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Recently I read an article titled “Comprehensive Analytics a Key Differentiator in the Supply Chain.” I found it interesting because it was predicated on the thought that “anything that is measured will improve”. I really couldn’t agree more. Unfortunately, while a simple concept, not all companies adopt this philosophy.
The first step in adopting this philosophy is having a corporate strategy around your supply chain. Because a company’s supply chain can be their competitive differentiator, it is important to have some strategic vision on how that supply chain will work. Once a company does have a strategy, key metrics should be defined that can be measured and tracked to determine whether the company is executing appropriately against that strategy.
So, how do you track metrics against your supply chain? The author states that “tracking and measurement falls into 2 general categories: Abundance of Data – Dearth of Analysis and Stove Pipe City”. I would argue that while some companies have an abundance of data, they don’t always have the right data. Many manufacturing companies are now outsourcing at least some of their supply chain, if not all of it, and most of those companies have no visibility into their supplier data. So how could they make strategic decisions about their supply chain if they don’t even know everything that is happening in their supply chain? Companies need to be able to consolidate all of their supplier data to allow them to have true visibility into their supply chain and make better business decisions. Then that data can be used in analysis of the supply chain and tracked against key metrics.
The premise of “Stove Pipe City” is that not all of all of the supply chain data resides in one place and therefore different constituencies are making different decisions based on which data they are looking at. I agree with the author, it is important to make sure all of the data resides in one place so true analysis of the business can occur.
When defining the metrics to track against the supply chain strategy, it is also important to define any business tolerances that may be important (i.e., orders shipping late to #1 customer) and have an ability to set alerts (based on consolidated supply chain data) to ensure that the appropriate person take action on a particular metric or business situation that could be urgent. What is the point of tracking metrics if no one takes appropriate action to ensure the metrics are meeting the strategy?
In addition, the ability to simulate demand, supply or a variety of other factors against the full supply chain data is valuable as well. With the volatility in the manufacturing marketplace right now, it is critical to understand how changes in the supply chain may affect the business and the overall supply chain strategy. If your #1 customer called and said “please ship us 300 extra units of product B” and one of the metrics you track is your ability to satisfy #1 customer, how long will it take you to know when you can ship them the 300 units? If it takes too long, the customer may get product elsewhere, so the ability to simulate changes in demand or supply is critical in our changing world.
The author also states that the “keys for a successful and comprehensive analytics program in the supply chain starts with these key ingredients: Support, Vision, Inputs and Accountability”. I agree with those ingredients but would add an ingredient called “Simulation”. As stated above, it is important to be able to simulate changes in your supply chain in order to make better business decisions, maximize profit and increase customer satisfaction.
I believe that a defined supply chain strategy that maps to metrics with the appropriate data captured and a tool to analyze and simulate changes is really the key to success in analyzing your supply chain.
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Tags: Performance management, Supply chain analytics
Posted in Supply chain management
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Without a doubt, if you can’t measure it, you can’t improve it. But I think we should always measure in a context. At 5′11″ I am average height in North America, short in the Netherlands, and tall in Japan.
Knowing what the benchmarks are for your industry allows you to decide where and how you will compete. A company competing on price is unlikely to be able to support the same customer service as a company competing on quality. Similarly a lower customer service level will likely mean that you can hold less finished goods inventory. So measurement is also not one dimensional. it is necessary to have a balanced scorecard with targets for each of the metrics that are consistent with the overall corporate strategy and goals.
Hi,
Nice post – and complements nicely a presentation I just did on KPI’s too.
Your post makes the assumption that the chosen metrics are the right ones – that is not aways the case.
I find that many company employees “think” that a KPI is important simply because they report on it. Furthermore, I found that wanting to analyse too many metrics always led to this phenomenon of “analysis paralysis” where more time would be spent trying to explain deviations as opposed to what those deviation mean.
Sourcing the data from disparate systems only makes things exponentially worse because you no longer know what numbers to trust. This almost always results in numbers entering this “reality distortion field” and then being presented as factual data. I won’t even talk about the decisions that are made based on that wrong pice of data.
In short, get the strategy right, understand it then define and identify those KPI that will help you track your company performance and adherence to strategy.
Just my $0.02 worth.