect order' is a KPI that measures the likelihood that all aspects of an order, from entry to delivery and payment, are executed flawlessly. It's considered a good KPI because it encompasses multiple aspects of the supply chain and logistics process, providing a comprehensive view of performance.

What is the first aspect of the supply chain that the speaker suggests measuring?

The first aspect suggested to measure is order entry accuracy, which involves assessing how accurately orders are entered into the system.

Why is inventory availability an important metric to measure?

Inventory availability is important because it directly impacts the ability to fulfill customer orders. If the stock is not available, it can lead to customer dissatisfaction and lost sales.

What does the speaker mean by 'warehouse default service level'?

The 'warehouse default service level' refers to the efficiency and accuracy of the warehouse operations in picking, packing, and preparing products for dispatch.

Why is it a problem if the carrier delivers in full on time but other aspects of the order process are flawed?

Even if the carrier delivers in full on time, if other aspects such as order entry accuracy, inventory availability, or warehouse operations are flawed, it can still result in a high probability of customer dissatisfaction and a lower overall performance score.

How does the speaker suggest calculating the overall performance of the supply chain?

The speaker suggests multiplying the individual percentages of each aspect of the supply chain process to get the overall probability of a perfect order, which gives a more accurate reflection of performance.

What was the initial probability of a perfect order in the case study presented in the video?

In the case study presented, the initial probability of a perfect order was 64 percent.

What was the industry average and best-in-class performance for the 'probability of a perfect order' in the case study?

The industry average for the 'probability of a perfect order' was 68 percent, while the best-in-class performance was 93 percent.

How did the company in the case study improve their 'probability of a perfect order' over time?

The company focused on improving inventory availability, along with other aspects of their operations, which helped them increase their 'probability of a perfect order' from 64 percent to 68 percent within nine months, and eventually to 93 percent within two years.

Why is the 'probability of a perfect order' considered a cross-functional KPI?

It is considered a cross-functional KPI because it involves multiple departments such as customer service, supply chain, warehousing, inventory management, and finance, promoting collaboration across functions to improve overall performance.

Outlines

00:00

📊 Understanding Key Performance Indicators (KPIs) in Supply Chain Management

The video script introduces the topic of KPIs, with a focus on customer service measures within supply chain and logistics. The speaker aims to clarify the confusion around KPIs and highlights the importance of measuring the right aspects. The script introduces the 'probability of a perfect order' as a crucial KPI and proceeds to explain why it is considered one of the best. The speaker also points out common mistakes in measuring KPIs, such as focusing on the wrong metrics or measuring too many, which can lead to misinterpretations of performance. The video promises to provide insights into how to correctly measure and interpret this key indicator.

05:01

📈 The Probability of a Perfect Order: A Comprehensive KPI for Supply Chain Excellence

This paragraph delves into the concept of the 'probability of a perfect order' as a KPI, explaining its significance and how it encompasses various aspects of supply chain management. The speaker discusses the importance of order entry accuracy, inventory availability, warehouse performance, carrier delivery, customer acceptance, and timely payments. Using a case study, the script illustrates the impact of each of these factors on the overall probability of achieving a perfect order. The video emphasizes the need to not only measure these individual components but also to understand their cumulative effect on customer satisfaction. The speaker also addresses the common KPI of 'delivery in full on time' and explains why it is insufficient on its own, advocating for a more holistic approach to measuring supply chain performance.

Keywords

💡KPIs

KPIs, or Key Performance Indicators, are quantifiable metrics used to track and evaluate the success of an organization's operations and strategies. In the context of the video, KPIs are crucial for supply chain and logistics operations to measure performance accurately and identify areas for improvement. The video emphasizes the importance of choosing the right KPIs to avoid measuring the wrong things or too many metrics, which can lead to confusion and inefficiency.

💡Customer Service Measures

Customer service measures are specific types of KPIs that focus on the quality of service provided to customers. These measures are vital for ensuring customer satisfaction and loyalty. The video discusses the importance of customer service measures in the context of supply chain KPIs, highlighting that they should not be overlooked in favor of other metrics like delivery performance.

💡Probability of a Perfect Order

The 'Probability of a Perfect Order' is the KPI highlighted in the video as one of the best for supply chain and logistics. It encompasses various factors that contribute to a successful order, including order entry accuracy, inventory availability, warehouse performance, and delivery. The video uses this KPI to illustrate the cumulative effect of multiple metrics on overall customer service, showing that a focus on one area, like inventory availability, can significantly improve the likelihood of a perfect order.

💡Order Entry Accuracy

Order entry accuracy refers to the precision with which orders are entered into a system, whether through phone, EDI, web, or fax. The video points out that even a small error rate, such as 2%, can have a significant impact on the overall success of an order. This metric is a critical component of the 'Probability of a Perfect Order' KPI, as it sets the foundation for the order fulfillment process.

