All companies work with numbers. Numbers build statistics and performance indicators that guide the work of managers and investors of an institution. Thus, growth and results projections are made based on numbers, which are derived from development indicators called metrics.
The company sets the goals, the team develops the work and the metrics show if the result was low, the same or beyond the directive board expectations. One of the processes that require more organization and performance is the supply chain management.
The supply chain involves the raw material acquisition and production, as well as all factors connected to it, such as inputs purchase, transportation, stocking, control of raw material usage, selling of production and distribution.
See below a brief view on how the supply chain is applied in the food industry.
Supply Chain in the food industry
Before we start our discussion about metrics that are applied in Supply Chain Management, we are going to analyze how the supply chain has an important role in food industry. The market dynamics demands agility due to the type of raw material and the final product. In most cases, the products have various expiration dates that increase the management difficulty.
In contrast to other sectors that may use the stocking of products, the food industry needs management dynamics in its product’s distribution and reception of raw materials.
It’s necessary to establish well coordinated processes so that raw materials are not made in excess and that machines are not stopped due to a lack of ingredients.
The connection of the production line is the critical point in a successful supply chain management, considering that the companies apply metrics to measure the quality of work and aspects that need improvement.
The integration of the supply chain and the proximity with suppliers and clients focuses on the improvement of processes and has been proving itself as an alternative to achieve goals and keep competitive in the market.
Supply Chain metrics and its applications
There are many metrics used in business management to measure efficiency in the supply chain management. Each one of them analyzes one aspect and provides a view on the chain efficiency. Some of the most important and applied to the food industry universe are:
1. Perfection rate and error
A simple metric, but very important to analyze your production and delivery service quality.
It’s about analyzing a sample of deliveries for clients and to analyze how many were performed with no errors, be it in quality, delivery date, waste, etc. The metric is measured as follows:
CALCULATION: (total number of requests – number of errors in requests) / total number of requests) * 100
2. Cash to cash cycle
This metric aims to measure the operational time interval between paying for the ingredients and needed materials for the production and receive the money for the total sale of that batch.
A very long time interval means a bad pace in supply chain and possibly in the company’s results. An accelerated pace, on the other hand, means success in the chain management and is an indication of good volume of sales.
CÁLCULATION: materials’ payment date – request’s payment date
3. Complete Supply Chain cycle
It analyzes how much time the company takes to finish the delivery of a request in case of no supplies stock.
This metric analyzes what is the action speed of the team to completely reload stocks and in all commercial relations involved in the process.
4. Transportation cost per unit
This calculates the amount invested by the company in each product’s freight. The metric allows for an understanding of freight costs and of which items have a higher logistic investment.
CALCULATION: total transportation cost / quantity of items
5. Stock turnover
This is an evaluative metric for the stock renewal cycle in a company. It can be applied both to measure ingredients and supplies levels and to analyze the ready-for-sale products stock.
CALCULATION: cost of goods sold / average stock
6. Average of deliveries performed in the ideal time
To deliver products to clients inside the deadline they set is a good business practice.
To be able to perform the delivery before what they expect is an attention signal with the client and velocity in logistics processes.
CALCULATION: (Number of deliveries with optimized time / total of items delivered) * 100
7. Average of stock turnover
Known as ITR, the metric analyzes the number of times that the company completes a cycle in the stock. Summarizing in a few words: it analyzes the number of profit opportunities the company had with the supplies’ investment to its operations.
The ITR is measured from the division of stock costs by the average amount of stock investment.
CALCULATION: Cost of products in stock / [ (initial stock – final stock) /2]
8. Days of Supply (DOS)
DOS is the most frequently used KPI by managers to analyze the efficiency of the supply chain. It is calculated from the division of the average stock available by the average monthly demand. The value must be multiplied by 30 to make the monthly measurement.
CALCULATION: (Average stock / monthly demand) *30
These are just a few metrics that can be applied to analyze the supply chain performance in food industries.
Besides these, there are many other calculations that are relevant to this universe and that provide the management team with strategic data to make easier the decision making process and guide the best paths to the operations development.
Remember that we live in a transformational era of business management. More and more, data is becoming essential to replace the older management model involving “thoughts” and “business feelings”.
The important for a company is to work with precise and concrete information. Therefore, to do numeric analyzes and implement the use of metrics is good not only for the supply chain management, but for countless other sectors such as sales and marketing.