Measuring The Supply Chain

New methods to give companies a better view of both the forest and the trees.

"You can't manage what you can't measure." The old adage rings true. So as companies focus on more actively managing their entire end-to-end supply chain processes, they are also looking for better ways to measure end-to-end supply chain performance.

"The whole idea of supply chain management is that instead of looking at different functions or processes in isolation, companies need to look more holistically and globally at the entire linkage of companies and processes that take products from raw material to the end consumer," observes John Neale, director of research for Optiant Inc., Burlington, MA. What companies need therefore, he says, are "multidimensional measures," that encompass multiple elements at once and are cross-functional, even cross-enterprise.

In practical terms, companies are seeking performance indicators that provide both "bigger picture" views, and at the same time, more granularity in the data reported. They need clearer pictures of both the forest and the trees.

Given the accelerating pace of movement and competition in the supply chain today, companies also want measuring systems that can help them more speedily translate data into action.

John Stelzer, director of industry development at Sterling Commerce, Dublin, OH, notes that retailers have traditionally viewed their world as a collection of three separate spheres: supplier-facing activities, internal operations and a customer-facing side.

"They have tended to implement solutions or programs that deal with each of these worlds separately," he points out.

But if these individual "islands of automation" can't interoperate in a single seamless process, Stelzer says, companies pay one of two penalties, or both: losses in operational efficiency and detriments to the customer experience.

Performance measures which "provide visibility between all three worlds and islands of automation," he points out, make it less likely managers will miss those "failure points" that occur on the border or in the cracks between the three worlds.

Companies also do better when they can take a more granular approach to performance measurement, Robert Byrne, president, Terra Technology, Norwalk, CT, comments. "Today they can look at performance in more detailed ways because there is a lot more daily data available, thanks to larger faster computers," he says.

Much of the work on enhancing supply chain measures centers today on inventory. This makes sense, given how much money is typically tied up there, and the fact that it is the key element around which all supply chain processes revolve.

One focus of Optiant's approach is to help companies better model uncertainty up and down the supply chain, and monitor how uncertainty manifests itself in inventory, Neale notes.

"We want to see how uncertainty propagates and changes as product moves along the supply chain. As a rule you want to hold more inventory where uncertainty is lower. As demand gets pooled, uncertainty diminishes. Typically you're trading off the ability to hold inventory higher up in the supply network with the responsiveness of the supply chain."

To help companies manage the trade-off better, Optiant provides tools to measure inventory performance by cost, service, and asset use. A key difference, he adds, is that historically, each functional area has focused on just the cost components under its control.

"They didn't look at the impacts of their cost minimization tactics up and downstream," Neale explains.

Some of the key measurements that go into its analyses include very detailed, mathematical calculations of forecast error, "because there is a difference between variability and uncertainty," he adds.

"If you can predict variability, that is how things change over time, then you don't need as much inventory.

"We also provide reports that look at inventory by type and by cause."

Drilling Down

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