💡Inventory Availability

Inventory availability is the measure of whether a company has the stock needed to fulfill customer orders. In the video, it is identified as a crucial metric that is often overlooked. A lack of inventory availability can lead to unfulfilled orders and dissatisfied customers, which is why it is a key factor in calculating the 'Probability of a Perfect Order'. The video uses a case study to show that improving inventory availability can significantly increase the overall KPI.

💡Warehouse Default Service Level

The warehouse default service level is a measure of the warehouse's ability to accurately pick, pack, and prepare products for dispatch. This KPI is important because it directly impacts the customer's perception of the order fulfillment process. The video mentions that even a 10% error rate in this area can negatively affect the overall performance, emphasizing the need to improve this metric to enhance the 'Probability of a Perfect Order'.

💡Carrier Delivery

Carrier delivery refers to the performance of transport companies in delivering orders in full and on time. While this is a common KPI that many organizations focus on, the video argues that it is only one piece of the puzzle. A high carrier delivery performance does not necessarily equate to a perfect order, which is why it should be considered alongside other metrics to get a true reflection of supply chain performance.

💡Customer Acceptance

Customer acceptance is a measure of whether the customer is satisfied with the received order, including the product being undamaged and correctly ordered, as well as accurate paperwork. This KPI is important as it reflects the end-to-end success of the order fulfillment process. The video uses a 95% acceptance rate as an example to show that even when other metrics are high, there is still room for improvement to achieve a perfect order.

💡Payments

Payments, in the context of the video, refer to the timely and accurate payment of invoices. This KPI is important for both the financial health of the company and the customer relationship. The video mentions a 98% on-time payment rate, indicating that even in areas where performance seems high, there is always potential for improvement, which contributes to the overall 'Probability of a Perfect Order'.

💡Cross-functional Collaboration

Cross-functional collaboration is the process of different departments within an organization working together to achieve a common goal. The video highlights the importance of this concept in improving the 'Probability of a Perfect Order' KPI. By having customer service, supply chain, warehousing, inventory, and finance departments collaborate, the organization can holistically address the factors that contribute to a perfect order and drive overall performance improvement.

Highlights

Introduction to the topic of KPIs and customer service measures in supply chain logistics.

The presenter believes the 'probability of a perfect order' is one of the best KPIs for supply chain and logistics.

Common confusion around KPIs in supply chain and logistics operations.

The importance of measuring 'Delivered in Full, On Time' KPI and common mistakes in its measurement.

The concept of 'probability of a perfect order' explained with a live case study.

Measuring order entry accuracy and its impact on the supply chain.

Inventory availability as a crucial KPI that is often overlooked.

The significance of warehouse default service level in the order fulfillment process.

The common KPI of carrier delivery in full and on time, and its limitations.

Customer acceptance of the order as a KPI and its importance.

The importance of measuring payments and accurate invoice processing.

The process of multiplying individual KPIs to get an accurate reflection of performance.

The revelation that a high 'Delivered in Full, On Time' rate does not equate to a high probability of a perfect order.

The industry average and best-in-class comparison for the 'probability of a perfect order' KPI.

The company's strategy to improve their KPI by focusing on inventory availability.

The benefits of a cross-functional approach to improving the 'probability of a perfect order'.

The company's progress from a 64% to a 93% probability of a perfect order within two years.

The presenter's recommendation of the 'probability of a perfect order' as a key KPI for businesses.

Invitation for viewers to comment with questions and subscribe for more KPI-related content.

