Performance Measure

TermiKnowledge - Supply Chain, Procurement and Inventory Terminologies
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Supply chain management aims at promoting superior product quality, reducing cycle times, maintaining adequate inventory levels, and meeting demand in specified quantities. Supply chain management also involves the design, development and implementation of supply systems that optimally facilitate the movement of goods and finished products from the point of manufacturing through to the point of sale. Supply chain management therefore requires a comprehensive overview of all processes within the supply chain to determine where improvements can be made. Supply chain performance is quantified in terms of levels of performance such as: total cost of sales or gross margin; average order time; average lead time; and average total capacity utilization.

Supply chain management can be defined simply as a method to measure the performance of supply chain. Supply chain management systems have evolved over the years to become sophisticated tools to help managers understand the whole supply chain process more clearly and effectively. Supply chain performance measurements can broadly be divided into two broad categories. They are financial measures associated with inventory and purchase; and inventory-based measures associated with production, processing and shipping.

A major part of supply chain performance is measured by the level of inventory available in the raw materials and/or finished goods stage of the supply chain. In raw materials accounting, a company monitors raw material inventories to determine their quantity per employee in the manufacturing department and to forecast how much raw materials will be required when they enter the manufacturing stage of the business. Inventory-based inventory-management is used to determine the cost savings and the efficiency of inventory use. In manufacturing, inventory-management helps determine the quantity of finished goods needed in each stage of the manufacturing process, such as what raw materials are needed for making the goods; when they should be stored; how they should be transported; and where they should be stored. Inventory-management systems also help in planning for future storage needs.

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