KPI Key Performance Indicators in Supply Chain & Logistics



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Supply Chain and Logistics KPIsMany people get really confused about KPIs or Key Performance Indicators, in Logistics and Supply Chain operations. Which ones to use, how many to use?

Sadly it’s not such an easy question.

Of course they need to be SMART.  Specific, Measurable, Achievable, Relevant, Time phased.

But my take on KPIs is this.

  1. Don’t have too many! I’ve literally seen KPI ‘packs’ the size of phone books, and even KPI sets circulated as a monthly magazine… that no one reads. Remember what the K stands for!
  2. Make sure they ‘tie’ in with your goals and objectives. Do they directly support those objectives?

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Supply Chain KPI Tips

All you need to know about Supply Chain KPIs is right here

So that unfortunately means, that many of your supply chain KPIs may not be stock standard ones. But in Supply Chain you would normally expect to see this standard set, along with those that are more specific to your business needs.

  • DIF – Delivery in Full
  • DOT – Delivery on Time
  • DIFOT – Delivery In Full on Time
  • Cost as a percentage of sales (Logistics or Supply Chain)
  • Inventory stock turns in Days.

If you’d like to read more about Supply Chain KPIs, you can download (free) a chapter from one of our Best Selling Books on the topic.


KPIs in Supply Chain – The Basics


1. Overview

As in any business activity, supply chain operations need to focus constantly on improvement to compete in the market place. But how do you know if your supply chain performance is being maintained, or if it’s getting better, or worse?

This is where KPIs come in.

What’s a KPI, Anyway?

KPI stands for Key Performance Indicator, and can be defined as a practical and objective measurement of progress, either:

  • Towards a predetermined goal, or
  • Against a required standard of performance

It might help to think of a KPI as something like an instrument on a car dashboard. Take a speedometer for example. If you are driving your car and you wish to maintain a speed of 50 KPH, you will use your speedometer to maintain that speed. You will drive a little faster if your speedometer needle drops below 50KPH or you will slow down if it climbs above the required speed.

You will use a KPI in the same way as your car’s speedometer. The only difference is that in most cases, you won’t wish to lower performance when a business activity exceeds the required standard. In fact, if your car has a fuel consumption gauge and you use this to try and drive economically, then you are making use of a bona fide KPI.

Why Are KPIs Important?

Using KPIs for performance measurement ensures that you are always evaluating your business activity against a static benchmark. This means that fluctuations are immediately visible and if performance moves in the wrong direction, action can quickly be taken to address the situation.

When a KPI shows that performance is consistently meeting or exceeding the required level, you can decide to raise the bar and set a higher standard to aspire to. For this reason, KPIs are essential for any business improvement strategy.

Apart from an internal desire to improve and compete, KPIs are likely to play a part in attracting and retaining customers. This is especially true in any business where customers tie into agreements or contracts. Service level agreements in particular will be monitored through KPIs agreed between a business and its customer, with the probability of penalties being applied when performance falls below agreed levels.

In short, KPIs provide visibility of business performance and allow objective quantitative and qualitative evaluation. When aligned with business goals, KPIs take away the guess work and enable focus to be centred on progress towards the goals.

Supply Chain KPIs

When measuring the effectiveness and cost of your supply chain you will need to set up and monitor KPIs which give visibility of cross functional activity as well as those which apply to individual supply chain components. Later in this e-Class we’ll look at some examples of functional and cross functional KPIs. Broadly speaking though, the following areas are those where KPIs will be necessary:

  1.  Order capture
  2.   Inventory management
  3.  Purchasing and supplier management
  4.  Production/manufacturing
  5.  Warehousing
  6.  Transportation

Cross functional KPIs are likely to provide snapshots of the following end to end performance factors:

  • Perfect order (the degree of accuracy to which customers’ requirements are being met)
  • Inventory levels
  • Stock losses and/or damages
  • Gross profit
  • Cost of goods sold
  • Total logistics cost

Cross functional KPIs should be constructed in such a way that each function can see its contribution towards the overall supply chain performance.


Need Further Assistance?

Here at Logistics Bureau we have 20 years of experience in assisting clients with Supply Chain Benchmarking, and the development of suitable KPIs.  We have benchmarked almost 1,000 Supply Chains!

So if you need some assistance, just contact me.


Rob O'ByrneBest Regards
Rob O’Byrne
Email or +61 417 417 307
P.S.  Let us know your thoughts on KPI’s in the comment box below.
We personally answer all questions.


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How To Live With Uncertain Pharma Demand Forecasts


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Source: Patheon
pharmaceutical industry demand forecasts

In discussions with pharmaceutical industry leaders, it’s clear that regardless of company size, product type, or market, the challenge of demand forecasting is significant. In October 2015, Patheon CEO James Mullen addressed it in “Does Pharma Demand Forecasting Keep You Awake at Night?” for Life Science Leader magazine. The problem, he wrote, is that to estimate future needs, “Pharma companies develop forecasts, and often quite sophisticated ones, too. But, by definition, forecasts are never 100 percent right. And it’s especially difficult to predict sales in markets that are likely to see the introduction of numerous competing products.”

