Expand supply chain metrics to cover the complete customer experience

According to the 2023 Gartner Supply Chain Technology User Wants and Needs Survey, customer service and experience (CX) is one of the top three most frequently selected business priorities for improvements across supply chain organizations over the next two years.

However, while CX ranks as a top business priority, many enterprises today don’t measure customers’ perceptions of, and feelings about, their interactions tied to activities performed by an enterprise’s supply chain organization. To improve CX, supply chain leaders need to build the operational foundation, including the development of metrics that measure performance as customers see it. The metrics and targets must be aligned across the organization and focused on producing the desired customer outcome.

To establish CX-aligned supply chain metrics start with, then extend, a cascading or hierarchical approach that helps the organization assess, diagnosis and correct activities across the supply chain (See Figure 1).

 

Assess

The top three metrics outlined are for assessing the overall health of the supply chain: service (perfect order, for which on-time in-full [OTIF] is often used as a proxy), supply chain management (SCM) cost and forecast accuracy (demand forecast error). Demand forecast error is a proxy for demand visibility and is at the top of the hierarchy to highlight its impact down through the supply chain. Enterprises that are better able to predict demand are better able to respond to it. Supply chain organizations are responsible for managing the correct balance of cost, inventory and service. These assessed metrics at the top of the hierarchy should be the focus for executives—not every single one within the supply chain.

Diagnose

The next level of metrics provides insights into the overall cash-to-cash cycle. It allows a company to see whether the time it takes to pay its suppliers is balanced by the time it takes to collect cash from customers. Typically, the supply chain organization has the responsibility for setting inventory targets. It also has a significant role to play in accounts payable (AP) via the procure-to-pay process, as well as in accounts receivable (AR) via the order-to-cash process. Timely receipt of inventory positively impacts procure-to-pay. Likewise, correct picking, loading and shipment confirmation reduces invoicing issues. 

Correct

The bottom two levels use a variety of functional metrics to identify and implement specific interventions that address the root causes of issues identified at the upper two levels. These support surgical, highly efficient corrective actions. For example, rebalancing finished goods and work-in-process inventories might be required to address OTIF problems.

Layer in the customer perspective

Internally focused metrics help supply chain leaders manage operations but are often incomplete in measuring performance from their customers’ perspective. To shift from internal or, inside-out metrics, to outside-in customer experience-driven metrics, supply chain leaders need to develop operational metrics that link to a customer’s experience with the enterprise they are buying from.

Operational metrics will evolve as the supply chain matures. For example, in organizations of lesser maturity, a key metric is often on-time shipment. But does the customer really care if you shipped the product on time? It is important information for you to have, but what the customer really wants is to receive the product on time—that is, ideally, on the date originally requested. Furthermore, “on time” can be measured in different ways such as by date or appointment time on a specific date. And is it on time if a product arrives early? If so, how early?

The measure of “in full” can also vary significantly. If a customer originally asked for 50 of something, but you committed to, and delivered, only 10, is the customer satisfied? In many organizations, that delta of 40 is never captured—or worse, it is put on back order to be delivered at some future, undefined, date.

To be truly open and transparent with customers and to inspire loyalty and trust, supply chain leaders need to move away from metrics that mask gaps in service. They need to create ways to measure transactional service in the same way as customers measure it. Specifically, they should:

• Maintain their existing, internally defined metrics for use as leading indicators of service levels for a range of customers. This will aid root cause analysis and continuous improvement.
• Develop a second set of measures, especially for top customers, specifically to measure service from the customer’s perspective. There is no need to take a big-bang approach to switching from old metrics to new ones—both sets of metrics can run in parallel for a time until all stakeholders become comfortable with the new metrics.
• Involve your customers in defining “what good looks like” to ensure you become a shipper of choice and cement your relationship with customers. Typically, service and product quality, supply reliability, timely delivery, accurate shipment information, and appropriate level of communication are the top key performance indicators (KPIs) that customers are tracking.

In addition to the customer-driven operational metrics, supply chain leaders should adopt metrics designed to uncover customers’ feelings and perceptions. The task of improving the CX requires the ability to measure customers’ perceptions and feelings. For a supply chain organization, this may start by focusing on timely communication of order fulfillment information such as shipment confirmations which impacts OTIF perceptions. Next, reduce sources of frustration and friction for customers by:

• Making transactions seamless and easy to execute
• Providing visibility into product availability, order and shipments status
• Adhering to and reporting information on product origins, sustainability standards, and complying with other environmental, social and governance (ESG) goals
• Collaborating with customers on joint value creation

Supply chain leaders must work both within the supply chain organization and across the enterprise to manage customers’ perceptions to improve customer loyalty. Delivering excellence in terms of the CX requires a team effort to break down functional walls and collaborate across the company on customer-specific initiatives.

About the author

Michael Dominy is a research vice president in Gartner’s CSCO Strategies and Planning team. He focuses on supply chain strategic planning, transformation, segmentation and supply chain-as-a-Service (SCaaS).

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