The Trouble with Metrics
The problem with supply chain metrics is that they have been uncoordinated, according to John Proverbs, director of product marketing at Webango, a company that provides solutions for electronic sourcing through the Internet. Proverbs, who was director of strategic sourcing at IBM for five-and-a-half years and previously worked in corporate procurement at Hewlett-Packard, argues that because companies have operated in organizational silos, different divisions frequently generate and work under incompatible metrics.
Proverbs described a typical situation within an enterprise: to make its own forecast, marketing over-forecasts to planning. The folks in planning want to minimize inventory, but to meet the marketing forecast they overbuild, creating bottlenecks in the supply chain. Meanwhile, procurement operates in a tactical mode because they are continually expediting or liquidating parts in an effort to keep inventory low. And supply chain partners? Forget about it. At best, suppliers get quarterly scorecards that show them what the problem was months ago. These types of fragmented, tactical and internally focused metrics obscure a company's view of its own supply chain and hamper collaboration with trading partners, impeding efficiency in the supply chain.
The trend in metrics, therefore, is twofold: providing corporate executives with a more useful "dashboard" by collecting, collating and presenting data from across the enterprise; and enabling the more effective gathering and sharing of measurements across the supply chain as a whole.
Inside the Enterprise
The diversity of systems at work in different divisions within a company has traditionally made it difficult for executives to obtain useful information from across the enterprise. "Almost any large company has four, five or six enterprise applications that hold business-critical data," says Arvindh Balakrishnan, co-founder and CEO of MetricStream, a Santa Clara, Calif.-based start-up that has developed software for capturing and presenting data from diverse business systems. "You need to look at the data across all these applications, make sense of it and try to respond very quickly." e-Business has removed the barriers to tracking a greater number of metrics simultaneously, but it hasn't necessarily added new metrics to the mix of supply chain measurements executives need to be tracking. Says Cindy Jutras, vice president of product strategy for solution provider interBiz, "In reality, I don't see a whole lot of new metrics being introduced." Jutras adds that, in the past, companies out of necessity dealt with just a handful of business metrics because trying to monitor too many processes raised the risk that management would lose its focus and miss important trends. Now, Jutras says, "In the e-business world, you're less likely to be able to get away with picking and choosing what needs to be measured."
interBiz is a division of business software provider Computer Associates International, based in Islandia, NY. Like MetricStream and another metrics solution provider, SeeCommerce (of Palo Alto, Calif.), interBiz offers software that it says can capture data from across an enterprise and present it in a customizable dashboard showing key indicators. The same solution can provide a chief purchasing officer with a view of the total spend, shop-floor managers with data on how many works-in-progress lots are late, and a shipping manager with information on how many shipments were invoiced correctly and how many were returned.
Besides collating information from throughout a company, today's metrics solutions provide three important benefits. First, while they allow a senior executive to track broad indicators, such as profit/loss or actual versus budget, they also empower an executive to "drill down" into the data, viewing profit and loss for specific divisions or actual versus budget for certain projects, all with the click of a mouse.
Second, the information comes in real-time, with the software having the potential to constantly take in data, process it and present an up-to-date picture of the state of an enterprise, as opposed to weekly, monthly or even quarterly reports, which is the way information is distributed today. Viewing information more rapidly can allow for the identification and resolution of potential problems more quickly.
Finally, current metrics systems allow users to establish "alerts" that can notify appropriate executives when an indicator hits a predetermined level. In part, this is a technological answer to a problem created by the technology itself: now that you can collect all this vital information from across your company, how do you make sure that you see the right information at the right time? "There is an information-overload potential," says Kevin O'Marah, research director for supply chain strategies at Boston, Mass.-based consulting firm AMR Research. The new measuring tools proactively pick out the information executives need to know and make sure they have it. "That technology is nothing fancy, really," O'Marah says. "It's just a question of connecting to the transaction systems that can accumulate the measurements, having triggers built in to say when we've hit the line, and then proactively notifying the users that need to know we've hit that line."
Metrics across the Supply Chain
While e-business empowers executives to acquire more accurate and timely measurements within their own enterprises, it also promises to let them better collect and share metrics relating to their whole supply chains. "Traditionally, supply chain measurements focused on the inside of the enterprise, so you focused on your own on-time delivery performance and your own throughputs and yields," says O'Marah. But as companies strive for incremental competitive advantage by delivering greater overall customer satisfaction, they are looking to gauge how effectively the entire chain delivers products and services to the end user. "The notion of performance now involves saying, RHow well did we, collectively, perform against the expectations of our customer?'" O'Marah explains. The measurements themselves may be the same -- perfect order delivery, on-time delivery, return support -- but the focus is now on how well the entire supply chain delivers.
