Is your company run on intuition? Or do you have a set of metrics that help steer you in the right direction and anticipate curves and bumps in the road ahead? Chances are the latter speaks of your corporate culture, and it should. Each of us has an objective that should align with the corporate strategy and our performance is measured relative to that objective. For the majority of companies this is a high-level activity taking into account a broad set of data points that have been trusted for decades—sales, inventory, etc.
In today’s rapidly changing global marketplace you need to go further, drill down deeper into the supply chain to see the real indicators of success or impending danger. Supply chain analytics can tell you more about your organisation’s path than you likely realise.
Managers at strategic, tactical, and operational levels often find it difficult to move out of reactive mode and onto a course of informed, proactive decision-making. The last five-plus years show how difficult this is. As the financial crisis began there were signs of a slowdown in consumer spending and inventory levels rising. The signs were buried in spreadsheets and many companies were caught off guard. However, some were able to weather the crisis better than others.
There is no crystal ball or magic sauce. These companies had developed their supply chains based on an analytics and performance management foundation. These companies were directed to the metrics that matter, telling them to slow orders / manufacturing. While other companies were forced to react to the drop in demand, the proactive organisations had slowed down ahead of the crisis and were able to sustain their businesses without dramatic impacts to their margins and service levels.
Setting the Course
In order to focus on the actions that make the greatest impact on the business you need to identify the right information and make it easily accessible. Today, we are awash with data. Every system in place produces more information than any team can process. The key is to identify the right insights to focus our valuable human resources on the right actions. By focusing on well-chosen real-time metrics, companies are able to pro-actively monitor, measure, control, and correct the key drivers of business performance. Rather than running reports or populating spreadsheets, hoping to gain insight from past performance into where and how adjustments can be made to improve future efficiency, they infuse the entire supply chain with the ability to sense and correct deviations from optimal performance every day. This is how a supply chain built on an analytics and performance management foundation creates an unfair competitive advantage.
The Analytics Driven Supply Chain
When built into the fabric of the supply chain, the performance management function leverages analytics to improve future performance, placing actionable information at the fingertips of planners, senior executives, and stakeholders across the enterprise.
Performance management converts huge repositories of data into easily consumed knowledge that accelerates your time-to-alert, time-to-resolution, and prioritisation of high-value actions. It provides vital input to the sales and operations planning (S&OP) process, and helps find the “needle in a haystack” root causes of problems, rather than just flagging the symptoms.
Delivering actionable feedback across the extended supply chain network, an analytics and performance management-based architecture is built on three principles: metrics, such as key performance indicators (KPIs), proactive alerts triggered by exception conditions and sparking directed action to resolve an issue and reports pulling data from various data sources.
Predictive Analytics (forward-looking scenario analyses), is often broken out as a complementary function. While performance management shows how we are executing against plan (the “state of the union”), predictive analytics provides What-If comparisons, ad hoc assessments, and alternative going-forward scenarios.
Make the Data Work for You
As noted in the example above, some companies are able to identify forthcoming changes in demand, manoeuver their business to minimise negative impact and, in some cases, take advantage of their competitors’ misfortunes. To do this, the organisations had developed several scenarios to help them identify how to move forward in the case of certain circumstances. By playing out each scenario on a virtual basis and seeing the impact each had allowed them to implement the correct plan at just the right time.
Your organisation should utilise both predictive analytics and performance management based on KPIs and performance metrics created to reflect your business goals. A performance management-based architecture allows all stakeholders:
• To have visibility across all stages of the supply chain (Plan, Source, Produce, Store, and Deliver)
• To know how well the supply chain is performing against corporate goals
• To have access to KPIs that succinctly relay the vital signs of the supply chain and reflect the company’s unique business profile
• To share a central, common, cross-functional channel of communication
• To be able to identify and call attention to instances where the supply chain is deviating from plan
• To have hard data for decision-making at S&OP meetings
Performance Management Foundation
Essential ingredients of a powerful performance management function include robust monitoring dashboards, automated management by exception, and proactive alerting that sparks immediate action to correct performance issues as they arise. As shown in Figure 1., a performance management-based architecture should be built in to all facets of the supply chain. Role-based views provide home page dashboards (“control towers”) tailored to the needs of individual stakeholders. Macro indicators provide broader stroke information for senior executives (e.g. service level by region or by priority customer, inventory turns, key customer service issues). Tactical feedback delivers the insights that managers need to keep the operations running to plan (order, shipment or replenishment exceptions, production issues).
