Measuring a Moving Target

When people describe supply chains, more and more often their dynamic nature is emphasized.  With every product introduction, cost savings initiative, lead time adjustment to market demand the supply chain "as-is" configuration should consider changes that might enhance performance.  Most competitive supply chains have achieved a degree of agility that allows them to expand and contract globally as required to overcome risk.  The constantly changing shape, including the companies participating in a given chain, the inputs and outputs, volumes and cycle times make the task of measuring performance as elusive as chasing rainbows but not impossible.

The temptation might be to let every node on the supply chain measure their individual portion; afterall they know there processes best right?  An alternative approach to this isolated view, might be to allow supply chains to regularly agree on appropriate metrics based on changing supply chain expectations and participants which are shared amongst all supply chain participants.  These metrics should reflect the ability to meet these ever-shifting supply chain demands.  This alternative approach takes the position of valuing a stable and consistent set of metrics that not only weathers changing conditions and participants but contributes to cross-enterprise performance.  This article will tackle the challenges of implementing this new approach by dissecting the motivations, changing dimensions, value of common metrics and tactics so we can best align supply chains and their measures. 

Let’s begin by identifying the motivation individuals, companies and supply chains themselves have in measuring this moving target.  The driving forces behind supply chain efforts go beyond the built-in variability between suppliers and customers.  Supply chain behavior is the by-product of various motivations at work and occasionally in conflict.  The metrics employed to assess individual and departmental corporate performance are possibly the clearest indicator of priorities and success is attached to these measurements in the form of recognition and compensation.  Corporate performance answers to higher powers; Wall Street, stakeholders and even survival.  Simultaneously, companies are often working to satisfy individual customer metrics, leading to multiple scorecards to perform to, measure and report on a regular basis.  How often do we read about the supply chain metrics that reflect the entire supply chain’s performance?  Is this approach even feasible or just a novel idea to write about?

Table 1 Supply Chain participants and their motivation to measure

Before answering that question, let’s break down the changing dimensions of a supply chain.  There is no shortage of factors that contribute to these dynamics.  The ever expanding global market requires a supply chain to respond to customers in places most have only seen on a map.  Likewise, the sources of supply can be just as wide spread.  In both cases we need to prepare to measure and perform in multiple time zones, languages and currencies.  Working for us to help overcome distance is the access to information that technology and the internet enable.  Driving the demand for speed is the shorter product life cycle and faster innovation cycles.  Requirements for competency exist in design, assembly, and test alongside the appetite for customization.  The suggestion here is to be conscious of the potential implication of these dynamics, short of allowing them to dominate the business of measuring performance.

Getting to the heart of the challenge of measuring a moving target takes us to distilling the true value of the metric.  In fact they are not about the motivations.  Metrics themselves don’t change as a result of fluid factors in the supply chain.  We measure and therefore metrics exist for one reason; to drive performance.  With that single purpose in mind, we return to the question of feasibility and value in striving for common metrics across a supply chain.  Does a universal set of metrics exist that are appropriate for all participants and comprehensive enough to drive performance?  The SCOR (Supply Chain Operations Reference) model is underpinned with a total of 280 different metrics.  Hard to image one company measuring all of these, let alone a group of companies connected only by links in the supply chain.  This industry-standard model offers Level One metrics covering the critical supply chain performance attributes.  We recommend distilling 280 metrics to not just five Level One metrics but specifically this list; Perfect Order Fulfillment, Order Fulfillment Cycle Time, Upside Supply Chain Adaptability, Supply Chain Management Cost, and Cash-to-Cash Cycle Time.  The first three in our recommended list are largely capturing external (customer-facing) performance so it is likely they are already being captured.    That makes them easy candidates to introduce a cross supply chain metrics program.  The last two of our recommended list are primarily internal metrics and demonstrate our ability to control both cost and cash!  Due to the sensitivity of sharing cost detail it might be more effective to introduce Supply Chain Costs and Supply Chain Asset Management as a phase two of this initiative, allowing the collaborative process to mature and a degree of trust between partners to develop initial three metrics first.

Table 2 Reflects a subset of SCOR Level 1 metrics (Source: Supply Chain Council)

The temptation to add just one more or deviate from a common list will only be rewarded with contradiction, confusion and diluted efforts.  Better to consider the power of a supply chain synchronized around common metrics and targets that contribute to one another’s success as well as the entire chain.  This is more than feasible and the value is within reach to competitive supply chains.

So the more relevant question might be are you likely to follow the herd or drive your supply chain to the pot of gold at the end of that rainbow.  The strategy for the latter requires a joint decision and commitment to live by the same metrics, share real (unfiltered) results and dive in together to address problem areas through aggressive root-cause analysis.  Achieving that degree of collaboration is no easy task but the recommended metrics along with the following tactical steps will help to align supply chains and performance
 

1. Identify metrics management team across the supply chain
2. Facilitate a supply chain strategy session to agree joint objectives and metrics
3. Document and exchange process details
4. Develop improvement plan, prioritizing metrics advancement and supporting processes
5. Establish shared success / benefits plan
6. Consider collaborative software where required
        

This alternative approach, a collective set of companies committed to improving performance through common metrics, to the traditional means of measuring supply chains has its own set of challenges.  Ultimately the potential benefits more than justify this unconventional approach.  Winning teams speak of the tipping point when individuals, departments and divisions found their rhythm, walked in lock step, synchronized their watches.  Supply chains with this degree of metrics collaboration remain a minority but it is no coincidence that they share competitive advantages as well. A stable and consistent set of metrics is common sense for any individual or company and the logic holds across the supply chain.  The five key metrics highlighted respond to the critical question; is there a comprehensive set of metrics that make this novel idea feasible?  How do your metrics measure up?  Do you know what your suppliers and customers are measuring today?  Join best in class supply chains and begin by forwarding this article to your supply chain partners to open the dialog. 

For more information please contact the author at Kathleen@eKNOWtion.com