Applying Business Metrics for Value Chain / Supply Chain Operations: A Tutorial (Part 1) Scott Stephens Business Forerunne...
<ul><li>Finance is “true north” </li></ul><ul><li>Business performance may be driven by counter-intuitive solutions </li><...
Overview <ul><li>Definitions </li></ul><ul><li>Employing Metrics – Goals, Objectives, and Issues </li></ul><ul><li>Linking...
Definitions: Metrics, Key Performance Indicators, and Measurement <ul><li>Metrics – “a standard of measurement” </li></ul>...
Metric / Management Goals <ul><li>You cannot manage what you do not measure </li></ul><ul><ul><li>Measurements provide an ...
Objectives <ul><li>Metrics provide a basis for strategic planning </li></ul><ul><ul><li>Sales and operations planning </li...
Supply Chain Operations Reference Model (SCOR) <ul><li>SCOR Model, while best known as a business process modeling framewo...
Value Reference Model (VRM) <ul><li>VRM Model, like the SCOR Model, while best known as a business process modeling framew...
Model Metrics – Pros and Cons <ul><li>Pro – Metric definitions extracted from member companies (not a theoretical exercise...
Using the Metrics <ul><li>Establish goals </li></ul><ul><ul><li>5 (five) dimensions of product line performance </li></ul>...
The “goodness” of operations – establishing goals – top level metrics http://measuredperformance.blogspot.com  <ul><li>Pos...
Strategy Drives Objectives and Metric Goals http://measuredperformance.blogspot.com  Flexibility Availability Position Cos...
Tools <ul><li>Software providers are increasingly supporting use of the metrics in conjunction with business processes (an...
http://measuredperformance.blogspot.com http://measuredperformance.blogspot.com
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Applying Business Metrics For Value Chain Part 1

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Overview of the use of metrics to improve supply chain and value chain performance - Part 1, Selecting detail metrics and how to drive financial performance is in Part 2

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Applying Business Metrics For Value Chain Part 1

  1. 1. Applying Business Metrics for Value Chain / Supply Chain Operations: A Tutorial (Part 1) Scott Stephens Business Forerunners, Inc. http://measuredperformance.blogspot.com
  2. 2. <ul><li>Finance is “true north” </li></ul><ul><li>Business performance may be driven by counter-intuitive solutions </li></ul><ul><li>Metrics, intelligently utilized, can align business performance to financial objectives </li></ul>Supply Chain Operations Cheaper Faster Better http://measuredperformance.blogspot.com
  3. 3. Overview <ul><li>Definitions </li></ul><ul><li>Employing Metrics – Goals, Objectives, and Issues </li></ul><ul><li>Linking Strategy to Results </li></ul><ul><ul><ul><li>Performance Measures </li></ul></ul></ul><ul><ul><ul><li>Level 1, 2, & Metrics </li></ul></ul></ul>http://measuredperformance.blogspot.com
  4. 4. Definitions: Metrics, Key Performance Indicators, and Measurement <ul><li>Metrics – “a standard of measurement” </li></ul><ul><ul><li>Inches, feet, meters </li></ul></ul><ul><ul><li>Value of finished good inventory </li></ul></ul><ul><ul><li>Order Fulfillment Cycle Time </li></ul></ul><ul><li>Key Performance Indicator – a metric that has been chosen to be pivotal in understanding past, present or future business performance </li></ul><ul><ul><li>Braking Distance </li></ul></ul><ul><ul><li>Asset Turns </li></ul></ul><ul><ul><li>Order Fulfillment Cycle Time </li></ul></ul><ul><li>Measurement – the value derived from applying a metric </li></ul><ul><ul><li>Braking Distance of a car traveling at 50mph is 82 feet </li></ul></ul><ul><ul><li>Finished Goods Inventory Turns 23 times per year </li></ul></ul><ul><ul><li>Order Fulfillment Cycle Time is 4 days </li></ul></ul>http://measuredperformance.blogspot.com
