Aligned Supply Chain Metrics

Aligned Supply
Chain Metrics
A story about a balanced
scorecard approach (Mar 2017)

2
Agenda: 1 hour
Aligned Supply Chain Metrics
A story about a balanced scorecard approach…
Aligned Strategic Metrics
• Revenue
• Gross Margin
• Cash to Cash Cycle, Inventory Days, Inventory Turns
• Return on Invested Capital (ROIC), Revenue per Employee
Aligned Operational Metrics
• Forecast Accuracy
• Customer Service (DIFOT)

3
• better understand the
trade-offs between various
supply chain metrics and
the importance of an
aligned approach
Objectives
Figure 1
At the end of the
presentation you should:
• better understand the aligned
strategic and operational supply
chain metrics that have been
chosen by the executive team• be able to endorse the need
for the metrics and support the
required reporting process

4
― Thomas A. Edison
American inventor and businessman, who developed many devices
that greatly influenced life around the world, including the
phonograph, the motion picture camera and the electric light bulb
“Opportunity is missed by
most people because it is
dressed in overalls and
looks like work.”
Introduction
Figure 2

5
Where are
we today?
• Do we understand
the trade-offs
between various
supply chain metrics
and the need for an
aligned approach?
• Are we continuously working together
towards a single, shared view?
• Do we know
whether our
new and
established
products are
meeting
performance
targets?
No, not really…
• Do we understand the strategic and
operational supply chain metrics that
can be used to measure performance?
Figure 3

6
IntroductionWhere we are…
• We aren’t able to objectively
evaluate the performance of new
and existing products because
we don’t have aligned metrics…
• We aren’t able to consistently
identify the best areas for
organisational investment…
• We aren’t able to assess performance
and respond appropriately to changing
conditions because we don’t fully
understand trade-offs…
an organisation without
aligned supply chain metrics…
Figure 4

7
Where we could be…
• A balanced scorecard is a best practice
capability that uses aligned metrics to help
key stakeholders make better decisions.
• The capability ensures
key stakeholders
continuously work
together to develop a
shared understanding of
cross function trade-offs.
• The capability helps key stakeholders
objectively evaluate performance and
identify profitable areas of investment.
Figure 5
an organisation with
aligned supply chain metrics…

8
― Jack Welch
American retired business executive, author and chemical engineer who
was chairman and CEO of General Electric between 1981 and 2001
“Change before
you have to.”
Key Concepts
Figure 6

9
According to
research
performed by
Lora Cecere, the
following
strategic
financial metrics
can serve as
indicators of
growth,
profitability,
cycle or
complexity.
Source: Cecere, Lora. (2013, Aug 27). Supply Chain Financial Benchmarking. Retrieved from
https://www.slideshare.net/loracecere/supply-chain-insights-financial-benchmarking-examples-27-aug-2013/9-Supply_Chain_Insights_LLC_Copyright
Key Concepts

10
Key Concepts
However, organisations
often have conflicting
objectives across
functions.
When organisations do
not adopt an aligned and
cross functional
approach to performance
evaluation, progress in
one area often comes at
the expense of progress
in other areas.
Source: Cecere, Lora. (2015, Oct). Supply Chain 2020. Retrieved from
https://www.slideshare.net/loracecere/presentation-on-the-future-of-supply-chain-technologies/20-Supply_Chain_Insights_LLC_Copyright

11
Key Concepts
Executive
teams and key
stakeholders
must
understand
the trade-offs
that exist
between
metrics at
various levels.
OPERATIONAL
supply chain
supply chain waste
type of trade-offSTRATEGIC
corporate
investment
Level
Supply Chain Effective Frontier Framework
Source: Cecere, Lora. (2014, June 11). Consumer Value Networks: How do you Measure up? Retrieved from
https://www.slideshare.net/loracecere/supply-chain-index-webinar-june-11-final/10-Supply_Chain_Insights_LLC_Copyright

12―Steve Jobs
American entrepreneur, businessman, inventor and industrial designer
“Design is not just
what it looks like and
feels like. Design is
how it works.”
Process Design
Figure 7

13
The executive
team (Sales,
Marketing,
Supply and
Finance) have
agreed to use
the following
strategic
metrics.
The metrics will
be reviewed for
both new and
established
products.
Process Design
Strategic Metric Selection

14
The
executive
team (Sales,
Marketing,
Supply and
Finance)
have agreed
to use the
following
operational
metrics.
The metrics
will be
reviewed for
both new
and
established
products.
type of trade-offLevel
OPERATIONAL
supply chain
supply chain waste
Process Design
Operational Metric Selection
Source: Cecere, Lora. (2014, June 11). Consumer Value Networks: How do you Measure up? Retrieved from

Process Design
Strategic Metric Concepts (example for illustration only)
15
process and reporting tools
will be created to help
stakeholders evaluate revenue
performance for new and
established products
the tools will provide
cumulative and non-
cumulative snapshots of the
following:
• actual YTD sales versus
forecast and budget
performance
• projected performance to
budget (using 12 to 18
month forward forecasts)
• in either dollars or units (by
customer, category, supply
or finance parameters)

