Why Metrics Matter

This is an excerpt of the original article. It was written for the July-August 2012 edition of Supply Chain Management Review. The full article is available to current subscribers.

July-August 2012

Managers sometimes don’t understand the importance of the information provided by supply chain metrics—or even the need for metrics in the first place. But according to researchers from Penn State, having timely and accurate metrics in place leads directly to superior business performance. They make a strong case for why supply chain metrics really do matter.

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A well-planned journey or expedition will have a plan, a budget, a map, and a compass. Before embarking, you should ask three fundamental questions:

1. Where do we want to go?
2. How do we get there?
3. How will we know when we have arrived?

After the trip is completed, you often reflect on the travel and the outcome. Did we reach the objective? Arrive on time? Stay on the budget? Travel efficiently? What should we do differently next time?

The same line of questioning should prevail when setting off on a business “journey”—whether it’s a limited expansion to a distribution center or a over-year strategic plan. Setting broad and special goals, determining strategic and tactical directions, and maximizing resources require at least three levels of planning in an organization—strategic planning, operational planning (S&OP), and production planning. Most organizations place great emphasis on the “hows and whys” of strategic planning and on S&OP (sales and operations planning). Much less attention is typically paid to metrics—how well are we doing against our goals and objectives set in the planning process. However, launching a business initiative without the right metrics is akin to starting on a real expedition without a compass. And without knowing where you are or how you’re doing, the default measure tends to be costs.

Managers often don’t understand the importance of the information provided by operational metrics or the significance of the metrics themselves. This article will explore the need for a well-structured operational metrics program and the value such a program can provide. Throughout our discussion, the term “metrics” will refer to operational metrics as opposed to financial metrics.

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