Meta Title: The key metrics for supply chain measurement, and a range of systems to extract those Formatted:

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key metrics from your supply chain.

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Measuring the Supply Chain

Using metrics to support and enhance business functions isn’t just a 21st century preoccupation. Ever
since Frederic W. Taylor pioneered his scientific management theory for industrial theory back in the
early 1900’s,; organizations have been obsessed with adequately monitoring and controlling their
processes. In today’s cutthroat marketplace, where a culture of continuous improvement is necessary
for any business looking to maintain a competitive advantage, effective performance measurement has
become even more vital.

However, when it comes to the complex interrelated activities that make up the supply chain, often
management is content to limit that measurement basis to simple costs, and cost reductions. The
modern supply chain is dynamic and constantly shifting. Relationships between suppliers and
distributors are constantly fluctuating, an ever changing mix of manufacturing techniques is being used
to support production of a variety of SKUs, and multi-channel delivery options are in effect to guarantee
ease and accessibility for customers.

To accurately assess supply chain performance and move towards improvement, an understanding of
inputs and outcomes that extends past just cost, is required.

Key Metrics for Supply Chain Performance

The first step to identifying key supply chain performance measures is putting the focus on strategic
objectives for the business as a whole. Too often organizations fall into the trap of trying to achieve
operational excellence for each function individually without looking at how those departmental
objectives align with the company’s activities as a whole. The result is procedures that affect the speed,
responsiveness and cost-efficiency of the entire supply chain.

For example, a customer service representative will be primarily focused on ensuring his client’s
satisfaction regardless of how this impacts manufacturing, and logistics operations. The result is often a
function focused securing smaller- orders across disparate geographical location,; which increases
holding costs in turn, as higher levels of inventory are built up across multiple sites to cater for this
demand. Logistics will also become more inefficient as vehicles are sent off with half-empty loads to
service far-flung clients.

Similarly in manufacturing, you might find line managers targeting performance metrics that produce a
high level of finished inventory; often customer orders will be consolidated into a single uninterrupted
production run to optimize manufacturing costs. This makes the entire supply chain less flexible, and
slower to respond to sudden changes in customer demand.

To integrate improvements across the supply chain, cross-functional process measures are required to
supplement functional metrics. This allows management to trace the performance of activities such as
order fulfillment, and product development; through multiple departments; this is referred to as a
hierarchical supply chain performance measurement system. The criterion for superior cross-functional
performance should be based on critical performance attributes identified by customers and senior
management; these may involve reliability, responsiveness, cost or quality.

Methods of Supply Chain Measurement

The Balanced Scorecard
Although not specifically developed with supply chain performance in mind, the balanced scorecard
approach to performance measurement has seen widespread use across numerous industries. The
balanced scorecard measures supply chains through only a few key metrics; these KPIs are linked to:
financial performance, customer service, international business processes and research & development.
So a variety of quantitative and qualitative basis will be used to judge performance.
The SCOR Model
This is a supply chain-specific measurement framework and it focuses upon 5 key elements:

 The reliability of the supply chain

 The responsiveness of the supply chain
 The scalability of the supply chain
 The costs of the supply chain
 The asset management efficiency of the supply chain.

These elements are examined through the lens of five functions:

 The planning function: Related to demand and supply planning, takes into account compliance,
inventory, transportation and asset management
 The sourcing function: Involves procurement of goods and services, acquisition of materials,
outsourcing of infrastructure and of course supplier relationships
 The production function: Any and all value-added activities responsible for producing the goods
or services in a finished condition, includes manufacturing and packaging.
 Delivery: order management, warehousing distribution and transportation
 Returns: Includes any after-sale customer support activities

The Logistics Scoreboard

This measurement system is centered on the logistical capabilities of a supply chain. The integrated
performance measures involved are used to measure: finances, productivity, quality and cycle times
involved in logistical functions. In order to guarantee effectiveness these metrics will need to be used in
conjunction with production, and procurement measures.

The Supply Chain Maturity Model for Capability Assessment

This holistic measurement system is used to assess the current capabilities of the supply chain and
where improvements are necessary to ensure operational excellence. This is a wholly qualitative model
that assesses supply chain performance on the basis of 5 defined stages in the transformation process.
The ; the stages are:

 Ad Hoc: No process measures in place, functions operate independently with no horizontal

integration
 Defined: Although there are regular cross-functional meetings for the discussion of holistic
process improvements, representatives are still tied to their respective functions
 Linked: Cross-functional teams that link departments, vendors and customers are used to drive
process measurement across the entire organization
 Integrated: All processes take place with input from vendors, suppliers and multi-functional
employees. The entire structure of the organization is based on process, no function.
  Extended: The organization functions as one multi-firm network. A collaborative culture is firmly
instilled in all of the organization’s activities and all processes are focused on providing the best
value to the customer.

The maturity model allows for similar means of measurement for operation excellence in specific
objectives such as procurement optimization, new product development, enhancement of lean
capabilities, and improvements in standard operating procedures. In each case managers must identify
the current “State” of the business and identify the next target to achieve, gaps between the existing
and desired level must be recognized and then closed.

Beyond Measurement
Data isn’t enough, while effective performance measurement can produce a variety of actionable
insights that can drive your supply chain transformation. Taking advantage of these metrics is only
possible through proper analysis and planning.

In my next blog, I’ll be taking you through the process of deriving plans and decisions from the glut of
information provided by the multiple touchpoints of the supply chain.