Key Supply Chain Concepts

KPIs (Key Performance Indicators)

Inventory Turnover

Lead Time

Cycle Time

Fill Rate

On-time Delivery

On-time In-full

Stockouts

Safety Stock

Cycle Counting

Inventory Turnover

a KPI ratio that measures how quickly a company sells its product and restocks it (replaces it) in a given period

Factors affecting inventory turnover

• Seasonal fluctuations 

• Pricing strategies

• Demand forecasting accuracy

• Supplier reliability

• The need to reduce holding costs

Higher inventory turnover indicates…

more efficient inventory management and sales

Lower inventory turnover indicates…

excess inventory, weak demand, or inconsistencies in purchasing or forecasting

Lead Time

a KPI measuring the time between the start and completion of an entire process (order to delivery)

Shorter lead times…

can boost productivity and revenues by streamlining (simplifying/ making more efficient) operations

Longer lead times…

can hinder sales and operation effectiveness

Factors that affect lead time

• Timely stock replenishments

• Minimizing production interruptions (better safety and protocols)

• Improved communication

• Automation

• Ordering in smaller batches

Cycle Time

a KPI measuring the time required to complete one interaction of a process or task in a supply chain

Focuses on the actual time spent on value-adding activities, excluding wait or idle times between stages

Cycle Time

Allows organizations to identify and optimize individual process efficiencies and reducing the time it takes to complete a specific task

Cycle Time

Factors that affect cycle time

• Order processing speed

• Available inventory

• Accurate demand forecasting

• Warehouse operation efficiency (time taken for product to move)

• Shipping method and delays

• Supply chain visibility

Fill Rate

a KPI that is the percentage of customers whose orders can be immediately fulfilled by available inventory stock

Fill Rate Formula

(Total orders shipped / total orders places) x 100

Tells you how well you can meet customer demand

Fill Rate

High fill rate indicates…

inventory is meeting customer demand, high supply chain efficiency, and great inventory management

Low fill rate indicates…

inventory is not meeting customer demand requiring better inventory management or purchasing or forecasting, etc…

Factors that affect fill rate

• Inventory accuracy (how close physical stock numbers match records and ERP system)

• Demand forecasting precision

• Supplier reliability 

• Warehouse efficiency (capacity and management)

On-time Delivery

a KPI percentage metric that measures a company’s ability to deliver products/services within the time frame promised to the customer

On-time delivery formula

(Number of on-time deliveries / total deliveries) x 100

Impacts customer satisfaction, competition, and operational efficiency

On-time Delivery

Factors that affect on-time delivery

• Inventory management (maintaining optimal inventory levels)

• Order fulfillment process (errors in picking/packing)

• Production delays (machinery problems/ inefficient manufacturing process)

• Transportation conditions (traffic, weather, vehicle breakdowns)

Stockouts

a KPI indicating when a customer orders an amount that exceeds the amount of inventory available on hand

Factors that affect stockouts

• Improper demand forecasting

• Supplier delays

• Inefficient inventory management 

Factors that prevent stockouts

• Regular inventory audits

• Set a standard inventory level or maintain safety stock level

• Utilize FIFO

• Better demand forecasting

Safety Stock

a KPI that is extra inventory held as a buffer to prevent stockouts caused by demand surges or supplier issues or forecasting issues

Cycle Counting

a KPI that is an inventory auditing method where a small amount of inventory is counted without handling the entire stock in one go

Time saving effort to take stock of what is currently available in a given warehouse and to check inventory levels for any inaccuracies

Cycle Counting

Purchase Orders

a digital, binding document sent to suppliers that details items sent, price, quantities, and delivery dates

What details are in a purchase order

Items sent

Price

Quantities

Delivery dates

Inventory Records

real time digital files that track every aspect of stock like SKU quantities, storage locations, valuation (value of unsold stock), and movement

What do inventory records provide accurate timely data of

• what is in stock 

• what is sold

• what needs to be restocked

• Quantity on hand

• Reorder points (inventory level that signals need for restocking)

• lead time

• Item description 

SKU management

process of creating, organizing, and tracking SKUs to monitor inventory levels, sales performance, and location in real time

Results of SKU management

• Helps automate warehouse processes like receiving and storing 

• Improves demand forecasting 

• Reduces storage costs by reducing the risk of holding excess storage 

Results of purchase orders

• Automates the procurement (sourcing and acquiring goods) process

• Improves cash flow visibility

• Can be linked with inventory systems to quickly update stock as its sells

LIFO pros

• Optimizes and minimizes warehouse storage space for better warehouse efficiency

• Ideal for non perishable goods

• Tax advantage

LIFO cons

• Oldest inventory may sit for too long, causing it to become obsolete (outdated) or damaged

