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Applying Business Metrics For Value Chain Part 1

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Information about Applying Business Metrics For Value Chain Part 1

Published on December 19, 2007

Author: measuredperformance

Source: slideshare.net

Description

Overview of the use of metrics to improve supply chain and value chain performance - Part 1, Selecting detail metrics and how to drive financial performance is in Part 2
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Applying Business Metrics for Value Chain / Supply Chain Operations: A Tutorial (Part 1) Scott Stephens Business Forerunners, Inc. http://measuredperformance.blogspot.com

Finance is “true north” Business performance may be driven by counter-intuitive solutions Metrics, intelligently utilized, can align business performance to financial objectives Supply Chain Operations Cheaper Faster Better http://measuredperformance.blogspot.com

Finance is “true north”

Business performance may be driven by counter-intuitive solutions

Metrics, intelligently utilized, can align business performance to financial objectives

Overview Definitions Employing Metrics – Goals, Objectives, and Issues Linking Strategy to Results Performance Measures Level 1, 2, & Metrics http://measuredperformance.blogspot.com

Definitions

Employing Metrics – Goals, Objectives, and Issues

Linking Strategy to Results

Performance Measures

Level 1, 2, & Metrics

Definitions: Metrics, Key Performance Indicators, and Measurement Metrics – “a standard of measurement” Inches, feet, meters Value of finished good inventory Order Fulfillment Cycle Time Key Performance Indicator – a metric that has been chosen to be pivotal in understanding past, present or future business performance Braking Distance Asset Turns Order Fulfillment Cycle Time Measurement – the value derived from applying a metric Braking Distance of a car traveling at 50mph is 82 feet Finished Goods Inventory Turns 23 times per year Order Fulfillment Cycle Time is 4 days http://measuredperformance.blogspot.com

Metrics – “a standard of measurement”

Inches, feet, meters

Value of finished good inventory

Order Fulfillment Cycle Time

Key Performance Indicator – a metric that has been chosen to be pivotal in understanding past, present or future business performance

Braking Distance

Asset Turns

Order Fulfillment Cycle Time

Measurement – the value derived from applying a metric

Braking Distance of a car traveling at 50mph is 82 feet

Finished Goods Inventory Turns 23 times per year

Order Fulfillment Cycle Time is 4 days

Metric / Management Goals You cannot manage what you do not measure Measurements provide an objective yardstick for management, operations, and improvements Not all measurements are equally important There are more opportunities to measure and collect data than can or should be pursued Most companies do not fail to collect information – they collect too much and do too little with the meaningful data they have Measurement can be expensive Instrumenting supply chain operations Data management - Data Management - Data Management Conflicting measurements produce barriers to effective operations Same term being used to describe two different measurements Dissimilar measures being applied to assess similar activities Point measures can produce misleading results http://measuredperformance.blogspot.com

You cannot manage what you do not measure

Measurements provide an objective yardstick for management, operations, and improvements

Not all measurements are equally important

There are more opportunities to measure and collect data than can or should be pursued

Most companies do not fail to collect information – they collect too much and do too little with the meaningful data they have

Measurement can be expensive

Instrumenting supply chain operations

Data management - Data Management - Data Management

Conflicting measurements produce barriers to effective operations

Same term being used to describe two different measurements

Dissimilar measures being applied to assess similar activities

Point measures can produce misleading results

Objectives Metrics provide a basis for strategic planning Sales and operations planning Business area investments Metrics provide a basis for negotiating acquisition (supplier) and delivery (customer) agreements Metrics provide a bases for establishing operational goals and managing to achieve those goals Metrics provide a basis for identifying supply chain improvement opportunities, prioritizing investments, and determining Return on Investment http://measuredperformance.blogspot.com Metrics are the most explosive subject in supply chain management Different constituencies have investments in their “key performance indicators” and definitions Compensation is frequently tied to established metrics Metrics provide the greatest “lever” for operational and cultural change

Metrics provide a basis for strategic planning

Sales and operations planning

Business area investments

Metrics provide a basis for negotiating acquisition (supplier) and delivery (customer) agreements

Metrics provide a bases for establishing operational goals and managing to achieve those goals

Metrics provide a basis for identifying supply chain improvement opportunities, prioritizing investments, and determining Return on Investment

Metrics are the most explosive subject in supply chain management

Different constituencies have investments in their “key performance indicators” and definitions

Compensation is frequently tied to established metrics

Metrics provide the greatest “lever” for operational and cultural change

Supply Chain Operations Reference Model (SCOR) SCOR Model, while best known as a business process modeling framework, also addresses metrics Metrics hierarchy that is aligned with business processes Over 300 defined metrics Measurement boundaries identified Metric hierarchies support strategy, planning, operations, and improvement activities Six Sigma Lean Common definitions Definitions constructed to drive financial performance Definitions constructed to be used by cross-enterprise stakeholders Definitions constructed to be acceptable to cross-functional stakeholders DCOR / CCOR Metrics which are designed to be similar and related are less mature http://measuredperformance.blogspot.com

SCOR Model, while best known as a business process modeling framework, also addresses metrics

Metrics hierarchy that is aligned with business processes

Over 300 defined metrics

Measurement boundaries identified

Metric hierarchies support strategy, planning, operations, and improvement activities

