Strategic Supply Chain Management - Supply Chain Online

192 Strategic Supply Chain Management
next step is to decide how you’ll know if you’re meeting your objectives.
This assessment forms the basis of your performance-management
approach. A necessary step in this process is determining where average
performance is acceptable and where superior performance is a must.
For the computer peripherals company discussed earlier, the
objective of reducing total supply chain management cost may result in
a supply chain configuration that forces a trade-off between low product
costs and high fill rates. Achieving best-in-class performance for
both is unlikely because each requires a different focus and configuration.
The company must choose among higher transportation costs
for specific products, higher finished goods inventory levels, or slower
order fulfillment.
We worked with a large telecommunications company whose first
attempt to develop a comprehensive set of metrics resulted in the selection
of 21 key performance indicators. The management team had spent
a lot of time winning commitment to the program, making the metrics
highly visible, and even modifying individual performance objectives to
support the chosen targets. Then the team realized that not one metric
focused on the customer. Instead, the program focused on such metrics as
market penetration, inventory levels, and cost data. In the end, the team
kept the 21 performance indicators they’d worked so hard to develop but
added a set of metrics focused on customer satisfaction, with an emphasis
on delivery performance.
As you begin to structure your performance-management program,
consider including metrics that align with the four dimensions of the wellknown
balanced scorecard approach: 2
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The financial dimension includes metrics such as cost of goods
sold, labor rates, transportation cost per mile, value-added productivity,
and asset turns. As we noted earlier, financial metrics
are relatively easy to measure but don’t provide a complete
picture of how well your supply chain is performing.
The internal dimension includes metrics such as forecast accuracy,
production quality, production flexibility, and internal cycle
times. These metrics assess operational performance but are not
tied to specific financial results.
The customer dimension includes metrics such as on-time delivery
to commitment, order-fulfillment cycle time, fill rates, and perfect
order fulfillment. Customer-oriented metrics are designed to show
how your company performs from the customer’s perspective.