Retail Supply Chain's Kpis

Topics: Supply chain management, Inventory, Supply chain Pages: 16 (5758 words) Published: July 29, 2008
Key Performance Indicators of Retail Sector and its Improvement Opportunities


This paper attempts to track key performance indicators (KPIs) in order to figure out the performance of the Supply Chain in the retail sector. It also focuses on inventory replenishment strategies and capacity utilization in the retail sector. In recent years, this sector has spent considerable amount of time and money trying to improve its operations in such a way so as to respond efficiently to customers’ needs. This has led to several developments like the introduction of automated store ordering, usage of RFID and etc. The KPIs helps in directly analyzing the performance of every specific activity and operation and hence also helps in zeroing down to the exact root of the problem, if any, and thus helps the managers to rectify them. The Improvement Opportunities are further explained in detail for achieving a better performance.

The Key Performance Indicators (KPIs)

The KPIs are segregated into different categories accordingly as follows:

Supply Chain and Logistics: The network of retailers, distributors, transporters, storage facilities and suppliers that participate in the sale, delivery and production of a particular product. •% of time spent picking back orders: Number of hours spent on picking back orders as a percentage of working hours. •Sales order by FTE : This indicator measures the number of customer orders that are processed by full time employees per day. This helps evaluate the workforce cost per order. •Scrap (or leftover) value %: Scrap (or leftover) value as a percentage of production value. •Inventory Accuracy: Most Advanced Planning Systems calculate net inventory requirements. If the book inventory used as the basis for these calculations has a high error, the net inventory requirements generated will not reflect the true inventory needs. The inventory error should be factored into the safety stock calculation to protect service levels from variance in inventory due to inventory count accuracy. Assertive continuous improvement programs should be in place to support a decrease in inventory count errors. Inventory Accuracy = (|book inventory - counted inventory|)/book inventory •Inventory Carrying Costs: Inventory Carrying Cost = Inventory Carrying Rate x Average Inventory Value •Inventory Carrying Rate: This can best be explained by the example below 1. Add up your annual Inventory Costs: Example: Rs800k = Storage Rs400k = Handling Rs600k = Obsolescence Rs800k = Damage Rs600k = Administrative Rs200k = Loss (pilferage etc) Rs3,400k Total 2.Divide the Inventory Costs by the Average Inventory Value: Example: Rs3,400k / Rs34,000k = 10% 3.Add up your: 9% = Opportunity Cost of Capital (the return you could reasonably expect if you used the money elsewhere) 4% = Insurance 6% = Taxes 19% 4.Add your percentages: 10% + 19% = 29% Your Inventory Carrying Rate = 29% •Missed Deliveries per Million (MPM): Measures supplier on time delivery by part reference ordered using the same logic as the quality measure PPM. Several missed categories are defined such as ; Missing part reference, undershipped, overshipped, delivery window missed etc. MPM = (Total number of missed deliveries / Total number of part references ordered) x 1,000,000 •Delivery Schedule Adherence (DSA): Delivery Schedule adherence (DSA) is a business metric used to calculate the timeliness of deliveries from suppliers. Delivery schedule adherence is calculated by dividing the number of on time deliveries in a period by the total number of deliveries made. The result is then multiplied by 100 and expressed as a percentage. •Customer order promised cycle time: The anticipated or agreed upon cycle time of a Purchase Order. It is gap between the Purchase Order Creation Date and the Requested Delivery Date. This tells you the cycle time that you should expect (NOT the actual). •Inventory replenishment cycle time: Measure of the...
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