Integration is as much a challenge when collecting data from various trading partners as it is for taking measurements across an enterprise. In part, this is a technical issue, just as it is within a company. Since companies may collect their internal information in different systems, partners must agree on data standards. But, while O'Marah says that the technical aspects of integration can be resolved, partners must resolve broader, non-technical issues before they will be able to take inter-enterprise measurements in an effective way.
First, partners need to agree on definitions for what they mean by certain metrics. A "completed order" means two different things to the manufacturer of an integrated circuit and the retail outlet that winds up delivering the end product, continuing the circuit to the consumer. Second, companies must achieve the requisite level of trust in their partnerships to allow for the sharing of business-critical metrics with their supply chain. "People still operate in a mode where there are winners and losers among trading partners," O'Marah explains. "There is not enough trust to just happily chuck all that information out there. A business cultural change is going to have to take place before supply chain measurement really represents overall performance of trading partners against end consumers' goals." For instance, suppliers must be certain that their buyers won't use shared information simply to obtain lower prices.
Sharing Scorecards at Deere
Not that some degree of sharing isn't possible right now. For example, Deere & Co., the Moline, Ill. manufacturer of agricultural and construction equipment, has established a Web-based system to share supplier-performance metrics with its supply base in real-time. For a subset of the company's suppliers, Deere employees update objective data such as delivery parts-per-million (ppms) and quality ppms as each shipment arrives at a Deere facility. Suppliers, in turn, can immediately access the updated information through a Web browser. To date, Deere has extended the online scorecard system to the approximately 600 suppliers participating in the company's Achieving Excellence program, targeted at building tighter relationships with the highest-impact suppliers.
The system does not provide for a perfect real-time supplier scorecard, since Deere still updates subjective information regarding supplier performance on an annual basis. But Allen Henning, director of supply management metrics and performance reporting at Deere, says that just providing the objective feedback to suppliers more quickly benefits both Deere and the suppliers. "If suppliers start to see a trend, they can analyze it as it starts to develop, rather than having us send the information out to them at the end of the quarter and dropping a bomb on them." Instead of correcting past problems, suppliers can address issues immediately, thereby pre-empting bottlenecks before they reach Deere's factories and improving their rating with the company.
While this system moves Deere closer to the proactive use of metrics, Henning says that his "wish list" for metrics would include greater ability for supply chain partners to warn each other of potential issues before they occur, although this will require much closer integration. "I really think that most people know when they are going to cause you a problem," Henning explains. "Unfortunately, today most people just don't tell you about it." But, as Deere develops closer relations with its suppliers, he predicts, "There will be a point in time when, if someone in the chain -- and it might be a second-tier supplier -- has a problem that will impact the chain, that supplier will start forewarning people so they can take action in advance of the due date."
AMR's O'Marah says that while supply chain metrics technologies are still evolving, most companies should at least be looking at the new technologies for gathering and sharing measurements. "It's not as though everybody is going to have to have a spectacular, Web-based collaborative buying engine," he says, "but if you don't start working on it, it's going to be a train that moves away from you, and it's going to pick up speed."
What can companies do today to leverage their supply chain metrics? Here's some advice on how to use the measurements technologies that are coming available:
- Pick your key metrics and stick to them. "Measure three things or five things, but don't measure 12 things," says Kevin O'Marah of AMR Research, adding, "Smart managers know what to measure, and they know that they shouldn't measure more than four or five things."
- Ensure sharing of measures within your enterprise so that all stakeholders have "joint ownership" on the company's profitability statement. "You will make the supply chain more effective," says Webango's Proverbs. "Marketing will give better forecasts, and planning is not going to sandbag, because they all are going to own a piece of the inventory measurement. At the same time, you will find that manufacturing owns a piece of the sales quota, and they'll all own a piece of the profitability measures."
- Leverage the past and think of the future. New metrics systems should be able to track data historically, showing trends and current status in real-time. "Historical is very crucial," says Balakrishnan of MetricStream. "That is the basis for forecasting and predicting ahead of time." interBiz's Jutras concurs, noting that the predictive technologies being built into today's metrics systems will allow companies to establish alerts that will notify the appropriate managers when a failure is impending. "If we are predicting that the shipment you are hoping to send to your biggest customer next week could have the potential of being delayed, then possibly you can make sure that doesn't happen," Jutras says.