Performance Management Components
Useful KPIs are defined in a way that is understandable, meaningful, and measurable and include:
• Quantitative indicators, represented by a number
• Leading indicators that predict the future outcome of a process
• Goal indicators that show performance against business goals
• Lagging indicators that present the success or failure post hoc
• Input indicators that show the amount of resources consumed during the generation of an outcome
• Process indicators that represent the efficiency/productivity of a process
• Output indicators that reflect the outcome of process activities
• Directional indicators that specify whether an organisation is getting better or not (trend analysis)
• Financial indicatorsThe supply chain management system’s built-in performance management facility should let planners and other users easily select and implement a wide range of pre-defined, standard KPIs. Also important is the ability to define KPIs easily that hone in on the vital signs of the organisation’s specific supply chain. For example, KPIs may reflect the importance of certain types of Days of Supply (DOS) measurements to the senior management team’s sense of how well specific product groups are performing against plan.
Most companies already use—or are seeking to establish—key metrics to run and analyse their business. The performance management architecture must make it easy and fast to create exceptions relevant to areas that are important to various members of the management team. The architecture should enable teams to take any set of data attributes and create KPIs, exceptions, and alerts using comparative rules.
Alerts: The Targeted “Call to Action”
Exception-based alerting draws attention directly to deviations from strategic targets established for events. A performance management system may classify alerts by severity, such as informational, warning and critical, using color codes such as green, amber and red. One dimension of alerts traditionally not thought of is their time horizon. These alerts are often more reactive in nature and provide feedback that can be used to improve future operations.
Critical alerts, which may require immediate attention, are triggered when performance metrics deviate significantly from the expected value range. The system can bring this critical exception condition to the attention of a supply chain team member visually via the dashboard display, and even guide the user to the appropriate level of the supply chain management system from which to initiate corrective actions.
Quick access to the right alerts allows the team to focus on the activities that will generate the greatest return for the organisation. In addition, it encourages immediate response to problems, and allows junior staffers and new employees to respond as effectively as veterans to out-of-normal conditions.
Role-based Management by Exception
KPIs and alerts may be tailored to different supply chain stakeholders according to their roles, and displayed via personalised home pages. Different groups of users get individualised benefits from the Performance Management architecture. For example, managers need to recognize where the process is failing and when help may be needed, while planners need to ensure they are working on tasks that matter the most and executives need access to up-to-date information on-demand.
A personalised home page has the flexibility to tap into other corporate data sources to present a tailored, comprehensive view of the business, specific to the individual person’s role in the company.
Even though managers look at the plan from different perspectives and different levels of aggregation—and have different needs—the performance management architecture provides a “universal translation” facility that supports a singular, multifaceted plan driving the company.
The combination of exceptions and KPIs can help multiple functions adjust plans regularly to keep the supply plan under control, and communicate through one centralised facility in order to “stay on the same page” across functions and geographies.
Staying on the right course while anticipating market changes is easier said than done. In fact, it is virtually impossible to do without implementing the right metrics and alerts to guide planners and other supply chain stakeholders in your organisation. Data encircles us, enticing us to move in a million different directions at once. The key is to know and understand why you should move in one direction over another. Analytics and performance management provide the foundation to build today’s competitive supply chains and keep you prepared for what lies down the road.
About the Author
Karin L. Bursa is a vice president at Logility, a provider of collaborative supply chain management solutions. Ms. Bursa has more than 25 years of experience in the development, support and marketing of software solutions to improve and automate enterprise-wide operations. You can follow her industry insights at www.logility.com/blog. For more information, please visit www.logility.com.