Supply Chain Performance Metrics Can Dictate the Path of Your Business

Published : August 23, 2016

Supply chain performance metrics

The flowchart is a time-honored tool of decision making, a simplified blueprint for what to do if a situation matches certain parameters. It's also a vastly underutilized technique in logistics and supply chain performance decisions, likely due to the complexities of the chain falling short of the simplicity needed for such a chart. The quick decisions and experience-fueled moves that run a fulfillment center can't be codified as A or B choices — or can they?

Stage 1: Research and Reporting

Key performance indicators assign a uniquely stable quality to the normally unpredictable cycles of business. They give companies a steering wheel with which to aim their forward momentum. While it's up to your company to decide what to do when a given KPI meets, fails or exceeds a threshold, when your data-gathering is sound, there's no arguing with the value itself. Whether you're quality-controlling your existing KPI data streams or starting from scratch, try using the L.U.C.K. rules to guide you:

  • Look to your most successful competitor's operations for ideas on which KPIs you should be tracking.
  • Use automated data over manual collection whenever possible; this cuts down on mistakes and safeguards data purity.
  • Create and maintain a stable, secure database for ongoing data collection for YOY comparisons and similar studies.
  • Keep your supply chain partners in the loop and facilitate data creation, processing and delivery from their systems to your own.

Stage 2: Making Your KPIs Work for You

A flowchart is only valid as long as the "jumps" it makes from level to level make sense and deliver results. Your KPIs need to be intelligently linked to which actions to take or opt out of, and that means deep discussions and likely concept modeling as well. When determining thresholds, start with the highest and lowest points of that KPI throughout your historical recording period. Why did they occur? Were any unusual — read as "one time" — forces in play that would have skewed those numbers? If so, they'll need to be adjusted to reflect normalcy as balancing KPI junctures on uneven data is no better than making hasty business decisions without a SWOT-style discussion.

KPIs do work — and they'll work hard for your business — but it's your responsibility to become fluent in their output before weaving them into complex workflows. As corporate cooperation is typically required for changes and improvements, KPIs can also act as a clear signal for action from decision-makers who are distanced from day-to-day operations. 

That being said, don't simply work around an outdated KPI measure and assume it won't affect anything. The larger a company is, the more likely there will be at least one important team member still mistakenly using that outdated KPI. To put it in renovation terms, if an outlet is no longer receiving power, don't simply paint over it and hope the new occupants don't try and plug something in — chances are that eventually, someone will. Beyond the need for numerical accuracy and consistency, KPIs must be an accurate reflection of an actual goal or planned future goal, not just data collection for its own sake. If one of your metrics just isn't working, don't be afraid to change or adjust it until it does meet your needs. Sometimes the first swing doesn't knock it out of the park. That doesn't mean the next one won't be a home run.

During the process of getting your KPIs in place, you can and should find inconsistencies, redundancies and other enemies of efficiency lurking in your everyday workflows. Shoring up segmentation and trimming off unnecessary steps is crucial to marrying business goals to supply chain capabilities. The same, intensive research you'll be doing to structure your KPI definitions should go deep enough to spot problems and should also put you in close contact with the employees who can report on those problems. If treated with the proper gravity, and given enough time to implement, KPI integration can transform your business before the first data even rolls in. 

Stage 3: Chain-wide Adoption

Your entire team must also understand and accept the importance of the data they're gathering to ensure consistency. If they don't believe in the capability it offers, their gathering practices won't be as sharp as they should be. Explain why KPI data is being collected, what the goal numbers are for each period of time, and make it a team effort. If collecting certain data and meeting certain numbers are only communicated as a way to avoid punitive measures, you’ll certainly get buy-in, but it won't be the kind of buy-in you need for long term, autonomous workforce success. 

Your suppliers, on the other hand, aren't as compelled to follow your lead — particularly if you are a client with an average-or-below ordering volume. If this scenario describes the majority of your supply chain partners, you may need to reverse-engineer helpful KPIs, based on what data your supply nodes are willing to share. While it would be ideal to be able to design and issue your data needs for performance metrics, it's more realistic to assume that you might not always be the party with the most clout in transparency and automation discussions.

Just because a supply chain entity is fulfilling a need doesn't necessarily mean they're a partner in the traditional sense. Determining which of your suppliers are willing to work with you on KPI creation and monitoring is a process that can work as a litmus test for finding out which companies really are interested in a true partnership. Transparency is the future, as far as logistics is concerned, and you need to align yourself with companies that share that vision of logistics — and your company's vision of growth and prosperity.

Success in business is a living, breathing creature. It's no longer a static process of buying low, selling high and packing quickly. The nuances and considerations introduced in a comparison-heavy, e-commerce world require a more finessed touch — even for something as straightforward as fulfillment. That's one of the strengths of a flowchart-style plan: It clearly signals when it’s time to seek out more specialized partners for help, advice and ideas. 

Your supply chain performance will naturally vary with the tides of supply and demand, and even the best KPIs can't completely stop that from happening. What they can do is give you forewarning which will allow you to brace for changes and prevent them from wreaking havoc with the normal flow of both your business and profit margins. They can give you insight on levels that basic monitoring doesn't dive into, and illuminate paths that inform your SWOT assessments and overall operational health.

Think of it this way: You have a lot of manually-managed tasks throughout the fulfillment center, and the right metrics can take a lot of the weight off your shoulders. Your company gets clear indicators when action is required, you get more time and clarity to manage in-the-moment judgment calls, and your fulfillment center thrives. That's the kind of success that you just can't put a number on. 

Logistics Managers Guide

Topics: Supply Chain Logistics, Supply Chain Efficiency

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