In today’s blog I want to talk about Supply Chain metrics. I bring this up today on the occasion that WERC has released one of my favorite studies, this is the annual study of Warehouse metrics. If you are not a WERC member I encourage you to join or at least buy a copy of the DC Measures study results. You can find it here. One of the things I like about the DC measures is that it is one of the few studies readily available to anyone. Normally this type of information is only available from one of the large analyst firms and can be pretty expensive.
In today’s economy it has become increasingly important to identify ways to reduce costs in the supply chain and in our own operations. One of the keys to our SAP operational assesments which we perform for customers is the process of identifying Key performance Indicators. You may ask why this is so important? In many cases companies already have measures in place. Having said that if you have metrics in place let me give you a little bit of a challenge, do you know what organizational goal your measures support? OK I may have caught some of you on this one. Here is my point, your measures whatever they maybe and they will be different for every organization and operational area should support an organizational objective otherwise why are you measuring it. Now don’t feel bad If you start to realize that you probably do not need some of the measure you have in place, it is common. Let me throw out two simple rules when it comes to metrics in general.
- Only measure what is important and supports your organizational goals. (Less is more)
- Don’t make it personal
Ok let me go through these and explain why I think this is important.
Only measure what is important (Less is more) – With the proliferation of BI systems one of the bad side effects that I have seen recently is the proliferation of KPI’s, in the SAP world because SAP provides a plethora of out of the box KPI’s that you can publish, inevitably everyone does. My point here is that though the information is there, if the measurement does not support your organizational goals, who cares? With all this noise how can you focus on that which matters. Don’t make this mistake.
When I was a distribution center manager many years ago, my boss returned from a conference and asked me to implement some new metrics. One of the measure was unloading cycle time, in order to measure this we implemented a couple of changes to our receiving process, we started having our receivers logout a driver to track the time the driver left (we already had a clipboard in place where drivers signed in), next we had a receiving clerk every night input the log data into a spreadsheet and once a month we would report it as part of our distribution center metrics. Everythign was looking good, we started out with drivers being turned around within an hour and suddenly it went down to under an hour, that was exciting to see!!!
What happened here which I am sure you realize is that as soon as receivers, supervisors etc. knew we were tracking this they paid more attention to it and worked on improving the turn around time. To make this story a lot shorter, what we found out much later was that the metrics we were given came out of a discussion my boss had with some peers at the conference, the executive for example that measured the driver turnaround time actually paid for the drivers to sit while the trucks were being unloaded, he had a specific goal to reduce his costs by reducing the time the drivers waited to be unloaded. In our case though our turn around was fantastic it had no operational benefit and on the contrary had a negative effect since we were focusing on reallocating receivers from more important tasks so that drivers could be turned around quickly. Not to mention that we had a clerk spending about an hour a day churning data. So it’s important to focus and make sure your measurements are meaningful to you. The second part of this is less is more. I mention the proliferation of KPI’s because it has become so easy to publish them that we become inundated with data and it loses importance. It’s not uncommon to see walls peppered with operation metrics in a DC or plant but how many really matter? and the important question is when presented with this much information does the typical worker know what matters.
Don’t make it personal – What I mean by this is once you have identified what needs to be measured look to see what others are doing. I wonder sometimes how companies that are reporting 99.5% inventory accuracy have high levels of stock outs or mis-ships etc. Even without performing an operational assesment it is fairly easy to see a problem area when metrics contradict each other. Why is this? The main reason I’ll throw out there is personalizing the metric(KPI). This can happen easily, the method of calculating the metric is left to someone who doesn’t have the understanding of what is being measured, in some instances the measure was intended to provide the highest opportunity to look good. This is happening less and less these days as there is quite a bit of transparency but it still happens.
My point and suggestion here is, use a metric(KPI) that is well published, don’t deviate from the commonly used calculation method once you have decided to use it. One of the benefits of following this suggestion is that you can now compare your metrics (KPI) against others and know where you have opportunities for improvement. When I ran a distribution center we used metrics but only compared them to our past performance as data was not readily availble, in larger companies I worked for at least we could compare distribution centers against each other and it was common if one DC had a better metric we would want to know what they were doing so we could do the same. This ultimately is the benefit of metrics, they allow you to manage what you are measuring and with the visibility they provide continously improve them.
Hope that has given you some thoughts.
Phillip Avelar is a Senior SCM consultant at Advanced Solutions, based in Chicago. He shares his passion for solving customers problems in his blog posts, industry articles and talks. When he’s not writing, he’s working with customers to develop and apply innovative solutions to common problems in the supply chain.