Supply Chain Metrics: Simpler is Better

By Dave Sauder and Wayne Morris -- Supply Chain Management Review, 10/14/2008 12:39:00 PM

More often than not, these questions are left unanswered due to the overwhelming amounts of data being generated within companies and their vendors. Or, the answers are based solely on Supply Chain Operational Reference (SCOR) recommendations, which aim to pinpoint several facets of the supply chain, all of which have numerous metrics associated with them (e.g. perfect order fulfillment, order fulfillment cycle time, upside supply chain flexibility or adaptability, etc.)

The result is complicated. But it doesn’t have to be.

Quality vs. Quantity

While SCOR is effective for helping to provide the overall framework for effectively managing the supply chain, it fails to provide businesses with a truly focused set of metrics.

Within the complex SCOR model, there are often upwards of 100 metrics recommended for organizations to track. There is no way to focus on such a high number of metrics and most organizations will never achieve the level of detail needed to effectively track business drivers. It is simply too difficult to manage the daunting task of gathering, prioritizing and analyzing so much data.

But, at the crux of the challenge with the SCOR model is also the solution: within the landscape of the 100 (or 150 or 250!) metrics organizations are being asked to focus on, most are derivatives of one another in some fashion.

To the naked eye, the overlaps of financial, quality, logistics, supply chain or purchasing data are not immediately visible. However, new enterprise performance management (EPM) solutions identify the critical Key Performance Indicators (KPIs) and Key Performance Drivers (KPDs) and deliver them to users in context.

With an efficient means to gather and analyze both financial and operational metrics, companies can defeat the otherwise massive beast with a simplified, aggregated view of the core sets of data.

Best Practices with Enterprise Performance Management

Supply chain performance will only improve with increased visibility and consistent analysis of performance metrics that drive the ability to effectively deliver goods. With the new breed of EPM solutions, organizations can optimize performance by focusing on three key areas.

1) Automate Data

Manual data intervention inevitably leads to old, inconsistent metrics. Even with traditional business intelligence tools and SCOR recommendations, many stakeholders within the supply chain are still required to manually intervene with data, extracting it and massaging it into the right form. But this data is static.

When you’re talking about metrics such as customer service / technical support, quality, order fulfillment, sales / forecast trends, and engineering / product development schedules, incomplete, incorrect data after the fact doesn’t cut it. Companies need to automate the capture and analysis of dynamic metrics. In presenting role-based, customizable metrics to appropriate stakeholders throughout the supply chain, organizations can determine the right granularity and timeliness of data update for KPIs and KPDs.

In the past, perfect order fulfillment may have required 2-5 people a year to analyze and provide monthly reports with accurate numbers. With EPM solutions, perfect order fulfillment is simplified and drastically improved with an assurance of consistent, timely data.

2) Establish Core Data Sets

Whether you’re operating on a SCOR metric framework, or building your own foundation of priority metrics, it is important to identify the core data sets. This means defining and monitoring relevant KPIs and KPDs, as well as identifying alert conditions, such as operational capacity constraints, or quality, shipping and delivery issues. With the simple, yet important, step of identifying the overlap within metrics, companies can improve profitability and deliver more value to customers.

In the case of cost of goods, for example, the COO / CFO needs to track the cost of goods sold in North America, Europe and Asia Pac. When you look under the covers, they are all based on the same data set, but are filtered and massaged differently. Financial boundaries – e.g. regional or currency conversion issues, intercompany transfer – do not necessarily align with organizational boundaries.

Or, take cycle time. Operations data, such as product cycle time through manufacturing, is comprised of much of the same core data used in quality and costing reports.

3) Free Data from its Silos

Connecting the manufacturer, vendor and all network logistics is the driver for complete, on-demand data visibility. Instead of keeping data in silos, EPM solutions enable companies to connect, monitor and analyze metrics across value streams, departments and enterprise boundaries. Especially if delivered in a SaaS model, companies can securely capture information across multi-enterprise value streams, enabling collaboration and facilitating consistent information and behavior, e.g. a “single version of the truth.”

By looking at KPIs and KPDs in several areas of the supply chain – within the manufacturer, as well as from the vendors, logistics group and reverse logistics group – companies can integrate various operational and business systems across supply chain partners.

KPIs across multiple departments, such as on time in full shipment at the distribution center and inventory within lean manufacturing initiatives, need to be managed correctly in order to avoid conflict. They are not exclusive and can be improved at the same time. When analyzing metrics within the narrow confines of silos or departments, companies sub-optimize the process and overall business. Instead, data needs to be evaluated in terms of the underlying processes that drive business effectiveness.

Keys to Success with Supply Chain Metrics

·         1) Keep the number of metrics small – approaches involving a large number of metrics can swamp decision makers.

·         2) Ensure metrics are actionable – establish clarity around who is responsible for a metric if it starts moving in the wrong direction.

·         3) Provide relevant, consistent metrics to all levels within the organization and supply chain – a top to bottom relationship between metrics ensures a simple, concise approach to performance improvement.

·         4) Deliver the relevant metrics broadly – all decision makers should have access to their metrics on an ongoing basis.

Simplifying Supply Chain Metrics for Improved Decision Making

Arming the right people with the right information so that they can make more informed decisions will not make the business analyst obsolete. On the contrary, improved visibility into and access to relevant supply chain metrics will let the business analyst get back to doing the job they’re meant to do, which is deep analysis of data. They will drive improvements by leading, coaching or assisting in projects to improve defects, cycle time, costs, or customer satisfaction and loyalty.

The new breed of EPM solutions puts trusted, consistent and timely metrics at the analyst’s fingertips. And, the business analyst isn’t the only one to benefit. With customized, web-based access to the right data relevant to job responsibility, every user throughout the supply chain community – from distribution, logistics and operations, to suppliers and their potential suppliers – will be able to easily visualize and analyze dynamic data.

SaaS-based EPM solutions are easy to install, maintain and use, removing the burden from IT and providing all levels of employees throughout the supply chain community with a better way to look at metrics and support decision making.

In order to better align the intertwined metrics throughout the entire supply network, organizations need to determine core data sets and link metrics across functional areas, roles and value stream segments. With a new, integrated look at both the operations and financial data, and an automated, intuitive EPM solution to provide data in context, companies will see immediate value with increased efficiencies and maximized profits.

Dave Sauder is president of Coherence Consulting (www.coherence-colorado.com). Wayne Morris is CEO of myDIALS (www.mydials.com).