  5. 5. Metric / Management Goals <ul><li>You cannot manage what you do not measure </li></ul><ul><ul><li>Measurements provide an objective yardstick for management, operations, and improvements </li></ul></ul><ul><li>Not all measurements are equally important </li></ul><ul><li>There are more opportunities to measure and collect data than can or should be pursued </li></ul><ul><ul><li>Most companies do not fail to collect information – they collect too much and do too little with the meaningful data they have </li></ul></ul><ul><li>Measurement can be expensive </li></ul><ul><ul><li>Instrumenting supply chain operations </li></ul></ul><ul><ul><li>Data management - Data Management - Data Management </li></ul></ul><ul><li>Conflicting measurements produce barriers to effective operations </li></ul><ul><ul><li>Same term being used to describe two different measurements </li></ul></ul><ul><ul><li>Dissimilar measures being applied to assess similar activities </li></ul></ul><ul><li>Point measures can produce misleading results </li></ul>http://measuredperformance.blogspot.com
  6. 6. Objectives <ul><li>Metrics provide a basis for strategic planning </li></ul><ul><ul><li>Sales and operations planning </li></ul></ul><ul><ul><li>Business area investments </li></ul></ul><ul><li>Metrics provide a basis for negotiating acquisition (supplier) and delivery (customer) agreements </li></ul><ul><li>Metrics provide a bases for establishing operational goals and managing to achieve those goals </li></ul><ul><li>Metrics provide a basis for identifying supply chain improvement opportunities, prioritizing investments, and determining Return on Investment </li></ul>http://measuredperformance.blogspot.com <ul><li>Metrics are the most explosive subject in supply chain management </li></ul><ul><ul><li>Different constituencies have investments in their “key performance indicators” and definitions </li></ul></ul><ul><ul><li>Compensation is frequently tied to established metrics </li></ul></ul><ul><li>Metrics provide the greatest “lever” for operational and cultural change </li></ul>
  7. 7. Supply Chain Operations Reference Model (SCOR) <ul><li>SCOR Model, while best known as a business process modeling framework, also addresses metrics </li></ul><ul><li>Metrics hierarchy that is aligned with business processes </li></ul><ul><ul><li>Over 300 defined metrics </li></ul></ul><ul><ul><li>Measurement boundaries identified </li></ul></ul><ul><ul><li>Metric hierarchies support strategy, planning, operations, and improvement activities </li></ul></ul><ul><ul><ul><li>Six Sigma </li></ul></ul></ul><ul><ul><ul><li>Lean </li></ul></ul></ul><ul><li>Common definitions </li></ul><ul><ul><li>Definitions constructed to drive financial performance </li></ul></ul><ul><ul><li>Definitions constructed to be used by cross-enterprise stakeholders </li></ul></ul><ul><ul><li>Definitions constructed to be acceptable to cross-functional stakeholders </li></ul></ul><ul><li>DCOR / CCOR Metrics which are designed to be similar and related are less mature </li></ul>http://measuredperformance.blogspot.com
  8. 8. Value Reference Model (VRM) <ul><li>VRM Model, like the SCOR Model, while best known as a business process modeling framework, also addresses metrics </li></ul><ul><li>Metrics, like the processes, are designed to integrate product development, raw material acquisition, manufacturing / production, distribution, marketing, sales and service </li></ul><ul><li>Metrics hierarchy that is aligned with business processes </li></ul><ul><ul><li>Over 300 defined metrics </li></ul></ul><ul><ul><li>Measurement boundaries identified </li></ul></ul><ul><ul><li>Metric hierarchies support strategy, planning, operations, and improvement activities </li></ul></ul><ul><ul><ul><li>Six Sigma </li></ul></ul></ul><ul><ul><ul><li>Lean </li></ul></ul></ul><ul><li>Published as Value Cards </li></ul><ul><li>Common definitions </li></ul><ul><ul><li>Definitions constructed to drive financial performance </li></ul></ul><ul><ul><li>Definitions constructed to be used by cross-enterprise stakeholders </li></ul></ul><ul><ul><li>Definitions constructed to be acceptable to cross-functional stakeholders </li></ul></ul>http://measuredperformance.blogspot.com