Process Design
16
1 Evaluate Profitability Margin
Input Values
CY18 Budget
Drivers
CY18 Budget
Drivers
Driver
Overrides
Total
1 Example 1 Example 2
Part Number Budget_Loc Budget_Imp
Date Required in Branch 25-Sep-18 15-Nov-18
Selling Price (AUD $ per unit) $0.00 $133.14 $133.14
Total 12 Month Forecast Volume (units) 2,000 0 1,000 1,000
Discounted Selling Price (AUD $ per unit) 80% $0.00 $0.00 $0.00
Forecast Volume to be Sold at Discount (% units) 20% 20% 0% 0%
Vendor Number tbd Vendor A Vendor B
Procurement Type (Local or Imported) Local Imported Local Local Imported
Local Purchase Cost (AUD $ per unit) tbd $56.86 na
Foreign Purchase Currency (Type) na na USD
Foreign Purchase Cost (in foreign currency $ per unit) na na $36.82
Total Estimated Sales $266,274 $0 $133,137 $133,137
COGS
Foreign Purchase Currency Exchange Rate na na $0.7634
Direct Purchase Cost #VALUE! #VALUE! 56,860 48,229
Other Direct Cost Components #VALUE! #VALUE! 24,353 20,603
Adjusted COGS 61.0% 51.7% #VALUE! #VALUE! $81,214 $68,832
TM Costs
Freight Override (for Vendor if applicable) na na na
General Freight (Allowance) 1.0% 3.0% 0.00% 5,358 0 1,364 3,994
Rebates Paid (Allowance) 1.5% 1.5% 0.00% 3,922 0 1,961 1,961
Stock Provisions, Write-offs & Obs (Allowance) 0.4% 2.0% 0.00% 3,233 0 570 2,663
Other Items (Allowance) 0.0% 1.2% 0.00% 1,569 0 11 1,558
Total TM Costs 2.9% 7.6% 0.00% $14,082 $0 $3,906 $10,176
Gross Profit Margin (%) 36.1% 40.7% #VALUE! #VALUE! 36.1% 40.7%
Gross Profit Margin (Aud $) #VALUE! #VALUE! $48,017 $54,130
stakeholders evaluate gross
margin performance for new
and established products

Process Design
17
2 Evaluate Stock Turns
Minimum Purchase Order Quantity (Units) (Vendor MOQ) 400 200 200
Vendor Lead Time 25 20 30
DNR Code 1 0 0
Initial 3 Month Forecast (QTY Units) 1,200 600 600
Total 12 Month Forecast Volume (QTY Units) 2,000 0 1,000 1,000
Initial Purchase Order Quantity (greater of MOQ or initial 3 month forecast) 1,200 0 600 600
Initial Purchase Order Inventory Months on Hand (MOH) 7.2 #DIV/0! 7.2 7.2
Average Purchase Order Quantity (greater of MOQ or average monthly forecast) 400 0 200 200
Estimated Purchase Order Frequency (based on average monthly forecast) 2.0 #DIV/0! 2.0 2.0
Estimated Ending Inventory (QTY Units) (based on average monthly forecast) 400 #DIV/0! 200 200
Stock Turn Target 2.07 2.50 #DIV/0! 2.50 2.50
3 Evaluate Inventory Days
Average Inventory Days Target 176 146 #DIV/0! 146 146
4 Evaluate Working Capital Days
Average Vendor Days Payable (Days) 75.2 75.2 75.2 75.2
Average Customer Days Receivable (Days) 40.1 40.1
Average Working Capital Days Target 141.2 110.9 #DIV/0! 110.9 110.9
stakeholders evaluate
inventory days and turns
established products 2 Evaluate Stock Turns
Minimum Purchase Order Quantity (Units) (Vendor MOQ) 400 200 200
Vendor Lead Time 25 20 30
DNR Code 1 0 0
Initial 3 Month Forecast (QTY Units) 1,200 600 600
Total 12 Month Forecast Volume (QTY Units) 2,000 0 1,000 1,000
Initial Purchase Order Quantity (greater of MOQ or initial 3 month forecast) 1,200 0 600 600
Initial Purchase Order Inventory Months on Hand (MOH) 7.2 #DIV/0! 7.2 7.2
Average Purchase Order Quantity (greater of MOQ or average monthly forecast) 400 0 200 200
Estimated Purchase Order Frequency (based on average monthly forecast) 2.0 #DIV/0! 2.0 2.0
Estimated Ending Inventory (QTY Units) (based on average monthly forecast) 400 #DIV/0! 200 200
Stock Turn Target 2.07 2.50 #DIV/0! 2.50 2.50
3 Evaluate Inventory Days
Average Inventory Days Target 176 146 #DIV/0! 146 146
4 Evaluate Working Capital Days
Average Vendor Days Payable (Days) 75.2 75.2 75.2 75.2
Average Customer Days Receivable (Days) 40.1 40.1
Average Working Capital Days Target 141.2 110.9 #DIV/0! 110.9 110.9
stakeholders evaluate cash to
cash (working capital) days