Six Sigma

Lean

Common definitions

Definitions constructed to drive financial performance

Definitions constructed to be used by cross-enterprise stakeholders

Definitions constructed to be acceptable to cross-functional stakeholders

DCOR / CCOR Metrics which are designed to be similar and related are less mature

Value Reference Model (VRM) VRM Model, like the SCOR Model, while best known as a business process modeling framework, also addresses metrics Metrics, like the processes, are designed to integrate product development, raw material acquisition, manufacturing / production, distribution, marketing, sales and service Metrics hierarchy that is aligned with business processes Over 300 defined metrics Measurement boundaries identified Metric hierarchies support strategy, planning, operations, and improvement activities Six Sigma Lean Published as Value Cards Common definitions Definitions constructed to drive financial performance Definitions constructed to be used by cross-enterprise stakeholders Definitions constructed to be acceptable to cross-functional stakeholders http://measuredperformance.blogspot.com

VRM Model, like the SCOR Model, while best known as a business process modeling framework, also addresses metrics

Metrics, like the processes, are designed to integrate product development, raw material acquisition, manufacturing / production, distribution, marketing, sales and service

Metrics hierarchy that is aligned with business processes

Over 300 defined metrics

Measurement boundaries identified

Metric hierarchies support strategy, planning, operations, and improvement activities

Six Sigma

Lean

Published as Value Cards

Common definitions

Definitions constructed to drive financial performance

Definitions constructed to be used by cross-enterprise stakeholders

Definitions constructed to be acceptable to cross-functional stakeholders

Model Metrics – Pros and Cons Pro – Metric definitions extracted from member companies (not a theoretical exercise) Pro – Metric definitions, the metric framework, and their use tested Multiple Industries Multiple Disciplines Multiple case studies (with proven success as measured in $$$) Pro – Metric definitions are maintained in a “neutral” respository (independent trade organization) Con – Definitions are not-tailored to specific company or company applications (and existing / competing definitions in place) Con – Metric definitions are in a continuous state of improvement Shortcoming in retail (particularly as it relates to merchandising) Shortcoming in service industries (manpower metrics) Con – Metric structure and hierarchy are not explicit http://measuredperformance.blogspot.com

Pro – Metric definitions extracted from member companies (not a theoretical exercise)

Pro – Metric definitions, the metric framework, and their use tested

Multiple Industries

Multiple Disciplines

Multiple case studies (with proven success as measured in $$$)

Pro – Metric definitions are maintained in a “neutral” respository (independent trade organization)

Con – Definitions are not-tailored to specific company or company applications (and existing / competing definitions in place)

Con – Metric definitions are in a continuous state of improvement

Shortcoming in retail (particularly as it relates to merchandising)

Shortcoming in service industries (manpower metrics)

Con – Metric structure and hierarchy are not explicit

Using the Metrics Establish goals 5 (five) dimensions of product line performance Varies by product family, product line, customer, geography Identify top level metrics Measure actual performance Determine desired performance Identify lower level metrics drivers Instrument the across the product line (internal and external) Determine diagnostic metrics for in-depth analysis Measure actual performance Determine desired performance Execute change Instrument supply chain for exception monitoring “ Routine” measurement Identify out-of-limits performance http://measuredperformance.blogspot.com

Establish goals

5 (five) dimensions of product line performance

Varies by product family, product line, customer, geography

Identify top level metrics

Measure actual performance

Determine desired performance

Identify lower level metrics drivers

Instrument the across the product line (internal and external)

Determine diagnostic metrics for in-depth analysis

Measure actual performance

Determine desired performance

Execute change

Instrument supply chain for exception monitoring

“ Routine” measurement

Identify out-of-limits performance

The “goodness” of operations – establishing goals – top level metrics http://measuredperformance.blogspot.com Positioning – how successfully do you generate demand, recognize demand, shape demand Market share Forecast accuracy Availability – how well do you satisfy demand Revenue driver (Lost and future sales) Velocity (Speed) – how quickly can you satisfy demand Time to market, Time to Volume Reliability (– how well do you meet your commitment to the customer Flexibility – how well can you react to abnormal (unplanned) changes in demand or market conditions Enables revenue Mitigates inventory risk Incurs cost which may not be recovered Cost – how much do you pay for operations Drives cost and margin Enables revenue (potentially lower price point) Asset Utilization – how effectively do you utilize your assets (fixed and working capital) Drives margin Drives cash flow and Return on Assets Earnings

Positioning – how successfully do you generate demand, recognize demand, shape demand

Market share

Forecast accuracy

Availability – how well do you satisfy demand

Revenue driver (Lost and future sales)

Velocity (Speed) – how quickly can you satisfy demand

Time to market, Time to Volume

Reliability (– how well do you meet your commitment to the customer

Flexibility – how well can you react to abnormal (unplanned) changes in demand or market conditions

Enables revenue

Mitigates inventory risk

Incurs cost which may not be recovered

Cost – how much do you pay for operations

Drives cost and margin

Enables revenue (potentially lower price point)

Asset Utilization – how effectively do you utilize your assets (fixed and working capital)

Drives margin

Drives cash flow and Return on Assets

Earnings

Strategy Drives Objectives and Metric Goals http://measuredperformance.blogspot.com Flexibility Availability Position Cost Assets Product Introduction – Early Adopters Flexibility Availability Position Cost Assets Mature Product – “Cash Cow” Flexibility Availability Position Cost Assets Mature Product – End of Life Flexibility Availability Position Cost Assets New Product – Market Share

Tools Software providers are increasingly supporting use of the metrics in conjunction with business processes (and without) SAP Gensym Xelocity Business Objects SAS MetaStorm IDS Scheer Executive dashboards http://measuredperformance.blogspot.com

Software providers are increasingly supporting use of the metrics in conjunction with business processes (and without)

SAP

Gensym

Xelocity

Business Objects

SAS

MetaStorm

IDS Scheer

Executive dashboards

http://measuredperformance.blogspot.com http://measuredperformance.blogspot.com

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