Supply Chain KRI's (Key Risk Indicators) as a lead practice for improving Supply Chain Performance

In the evolution of enterprises, there comes a point in time when the circumstances lead to rethink the future course. I think Covid-19 has offered that, for those who wish to chart that course. Covid-19 has proven that the frequency at which Supply Chains are being impacted, due to unforeseen events, has increased to almost once every decade on a large scale. Coupled with the fact that Industry cycles have shrunk.

With all the uncertainty arisen out of Covid-19, I am sure many enterprises have been working on how much would the Key Performance Indicators (KPI's) be impacted. Why enterprises? Even a country like China is thinking of its most important KPI - GDP growth rate - to be a number or a landscape / direction to be shared. In short, the stakeholders of Supply Chains are predominantly drawing on the KPI achievements factoring in for variations based on how Covid-19 unfolds.

As a Supply Chain practitioner, I appreciate enterprises have spent lot of resources in designing the Supply Chain KPI system. Couple of decades back Supply Chain KPI system led to "structured reviews & bench-marking" of Supply Chain performance. Most appropriate at that point in time of evolution of Supply Chain practice. Fact remains that a KPI can only be reported post occurrence of an event. e.g. An OTD can only be computed & variance reported post the order receipt to order delivery cycle is completed. Hence KPI's from that perspective are a "Lag" indicator.

Covid-19 is likely to make Supply Chain practitioners tread through uncharted areas. The focus should probably now shift from "Measuring the event" to "Anticipating the event". In Supply Chain each event can have two outcomes - Positive & Negative. For the next generation Supply Chains, a structured process in the enterprise, for "Anticipating the event" will be needed. My feeling is that the way KPI system was popularized with all its frameworks & systems of implementation, a Supply Chain Key Risk Indicator system will be the future best practice.

KRI's can be broadly split as Customer KRI's, Supplier KRI's and Internal Supply Chain KRI's. KRI's assess leading indicators. e.g. Supplier offering early payment discount. This should be qualified as a KRI with indicator like "quantum of discount offered". It is common sense that the Suppliers cost of funding drives the discounts offered. A higher discount indicates probable higher borrowing cost, which indicates poor credibility. With this system of Risk Indicators Supply Chain can take needed corrective actions ahead in time which will avoid or dampen the negative impact on performance.

To appreciate what impact will an event have on Supply Chains, a Supply Chain Key Risk Indicator system needs to evolve. The checklist, methods of evaluation & action points based on variances shall be needed. Enterprises who can manage KRI's better stand a better chance to achieve better Supply Chain Performance.