Drive business success by picking the right metrics

This is an excerpt of the original article. It was written for the January-February 2022 edition of Supply Chain Management Review. The full article is available to current subscribers.

January-February 2022

Well, that’s over, and aren’t we all glad to put 2020 in the rear-view mirror? For a minute, however, let’s look at a silver lining, because I think there is one for supply chain managers. That’s because the pandemic put supply chain in the spotlight like never before—and, with the approval of a vaccine just a few weeks ago in December, supply chain and cold chain are back in the news… While sales usually gets all the attention, maybe 2021 is our time to shine.” That’s the beginning of the column I wrote for the January 2021 issue, and maybe I was a little too pollyannish.

Browse this issue archive.

Already a subscriber? Access full edition now.

Need Help?

Contact customer service

847-559-7581   More options

Not a subscriber? Start your magazine subscription.

The pressure is on for supply chains to reach optimal performance. In response, organizations are looking for the right measures to track their performance and reveal opportunities for improvement. Even when organizations identify sources of key indicators for supply chain planning, procurement, manufacturing and logistics processes, they must still determine which of these measures are most critical for their business. In addition, organizations struggle with the challenge of “establishing a performance culture,” ensuring widespread engagement and seamlessly entwined organizational and individual performance.

To select the most appropriate supply chain measures, organizations should consider organizational strategy and consulting frameworks for potential measures. Building in a process for assessing the relevance and effectiveness of measures ensures that the measurement program remains valuable to the business. Effectively communicating supply chain performance and creating opportunities for employees to be engaged in the measurement effort can help create a culture of performance to drive business success.

Picking the right measures

Organizations do not have to start the process of selecting measures with a blank slate. Several methodologies, frameworks and industry standards outline potential measures to consider.

For example, process frameworks like APQC’s Process Classification Framework (PCF) include suggestions for process-specific measures and key performance indicators (KPIs). The measures list in the PCF includes a mix of common productivity measures (cycle time, process efficiency, costs and staff productivity) and KPIs. APQC’s Open Standards Benchmarking also specifies KPIs for supply chain planning, procurement, manufacturing and logistics processes.

KPIs are central to measuring progress towards the achievement of business goals. Typically, a single KPI is backed by supporting indicators used to manage and monitor performance. Supporting indicators provide “drill-down” information on the performance of a process and help organizations determine the cause of performance gaps.

Organizations should also make sure to include both leading and lagging indicators. A leading indicator is a measurable factor of performance that changes before a trend occurs, such as customer or stakeholder satisfaction. A lagging indicator is a historical, “after the fact” measure that focuses on performance results at the end of a time period or activity, like cycle time, cost or percent on-time-delivery).

Methodologies like balanced scorecards help organizations ensure a mix of measures. Balanced scorecard guides measure selection in four categories.

1. Financial: Lagging measures that track financial values like cost, revenue and profitability.
2. Customer: Measures that can be leading or lagging and focus on how the organization is perceived by its customers.
3. Internal: Measures that look at productivity, risk and compliance.
4. Organizational capacity: Measures that focus on employees, infrastructure and technology and culture.

Strategic alignment

To manage supply chain performance effectively, organizations should ensure their measures are strategically aligned and relevant to the business. Strategic alignment refers to how well measures are linked to organizational objectives. Leading organizations use value stream analysis to align measures with business objectives. This entails enlisting senior management or a centralized team to analyze the value stream and link measures to organizational goals.

Measures should differ by role

Successful organizations understand that measures are not one-size-fits-all and that they will vary, depending on who is the decision maker and how they are going to apply the information. We can classify needs based on three categories of roles:

1. senior management staff need organizational outcomes (higher-level measures such as those that align with operational goals and value proposition);
2. mid-management staff look at the outcomes of their business processes (efficiency, productivity and costs) in addition to the value outcomes of the processes; and
3. front-line employees look at activity measures (project milestones, budgets and quality of outcomes or deliverables).

Establish selection criteria

Ultimately, most organizations use five criteria for selecting supply chain measures.

1. Reliability. Can we consistently gather inputs for the measure?
2. Impact. Does the measure link directly to organizational goals?
3. Trends. Can we track trends over time?
4. Ease. How easy is it to access and analyze the data?
5. Familiarity. Is this a measure we have used historically, or is it commonly used in our industry?

These criteria help an organization not only manage the applicability of measures but also understand the availability and accessibility of data. Figure 1 shows the results of a survey conducted by APQC to determine how many organizations use the five criteria. As shown, nearly all of the organizations surveyed use reliability as a criterion for selecting measures, and just over two-thirds of organizations select measures based on the ease with which they can access and analyze the associated data.

