Supply Chain Metrics: Cycle Time KPI

Why this metric is important?

Many companies compete on speed and reliability – these organizations include the logistics companies like FedEx and DHL and retailers like Amazon and Wal-Mart. In addition industrial and B2B companies are also focused on improving the cycle time in order to improve delivery times and productivity.

The benefits of efficient cycle time are two fold:

1. It creates value for the customer and improves the competitive advantage for the company

2. It improves productivity and creates lean business processes for the organization

What exactly is the cycle time metric?

Fill-in-the blank Excel KPI templates, dashboards, scorecards:

The cycle time is the difference or period between the time when the customer places an order and the time when the customer receives the order. This is the full cycle time and most supply chain dashboard reports include the full cycle time. However, there are many variations to this KPI depending on the business model, industry and customer requirements and expectations this metric will have many variations. For example, the cycle time between creating the purchase order and shipping the product is an important cycle time metric as well. As a result a company can measure different cycle times like delivery cycle time, production cycle time, purchase order cycle time, etc.

How these KPIs are monitored and measured?

Each of these KPIs included in a company’s portfolio of metrics includes a target value and actual value to be tracked and reported at any time period. For example, the cycle time between creating the purchase order and delivering the product to the customer can have a target value of 4 hours, which is defined by the customer requirements and the organizational objectives. In such a case any order delivered in less than 4 hours will achieve the objective.

How do you track the orders and organize the reports?

Your supply chain reporting system will pull the data from your orders. For example, you can organize and track the orders as follows:

Order Number Date Customer Cycle Time

1 March 12, 2013 ABC 3h

2 March 12, 2013 XYZ 2h

3 March 12, 2013 MMS 5h

The data simply organized as in this example will provide you with all the information you need to monitor your metrics. The only difference for various companies will be the target cycle time and the way they measure the cycle time – everything else / the approach will be the same.

Now since this example has a target time of 4 hours we can measure the metric in our reports in the following way – here are some typical examples:

Example 1: Number of orders with cycle time < 4h

Example 2: Number of orders with cycle time > 4h

Example 3: Percent of orders with cycle time < 4h

Example 4: Percent of orders with cycle time > 4h

These examples of metrics will allow you to measure your cycle time(s) effectively and accurately. Of course you can measure multiple cycle time variations by using this same approach. In addition you can define one overall target. For example your overall target can be 97% of orders to have cycle time of less than 4 hours.

The supply chain metrics including the cycle time metric is very important not only for logistics, JIT and supply chain companies but for retailers, transportation companies, industrial companies and each and every business focused on customer satisfaction, productivity and continuous improvement by creating lean processes. Define the variations of metrics that best suit your business model and organize your data and reports so you can effectively monitor, report and improve the results of these KPIs.

Related Resources:

Supply Chain Metrics: Examples of Inventory Metrics

KPI Dashboard Reports: How to Monitor your Metrics in Excel

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