If you’re not already familiar with the perfect order supply chain KPI, you will be in around 10 minutes, which is the maximum amount of time you’re likely to spend reading this article.
Here at Benchmarking Success, we happen to believe that perfect order is the best KPI ever for tracking supply chain performance, and over the next few paragraphs, we’re going to explain why that is.
The Perfect Order KPI Defined
The thing that perfect order really has going for it is its composite nature. Aggregated from a number of transactional metrics, perfect order offers a high-level, “at a glance” view of fulfillment performance.
In practice, the number of transactional metrics used can vary, but are typically those which allow you to see the percentage of sales or purchase orders that meet the following criteria:
- Delivered at the correct time
- Delivered with the exact same quantity of items as ordered
- Delivered without any lost or damaged items
- Delivered with the right packaging
- Accompanied by correct (and correctly completed) documentation
In this respect, perfect order can be likened to a similar KPI which you may have heard of, called “on time in full,” OTIF, or DIFOT. Indeed, the measurements used to calculate DIFOT are included in the perfect order KPI, along with other metrics which relate to the criteria described above.
What Goes into the Perfect Order?
Let’s try to get a bit more specific about the individual metrics that can be aggregated into the perfect order KPI. In essence, you can make the formula as comprehensive as you like, since the overall measurement simply requires multiplying the results of the individual metrics together.
As a minimum though, perfect order should comprise the following transactional metrics:
- On-time delivery (delivery within the time window agreed between supplier and customer)
- In-full delivery (delivery quantity and quality matches the order)
- Correct invoice (details on invoice should match the quantity, quality, and prices of items delivered)
Companies that measure perfect order typically include a few more metrics to build up a comprehensive picture of cross-functional performance. In some cases these extra metrics will be added to the perfect order formula, but in others they may make up a further level of detail, below the on-time, in-full, and correct invoice metrics.
For example, you might add “delivered without loss or damage” to the perfect order criteria, but on the other hand, since an order hasn’t been delivered in full if losses or damage occur, losses and damage might be recorded under the in-full delivery metric.
The same consideration must be given to other “in-full” metrics like warehouse picking or order-entry accuracy. Should these be captured under the in-full metric or added as extra perfect-order criteria?
In making the decision, it’s important to remember that the more metrics are used to make up the perfect order result, the harder it will be to achieve a high perfect order percentage.
Advantages and Benefits of Perfect Order
As we mentioned at the beginning of this article, we really like the perfect order KPI. As a composite KPI, it enables performance measurement to cut across functional silos, while also allowing a multi-level view of results.
This KPI is ideal for use with analytics software, because a dashboard display can show the summary result, along with a drill-down option for detailed perfect-order analysis.
Analysis of performance failures is also facilitated by the perfect order KPI structure. It’s easy to see failure patterns and trends, which can then be targeted as part of continuous improvement efforts.
Finally, because many success-factors are in play, perfect order tracking can help galvanise collaboration across the internal/external organisations collectively responsible for supply chain performance.
Using Perfect Order in Supply Chain Benchmarking
Another benefit of the perfect order KPI is the ease with which it can be applied to supply chain benchmarking. This is mainly because such a large number of companies are using the metric
That being said, they don’t all use it in the same way. As already discussed, the composition of the perfect order KPI varies from company to company, which may mean you need to tailor your own composition to align with a group of peer-organisations, even if you do so only for the benchmarking exercise.
You can always revert to your own chosen composition for day-to-day performance monitoring.
A Near-perfect Supply Chain KPI
As supply chain KPIs go, you won’t find a much better all-round measure of performance than perfect order. Of course it does have some limitations. For example, as comprehensive as it is, perfect order doesn’t lend itself to the inclusion of procurement into what could otherwise be a complete end-to-end supply chain performance measurement.
Nevertheless, if you’re looking for a KPI that promotes cross-functional alignment, and puts the most important elements of inbound and outbound supply chain performance in the spotlight; perfect order is probably the one to implement.
That’s not just our opinion either. Leading supply chain organisations the world over use perfect order as a primary measurement—so even if it’s not the best KPI ever, it’s certainly one that’s too valuable to be ignored.