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Gathering comprehensive benchmarking data takes time and effort. And since most benchmarking services charge a fee for participation and database access, there s usually an out-of-pocket cost as well. Logic would say that any company willing to make this sort of investment would highly value the resulting information and make every effort to leverage it. Yet, a recent survey of hundreds of companies found that few had used their supplychain metrics to drive strategic management practices, and most had failed to realize a full return on investment from their benchmarking efforts.4 This is true of many companies. Too often they review the benchmarking information but don t use it to move the company forward. Over time, the data-collection effort no longer may seem worth the benefits achieved.
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There are four major steps to putting a performance-management program in place: 1. Set supply chain strategy objectives. Start with your company s business strategy, and then develop supply chain objectives that support this strategy. 2. Choose supporting metrics and targets. Identify the specific metrics and targets that you ll use to track progress toward your supply chain objectives. 3. Identify supporting initiatives. Develop performance-improvement programs to help meet the supply chain objectives. 4. Implement the programs. Collect data and develop tools for reviewing the data and to support decision making.
Set Supply Chain Strategy Objectives
Create supply chain objectives and priorities that support your company s business strategy. Although senior management may agree with the supply
CHAPTER 5 Core Discipline 5: Use Metrics to Drive Business Success
chain strategy overall, opinions may vary as to which supply chain performance criteria are most important. This is where a standard framework for performance management, such as the Supply-Chain Operations Referencemodel (SCOR), can come in handy. If necessary, interview senior managers or conduct workshops to validate the supply chain priorities. Articulate the key objectives expressed during these sessions and then validate them with the entire management team and with other stakeholders inside and outside your own organization.
Choose Supporting Measures and Targets
Once you ve agreed on the key objectives of your supply chain strategy, choose the metrics you ll use to gauge progress toward those objectives. The best place to start is with an assessment of current performance levels. Then use a tool such as PMG s supply chain performance scorecard to define a list of metrics and ensure consistency. Group the metrics according to which aspect of the business strategy they support. Use the standard definitions to determine the baseline performance level and internal and/or external benchmarking to set near- and long-term targets. As mentioned earlier, choose aggressive but achievable targets. Start with a few metrics and insist on widespread use before adding additional metrics. Metrics to consider as a starting point include SCOR level 1 metrics, such as inventory days of supply, delivery performance, order-fulfillment lead time, and cash-to-cash cycle time.
Identify Supporting Initiatives
Start by looking at all existing initiatives, their expected impact, and how well they re aligned with the objectives of your supply chain strategy. Eliminate any initiatives that are redundant or misaligned, identify gaps that might prevent achieving the stated objectives, and develop programs to address those gaps. Then update your performance targets, tying targeted improvements to specific activities to clearly show the cause and effect. Getting management support for these improvement programs is critical.
Implement the Programs
Almost every performance-improvement program will require systems support. You may choose to design and build an in-house system or buy a data warehouse, an enterprise resources planning (ERP) module, or a stand-alone solution that offloads data from your ERP system. Knowing the specific data sources is critical when choosing the right system tool. So is understanding how your performance-management approach will link to other efforts and
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