Does your supply chain operation really need to be perfect to run at top efficiency?

Good news: Perfection isn’t necessarily a requirement for top-level competency and success.

First of all, “perfect” is a virtually impossible standard. Even one mistake — regardless of how many orders or units are handled — immediately puts perfection beyond reach.

How much help does that provide for you as an effective benchmark of performance?

One reason the goal of perfection persists is because research from several years ago that said boosting perfect order fulfillment by 3% paid off with a 1% hike in profit margins.

But in subsequent years, a more well-rounded definition of what constitutes perfection has evolved among supply chain operators.

One metric that’s picked up some steam is the “Perfect Order Index.”

Perfect Order Index is compiled by multiplying:

• the percent of orders that were on-time
• by the number of orders that were complete
• by the percent documented correctly.

Beware: POI stats can be pretty brutal at first blush. Even solid supply chain operations are likely to see numbers below 50%.

One critical aspect of benchmarking supply chain performance is setting the parameters.

What constitutes success? Is it when a shipment leaves your docks on time? Or is it if that shipment arrives at the customer’s facility when it’s supposed to?

Many factors — some out of your hands — can control “on-time” performance. For instance, what if the shipment leaves your facility on time, but the independent carrier has problems?

Your best bet is to take it back to basics, at least when starting to devise your method of measuring supply chain performance.

The four basic criteria supply chain benchmarking universally encompass:

• on-time
• complete
• damage-free
• correctly “documented”

Another benchmark that’s been successful for many businesses is calculating “on-time, in-full” performance.

It is what it sounds like: How many of your orders were on-time, (either leaving your building or arriving at your customer’s facility). Then, how many of those orders were in-full — complete shipment, no damages, no rejects.

Heads up: You’ll need a pile of documents to accurately calculate this:

• invoices
• shipping manifests
• bar coding system
• how cartons are labeled
• RFID tagging, and
• even advance shipping paperwork.

Tags: benchmark, on-time and in-full, order, Perfect Order Index, POI, supply chain operation