Published on March 7, 2014
SUPPLY CHAIN PERFORMANCE REPORTING AND METRICS 11 Sep 2012, CATTAN Services Group, Inc. 0 Many managers see supply chain performance reporting and metrics as a huge time drain that results in a series of uncomfortable conversations and confrontations they would rather not endure. You cannot manage what you cannot measure, and your supply chain is one of the most important functions to manage. The good news is that you’re Logistics and Supply Chain Management people are probably already doing a lot of measuring. The bad news is that they might not be measuring the right things. To measure your supply chain effectively, you must identify metrics that are appropriate for your organization and that will improve business performance. Identifying and implementing the metrics, benchmarks and processes that enable you to transform supply chain monitoring into business improvement should be the goal of every Logistics and Supply Chain Manager. Then you will truly be measuring what matters. PERFORMANCE REPORTING Performance management reporting is one of the significant impacts in the supply chain movement, with companies putting increasing focus and technology behind developing a range of scorecards and dashboards for themselves as well as their trading partners. Basically, all metrics are not the same. They may differ in their inherent focus and the type of measurement system that should be used. You get what you measure. It is incumbent that you align your performance measures with the overall supply chain objectives, and look carefully for situations where well-meaning incentives established at individual logistics function or activity levels may actually be counterproductive. Performance management reports are measurements of Logistics and Supply Chain activities. These reports compare actual performance with predetermined goals in various areas of the logistics operation and thus constitute an important part of the comprehensive budgeting, planning, and control system. Therefore, results are usually measured and analyzed by management within the framework of the "management by exception" principle through these Logistics and Supply Chain performance reports. These reports provide supply chain visibility which also enables exception-based management. With defined metrics and business rules, a company can use a supply chain visibility platform to identify and notify key trading partners and logistics functions when an exception occurs along the supply chain. Periodically, based on these reports, you should measure your Logistics and Supply Chain strategies to gather information that will enable you to adjust the strategic implementation plan for the overall supply chain management process. This adjustment may take several forms or combinations: • • • • Altering the strategy Reallocating resources Adjusting the action plan Revising objectives
METRICS AND KPIS Every Logistics and Supply Chain executive should have a set of key metrics or Key Performance Indicators (KPIs) for their organization. KPIs are the gauges and instruments on the dashboard or the controls on the cockpit—the navigational tools by which the executive pilots. A measurement system or Metrics are control mechanisms which: • Track performance, productivity, and/or financial activity • Allow for charting of results to indicate trends, aberrations, and incremental “creep” within control limits or parameters. • Can act as a self-diagnostic tool and report card Each metric should have pre-established targets, which may be subject to change along with the performance evaluation needs of the department. Metric development is an ongoing process that should be improved continually. By tracking results and revising pre-established targets, actual performance can be tracked against certain benchmarks, based on some type of baseline: • Company goals or expectations • Competitors’ measures • Industry sector benchmarks • Good procurement or best practices • Combinations of the above You need baselines to compare your metrics against—so that you know how you match up to competitors—and whether your performance is improving or declining. Benchmarking data sources include: Institute for Supply Management’s CAPS Research at http://www.ism.ws/caps The Supply Chain Council at http://www.supply-chain.org The American Productivity & Quality Council at http://www.apqc.org The Council of Supply Chain Management Professionals at www.cscmp.org Supply Chain Metric at http://www.supplychainmetric.com Warehousing Education and Research Council at http://www.werc.org The prime value of using metrics and KPIs is creating the opportunity to review progress and share the learning among those responsible for implementing the strategy—Logistics and Supply Chain management and cross-functional team personnel, key supplier personnel, internal customers, external customers, and senior management. Periodically you should measure your Logistics and Supply Chain strategies to gather information that will enable you to adjust the strategic implementation plan for the overall supply management process. This adjustment may take several forms or combinations: • • • • Altering the strategy Reallocating resources Adjusting the action plan Revising objectives SUMMARY Supply chain performance management reporting requires the creation of internal and external monitoring systems to ensure that objectives are met. Not only do “world-class” companies use internal metrics to measure their performance against corporate goals, but they also compare their performance to that of competitors and other excellent companies, as well as informing their trading partners on how well they did.
Thomas L. Tanel, CTL, C.P.M., CISCM, is the President and CEO of CATTAN Services Group, Inc., www.cattan.comspecializing in Logistics and Supply Chain issues. He is also the Chair of ISM’s Logistics & Transportation Group and can be reached at firstname.lastname@example.org (979) 212-8200.
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