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Strategic Supply Chain Management
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The metrics you use will evolve as your supply chain processes mature and will vary based on how functionally focused your supply chain is. Clearly, it s futile to establish aggressive targets for cross-enterprise collaboration if your company is still struggling to move beyond a functional focus (see Figure 5-5). Even if your company focuses only on functional processes, metrics based solely on functional performance are inappropriate. Besides encouraging functional silos, measuring functional performance alone can promote functional excellence at the expense of overall supply chain excellence. For example, the customers of a large telecom company were demanding lower prices. In response, the company pressured its procurement group to lower the cost of materials by negotiating better prices with suppliers. The buyers negotiated substantial discounts by committing to higher-volume purchases for some materials and finding lower-cost suppliers for others. On a monthly basis, the purchasing group posted the results of its efforts a declining cost per unit of materials. After a few months, however, it became clear that the focus on reducing materials costs was having a negative effect elsewhere in the
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F I G U R E 5 5
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Focus of metrics to solve performance problems.
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Supply Chain Characteristics Focus of Metrics Performance of speci c functions or departments
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Functional Focus Lack of functional policies/processes and basic operations management leads to unpredictable product quality and supply. Process Focus Although processes, systems, and disciplines are in place to optimize functional quality, cost, and cycle times, cross-enterprise performance may be suboptimized. Enterprise Focus Supply chain processes are integrated, aligned across all subprocesses and levels of management, and display world-class performance and continuous improvement. Cross-Enterprise Focus Integration of both internal and external processes allows enterprise partners to focus on their customers, supply chain partners, core competencies, and on creating value.
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Performance of speci c processes within or beyond a functional area
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Performance of crossfunctional processes
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Performance of crossenterprise processes and designated external processes
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CHAPTER 5 Core Discipline 5: Use Metrics to Drive Business Success
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business. Buying in volume caused inventory levels to increase. And manufacturing yields were dropping a problem traced back to lower-quality materials purchased from the low-cost suppliers. The moral of this story is clear: Exclusive use of functional metrics can drive unwanted behaviors and interfere with overall strategy execution. Functional metrics aren t bad in and of themselves, but they can hurt overall performance if not combined with cross-functional measurements that enhance the end-to-end supply chain.
Choose Metrics That Support Your Strategy
In 2, we discussed the importance of organizing around crossfunctional processes and breaking down functional silos to support the end-to-end supply chain. Your metrics program must do the same break down the barriers and handoffs between functions by using cross-functional and process-based performance measures to supplement functional metrics. Functional metrics then become useful tools for diagnosing the causes of performance problems. The first step in choosing the right metrics is to assess your company s supply chain maturity. The next step is to review your overall strategic objectives and any plans you have to move to the next stage of maturity cross-process excellence, for instance, or cross-company excellence. Then you can begin to structure a balanced set of supporting metrics, including top-level metrics that evaluate whether or not your supply chain is supporting your company s overall strategy. Our design of the SCOR model was influenced heavily by our work with hundreds of companies in establishing appropriate approaches to supply chain performance management as part of operations strategy and performance-improvement programs. This work allowed us to establish one of the world s most comprehensive databases of supply chain metrics and associated best practices, which, in turn, became the foundation for PMG s supply chain management database. These metrics and practices are embedded in the SCOR model and are leveraged widely by all industries today. PMG s Supply Chain Management Benchmarking Study, an ongoing survey of supply chain practices and performance, is based on the same work that led to creation of the SCOR model and uses the same hierarchical construct. At the highest level, the SCOR model provides quantitative measures of performance under 5 key attributes and 13 specific measures.5 SCOR level 1 metrics typically are associated with executive-level concern (see Figure 5-6).
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