Insight #3 – Your supply chain measurements
Much has been written about supply chain measurements. Just Google it. If nothing else, this blog reinforces the importance of establishing goals and measuring performance. Which metrics are most important? How are they calculated? How do you align your supply chain at every level?
Everyone would agree that the big buckets of metrics are Service, Revenue, Inventory (Cash), and Cost, which support your company’s strategic goals. Knowing what to measure isn’t so difficult. Knowing how to make people accountable and communicating why it is important are characteristics that stand out in best in class companies.
In Part 1, I wrote about company culture and making decision trade-offs using metrics, alignment of objectives, and the need to measure past, present and future performance. I am re-emphasizing that below.
Best in class characteristics for supply chain measurement include:
- Share insight and accountability for key metrics across the company. Why not let the master scheduler understand how they may be affecting your most important customer? Why not let the order fulfillment representative understand how they may be affecting inventory?
- Full disclosure. Do costs really have to be a secret? If you can eliminate the barriers to information, people will make more informed decisions that will positively impact performance.
- Recognize achieving the optimal goal for each metric requires trade-offs. This is the tough part of supply chain. Too often companies are still maximizing capacity without knowing the true cost. They spend too much on freight or inventory carrying cost. I read a blog where Robert Handfield spoke about a balanced scorecard. The different metrics need to be weighed properly to achieve the optimal goal overall. This is what I refer to as trade-offs.
- Weighting of importance of metrics can change. From my years in manufacturing there were months or quarters when certain metrics were more important. As corporate strategy and priorities change, so might the metrics. This also affects trade-off decisions.
- Alignment of objectives is also a characteristic that stands out in companies. Every individual contributor can measure their performance based on a set of metrics for their portfolio, andthey also clearly understand how their performance affects the overall company performance.
- You have to measure to improve. There are so many measurements in supply chain it can get confusing and conflicting. The role can be very rewarding when the organization is laser focused on the same goals and objectives, and importantly understand which metrics are the most influential in this regard.
- You can’t just measure the past! Times have changed, and with supply chain analytics you can project your future performance. This is where you have an opportunity to impact the result by having a clear understanding of the cause-and-effect of your decisions.
- Measure often, not just after. There is an opportunity to eliminate the words ‘it’s too late’ or ‘I didn’t know’. Knowing the impact of your decision on your key metrics before you execute will ensure that you make the right decision.