Process Design
18
the tools will provide insights
regarding the following
attributes:
• budget versus actual ROIC
• actual ROIC across
categories and customers
stakeholders evaluate return
on invested capital (ROIC)

Process Design
Operational Metric Concepts (example for illustration only)
19
the tools will provide
insights regarding the
following attributes:
• forecast error
• coefficient of
variation
process and reporting
tools will be created to
help stakeholders
evaluate forecast
accuracy performance
for new and established
products

DIFOT Values
DIFOT Target
Achieved
DIFOT %
Target
ABC
Class
DIFOT %
(Order Lines)
DIFOT #
(Order Lines)
Sum of Actual
Ship QTY
Sum of Average
Shipped Revenue
DIFOT %
(Order Lines)
DIFOT #
(Order Lines)
Sum of Actual
Ship QTY
Sum of Average
Shipped Revenue
no 95% A 72% 23 1,830 $674,900 28% 9 555 $288,660
yes 85% B 100% 28 2,130 $598,600 0% 0 0 $0
yes 80% C 94% 16 627 $76,080 6% 1 1 $140
yes 50% D 88% 22 387 $21,720 12% 3 39 $1,367
Grand Total 87% 89 4,974 $1,371,300 13% 13 595 $290,167
yes no
67%
76%
100% 100% 100%
89% 91%
86%
33%
24%
0% 0% 0%
11% 9%
14%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jan Feb Jan Feb Jan Feb Jan Feb
A B C D
MTD DIFOT (by ABC class shipped)
yes no
DIFOT Summary
by day, week, month, quarter, MTD, QTD, YTD
by customer, delivery location, category, product, supplier or order status
42
47
6
7
0 10 20 30 40 50 60
Jan
Feb
# Order Lines Shipped
MTD DIFOT (# order lines shipped)
yes no
2,369
2,605
397
198
0 500 1,000 1,500 2,000 2,500 3,000
Jan
Feb
Quantity Shipped
MTD DIFOT (quantity shipped)
yes no
95%
85%
A B C D
80%
50%
DIFOT
DIFOT DIFOT
Process Design
Operational Metric Concepts (example for illustration only)
20
the tools will allow monthly
and YTD DIFOT performance
to be assessed across multiple
dimensions:
• number of order lines
• quantities shipped
• ABC class
stakeholders evaluate DIFOT

21
Conclusion
What comes next?
• Do we agree with
the proposed
benefits and the
need for a balanced
scorecard (that uses
aligned supply chain
metrics)?
• Do we agree with
the proposed
metrics and tools?
Figure 8

22
Appendix
Benchmarking Concepts (Industry Snapshots)
The following
industry
snapshots
provide insights
into key
benchmarking
metrics.
Source: Cecere, Lora. (2015, Oct 29). Where are we on Supply Chain Excellence. Retrieved from
https://www.slideshare.net/loracecere/presentation-on-the-future-of-supply-chain-technologies/18-Supply_Chain_Insights_LLC_Copyright

23
Each industry
has a unique set
of trade-offs.
Appendix
Benchmarking Concepts (Lessons Learned)

24
The following
example
illustrates one
set of metric
trade-offs over
time for two
companies in
the household
products
industry.
Appendix
Benchmarking Concepts (Metric Trade-offs)

25
The following
example
illustrates
multiple metric
trade-offs for
two companies
in the household
products
industry.
Appendix
Benchmarking Concepts (Metric Trade-offs)

26
The following
research
provides insight
into key
benchmarking
metrics
correlated to
market
capitalization.
Appendix
Benchmarking Concepts (Market Capitalization)

Othersupplychainstories…
Twomey, Elaine. (2017, Mar). Retrieved from https://www.slideshare.net/ElaineTwomey1/aligned-supply-chain-metrics
Aligned New Product Development (NPD) Approval Process
Twomey, Elaine. (2017, Feb). Retrieved from https://www.slideshare.net/ElaineTwomey1/aligned-new-product-development-npd-approval-process

Othersupplychainstories…
Demand and Integrated Business Planning
Twomey, Elaine. (2016, Jun). Retrieved from https://www.slideshare.net/ElaineTwomey1/demand-and-integrated-business-planning
Supply Chain Experience
Twomey, Elaine. (2017). Retrieved from
https://www.slideshare.net/ElaineTwomey1/supply-chain-experience
Process Improvement and Project Management Portfolio
Twomey, Elaine. (2017). Retrieved from
https://www.slideshare.net/ElaineTwomey1/process-improvement-and-project-management-portfolio

29
References
Sources
Figures (copy links to browser to view sources):
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a balanced scorecard approach…
• These documents are at a draft
stage and are intended to illustrate
concepts only…
• The next step is to seek input from
key stakeholders…

Aligned Supply Chain Metrics

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