Mullen’s article resonated, and led to a number of discussions with our clients about how to address the challenge. To understand the prevalence of demand forecast inaccuracy – and the struggle to bring new products to market – Patheon commissioned ORC International to conduct in-depth interviews with 50 pharma industry executives with experience creating or implementing demand forecasts for commercial launches.

The study confirms Mullen’s assessment. Every respondent said their forecasts either over- or under-estimated demand – indeed, future demand, they said, was the most difficult variable to predict. The majority of respondents said they over- or under-estimated demand by up to 25%, with some indicating that they were off by 26%-50% or even 100%. Nearly all respondents said that demand forecasting influences manufacturing decisions “a great deal.” They also noted that the consequences of inaccurate demand forecasting can be reputational damage, market share loss, lost days of production, destruction of inventory, and layoffs.

A large majority of survey respondents said they plan to invest in improving their forecasting tools; almost all said they will be honing their inputs and assumptions over the next few years. And as long as there’s a satisfactory rate of return on investment, pharmaceutical companies should continue to try to improve the accuracy of their forecasts.

But that’s not all they should be doing.

The roots of forecast inaccuracy

Demand forecasts are often wrong because they are developed to inform manufacturing commitments as many as four to five years before product launch. Naturally, between the forecast, and when the drug goes into production, variables and market conditions change. Several years out, it’s impossible to say what competing products may enter the market. The regions and populations for which the drug will be approved cannot be known for certain, and any constraints that will be imposed by payers can only be guessed at.

As contractual relationships with CMOs are driven by forecasts – especially critical elements like pricing,  capacity availability, and financial agreements such as take-or-pay contracts – inaccurate forecasts can “result in unfavorable pricing, financial penalties, and inappropriate capacity,” according to Jim Miller, President of PharmSource, a pharmaceutical industry contract manufacturing intelligence firm.

Everyone in the industry is trying to improve their forecasts, but there is a limit to how good they can get. As long as they have to be developed several years before launch, they will never be 100% right. Nearly all respondents noted that the absolute most unpredictable variable in the demand forecast is the estimate of market demand. When you’re trying to project market behavior three years in advance, even the most sophisticated forecasting models will suffer some level of variability.

This is why Mullen wrote, “Instead of forever seeking more-certain forecasts, I believe we should be talking about how to provide flexible, scalable capacity that can accommodate the uncertainty. With sufficient flexibility, the need to accurately forecast demand for a product that does not yet exist is relaxed.”

The results of the ORC International’s research validate the changes Patheon has made to our commercial contract manufacturing services. Our new suite of outsourcing services, which are unique in the pharmaceutical CMO sector, provide flexible and scalable capacity – what Patheon calls “adaptable capacity.”

Many pharma companies – including virtually all of the top 25 global players – have more than one product launching within the 18-month planning window. Some products are global, others regional; there are a hundred variables that determine the optimal manufacturing solution. Based on the client’s needs, Patheon now offers a variety of adaptable manufacturing arrangements for the industry:

DEDICATED CAPACITY. Companies that have multiple products in similar formats (vial, capsule or tablet) launching within 18 months need a dedicated facility, or line, so they can modify their manufacturing schedule until they can understand the exact market demand for each product. Within the dedicated capacity, a customer can determine how much is used for each product, and can transfer technology in and out of the line without additional fees.

FRACTIONAL CAPACITY. For companies that don’t have the budget (or the volume) for a dedicated facility or manufacturing line, Patheon builds a single CMO facility or line for two or three clients, providing flexible capacity for each. This model is less expensive than the dedicated line, but still provides flexibility and scalability.

FLEXIBLE NETWORK ACCESS. For regulatory purposes, global companies often need manufacturing capabilities in North America and Europe. Or they simply may want on-demand access to capacity without preference for location. This model assures the client anytime access to a specific type of capacity within Patheon’s global network within a specified period. Clients can adjust the product mix with the assurance they will have the right type of capacity when they need it.

CONDOMINIUM CAPACITY. A fully customized solution for a company introducing a new product with unique characteristics (e.g., complex formulations or delivery systems) that cannot be manufactured on a conventional manufacturing line. Patheon provides design services, works with equipment suppliers, validates the process, builds the line, and manages operations on behalf of the client. Overhead is shared, and the line can operate as needed to meet demand.

ENTERPRISE. A solution for companies that own facilities in need of operational improvements. Some facilities may need to repurpose existing equipment; some should be closed. Patheon can manage these facilities to accomplish those goals while allowing companies to focus on their core competencies.

These five scenarios are points on a spectrum. Patheon also can customize solutions to match specific client needs.

ORC International’s research reflects some of the uncertainty pharmaceutical companies face today. In response, Patheon offers a range of models that accept the reality of uncertainty, and provides flexible and scalable approaches. Our solutions can’t eliminate risk, but they will help mitigate it.



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