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Supply Chain Checkup – 4 Supply Chain KPI’s That Can Help Manage Your Supply Network

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In the MRO world, parts need to arrive on time to reliably maintain systems. Proper planning & forecasting helps in most cases but there will always be urgent orders that require tactical sourcing activity that may not align with the strategy. In some cases, an organization may not have a comprehensive strategic sourcing strategy. Wherever your organization is on the maturity scale, a few metrics from the ZEUS supply chain assessment help assess your supply chain for opportunities. The following are some of the most important supply chain management key performance indicators (KPIs).

Pareto Principle

The pareto principle applied to supply chain consolidation to ensure the proper number of vendors servicing a plant. Ideally, 80% of spend will go through 20% of the supply base. Given the leverage with this portion of the supply base, these should be preferred vendors where special terms can likely be negotiated.

Consolidation by Category

The Pareto Principle supply chain KPI can be taken a step further when viewed through the category lens.  While understanding the overall breadth of the vendor base is crucial, digging deeper to the category level achieves best results. Assuming product categories can be aligned with strategic sourcing categories, applying the pareto principle at the category level will clearly point out targeted opportunities for consolidation. If there are 50 vendors servicing a plants electrical needs, and half of them make up 80% of your electrical spend, it might be time for a sourcing event to consolidate leverage.

Low Dollar Value PO’s

It takes anywhere from $50-$125 in admin costs to process a corporate PO depending on the systems and approvals in place. You may be able to chalk that up as the cost of doing business, but it can be particularly painful on low dollar value PO’s. It’s common for organizations to keep as little inventory on hand as possible; if that number is too low and the dollar value item of that item is also low you could be creating a compounding issue. Those paper towels that keep running out of stock may only be $25 a pack, but when you add on the corporate processing costs of say $75, those paper towels are costing 4x more than they should. If order data shows many low dollar value PO’s for the same item, it may be time to consider raising the min/max levels. 

Pricing Over Time

Anyone responsible for compliance will tell you that while negotiating a contract with firm pricing can be hard enough, tracking the terms of that contract can be a whole different ball game. Reviewing repeat purchases from preferred suppliers that are supposed to be under contract can validate that the contract pricing is being adhered to. If you have a contract item and you’ve received multiple prices for it over time, it’s likely time to call the supplier.

Supply Chain KPIs for Strategic Savings

Data is changing the way we manage the supply chain in real time. It can be easy to get swallowed up in the complexity of predictive algorithms, machine learning & AI. While these solutions make sense in some cases, there is much to be gained from a good old analytical look in the mirror. Using these supply chain KPI’s can help develop a strategy, check progress, and achieve goals- all while providing savings! 

Contact SDI to learn more about important supply chain KPI’s and how optimizing your MRO management process can help your organization realize cash savings, improved operational efficiency, and allow for full visibility into the supply chain.

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