HOW TO MEASURE SUPPLY CHAIN PERFORMANCE

E d w a r d H . F r a z e l l e , P h . D .

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RightChain™ 2.3 The Golden Metric Another question I get in our seminars goes like this… “Dr. Frazelle, is there just one metric we can use instead of that whole table?” The short answer is, “Yes”, but you have to compute all the others to get there. The next question is, “Well, what is it?” We have studied this for some time but have developed what I believe is a reflective single indicator of supply chain performance – the total supply chain cost per perfect order. In a single indicator we capture the major elements of financial (total supply chain cost) and service (perfect order) performance. Total Supply Chain Cost Our definition of total supply chain cost (TSCC) is much broader than many organizations are used to. It incorporates revenue, expense, and capital. Total Supply Chain Cost (TSCC) is the sum of Total Logistics Cost (TLC) and Inventory Policy Cost™ (IPC). Total Logistics Cost (TLC) is the sum of Total Transportation Cost (TTC) and Total Warehousing Cost (TWC). Total Transportation Cost (TTC) is the sum of Inbound Transportation Costs (IBTC) and Outbound Transportation Costs (OBTC) including all fuel, labor, space, capital, freight, and third- party charges. Total Warehousing Cost (TWC) is the sum all labor, space, capital, and third-party costs.