5 Delay Risk Metrics You Need to Be Tracking
Delays in sourcing, production, and a product’s life cycle are increasingly complex in today’s global economy. Therefore, more and more companies are investing in prediction analytics.
Prediction analytics is the identification and tracking of key metrics to gather data about a given process. Then, you analyze that data to produce actionable knowledge, allowing you to gain greater control and flexibility within that process. Overall, this will guide a company to monitor known risk factors that can potentially interrupt and stall their operations.
Such risk factors are what we call “delay risk metrics.” And the first step towards mitigating risk delays and gaining greater transparency over production cycles is knowing what key metrics you should be tracking.
How To Think About Delay Risks
Delays are one of the biggest factors creating inefficiencies in supply chains. Out-of-Stocks cost businesses around $634.1 Billion each year globally.
You can’t control certain risk factors and delays. The Suez Canal blockage by the MV Ever Given in March of 2021, is an example. No one knew or expected a boat to completely block the canal. The impact and cost on shipping delays were global and in the billions of dollars. No one was prepared.
Yet, there are numerous delay-risks you can be prepared for – and even avoid. These are five key metrics that our data analytics team found to have a significant impact on the production cycle that you can track and control.
1. Supplier Region
Many U.S. companies use the Just in Time (JIT) approach to inventory management, which can make you more susceptible to delays. JIT is common because it lessens the cash flow burden. But, issues with logistics and carrier delays, demand fluctuations, and other unforeseen factors make it difficult to work with the JIT approach. Companies are leveraging reserve inventories to ensure that they have the goods to meet demand regardless of region and provide a good user experience.
Lack of knowledge of the supplier’s region raises the risk exponentially as these variables aren’t factored into a brand’s expectations for delivery of goods.
There are the more obvious issues to consider, like geo-political stability and the reliability of the region’s labor pool and interior supply chains. Yet, what about factoring in your supplier’s holidays, internal production schedule, and days-per-week working, and more into your delay risk metrics? We intuitively include these factors in our own schedules as they are part of our culture – which is why we often fail to explicitly plan for them with our international suppliers.
2. Percentage of PO Fields Filled Out
Three distinct items on a purchase order have a significant impact on the production line. You want to know:
- What are the Incoterms?
- What are the payment terms?
- What is the shipping method?
Incoterms, a widely-used terms of sale, are a set of 11 internationally recognized rules which define the responsibilities of sellers and buyers. Incoterms specifies who is responsible for paying for and managing the shipment, insurance, documentation, customs clearance, and other logistical activities. For instance, if the incoterms are FOB the manufacturer will be delivering these to port.
Incoterms can have an impact on unit pricing. In the above example, if it is FOB, the manufacturer is paying for the transit of the goods to the port and is adding those costs into the unit price. It’s important to delineate upfront with the manufacturer on what the payment terms are. If the expectation is that the goods must be paid in full before shipment, the goods especially under FOB incoterms will not leave your manufacturer until that balance is paid. Global suppliers tend to be more strict with payment terms than Domestic USA suppliers, and it’s important to ask for the invoice up-front and associated paperwork as early as possible to avoid any delay.
Shipping methods are frequently overlooked and should not be saved for the last second. If you can delineate your freight method and ending location early in the process, please do so. The quotation process for air and ocean shipments is slightly different due to the route selection and if you want to use multiple nodes of shipment methods, the paperwork which consists of the packing list and invoice needs to be 100% accurate for customs clearance and for the receiving team.
3. Supplier Relationship and Communication
Is your PO being accepted and acknowledged? You need this so you can hold your supplier to the timeline and know when they are working on the order. This is just one point in a succession of possible communication points that should be tracked or factored into your delay risk metrics.
Another point you can implement is making product changes at the supplier’s plant, if possible. A location visit can save a lot of time and money – not to mention strengthening supplier relationships. It can be worth the trip to see things in person. You can adjust in real time rather than waiting for correspondence and revisions via traditional mail for samples.
Having no historical relationship or rapport can have a huge impact when factoring in other risk assessment variables. Do they know your company well enough? Do you know theirs?
In these instances, what you don’t know can hurt your bottom line. The lack of historical knowledge leads to delays throughout the production cycle. Typically, you simply don’t have the data to make predictions. You need to be in regular communication with suppliers to know if there is a delay, to determine the payment terms, obtain invoices and packing slips, and understand the quality standard behind a sign off. If you can get these and other metrics, you can mitigate the potential risks when rapport isn’t present.
From the beginning, you need to proactively develop the type of relationship you want with your supplier. And ask questions about patterns in your supplier relationships. Is communication consistent? Do communication changes depend on your supplier’s mood? Do you have a hard time getting them on the phone or to respond to email?
4. Days Estimated Lead Time
Lead time is the amount of time that passes from the start of a process until its conclusion. So, when managing your inventory, this would be the amount of time between when a purchase order is placed to replenish products and when the order is received in your warehouse.
Typically, lead times can vary – and the more suppliers involved in the chain, the longer the lead time is likely to be. Or, when demand increases, as it has globally, suppliers have more client orders to fulfill – which will increase the lead time required on all orders. With the logistics issues we’re experiencing now, lead times have extended so make sure you build in a significant cushion to ensure your goods get delivered on time.
5. Days Before Estimated Ship Date
This next one may seem simple and straightforward – but you’d be surprised how often it is the source of delay.
If your supplier requires 60 days lead time, and you place an order that needs to be shipped in 30 days – you can expect delays. Unless you have a strong relationship with your supplier and they will prioritize your order, you will not receive your goods on time. It’s important to understand the degree of flexibility with any given supplier.
Data Centralization and Delay Risk Metrics
It’s important to know what delay risk metrics you should be tracking. But knowledge is nothing without application. Knowledge alone isn’t power. Applied knowledge is the real power.
Make sure your company achieves some level of routine tracking. If you aren’t making the effort to track and analyze, then knowing about these metrics does you no good.
Finally, continuously revisit these delay risk metrics and evaluate your depth of understanding their fundamentals and how they integrate with one another.
Think through the deeper impacts of these factors. Through your company’s experience with prediction analytics, continue to learn about and appreciate the interconnectedness of these metrics. A company harnessing the power of prediction will exponentially optimize their supply chains – and positively impact all production outcomes.