Transcripts

hi and welcome to supply chain secrets

the topic this week is KPIs and

specifically customer service measures

because so many people get baffled with

KPIs and particularly around customer

service I'm going to show you this week

what I reckon is one of the best KPIs

you could possibly have for supply chain

and logistics coming right up

okay so a lot of people get really tied

up in knots when it comes to KPIs key

performance indicators in supply chain

and logistics operations and they either

measure the wrong things or they measure

too many in fact I think following this

video I'll do another one on kpi's but

this week I want to talk about what I

think is one of the best KPI is ever and

it's called the probability of a perfect

order and you'll see as I unders why

it's such a good KPI so if I said to you

what key performance indicators do you

use in supply chain logistics and I

asked people this at every single event

that I talk at they all come up or 90%

of them come up with one particular KPI

and that is dye fought delivered in full

on time and that's really a very

important KPI but most people measure it

the wrong way and that's why I'm gonna

show you today the ultimate measure now

I'm going to click forward on a slide

here so excuse me but this sort of goes

in a little bit of a sequence and we'll

run that sequence and behind me as well

so we call this the probability of a

perfect order and you'll see why in a

second and this is some numbers actually

from a live case study a little while

back so one of the first things that I

think you should be measuring is

actually your order entry accuracy so

think about this for a moment are you

taking phone orders and you're taking

you know

EDI orders automatic you know web orders

some people still take phone orders I've

met some businesses who still take fax

orders but however those orders are

coming in are they being entered into

your systems accurately so in this

organization they were getting that 90%

98% accurate so think about that just

for a moment because what that actually

means is they were getting 2% errors

right up front so they were getting

keying errors or you know translation

errors or whatever they were getting 2%

of the orders wrong up front and that's

not uncommon

obviously these days with you know

online systems are so on

can reduce that error a lot so that's

the first thing to measure and the next

one we've got is inventory availability

and this one doesn't get measured enough

to be honest so what do I mean by this

okay so we've got the customers order

into the system but do we actually have

the stock to fulfill that order and in

this case 20% of the time that they

didn't so you can see we're already

behind the eight ball trying to look

after our customers because 20% of the

time we didn't even have the stock

available so that's an absolutely

crucial component to measure then we

come to the warehouse default service

level so this is the ability of the

warehouse to actually have the product

picked packed ready for dispatch all

accurate ready for sending out to the

customer and in this case they were

getting 90% okay so here we've got you

know 10% errors still creeping in so

maybe you can start to think of some of

the things that you would do to correct

this then we have the one that everybody

seems to measure which is the carrier

the transport companies delivery in full

on time and this is ninety-eight percent

in this example and look that sounds

pretty good and most people would quote

numbers like that but look at some of

the earlier numbers and I'll show you

the consequences of this in a moment

then we have the customer accepting the

order so the product wasn't damaged it

was what they ordered the paperwork is

right and so on so in 95% of the cases

here their customer was accepting that

and then to close the loop it's really

nice to measure the payments of the

accurate invoice was paid on time and

here that was in ninety-eight percent of

cases so having said that the most

common KPI is dye fault which in this

case this is the carriers delivery in

full on time this one's 98% that's the

thing that most people measure but

you've got to measure the other stuff

and not only have you got to measure the

other stuff but to get an accurate

reflection of your performance you

actually have to multiply them all out

and let's have a look at what that means

so we're taking the 98% times eight

times 80 percent times 90 percent times

98 percent and so on

so if we multiply them all out because

they all impact each other we can see

the probability of getting that order

perfect is only 64 percent so if you

have numbers like this in your business

and you might be looking at die for and

it's 98 percent you think hey we're

doing pretty well you're not because if

you you know the the probability of you

getting a perfect order is not 98

percent that was 98 percent of the stuff

that was keyed in correctly that was

available that was packed correctly it's

only a small piece of the puzzle so in

this case 64 percent was the probability

of a perfect order so you can imagine

what the CEO said in this example what

do you think what should it be what's

the average in our industry a very good

question and in this case parity or

Average was 68 percent it's still not

that great so if you've done a lot of

work with senior executives and CEOs

what do you think would be the next

question the CEO would be asking the

supply chain manager all right if that's

the average what's best in class and in

this case in this industry it was 93

percent a lot better so have a think

about that for a moment now what would

you tackle if these were your numbers

what would you look at first to try and

lift that 64 percent closer towards 93

percent I mean there's one that just

stands right out doesn't it it's the

inventory availability and that's

exactly what this company did they

focused on improving the inventory as

long as along with all the other things

because they they focused on that one

because that's going to have the biggest

impact in lifting the overall measure so

you can see the beauty of a measure like

this there's a number of things we're

looking at all the key functions that

actually lead to servicing our customer

which is really important not just die

fast it's also cross-functional which is

great so we've got customer service

we've got supply chain we've got the

warehousing about the inventory people

we've even got finance we're processing

invoices and what you get is

collaboration across the

and functions all working together to

try and improve on this number which is

awesome now just to tell you what

actually happened with this company so

they started off with 64% probability of

a perfect order I think they got to 68

percent in about nine months and it was

a two-year program for them but they

then got to this advantage or

best-in-class number ninety three

percent within two years and this KPI

was the thing that gave them the focus

it gave them that that cooperation and

collaboration across functions to try

and improve the number so that's why

I'll absolutely love this KPI okay so

I'll let a link below because I think

I've got some explanations to this as

well on our blog but if you've got any

questions on this KPI or other kpi's do

comment below I'd love to hear your

questions and certainly I'll get around

to answering those and I'll do another

KPI video coming up as well because a

lot of people get confused about how

many KPIs to have and what type of KPIs

to have for different levels of the

organization so there we go the

probability of the perfect order

probably one of the best KPI is going in

supply chain if you enjoyed this video

you know how it works I do like to

comment to share if you're not already

subscribed to the channel please do

subscribe because we have new videos

coming out every week generally on a

Wednesday and I think there's a bell

button just next to the subscribe if you

hit that you'll be notified as soon as

we publish a new video so there we go

kpi's demystified and a great KPI for

you to use in your own business see you

next week

[Music]