There is room for improvement when it comes to using the ability to track trends over time when selecting measures. Businesses benefit most from the ability to track performance trends using measures that are aligned with their objectives. Through this, they can more accurately identify areas for improvement.

Continued relevancy

A key element of a supply chain measurement program is conducting evaluations of the measures at regular intervals to ensure they are still relevant and accurate. These evaluations should consider whether measures need to be removed or replaced to accommodate changes to the business. Evaluations can also consider whether the measurement program itself is working efficiently and provides value. These evaluations provide opportunities for an organization to regularly improve its measurement efforts rather than waiting for problems to appear.

Behavioral measures

When leading organizations adopt new ways of tracking performance, they also use macro measures to assess overall change efforts and use bottom-up measurements, like new behaviors to pinpoint the root causes of any issues. Because change is often about modifying norms and culture, it is important to incorporate the desired behaviors into employee performance evaluations and rewards.

Communicating performance

Providing a clear, concise view of information is essential to managing supply chain performance.

This includes providing adequate context for decision makers.

Keep it simple

The impact of even the most appropriate measures can wane if decision makers have to search a cluttered dashboard for the information they need. Typically, 10 measures or fewer are sufficient to include on a single dashboard.

Provide context

Data for any measure needs context. Without context, an organization risks reacting too quickly to a shift in data and instituting unnecessary corrective measures. Providing context means looking at performance over time, between peer groups and as part of an end-to-end process (if relevant). It also involves taking a broader look at what external factors affect the data. This context is important and must be communicated to stakeholders to set expectations on what they are monitoring. This ensures that the stakeholders are aware of what a shift in a dashboard measure means, so they can track it and take corrective actions if the issue persists.

Challenges of selecting measures

When establishing measures, organizations should be aware of potential challenges. Figure 2 presents these challenges and their potential impact on
the organization.

Through careful planning, organizations can eliminate these challenges to their measurement effort. To address complexity, they can streamline and simplify their data capture. They can also create customized scorecards if necessary.

Organizations should also ensure they keep a broad view of supply chain processes to avoid establishing measures focused only on short-term performance. They should also be cognizant of the difference between in-process and end-process measures. In-process measures are used to understand what is and is not working during the execution of the process itself. End-process measures assess process effectiveness and final outputs. To ensure that the focus of their measures is not too narrow, they should take human and environmental factors into consideration.

Organizations must also focus their measures on more than just outcomes. Instead, a measures portfolio should cover:

1. measures that indicate outcomes and the results of processes;
2. measures that reflect the current performance of employees and systems; and
3. predictive measures that assess the factors (e.g., training, environment, structures or technological enablers) that can lead to better performance outcomes.

In other words, organizations must know the past so that they can change it, understand the current level of performance to determine if change is occurring or needs to be made, and predict future performance based upon sound data.

Remember engagement

Organizations must use the right criteria for selecting measures and determine a mix that aligns best with business priorities. To build on this effort and establish a performance culture, employee engagement is key. Leading organizations use an array of communication and engagement tactics to build this culture and tap into the expertise of their employees to pick the right measures. Some of these tactics include the following.

• Providing managers with the information and training they need to communicate to their direct reports and lead by example. This includes information on performance measures and how employees directly influence organizational goals.
• Being deliberate about the purpose and target of communications. Not all information will be relevant to everyone within the organization, and over-communication can result in people ignoring important information.
• Engaging employees in the process. Organizations should use interactive communication tactics such as focus groups, social media, crowdsourcing and employee-led training. This engagement approach not only helps create buy-in but also taps into the expertise and ideas of employees. Having a broad range of individuals contribute their perspectives and expertise makes it more likely that data from measures will be meaningful and actionable for decision-making.

Engagement and measurement help organizations establish the foundation they need to achieve their objectives effectively. By engaging employees in the process, organizations can sow the seeds for a performance-focused culture and pinpoint the right measures.

About APQC

APQC helps organizations work smarter, faster, and with greater confidence. It is the world’s foremost authority in benchmarking, best practices, process and performance improvement, and knowledge management. APQC’s unique structure as a member-based nonprofit makes it a differentiator in the marketplace. APQC partners with more than 500 member organizations worldwide in all industries. With more than 40 years of experience, APQC remains the world’s leader in transforming organizations. Visit us at apqc.org and learn how you can make best practices your practices.

SC
MR