Strategic Supply Chain Management - Supply Chain Online

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188 Strategic Supply Chain Management ◆ ◆ ◆ You integrate quantitative targets into plans and budgets. If cutting distribution costs is a priority, for instance, budget assumptions are adjusted to integrate the specific cost-reduction targets. You establish meaningful targets at the individual and departmental levels that link to overall corporate objectives. For example, if you plan to drive lower delivery costs, a distribution center’s targets might aim for a lower percentage of express versus standard deliveries. To track process changes, you might measure the adoption rate of new practices that drive lower premium freight costs, such as adherence to order cutoff times. You have well-defined mechanisms and processes in place for tracking progress and managing performance. Performance exceptions are identified easily and drive appropriate actions that involve the right individuals and organizations in a timely manner. MANAGING PERFORMANCE WITH METRICS To make these activities a regular part of your company’s supply chain management process, you’ll first need to define an approach to supply chain performance management. We’ve found that the most effective approaches share these characteristics: ◆ ◆ ◆ ◆ ◆ ◆ ◆ Supply chain metrics are linked to the business strategy. Supply chain metrics are both balanced and comprehensive. Targets are set based on both internal and external benchmarks. Targets are aggressive but achievable. Metrics are highly visible and monitored at all levels of the company. Supply chain metrics are used as a continuous improvement tool. Metrics are implemented via a formal implementation plan. Let’s look at each of these characteristics more closely. Link Your Metrics to Your Business Strategy Traditional supply chain metrics focus on efficiency and productivity. Improvements in service levels, costs, and inventory levels are the desired outcome of an operations strategy and are measured accordingly. A more strategic perspective looks at these measures as enablers of business objectives such as growth within a specific segment or market, accelerated
CHAPTER 5 Core Discipline 5: Use Metrics to Drive Business Success 189 product development, or immediate product availability. When aligned with key business objectives, the supply chain becomes an added source of competitive advantage. For example, a leading maker of personal computer (PC) peripherals developed a business strategy focused on low cost, constant innovation, and a make-to-stock approach for fast order fulfillment. Each business unit was expected to manufacture at the lowest possible unit cost and have products available for shipment within two to three days of receiving a customer order. Supply chain metrics tracked on a regular basis included product cost, delivery performance, and fill rate. To compete based on cost, the company set up plants in locations with low labor rates and developed long-term contracts with carriers to ship the products by sea to local distribution centers. Although most of the manufacturing sites were in Asia, most of the company’s business was in North America and Europe, so products took up to five weeks to reach the distribution centers. This made achieving the strategic objective of fast order fulfillment a major challenge. Accurate forecasting was critical but extremely difficult in the highly volatile peripherals market. And constant product introductions and phase-outs made it even harder. As a result, the company had to depend increasingly on flexibility within the supply chain. One of the few levers available was shipping products by air rather than sea. This nearly tripled transportation costs but was necessary to maintain customer service levels. The need to rework products to better align them with current demand when they arrived at the local distribution centers also boosted costs. The product managers didn’t see these added costs as an issue: The transportation and rework costs appeared as expenses charged to the operations function. As such, they did not affect the product-cost metric. Of course, the total cost of managing the supply chain increased significantly because of these unplanned expenses. To address this problem, the management team began measuring total supply chain management costs on a quarterly basis (see Figure 5-1). The team also examined how the supply chain strategy affected costs related to order management, materials acquisition, inventory carrying, and planning—not just the cost of goods sold. The management team worked closely with each product group to communicate the importance of total supply chain management cost. Product costs were still measured regularly, but the entire company was asked to focus on the new total-cost metric. As a result, product managers saw for the first time the huge expense associated with expediting shipments
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Copyright © 2005 by The McGraw-Hil
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viii CONTENTS OWENS CORNING PROFILE
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x FOREWORD now it has to be brought
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xii FOREWORD Another “early adopt
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xiv FOREWORD through research, use,
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xvi FOREWORD on its promise. Is thi
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xviii ACKNOWLEDGMENTS owe thanks to
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2 Strategic Supply Chain Management
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10 Strategic Supply Chain Managemen
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Stage 4: Cross-Enterprise Collabora
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FIGURE B-3 Summary results of popul
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308 Index Business strategy: metric
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310 Index F Faught, Laura, 175-176
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312 Index Mexico, 96, 196 Michelin,
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314 Index Regional planning group,
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316 Index Toys “R” Us, 53 Trace
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