Applying Business Metrics For Value Chain Part 1
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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

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 Applying Business Metrics For Value Chain Part 1 Presentation Transcript

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