How to implement supply chain metrics that matter
Your management team wants numbers. Salespeople want numbers. Customers want numbers. Learn how to capture the supply chain metrics that will make a difference.
In Summary
| • | You need to monitor your supply chain logistics if you want to ensure operational performance and business success. |
| • | First work with the business to define the metrics that reflect strategic goals. |
| • | Then identify monitoring solutions and automate data capture and dissemination. |
| • | Finally, integrate data, especially with trading partners. |
 | Once you start measuring, experts agree that simpler is better. "It's better to start with an 80 percent solution, because the last 20 percent will cost 10 times more," |  | | Michael Hugos
Author
Essentials of Supply Chain Management | |
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Your company's operational heads monitor fill rate, inventory turns and other key supply chain logistics. But do the right people get that data in time to act on it? Is there visibility into the metrics of your trading partners? And do the numbers add up in a way that leads to meaningful business improvement?
Supply chain logistics monitoring is inherently complex because it encompasses several operational processes and multiple internal and external partners. But by identifying the right metrics, implementing manageable solutions, automating routine tasks, and integrating data across your company and with trading partners, you can ensure that supply chain performance works alongside business goals.
Step 1: Align with the business
Before you evaluate supply chain logistics monitoring tools, you need to work with the business to identify the metrics that will contribute to business results. "The problem is that supply chain people measure things such as line productivity or number of units sold per month," says Colin Snow, vice president of supply chain performance management for Ventana Research in San Mateo, California. "A lot of metrics fly around, but how many of them are meaningful?"
Delivery service is the most important metric at KiMs A/S, the leading Danish producer of snack foods, which generated $82 million in revenue in 2005. "Retailers often have very low inventories of our products, and empty shelves mean lost sales for us," says Jesper Toubøl, technology manager for KiMs, in Sonderso, Denmark. "Our goal is at least 90 percent perfect delivery rate." As KiMs has outsourced its warehousing to a third-party logistics provider that charges a per-pallet fee, the company also seeks to turn over inventory every two weeks, according to Toubøl.
KiMs monitors delivery rates and inventory levels using Microsoft Dynamics AX, a business management software suite that includes manufacturing and distribution capabilities. For example, by tracking Manufacturing Resource Planning (MRP) and minimum inventory, the solution's warehouse management system module generates suggestions for purchase orders and production orders.
Step 2: Start with a foundational system
Once you start measuring, experts agree that simpler is better. "It's better to start with an 80 percent solution, because the last 20 percent will cost 10 times more," says Michael Hugos, the author of the best-selling Essentials of Supply Chain Management, 2nd Edition. (Wiley). That was the approach Hugos took when he was chief information officer of Network Services Co., a Mount Prospect, Illinois-based distributor of paper, packaging and housekeeping supplies.
For each customer, Hugos had customer services representatives define five or six rules that would define a complete order—essentials such as shipping address, advance ship notices, outbound invoices and so on. Orders that met the rules were allowed to flow without human intervention. Those that did not were automatically halted, and an e-mail alert was sent to the customer service representative, who could also view faulty orders on a Web-based dashboard.
Many supply chain logistics software vendors have built alerts and dashboards into their solutions. For example, Microsoft Dynamics solutions include portal functionality built on Microsoft Windows SharePoint Services that allows users to monitor key performance indicators with graphs, tables and conditional alerts.
Step 3: Automate performance data collection and distribution
As Internet-based communication and emerging technologies such as wireless make more data available, you need to automate both data collection and alert notification. Supply chain logistics solutions increasingly include this automation. For instance, Microsoft Dynamics NAV offers predefined templates for setting up alerts. A wizard-like process enables you to describe the alert—for example, purchase order confirmation—and define details such as recipients, frequency and which relevant data, such as purchase order number, to include.
KiMs achieves alert automation in part through the sophisticated use of bar coding, which tracks products as they move through the supply chain. Going forward, companies will increasingly take advantage of radio frequency identification (RFID). KiMs recently implemented a prototype RFID solution, which Toubøl describes as promising. "We deployed the prototype in less than three months, and the technology is ready," he says. But since there are no industry standards yet for RFID, integrating with KiMs' customers' systems could be cost-prohibitive, he adds.
With automated supply chain monitoring, your customer service agents will no longer have to pore through data looking for exceptions or problems. Yet IT needs to work with customer service to gain buy-in and demonstrate the advantages of automated monitoring, since it will change their processes, Hugos says.
Step 4: Integrate
A major challenge to supply chain monitoring is data integration. Which metrics are most crucial to your company will dictate which data you need to integrate.
If much of your supply chain data flows over electronic data interchange (EDI), you can layer business process management software (BPM) on top of it. For example, Hugos used BPM software to monitor advance ship notices and invoices generated by a separate system. He set up the logic in the BPM software to compare the EDI purchase order with the advance ship notice and the invoice. If all three documents matched, it was considered a "perfect" invoice. If there were discrepancies, the BPM software alerted the customer service agent.
Another integration approach is one-to-one XML mapping with each trading partner. XML mapping can be highly effective, but it can also be costly. When a trading partner changes how it defines a product, you need to change your XML mapping accordingly. That can place a large maintenance burden on your IT department.
An alternative solution is Microsoft BizTalk Server, which acts as a data interchange hub. Rather than a laborious process of connecting each application separately, the application provides a set of XML interfaces to communicate with the BizTalk Server hub.
An even simpler approach is using interactive Adobe forms to exchange data over a Web portal or through e-mail attachments to suppliers and customers. The advantage is that you can involve smaller trading partners that may not have a sophisticated IT infrastructure. The drawback is that you still need to rely on them to manually enter data into the forms.
Before embarking on any supply chain monitoring project, make sure to identify the most strategic areas of improvement for your business. "Try to understand the metrics that affect the 20 percent of your customers and partners who effect 80 percent of your revenue," says Noha Tohamy, principal analyst of supply chains for Forrester Research in Cambridge, Massachusetts. "You can't measure everything. But you can measure what's important."
 | Eric Schoeniger has 18 years of experience writing about business and information technology. Previously he was founding editor of eNT, a publication covering Microsoft technology. His work has appeared in such magazines as BusinessWeek, Chief Executive and InfoWorld. |
