Four Ways Real Estate and Facilities KPI’s Impact Supply Chain Health

Certainly, any organization that is heavily reliant on its supply chain would like to understand the health of that supply chain. Some symptoms of an unhealthy supply chain are obvious -  multiple facilities in relative proximity, difficulty keeping up with changes in customer demands, or logistics costs (as a percent of sales) that are out of line with competitors, to name a few. Other symptoms may not be so glaring.

Generally, overall supply chain health can be gauged by examining five attributes (Supply Chain Management Review, 2008):

  1. Reliability – How effective is the supply chain in delivering the correct product to the correct place and customer, on time, and in the correct condition, with appropriate packaging, precise quantities and appropriate documentation?
  2. Responsiveness – How quickly does the supply chain provide product to the customer?
  3. Flexibility – How agile is the supply chain in responding to marketplace changes?
  4. Cost – What total costs are associated with operating the supply chain?
  5. Asset Management – How effective is an organization in managing assets (including real estate assets) to support demand satisfaction?
No single factor determines how well a supply chain performs in any of these areas. In fact, the Supply Chain Council identifies more than 200 key performance indicators (KPI) as being critical to supply chain management success.  

That said, an organization’s real estate (RE) and facilities management (FM) strategy is also a major influencer of supply chain health; moreover, RE & FM KPI’s can be crucial to supply chain executives as they seek to diagnose and resolve performance issues within their organization’s supply chain.

KPI’s make the difference between simply reporting data and understanding its implications, between possessing knowledge and acting on decision-making intelligence. In the world of supply chain management, RE and facilities KPI’s impact decisions ranging from mergers & acquisitions and distribution center location to supply chain automation and regional inventory optimization strategies. 

There are four ways RE & FM KPI’s that Impact Supply Chain Health:
  1. Labor Analytics
  2. Logistics
  3. Process Optimization
  4. Physical Inventory
In terms of Labor Analytics, supply chain executives need to determine how wage-cost competitive their organization’s facilities/locations are; they need to gauge the effect consolidating facilities could have on wage costs, and they need to explore any opportunities for automation. Relevant Labor Analytics KPIs, which are influenced by RE and FM, include:
  • Labor Inflation by Market
  • % Automated
  • High Labor Cost vs. Low Tech Cost
From a Logistics perspective, a good starting point is an examination of customer locations in relation to distribution. From there, supply chain executives can model transportation costs and evaluate whether fewer, more centrally located, manufacturing and distribution facilities could optimize raw inventory flow throughout its lifecycle. Relevant Logistics KPIs, which are influenced by RE and FM, include:
  • Fixed Facility Costs
  • Variable Facility Costs
  • Square Feet (SF) By Clear Height
  • Cube/Weight/Velocity
  • Demand By Population
  • Inbound / Outbound Transportation
  • % 3PL vs. Proprietary
A Process Optimization analysis should focus on the utilization of each facility and performance comparisons among facilities, the impact of e-commerce on processes, the optimization of e-commerce and traditional process flows and the development of a master facility plan if one is not already in place. Relevant Process Optimization KPIs, which are influenced by RE and FM, include:
  • Dollars Generated by Economic Incentives
  • Consolidation Rate of Acquired Businesses (in weeks)
  • Raw Material Costs by Location
  • Suppliers by Location
  • % MTO (made to order) v MTS (made to stock)
An examination of Physical Inventory – knowing which stock keeping units (SKU) are stored and where, quantifying lifetime costs of inventory, identifying any inventory duplication, optimizing inventory on a regional basis and studying the impact of mergers and acquisitions – will also boost supply chain performance. Relevant Inventory KPIs, which are influenced by RE and FM, include:
  • Revenue by SKU
  • Fill Rate
  • Storage Cost by SKU
  • % Reduction via Consolidation
  • Customer Service KPIs: Days to Process Return, # Items Average Return 

The goal is straightforward - creating a better, healthier supply chain by optimizing an organization’s locations, labor pools, economic incentives, M&A consolidation excellence, logistics network and distribution centers. The first step toward achieving that goal is measuring whether the supply chain is healthy or not, and that process begins by relating supply chain health to RE and facilities KPI’s.

Richard Whobrey
Executive Managing Director, GCS

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