• Lower net income on financial statements 

FIFO pros

• Ideal for perishable goods

• Reduces the risk of damaged goods

• Results in lower COGS

• Ensures product freshness

• More accurate inventory valuation

FIFO cons

• Requires more complex and larger warehouse management systems

• Requires more warehouse space

Supply Chain Visibility

he ability to track, monitor, and analyze every component of a supply chain in real time, from sourcing raw materials to delivery of finished goods

Providing real time insights of inventory levels, production schedules, shipment status, and warehouse management

Supply Chain Visibility

Enhances responsiveness, customer satisfaction, demand forecasting, and inventory optimization

Supply Chain Visibility

Factors that affect supply chain visibility

• Data and technology integration (provides end to end transparency and timely accuracy)

• Supplier collaboration (sharing of information should not be limited)

• Data accuracy

Quality Assurance

a proactive and process oriented approach to prevent defects before they occur ensuring that products, components, and procedures meet quality standards set by the company from raw material sourcing to delivery of finished goods

Factors that affect quality assurance

• Supplier performance (inconsistencies in raw materials and quality control)

• Regular auditing of suppliers and inventory

• Technology (automation, real time tracking)

• Risk Management (proactive identifying risks like global and environmental risks)

• Standardizing operating procedures 

• Regular inspections

• Proper packaging and storage conditions

• Strong and updated training

Warehouse Flow

efficient and systematic movement of goods from receiving to shipping

Core Stages of Warehousing

• Receiving (logging goods)

• Storing (strategic placement)

• Picking (retrieving items)

• Packing (preparing for shipment and labeling)

• Shipping

Inbound flow

products entered are prepared for storage

Outbound flow

product entered are prepared for distribution

Cross-docking

goods that arrive are immediately prepared for shipment, moving through the warehouse with high urgency and without long term storage

Flow-Thru

items are moved to a temporary storage allowing for value added services

Push flow

products are manufactured based on demand forecasts

Pull flow

a product’s production is only executed if there is a real demand for it (common for goods that require request or personalization)

JIT flow

supplying both raw materials and finished products the moment they are needed. Brings storage stock to a minimum

Synchronized flow

various materials and and parts are supplied as the production process progresses

Core Supply Chain Stages

• Planning (demand forecasting)

• Sourcing (procurement)

• Manufacturing (production)

• Storing (Inventory Management)

• Transportation

• Delivery (logistics)

• Returns (Reverse Logistics)

Planning stage

• developing a strategy to meet demand

• demand forecasting

• resource planning

• risk management

Sourcing (procurement) stage

• selecting vendors

• purchasing raw materials

• managing supplier relationships (performance evaluation, risk, communication, and strategy of suppliers)

Manufacturing (production) stage

• turning raw materials into finished products

• testing

• packaging

Storing (Inventory management) stage

• Storing

• warehousing

• managing inventory to ensure products are available when needed

Transportation stage

transporting goods from production sites to warehouses or customers

Delivery (Logistics) stage

final delivery of finished goods to the end user

Returns (reverse logistics) stage

• handling customer returns

• repairs

• recycling of products

Accuracy and Quality Metrics

• Perfect order rate

• Inventory Accuracy

• Supplier quality/rating

• Return rate/reverse logistics quality

• Order fill rate

Perfect Order Rate

an accuracy/quality metric that measures the percentage of orders delivered without errors–on time, complete, damage free, and with accurate data

Inventory Accuracy

an accuracy/quality metric that is the percentage difference between the physical inventory count and the records in the warehouse management system (WMS)

Supplier Quality/Rating

an accuracy/quality metric that evaluates the percentage of incoming materials or products from suppliers that meet quality standards

Return rate/Reverse Logistics Quality

an accuracy/quality metric that tracks the number of returned items due to defects, shipping errors, or damaged goods

TQM (Total Quality Management)

• a methodology centered on customer satisfaction

• focuses on the total supply chain

• requires responsibility and active participation of everyone

Six Sigma

• a methodology centered on reducing defects

• data driven approach

• no more than 3.4 defects per million opportunities

Lean

a methodology centered on eliminating wastes and maximizing efficiency

ISO

• a quality management system

• focuses on customer needs and continuous improvement

• helps organizations manage their processes to consistently deliver high quality products/services by focusing on customer needs and continuous improvement

On-time In-full

a KPI indicating the percentage of orders delivered on the agreed date with all ordered items included

Descriptive analytics

looks at what has already happened. uses historical data to track metrics like inventory levels, labor allocation, and delivery times, providing a baseline view of operations.

Diagnostic analytics

compares data from multiple sources to understand why delays or shortages happened. important for fixing problems instead of just reacting to them.

Predictive analytics

uses statistical models and machine learning to forecast demand, lead times and potential disruptions so teams can know what will happen and plan ahead.

Prescriptive analytics

combines forecasts with optimization models to recommend which actions should be taken. often supported by AI and is used to improve efficiency and adjust costs.