You’re standing in your shower thinking about your business. You think, “How can I improve supply chain efficiency? How can I use data and analytics to drive better decisions?”. Maybe you’re not standing in your shower right now (because you don’t have a shower, or that’s just weird), but you get the point. It’s important to think about how your supply chain works. But before we put our minds together—and get all soapy—we need to know what makes up a supply chain and how it works in the first place!
Raw Material Acquisition
A key metric to measure here is the percentage of raw materials your company acquires from external suppliers. You can calculate this by dividing the total value of all purchases made by a supplier (including both goods and services) by the value of all their deliveries. You should compare this metric with others in its class (e.g., companies in similar industries). This will ensure that it falls within an appropriate range. If not, this may indicate a problem with how efficiently your supply chain is functioning.
Average Delivery Time
Delivery times are an important consideration when determining whether or not you have an efficient supply chain: they represent one of many potential sources of delay or bottlenecks in your system that could cause delays in production or other negative outcomes for your business. The average delivery time is simply the total amount required for each delivery divided by the number of deliveries over some specified period.
You can test the supply chain efficiency by evaluating the following:
The cost of materials and labor. If you’re spending more money than necessary on either, that’s not good news. You need to figure out why this is happening and then take steps to fix it, such as finding better suppliers or negotiating a better deal with existing ones.
The time it takes to make the product
If it takes too long, then either something is wrong with your production process, or there are other problems in the supply chain—perhaps there’s been a delay at one point along the way due to an issue like bad weather or even theft. Again, figure out what’s causing these delays (and how you can fix them) so that they don’t happen again in future years when you’re running operations again after shutdowns for holidays or vacations.
The number of defects
The number of defects in each product batch made for each manufacturing run (and whether there’s any consistency between batches). This should be fairly straightforward: if there aren’t fewer defects than expected compared to historical data from previous years’ runs, then something may need adjusting before starting up again after shutdowns!
The second element of supply chain efficiency is product distribution. Can you deliver your products quickly and effectively to the right place at the right time? Here are some factors to consider:
How many distribution channels do you have in place, and what are their capacities?
If there is a problem with one of your distribution channels, can another center fill in temporarily so that no customers will be affected by this disruption?
Do you need more or fewer warehouses than other companies in your industry use for the same amount of inventory volume? Can you use excess space in any existing warehouses to store other types of inventory that aren’t currently used for anything (for example, excess raw materials)? If so, would it be cost-effective to lease additional space from another company just so they could store these items on their property instead—saving both parties money over time while ensuring greater flexibility within supply chains as a whole
When you’re done with this process, take a look at your results. If most of your metrics are in the green, you’ve got a pretty efficient supply chain. Your customers will be happy, and you’ll be able to keep them returning for more. If your metrics are mostly yellow or red, there’s room for improvement in either efficiency or effectiveness of your supply chain. You can use the data from this exercise to reevaluate which steps need attention and then make changes accordingly so that everyone involved is satisfied with their experience buying from and selling to you.
To determine your supply chain efficiency, measure it in parts
Supply chains are complex and dynamic systems that require continuous monitoring. Many companies conduct regular audits of their supply chains to ensure they remain competitive with other organizations. But if you don’t know the right data to collect or how to analyze it, you may be unable to improve your efficiency or make sound business decisions effectively.
You can typically measure supply chain efficiency by calculating total cost divided by total revenue for each unit shipped out of a warehouse. This metric can help identify any areas where costs are higher than expected (and thus opportunities for improvement) so long as the data used is reliable and reflects current operations as accurately as possible.
We hope that you found this article useful. We want to remind you that there are many ways to measure the efficiency of your supply chain. This is just one of them. As mentioned earlier, other methods include calculating inventory turns or determining how far goods travel from their origin before reaching consumers in other countries.