Manufacturing executives who are not necessarily supply chain experts often find themselves tripped up by the labyrinthine terminology: How close to an exact time does "on-time delivery" have to arrive? (It depends.) Who defines whether a shipment does indeed arrive "on-time"? (Usually the customer, but again it depends.) And what exactly makes a perfect order perfect?
Attempting to answer those types of questions, four industry associations have teamed up to create a set of metrics for gauging the performance of execution in both production plants and inbound & outbound warehouses. The associations are Manufacturing Enterprise Solutions Association International, the Order Fulfillment Council and the Supply Chain Execution Systems & Technologies Group as part of the Material Handling Industry of America trade association, and the Warehousing Education and Research Council.
Together the associations created common definitions and calculations for dozens of performance metrics that apply in both plants and warehouses, as well as a framework within which these organizations will do benchmarking. The framework categorizes metrics in six major performance areas: order fulfillment; mass customization or flexibility; inventory management; execution productivity; quality and compliance; and business and financial.
So what, then, is a perfect order? According to a collaborative paper from the group, a perfect order index is "a compilation score which measures the result of each of the four major components of a perfect order":
- delivered on-time (the percentage of orders that arrive at their final destination at the agreed upon time between the customer and the shipper);
- shipped complete (the percentage of orders shipped with all lines and units);
- shipped damage free (the percentage of customer orders shipped in good and usable condition);
- correct documentation (the percentage of total orders for which the customer received an accurate invoice and other required documents).
The perfect order index is calculated by multiplying each component to one another. If a company has a 95% score for each of the four components, for example, then the perfect order index would be 81.4%.