Readers Respond: Metrics and Supply Chain Performance
Several times a year, I get the luxury of having enough quality reader feedback from one of these columns to make a column on its own - and easy week for me.
Such was the case after a couple of columns I wrote in the recent past on metrics and supply chain performance. (See part 1 and part 2.) We certainly have had more feedback from a total number of emails before, but this was among the best ever in terms of depth of response.
"My point remains that if the targets are not set correctly, it results in what appears to be "desirable" performance when it is really "undesirable." That good/bad dichotomy is based on internal targets, which may not be what should really be achievable."
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To greatly summarize, I argued that metrics systems today in many companies are so strong that it would seem hard for them to get too far off the rails in terms of supply chain performance. Miss your numbers for very long, and you are soon "looking for new opportunities." Yet, there are major differences in supply chain performance across companies. Ergo, this must frequently be the result of setting metrics targets too low, out of gamesmanship or lack of awareness of what can really be achieved.
It is also very consistent with a phenomenon I have been writing about for many years that I call the 50% problem. That is that most companies tend to rate their supply chain performance as high, even though by definition 50% are in the bottom half of performance.
The always thoughtful Trevor Miles of software provider Kinaxis largely agreed with me, and offered some related interesting ideas on the topic.
The first was that "the craziest" supply chain metric is conformance to plan. "Measuring plan conformance shouldn't occur at more than a daily level, perhaps allowing that in fairly stable industries this could go out as far as a week," Miles wrote. Anything more than that "is crazy because of the assumption that he plan was correct in the first place."
He noted that since the demand plan is typically used to drive the supply plan, the question becomes how accurate is the supply plan? given the demand plan is always wrong. "So why are we forcing the organization to conform to a plan that is inherently wrong, or at least inaccurate, anyway?" Miles asked.
Plus, "stuff happens," as they say. "What I am missing in this discussion," Miles said, "is what do we do when the plan is wrong?"
Jane Barrett, a very smart analyst who is driving Gartner research agenda these days, wrote that "I loved your piece on metrics - so true." From her perspective, the issue is that "basically companies don’t know how to use the metrics. It’s not that they don’t measure enough!"
Is that right? Seems like at one level metrics should be commonsense enough, but Barrett restated Gartner's long term position that companies need a "hierarchy of metrics" to help them really focus on what is important in a structured way.
My friend Steve Murray of consulting and training firm Supply Chain Visions, which focuses on supply chain metrics as a core component of what the company does, agreed with me in part, but had a somewhat different perspective, in part along the same lines as Barrett's thinking.
He wrote that its "not just metrics, but the right metrics and the right target levels for the situation. This can change a bit from facility or product/customer type even in the same company."
He said he actively promotes programs along the lines of the example I gave of Sara Lee, which had a cascading series of "line of sight" metrics flowing from it S&OP process, or what Murray said are "metrics driven by corporate strategy at the top and linked down throughout the business to each functional area and work center. This may end up with a large number/variety of measures total for the business, but we like to see something in the range of 3-5 at each level."
That is a great structure to develop, he said - but it isn't enough to ensure performance.
"Finding the root cause for lower than desirable performance and letting the employees who do the work understand the business strategy and develop solutions to the problems builds a foundation that will reap on-going dividends as problems are resolved in a timely manner at the lowest level possible," he said. "I don’t think the targets are the problem as much as what is done with the results."
I agree in part, but my point remains that if the targets are not set correctly, it results in what appears to be "desirable" performance when it is really "undesirable." That good/bad dichotomy is based on internal targets, which may not be what should really be achievable.
Consultant and former supply chain executive David Schneider took a little bit of a humorous approach to his response, starting by asking what in fact a KPI really means.
"I saw a definition on the white board in a DC manager’s office years ago that said 'KPI = Keep Pushing Idiot!' Surrounding that were about 10 different measures that the DC manager said were irrelevant to his operation, but he had to calculate and send to corporate," Schneider wrote.
"A manager needs to know more than what his goals are. He must be able to measure his performance and results against the goal," Schneider added. "Many think that is where KPIs come into place. For this practice to work well, you have to set hard, achievable and time-bound goals that challenge the manager."
Schneider also argued that a specific increase in Operating Cash Flow (OCF) is the perfect measurable goal. "Frankly, I don't care what the manager does in detail to measure himself as long as he understands that the only measure I am going to use for him is how he contributed to company OCF," he says.
"Go ahead and argue that operating cash flow is too broad of a goal, or too hard for a manager to understand. I will just give you a blank stare of contempt," Schneider added. " Operating Cash Flow is not hard to understand, and a good leader will help a manager understand what activities a manager does that delivers positive OCF."
Consultant Nick Seiersen says that "I have seen many organizations track performance to a set of metrics, doing things they knew were not optimal for the business, but that drove a payoff, such as a bonus entitlement. There are other companies that have not worked through what really counts, or how to measure it."
Padmini Ranganathan of SAP agrees that developing a process in which companies really evaluate what performance targets really should be set will "require an organization change in mindset." He notes a solution SAP has developed (I am allowing free plug here based on the good feedback) that helps companies identify the right metrics and targets and then cascade those goals down through the rest of the organization for say something like cash-to-cash cycle goals.
Sherry Gordon of Value Chain Group says she thinks that differences in supply chain performance are due primarily to two factors.
First, "companies don’t take action on their scorecards," she says. "In many cases, scorecard metrics are not actionable. The best scorecard in the world can’t produce results without a company taking action on it. Many firms focus on scorecard creation and less emphasis on taking action on their scorecards."
Second, "companies measure those things that can be easily measured rather than what is important to the business. This can be due to not having readily available sources of data to create the desired KPIs. Or, a firm has not aligned its scorecards with company strategies and goals, by following the approach that you describe at Sara Lee, resulting in metrics that are a hodgepodge of what’s available in their system and what they think they should measure, but not based upon a robust metrics development process."
I think both points are worth self-examination, though with regard to point 1 I believe managers get fired today for not meeting objectives more rapidly than they ever have.
There was more feedback, but I am out of space. Thanks for the submissions, and I hope you enjoyed them as much as I did. Some of the full responses are published below. More next week.
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