Supply Chain Metrics that Measure Up

Building and leveraging a metrics framework to drive supply chain performance


Leveraging the Framework

Once a strong metrics framework is in place, it is critical to understand how it can be leveraged to enhance supply chain performance.

1. Generate insights using cause-and-effect guided analysis
A metrics framework is a collection of relevant metrics. These metrics are interrelated to establish a cause-and-effect relationship that helps to determine the root causes of failure of various business processes.

To illustrate this, let us focus on "product availability at shelf" as an effect and start building a metrics framework. (See Figure 1.) The end objective here is to ensure product availability at the shelf.

Figure 1

The framework clearly highlights the need to collect important metrics such as forecast accuracy, order fulfillment times, manufacturing schedule adherence, etc. In the absence of a good framework, having data regarding "product availability at shelf" but not the related metrics would severely limit the constructive use of the end-result data. A word of caution: Every metrics framework is unique. Each enterprise is expected to have a metrics framework that is unique in terms of number and the types of causes as well as the hierarchy and criticality of causes to the end-effect. However, some key points must be considered when defining the metrics framework.

First, while no metrics framework is likely to identify all relevant variables, enterprises must make a conscious effort to build a metrics model that is comprehensive enough for their business context. This can be best achieved by deploying a cross-functional team with a strong understanding of underlying processes and responsibility for process execution. Top management sponsorship is also critical to ensure that the metrics framework identified by the cross-functional team is aligned with the overall enterprise objectives.

Another factor to look out for is an element of judgment and approximation. Given this, there should be a focused effort to identify the most relevant and high-impact causes. Like the metrics that make them, metrics frameworks tend to be highly contextual in nature. They are dependent on the team developing them for knowledge, goals for measurement and the vision for how the SCPM system should integrate with the overall enterprise performance management objectives. Besides people, data availability, accuracy, etc. are other factors that must be considered. These are additional constraints in designing the metrics framework.

Above all, the metrics framework cannot be static and needs to be continuously refined to align with enterprise objectives. For example, as the enterprise IT landscape changes, metrics ignored earlier for lack of data availability may need to be accommodated to make the framework more robust and relevant.

2. Quantify financial impact of supply chain metrics
This process is used to link supply chain metrics to financial key performance indicators (KPIs). For example, a cash-to-cash cycle time metrics framework should be linked to return on assets, a total supply chain cost metrics framework should be linked to net margin through cost of goods sold (COGS), and so on. It is important to establish the link with financial measures because this helps senior management quantify the performance of supply chain metrics and better understand the supply chain's full impact on the enterprise's top and bottom lines. This "linking" is done through scorecards. Enterprises use these scorecards to determine priorities for investments in improving processes and related technology. Such scorecards help establish a standardized "single version of truth" for supply chain performance that is quantifiable and understood by all entities in the organization.

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