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SUPPLY CHAIN PERFORMANCE METRICS
What is a Supply Chain Performance Metric? (Baluyot, 2022)
Supply chain performance metrics are performance indicators businesses use to assess and optimize the
efficiency and productivity of the processes involved in the supply chain. The gathered information can be
used to manage an enterprise's inventory, sales, and suppliers. It can also help a business identify the areas
that need to be improved or enhanced so that the supply chain of a business can be adaptable when faced
with a challenge (Calzon, 2023).
Supply Chain Performance Metrics
In the competitive tourism and hospitality industry, the enterprise must determine the parts they need to
improve on and what they do best. Once identified, the management can assess and make well-informed
decisions in the state of the supply chain operations so they can be flexible and adaptive to what problems
they may face to ensure smooth delivery of products and services to the customers.
Below are some of the common supply chain performance categories used in any industry (Baluyot, 2023):
• Customer service measures the ability of a supply chain to meet customers’ demands. In the
hospitality industry, guests have preferences in their rooms and food. It is the business's
responsibility to meet and exceed their expectations. The following are some of the metrics used
under this category:
o Order fill rate is the portion of customer demand that can be satisfied from the inventory
available. A high fill rate means that customers receive their orders correctly and on time,
leading to their satisfaction. On the other hand, a low fill rate signifies frequent stockouts,
which means customer demands are not fully met, which may lead to dissatisfaction with the
business.
o Return reason measurement shows the top issues that cause the customers to send products
back. It helps assess the business’s product and service weaknesses so they can take action to
fix the problems. For example, if the restaurant's dishes are always returned to the kitchen,
the management should identify why they are returned. It may be due to the food being
delivered at the wrong temperature or the food not being the same as described on the menu.
• Internal efficiency refers to a business’s supply chain’s ability to generate profit by maximizing its
resources in producing and delivering its products and services. Below are some of the metrics
found in this supply chain performance category:
o Cash-to-cash. It measures the time spent before a business gets paid for the products and
services it sells from when raw materials are purchased and paid. This metric helps businesses
determine how quickly they can turn their resources into cash (Champion, 2023). It is
important to note that a business can only generate profit when customers buy its products
and services.
Inventory turn is the number of times a company sells and replaces its stock in a period. This
metric determines if the business has too much inventory compared to how much stock is
selling. It measures how well a company makes sales from its inventory (Luther, 2023).
• Demand flexibility evaluates the capacity of a company’s supply chain to respond to changes in
product demand. It shows how much increase/decrease in demand from current levels can be
handled. Below are some metrics used to measure a supply chain’s demand flexibility:
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o Cycle time (lead time) represents the total time to fulfill the customer’s order throughout the
supply chain. An example is the timeline of how the food items in a restaurant are being
produced: from ordering ingredients, receiving deliveries, and producing the food items up to
the customers' consumption.
o Upside flexibility tells the business the number of days needed to achieve a sustainable
increase in production. It tells how fast the business can adapt to a sudden change or
disruption in the supply chain operations (MBA Skool, n.d.).
• Product development refers to the capability of the company’s supply chain to expand in line with
the markets it serves. It evaluates the company’s ability to produce and launch new products on
time. Some metrics used to measure product development are the following:
o Cycle time for new product introduction measures how long the new products will be
developed before being introduced to the market. It determines the flow of operations the
product needs to undergo before being delivered to the customers. It includes the
brainstorming process, what materials need to be sourced and ordered, and how they will be
prepared and delivered to the customers for consumption.
o The percentage of sales from new products is a measurement metric used to determine how
much revenue comes from the newly introduced products and services. It allows a business
to analyze if the new products are being patronized by their customers and determine
whether to continue/discontinue the product depending on the results. For instance, if the
sales of the new chimichurri-flavored chicken introduced by a restaurant are consistently low,
it is up to the management to continue/discontinue producing it.
Successfully considering these different supply chain metrics will help businesses create strategies to improve
their operations to satisfy their customers.
Characteristics of a Good Supply Chain Performance Metric
A supply chain performance metric should give complete and detailed insights into the business’ supply chain
processes. It should be able to give a background on how each part of the process performs. The following are
the characteristics of a good supply chain performance metric (Baluyot, 2022):
• Comprehensible. A good supply chain performance metric should not be technical. It should be
simple and easily understood and interpreted by anyone who looks at it. A clear understanding of
what the metric measures should be understood so that the information relayed can be easily
deduced.
• Quantitative. Every supply chain performance metric should not be subjective (open to self-
interpretation); rather, it should be objective (based on factual data, such as records, receipts, or
documents) because the explanation of the metric should determine the current performance of
the supply chain operations of a business.
• Measures what is important. After the data analysis, some metrics result in weak or insubstantial
information; therefore, they will not be a good basis for business decisions. The metric must only
measure and analyze data highly relevant to the supply chain operations that may affect
stakeholders.
• A useful performance metric should promote and facilitate productive behavior. For instance, a
metric that measures the number of orders processed during a given period would encourage
management to try to increase the speed of providing products and services to customers.
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References:
Baluyot, B. (2022). Supply chain management in hospitality industry. Rex Printing Company, Inc.
Blanchard, D. (2021). Supply chain management best practices (3rd Ed.). Wiley.
Calzon, B. (2023). 25 supply chain metrics & KPIs you need for a successful business. Retrieved 6 December 2023, from
https://www.datapine.com/blog/supply-chain-metrics-and-kpis/
Champion, A. (2023). Cash-to-cash cycle time: definition, formula and more. Retrieved 6 December 2023, from
https://flow.space/blog/cash-to-cash-cycle/
Craig, T. (n.d.). The 4 supply chain metrics. Retrieved 16 November 2023, from https://supplychainminded.com/4-supply-
chain-metrics
Decision Logic. (n.d.). 8 restaurant performance metrics you need to track. Retrieved 17 November 2023, from
iThink Logistics. (2019). Why do you need KPIs for an e-commerce logistics. Retrieved 17 November 2023, from
https://supplychainminded.com/4-supply-chain-metrics
Jacobs, F. and Chase, R. (2023). Operations and supply chain management (6th Ed.). McGraw Hill, LLC.
Luther, D. (2023). 11 key restaurant benchmarks to measure in 2023. Retrieved 5 December 2023, from
https://www.netsuite.com/portal/resource/articles/erp/restaurant-benchmarks.shtml
Luther, D. (2023). 33 inventory management KPIs and metrics for 2022. Retrieved 6 December 2023, from
https://www.netsuite.com/portal/resource/articles/inventory-management/inventory-management-kpis-
metrics.shtml
MBA Skool. (n.d.). Upside production flexibility. Retrieved 16 December 2023, from
https://www.mbaskool.com/business-concepts/operations-logistics-supply-chain-terms/15549-upside-
production-flexibility.html
Murray, M. (2018). Supply chain performance metrics. Retrieved 17 November 2023, from
https://www.liveabout.com/supply-chain-performance-metrics-2221392
Weber, E. (2022). 24 essential KPIs for the hospitality industry. Retrieved 5 December 2023, from
https://www.verdant.co/hotel-industry-kpis/
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