Measuring to Manage or Barely Managing to Measure
Respondents to a Bain & Company survey say they run their supply chains only half as efficiently as top supply chain performers such as Toyota, Dell, and Home Depot. In fact, top-quartile performers spend just 4.2 percent of revenue on supply chain costs, compared to almost 10 percent for average performers in the same industry.
What might explain this? While most respondents feel their supply chain gives them a competitive advantage, 45 percent say they have only little or basic supply chain data. While lack of critical technology can contribute to that dearth of data, it can also be due to a variety of other issues such as not aligning your supply chain with the overall company strategy, being too focused on your internal supply chain, or coping with the challenges of omni-channel marketing.
A supply chain's performance is the result of policies and procedures that drive various critical segments of the operation. The challenge is designing metrics to manage organizations that are comprised of complex and interconnected systems. This challenge is rapidly gaining importance as supply chain managers face increased pressures on customer service and asset performance.
Sony, for instance, is acutely aware that its products at Best Buy and Walmart ultimately affect profitability the longer its products sit on the shelf. As a result, the electronics company changed its delivery metric from "sell-in" to "sell-through." Sell-in allows its sales department to chalk up a sale when product is shipped to the retailer; sell-through chalks up a sale only after the product is sold and paid for.
As competition increases, and market forces continually change, supply chain performance management is a critical area to help companies sustain and gain competitive advantage by enabling an agile, lean, and efficient customer-oriented supply chain. One step in the Lean journey is to identify objectives that tie to overall business strategies and goals, including metrics to measure whether or not your company is successful in attaining these objectives.
The old saying, "If you can't measure something, you can't improve it" is especially true in a Lean supply chain. Even if you are measuring performance, you may be measuring the wrong things in some cases. Here are a few examples:
- Engineering designs products without a Lean supply chain in mind.
- Accounting focuses on measures for individual processes, but does not consider the performance of the entire process, internal and even external.
- Sales focuses primarily on booking orders without regard for what product mix the company planned to be sold and produced.
- Plant management focuses on shipping dollars, and uses efficiency, utilization, and overhead absorption metrics that go head to head with the goal of reducing cycle time and customer satisfaction.
It is critical to set meaningful, relevant, and attainable targets based on a holistic strategy for internal and external networks to ensure that everyone is focused on a Lean supply chain. At the same time, don't create paralysis by analysis, where people end up focusing more on the numbers than on the customers.
Parts of this column are adapted from Lean Supply Chain & Logistics Management (McGraw-Hill; 2012), Lean Retail and Wholesale (McGraw-Hill; 2014) and Supply Chain and Logistics Management Made Easy (Pearson, 2015) by Paul A. Myerson with permission from McGraw-Hill and Pearson, respectively.