I got multiple questions/comments in my mailbox and post related to my Supply Chain Metrics post where I talked about some metrics that we generally talk about, to improve the Supply Chain efficiency and to measure its maturity levels. One of the comments from a reader were, "...these metrics are fine but how will you relate these metrics like perfect order and cash to cash cycle time with real measurement of Supply Chain maturity level? Are they tied with higher level attributes in the supply demand train and if yes, then what are those attributes. Lastly, how exactly we should proceed scientifically to do a status check on our Supply Chain?".
I did not answer this question in mail and want to take a shot at it in this post. Though, I would not like to dwell into how can we scientifically do a status check of Supply Chain as there are mutliple ways to do it and in my view, no way is a panacea for all organizational SCM issues. This has to be a custom approach looking at the KPIs first and then tying them to multiple dynamic org specific factors. To learn about this, I will suggest reading book called Strategic Supply Chain Management which is the authoritative, all-in-one reference and guidebook for creating value and competitive advantage for each core supply chain process: plan, source, make, deliver, and return.
Coming to the broad attributes which define the performance of a supply chain, as defined in the SCOR (Supply Chain Operations Reference) model, these are:
- Supply Chain Reliability - This is the performance of the supply chain in delivering: the correct product, to the correct place and customer, at the correct time, in the correct condition and packaging, and with the correct quantity and documentation. The key metrics that measure reliability are:
- Delivery Performance
- Fill Rates
- Perfect Order Fulfillment
I will not talk about these metrics in details as these were explained in earlier post.
- The next one is Supply Chain Responsiveness - It is the speed at which a supply chain provides products to the customer. This attribute is totally govered by Order Fulfillment Lead Times only.
- Supply Chain Flexibility - Flexibility is the agility of a supply chain in responding to marketplace changes to gain or maintain competitive advantage. The key mtrics that we need to measure here, are: Supply Chain Reponse Time and Production Flexibility.
- Supply Chain Costs - These are the costs associated with operating the complete supply chain. These costs include metrics like cost of goods sold (COGS), inventory carrying costs, value added productivity and warranty and returns costs (including their processing costs). This SCM attribute is one of the biggest ones and need to be further broken into multiple level2 metrics to make sure we do not miss on any of the costs.
- Supply Chain Asset Management Efficiency - Finally, the effectiveness of an organization in managing assets to support demand satisfaction. This includes the management of all assets: fixed and working capital. Metrics like Cash to Cash Cycle Time, Inventory days of supply and assets (inventory) turns per annum are key to measure this attribute of supply chain management.
I hope, I am able to answer atleast the first part of his question and we saw that all those SCM Metrics that we discussed earlier is tied to one step higher attributes of SCM, which are the direct inputs to calculation of Supply Chain Performance. All these attributes are part of balanced scorecards that have the capability to convert the analytical problem to a numberical problem so that the numerical problem can be resolved fast (We are always good in fixing numbers). After the numerical problem is fixed with a numerical solution, it can be again converted to analytical solution and this process is used in multiple organizations to fix even the most complex of supply chains.