Metrics – Championing the cause of the supply chain management professional

Metrics are not simply a way of measuring things. They can also empower supply chain management professionals to bring about the changes that are needed in their company’s supply chains in order to equalize the status between competing factors.

Let’s take a look at three different business scenarios in order to ascertain how metrics can be used to solve the problems that they present.

Scenario 1 – Reducing Inventory but maintaining uninterrupted delivery to customers

The first scenario is one whereby the chief finance officer of your company is in the habit of constantly asking you lower running costs by reducing the amount of inventory you hold. Of course in spite of the diminished inventory, you, in your role of the supply chain management professional, have to make sure that you maintain an uninterrupted, on-time delivery schedule to your clients.

Scenario 2 – Defining usage patterns and reducing parts stock

In our second scenario, despite the fact that the plant manager of a specific factory keeps too much inventorying on hand, he cannot calculate a way of being able to reduce the number of parts without affecting performance.

Scenario 3 – Getting a supplier to reduce prices to current market rates          

In our third and final scenario we imagine a situation whereby a supply chain management procurement officer is about to enter into negotiations with the supplier who is charging above the market rate. We need a way of establishing how that supplier can be persuaded to lower his prices.

Metrics empower supply chain management professionals to truly manage

With the right type of metrics in place supply chain management professionals can solve each of these three problems. Beyond simply measuring the results of a strategy, having the right metrics in place enables supply chain managers to drive the appropriate changes in their supply chains, so that they can be measured and can create a balance between diverging and competing factors. It’s the old adage of “whatever gets measured gets managed,” brought to life in the real world. The simple truth of the matter is if you don’t have the appropriate metrics in place, you have no starting point.

With the correct metrics strategy in-situ, together with an integrated approach across the business, organizations will find that their supply chain management professionals will be able to demonstrate their full repertoire, instead of merely being regarded as the “cost police.”

The importance of determining business priorities

One of the traps that many supply chain management professionals fall into is becoming befuddled by the wide divergence of the various types of supply chain metrics. They cover all aspects of supply chain management including: inventory, production, material handling, distribution, warehousing, logistics, and customer service. They either find it difficult to determine which measures need to be selected, or simply arrive at overkill, by trying to measure everything.

The first place to start is to determine what your business priorities are. It doesn’t really matter if you’re attempting to measure the levels of service you get from your vendors, or the consistency of the output from your manufacturing plants; whatever it is you’re trying to achieve, you must first focus on the metrics that you can measure, and that are most vital to your business. Supply chain management must be able to report on these metrics in a way that can be clearly understood by all stakeholders. It helps if you can establish links between the metrics used, and the organization’s strategies in terms of objectives and priorities.

The metrics scorecard

One way of doing this is to utilize a metrics scorecard. This needs to be holistically designed and should incorporate the company balance sheet and profit and loss statement. The scorecard also needs to incorporate one or two measurable projects that are real “game changers” and that will end up either dealing with a specific problem, or bringing about a state of continuous improvement, or of course, in the best of both worlds for the men and women of supply chain management, both.

All of your colleagues within the company who are interested in the outcome should use the same metrics scorecard; whether they are supply chain management professionals, or professionals in other business disciplines. Even though the end targets may not be the same, elements within the scorecard should be. Without this there can be no consistency and therefore no agreement on desired performance levels. In other words it will become impossible to brokerage the best ideas.

In order to improve and change goals, first the goals themselves have to be agreed. This is where the metrics scorecard comes into its own.

The importance of the role of standardization

When companies operate manufacturing plants all over the world in various countries and on several continents, it is quite common for each individual manufacturing plant to adopt its own way of doing things.  Supply chain management becomes blinkered, and the obvious outcome is that there can be a proliferation of different ways of doing exactly the same thing. The various manufacturing plants can find themselves buying the same materials from a plethora of different suppliers all round the world. It can be extremely inefficient and costly.

In these situations there is a massive opportunity for rationalization take place, and this is a classic example where a consistent metrics scorecard needs to be adopted by each of the various manufacturing plants. For this to work most efficiently it is essential to use either one central supply chain management operation that oversees all, or an independent, outside contractor. Once all of the information is disseminated into a common metrics scoreboard, the safest way to proceed is to try it out with a small number of manufacturing plants, and if it is as successful as is hoped, it can then be rolled out to all manufacturing facilities within the group.

Metrics facilitate realignment

The fact of the matter is that the correct use of metrics facilitates realignment; whether this realignment takes place between the company and its prime suppliers, or between the various internal departments within one organization. It is the key to getting work done efficiently and cost effectively, but it must be stressed that the use of a metrics scorecard is essential.

From time to time some suppliers of components or materials can become intractable. When asked to lower their prices to meet the market rate they refuse to cooperate. When metrics are used by supply chain management professionals to highlight such problems, different approaches to solving the problem can be considered. For example the design of end -products can be modified to allow the use of a different components or parts from a more cost-effective supply. In this case metrics have driven a solution, albeit at the intractable supplier’s cost.

Metrics facilitate supply chain management excellence

Supply chain management professionals must continue to advise other executive managers within their organization about the service and value that they bring to the business’s bottom line. This can be reinforced and stressed through the strategic use of metrics.

The bottom line for supply chain management professionals is that the use of appropriate metrics can show stakeholders and shareholders not only how well the supply chain is being managed, but how an effective supply chain is making the company more profitable and more competitive.

As supply chain management professionals strive to earn their place on the corporate ladder, the improved and increased visibility of supply chain best practices (via the use of appropriate metrics) is an essential part of bringing awareness into the realm of corporate attention at boardroom level.

Is your organization making best use of metrics? If so Supply Chain Station would be pleased to hear from you regarding how they have been able to facilitate change and what was the single most important factor employed within your metric scorecard system

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