  9. 9. Model Metrics – Pros and Cons <ul><li>Pro – Metric definitions extracted from member companies (not a theoretical exercise) </li></ul><ul><li>Pro – Metric definitions, the metric framework, and their use tested </li></ul><ul><ul><li>Multiple Industries </li></ul></ul><ul><ul><li>Multiple Disciplines </li></ul></ul><ul><ul><li>Multiple case studies (with proven success as measured in $$$) </li></ul></ul><ul><li>Pro – Metric definitions are maintained in a “neutral” respository (independent trade organization) </li></ul><ul><li>Con – Definitions are not-tailored to specific company or company applications (and existing / competing definitions in place) </li></ul><ul><li>Con – Metric definitions are in a continuous state of improvement </li></ul><ul><ul><li>Shortcoming in retail (particularly as it relates to merchandising) </li></ul></ul><ul><ul><li>Shortcoming in service industries (manpower metrics) </li></ul></ul><ul><li>Con – Metric structure and hierarchy are not explicit </li></ul>http://measuredperformance.blogspot.com
  10. 10. Using the Metrics <ul><li>Establish goals </li></ul><ul><ul><li>5 (five) dimensions of product line performance </li></ul></ul><ul><ul><li>Varies by product family, product line, customer, geography </li></ul></ul><ul><li>Identify top level metrics </li></ul><ul><ul><li>Measure actual performance </li></ul></ul><ul><ul><li>Determine desired performance </li></ul></ul><ul><li>Identify lower level metrics drivers </li></ul><ul><ul><li>Instrument the across the product line (internal and external) </li></ul></ul><ul><ul><li>Determine diagnostic metrics for in-depth analysis </li></ul></ul><ul><ul><li>Measure actual performance </li></ul></ul><ul><ul><li>Determine desired performance </li></ul></ul><ul><ul><li>Execute change </li></ul></ul><ul><li>Instrument supply chain for exception monitoring </li></ul><ul><ul><li>“ Routine” measurement </li></ul></ul><ul><ul><li>Identify out-of-limits performance </li></ul></ul>http://measuredperformance.blogspot.com
  11. 11. The “goodness” of operations – establishing goals – top level metrics http://measuredperformance.blogspot.com <ul><li>Positioning – how successfully do you generate demand, recognize demand, shape demand </li></ul><ul><ul><li>Market share </li></ul></ul><ul><ul><li>Forecast accuracy </li></ul></ul><ul><li>Availability – how well do you satisfy demand </li></ul><ul><ul><ul><li>Revenue driver (Lost and future sales) </li></ul></ul></ul><ul><ul><li>Velocity (Speed) – how quickly can you satisfy demand </li></ul></ul><ul><ul><ul><li>Time to market, Time to Volume </li></ul></ul></ul><ul><ul><li>Reliability (– how well do you meet your commitment to the customer </li></ul></ul><ul><li>Flexibility – how well can you react to abnormal (unplanned) changes in demand or market conditions </li></ul><ul><ul><li>Enables revenue </li></ul></ul><ul><ul><li>Mitigates inventory risk </li></ul></ul><ul><ul><li>Incurs cost which may not be recovered </li></ul></ul><ul><li>Cost – how much do you pay for operations </li></ul><ul><ul><li>Drives cost and margin </li></ul></ul><ul><ul><li>Enables revenue (potentially lower price point) </li></ul></ul><ul><li>Asset Utilization – how effectively do you utilize your assets (fixed and working capital) </li></ul><ul><ul><li>Drives margin </li></ul></ul><ul><ul><li>Drives cash flow and Return on Assets </li></ul></ul><ul><ul><li>Earnings </li></ul></ul>
  12. 12. Strategy Drives Objectives and Metric Goals http://measuredperformance.blogspot.com Flexibility Availability Position Cost Assets Product Introduction – Early Adopters Flexibility Availability Position Cost Assets Mature Product – “Cash Cow” Flexibility Availability Position Cost Assets Mature Product – End of Life Flexibility Availability Position Cost Assets New Product – Market Share
  13. 13. Tools <ul><li>Software providers are increasingly supporting use of the metrics in conjunction with business processes (and without) </li></ul><ul><ul><li>SAP </li></ul></ul><ul><ul><li>Gensym </li></ul></ul><ul><ul><li>Xelocity </li></ul></ul><ul><ul><li>Business Objects </li></ul></ul><ul><ul><li>SAS </li></ul></ul><ul><ul><li>MetaStorm </li></ul></ul><ul><ul><li>IDS Scheer </li></ul></ul><ul><li>Executive dashboards </li></ul>http://measuredperformance.blogspot.com
  14. 14. http://measuredperformance.blogspot.com http://measuredperformance.blogspot.com

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