Expert Insight: Guest Contribution
By Nigel Davies
Date: May 13, 2009

KPI-Driven Supply Chain


How to Master Complexity, Optimize Inventories, and Meet Rising Customer Expectations

With large enterprises gaining greater efficiencies through volume production and distribution, the only way for small- and mid-sized companies to compete in this environment are by perpetually improving and streamlining their processes. Best-in-class companies are embracing Key Performance Indicator (KPI) strategies to identify opportunities to compete on superior supply chain execution by driving process and systems improvements.

The challenge is that you can’t drive process improvements without a vigorous commitment to KPI-driven strategies based on real-time data collection. Existing spreadsheets and database tools tend to disperse information, rather than consolidate it into actionable intelligence. Without KPIs that provide actionable intelligence -- companies are liable to experience an array of problems that weaken performance, including excessive inventory, increase in transportation and labor costs, ineffective fulfillment, inadequate customer service and adversarial supplier relationships.

KPI Dependencies

KPI-driven strategies depend on operational models and improvement methodologies that help companies determine, monitor and enhance appropriate measures. They also depend on the underlying systems necessary to collect relevant information, distribute it and drive corrective action in real-time.

KPI-driven strategies possess four key dimensions:

  • Data Collection
  • Data Analysis
  • Control Workflows
  • Optimize Operations

Why KPI?

Companies derive benefits from the KPI-driven strategies approach by engineering costs out of their supply chain execution processes. The greatest gains are accomplished by taking control of the processes in real-time, identifying and isolating costly exceptions, and monitoring those exceptions as carefully and efficiently as possible.

Companies often handle exceptions and unexpected events by deploying expeditors and other personnel to handle those problems — which are extremely costly. Companies that deploy KPIs now have the benefit of actionable intelligence so they can take immediate action on exceptions; over time, reducing exceptions with process improvements.

Such efforts lead to increased responsiveness and increased profitability, while enabling the best-in-class companies that adopt these approaches to enhance their competitiveness. By driving out unnecessary costs associated with exceptions and inefficient processes, companies strengthen their connections with suppliers and deepen customer relationships.

Decision Criteria: What to Look for in a Software/Solution Provider?

When exploring the possibility of investing in KPI-driven supply chain execution, best-in-class companies found that suitable solution providers should have:

  • Supply Chain Execution Expertise. Understanding the complexities with today’s supply chain execution processes as experienced by today’s companies.
  • Process Improvement Expertise. Capable of adapting their solutions to support the process improvement efforts of their clients.
  • Flexible Event Detection Systems. Systems that track KPIs, monitor operational processes so corrective action can be in real-time when necessary.
  • Analytical Tools. Ability to analyze collected data or nonconforming event notifications so corrective action can be executed – minimizing the exception resolution cycle.
  • System Agnostic.  Capable of integrating with any ERP or Warehouse Management solution – no matter the vendor.
  • Scalable Solution. Provide offerings that match existing budgets and scalable to grow and meet their client’s needs.

KPI-driven supply chain execution offers small- and mid-sized manufacturers and wholesale distributors an opportunity to outmaneuver and differentiate themselves against larger rivals. But they’ll need to commit themselves to new methods, methodologies and systems – KPIs – through actionable intelligence. As best-in-class companies of all sizes have discovered, such moves are essential if they want to compete – and win – in the hyper-competitive markets of the present and future.

Agree or disgree with with our guest contributor's perspective? What would you add? Let us know your thoughts for publication in the SCDigest newsletter Feedback section, and on the website. Upon request, comments will be posted with the respondent's name or company withheld.

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profile About the Author

Nigel Davies
Vice President of
Supply Chain,
CDC Software

For over 30 years, Nigel Davies has been recognized as a leader in supply chain management through his expertise as a solution architect and has sustained active involvement in many large-scale system and device integration projects. Although Nigel has authored a number of industry articles and has been a frequent speaker at conferences in North America and the United Kingdom, his main passion is teaching and experiencing first-hand in all advancements relating to SCM.


Davies Says:

Companies that deploy KPIs now have the benefit of actionable intelligence so they can take immediate action on exceptions.

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