Pyramid performance : Core Metrics for inventory management

ภาคภาษาไทย

In the past, I wrote the blog concern about Inventory management around 2-3 blogs such as

Inventory Management efficiency Framework
Inventory Classification by VED-SED
Inventory decoupling point and inventory level

Most of the stories are written from my experienced consulting and my lectures in various organizations. My blog stories would be useful for managers and the responsible person when the adapt to use in their work.

For this blog, I would like to present about inventory management again but will be focus to the metric performance of inventory Management. To validate our working. The performance are good ? What are the performance to  be measure? The results of the measure led to continuous improvement.

Often of my describe about the performance measurement. The pyramid performance picture would be use for my conceptual explanation such as "The Pyramid Performance" for Supply Chain Management" because its clear and visualize. On the top of the pyramid is the final goal. and the step down are performance metrics to be support the top goal.

Likewise, the performance of inventory management. I also used to the pyramid picture to explain.

Pyramid performance for inventory management measurement by Mongkol P., naitakeab@gmail.com

The picture above is the concept of inventory management measurement are defined from the concept of performance measurement in supply chain management .

The good performance should be measured through 5 aspects : Reliability, Fast response, Agility, Cost and Asset management Efficiency. And will have the following key performance indicators:

1. Reliability, consist of 2 main indicators to measure.
• Stock out 
• Stock/Inventory Accuracy
2. Responsiveness or Fast Response, consist of 2 main indicators to measure. 
• Stock Aging 
• Lead time to supply  (Sourcing, Purchasing, Preparing etc.)
3. Agility, consist of 2 main indicators to measure.
• Agility/Flexibility Rateอั 
• Sell-Through Rate or Inventories to Sell Ratio 
4. Cost, consist of 4 main indicators to measure.
• Ordering Cost 
• Material Cost
• Holding Cost
• Stock out Cost
5. Asset Management Efficiency, consist of 4 main indicators to measure.
• Cash to Cash Cycle Time) - Days
• Account Payable - Days
• Account Receivable - Days
• Inventory Days, that can separate to measure by RM inventory days (Raw material), WIP inventory days (Works in Process) and FG inventory Days (Finish Good)

In Addition, there are also two indicators that are relevant and related to the five performance indicators on the top of pyramid are

• Demand Forecast Accuracy)
• Gross Margin) 

If anyone wants to know the calculation or the method to measure in each metrics,please do not hesitate to contact me or follow me in next blog. Any questions and suggestions are welcome. See you next time.

Mongkol  Patcharadamrongkul
Instructor/Consultant/ Expert in Logistics and Supply Chain Management, Thailand 

Tel 081-8476479, E-mail : naitakeab@gmail.com 

08 February 2018