A Publication of WTVP

Successful businesses are rethinking their supply chain metrics. In fact, survival today may require design, development, and implementation of a new generation of supply chain metrics. Managers require metrics to demonstrate performance improvements and the value created across the entire supply chain. However, the metrics currently used in most enterprises can’t capture performance across multiple companies and typically aren’t translated into financial performance. Historically, the basic elements of a supply chain—procurement, warehousing, transportation, fulfillment, and information systems—are measured and evaluated separately.

So what’s the problem? Single performance measurements can’t capture performance differences between suppliers, customers, or supply chains. The internal focus of these metrics often drives management in a direction that maximizes local efficiency but runs counter to improving supply chain effectiveness. As managers attempt to collaborate across multiple enterprises, supply chain metrics are essential for evaluating and aligning performance.

In addition, different enterprises and supply chains employ different strategies to achieve a competitive advantage. Some may focus on a differentiation strategy and will adopt metrics focusing on speed, flexibility, and the ability to permit mass customization. Each supply chain in which an enterprise participates may require different metrics to reflect differences in strategy, objectives, and trading partners.

Today, businesses must sense and quickly respond to changing stimuli in “the new reality,” which includes such key elements as soaring fuel costs, driver and other labor shortages, capacity constraints, highway and port congestion, and crumbling infrastructure.

Additionally, rapidly increasing global trade is accelerating the rate of change and adding complexity to operations. Organizations from all industries are experiencing the impact of outsourcing, reconfiguration of their global supply chain network, increased security requirements, and shifting economic realities. And our focus on lean logistics and supply chain optimization makes it easy to overlook the risks that are inherent therein and/or those that are introduced or magnified in an effort to achieve cost efficiencies.

A combination of integrated supply chain and supporting corporate measures are necessary for developing the linkages and measuring the performance within the supply chain. For example, an order fulfillment process connecting suppliers, manufacturers, distributors, and end users might focus on integrated supply chain process measures such as high availability, fresh product, low landed cost, no loss or damage, or quick delivery.

As trading partners share information, exchange knowledge, and integrate processes, it becomes extremely difficult to use internally focused measures to evaluate performance.

Integrated supply chain measures provide the capabilities to measure performance across enterprises while supporting corporate measures that enable managers to determine and align the performance within individual firms. The combination of integrated and supporting measures provides the capability to quantify the impact of each firm’s actions on the overall supply chain. Once the performance measurements are established, managers can intelligently identify the most cost-effective “levers” across the supply chain for achieving a desired service level. IBI