Improve Your Supply Chain's Performance By Measuring 3 Processes
From the January 2001 edition of Managing Logistics
Many of today's supply chains, whether they are virtual or real-world, are not correctly measuring their performance█some are not measuring at all. The most common consequence of this is that customer satisfaction is low and logistics costs are higher than average. Fortunately, a new study and book from Computer Sciences Corp. and the University of Tennessee help managers put together a systematic approach to implementing process measures.
There are three key processes that managers should focus on measuring: fulfillment, sourcing and procurement, and planning/forecasting/scheduling.
According to the report, 30% of logistics respondents are unaware of capability or performance in fulfillment or do not measure it at all. Thirty-four percent measure fulfillment performance, but have taken no action beyond that. And 37% not only measure performance, but also have taken positive actions to create improvements.
Firms that have a competitive advantage in order fulfillment have better internal information capabilities than those that do not. They also use data warehousing systems and systems that collect and make data available to all supply chain partners. Finally, they also have a focus on customer service and are driven by what the customer says and does.
In addition, those who wish to achieve operational excellence in order fulfillment should focus on ontime delivery, order cycle time, transportation costs, complete orders, and availability of information. ¤This suggests that if you want a competitive advantage in order fulfillment, you need IT solutions and you have to be externally driven by customers and not so focused on budgets and accounting plans,Ë says James Keebler with the University of Tennessee.
Sourcing and Procurement
The second supply chain process, sourcing and procurement, is actually measured by 60% of the responding firms, or they have taken action to make improvements. The characteristics that distinguish firms in sourcing and procurement include internal and external sources and procurement processes. These areas are where most respondents don't spend much time,Ë says Keebler. ¤They don't treat suppliers with sensitivity or provide them with a level of information█the same information they want to secure from their own customers.Ë Internal planning systems are used by those with a competitive advantage in their industry as well as internal information systems. So IT support and those who use and support technology offer a great advantage. Key performance criteria to measure here in sourcing and procurement are ontime delivery, order cycle time variance, total delivered cost, complete order receipt, damage free receipt, and availability of information.
This supply chain process is actually a differentiation among firms. Those with a higher level of performance and higher level of competitive advantage are measuring or taking action to improve performance here. That accounts for about 60% of the respondents. Companies boasting a competitive advantage focus on internal information capabilities, internal planning systems, collaboration on customer service issues, know their top customers, interface with transportation and distribution, and warehouse and storage collaboration is high.
Basically, if you do planning/forecasting/ scheduling well, you get all the soups and nuts that will make you a competitive superior, says Keebler. ¤Investing here will pay high dividends.Ë
The authors agree that fulfillment, sourcing and procurement, and planning/forecasting/ scheduling are the first three areas on which you should concentrate your performance measurements. Here are some suggestions for how to make those improvements:
- Focus on current measures. Figure out who the customer is for the process and who is responsible for the process. What is the purpose of the measure? Capture the current performance and compare that to the desired goal. Only then can you determine what future measurements will be.
- Know the strategy. Your corporate strategy will determine your logistics strategy for how to go forward in making process improvements.
- Understand the customer's needs. What do your customers want and value? Are they willing to pay for your services?
- Know about the other drivers. The total cost of logistics and the needs of the organization will direct your improvement strategy.
- Take a process view. Don't look at each function individually. Don't suboptimize individual processes, but look across the entire process.
- Focus on key processes and activities that really drive value to customers and your shareholders.
- Be a process owner. Who is responsible for the process?