The Curse of Metrics

There is an old saying: “tell me how you are measured and I will tell you how you will act”. So how do you know that your supply chain and the individual organizations that comprise it have the metrics that truly align them to the common goals of the business? Metrics themselves can be misleading and there is a lot of “urban legend” in the supply chain. Since a blog is not a book, let me give a few pointers.

Act like the business owner. What really matters to them? Selling more, making more money and keeping customers satisfied and coming back for more. It doesn’t get simpler than that. But how are most supply chain operations measured? Not on contribution, but on operational costs and some service level agreement. That doesn’t sound like there is really alignment. It gets even more disjointed when the supply chain actually helps drive more revenue for the business. As an example, a retailer decided to offer installation and removal services to drive more product sales and gain additional revenue through value-added services. With the delivery of these services, home deliveries now can take longer -  some delivery routes can now only make 11 stops versus the previous norm of 17. How are the increased sales of product and service revenue reflected in the supply chain metrics? If the financial metrics are only cost-based, then the picture of true supply chain contribution are wrong and, most likely, in conflict with the overall goals of the business.

Build a supply chain metrics tree: Most supply chain executives would say that they have some kind of holistic metric, like lowest total delivered cost, or use some kind of balanced score card to measure their organization’s overall performance. Yet, when you look behind the statements, you find very little holistic thought to the metrics used by each of the supply chain organizations. In many cases, it boils down to focus on a single metric in the individual organization, to the detriment of the rest of the organization. How does that metric relate to all of the other metrics and the overall goal of the business?  As a supply chain executive, you need to sit down and map out all of the metrics used in each of the organizations and their relationships to each other. I like the tree metaphor, because the base is the foundation and the branches are each of the operations/metrics. There are other approaches, but if you have done this since you took over your organization, the time to do it is now.

Slaughter the sacred cows. Then there are the “sacred cows” of supply chain metrics such as asset truck fill, days of inventory, etc. where “more” or ”less” is always perceived as better. If you believe that lowest total delivered cost is the goal, then you need a balance of metrics and most likely compromise. Let me give you an example. In the automotive industry an OEM was trying to reduce its total inbound logistics costs, but had a truck fill standard that was considered an absolute – you can’t go below it. To meet that fill metric, it was driving a lot of miles consolidating supplier pickups and actually costing the company. To reduce overall costs, they determined that they needed to “relax” the fill standard. The conversation with their supply chain “experts” was reminiscent of the discovery that the earth was round. Always isn’t always.

We only have metrics for what we can measure. How lame does that sound? I understand the challenge of getting the data to make more holistic metrics feasible. However, if you really want to change the overall performance of your supply chain, the effort has to be there to collect and validate the data. Yes, this might cost more money to do it, but my bet is it is nothing compared to the overall performance improvement you can achieve.

Everyone needs to “live” the numbers. After all of the effort to construct the right metrics and get the supporting data right, the biggest crime is not making them known throughout the organization. Simply put, everyone needs to know and live them. There are lots of ways to do this. For example, one manufacturing executive used to walk his plant every month with a $100 bill in his pocket, randomly pick an employee and ask them “how many days since we didn’t ship an order complete and on time”. You think there wasn’t an employee there that didn’t know that metric and its importance!

Metrics are critical to supply chain success, but they can equally be divisive. Unless you just finished a review with the CEO of how your metrics support the overall goals of the company, there’s a good chance that either your supply chain, or the organizations that make up your supply chain, are using metrics that conflict with each other.

How is your organization doing with its supply chain metrics? Let me know.