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Supply chain performance measurement trends
The document discusses the complexities and importance of performance measurement in supply chain management, emphasizing that effective measurement translates corporate strategy into actionable goals. It differentiates between measures and metrics and highlights the need for alignment and clarity in measurement practices to ensure that they accurately reflect performance and guide decision-making. Additionally, it introduces concepts like the 'Goldilocks principle' regarding the quantity of measures and underscores the need for a forward-looking approach to measurement.
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Supply chain performance measurement trends
- 1. Supply Chain Performance Measurement: Trendsand Transformations
- 2. Steven A. Melnyk •Professor of Operations & Supply Chain Management Department of Supply Chain Management Eli Broad Graduate School of Business Michigan State University East Lansing, MI 48824-1122 USA • +15174326410 • melnyk@msu.edu
- 3. Introduction Understanding performance measurement Introduction –understanding performance measurement
- 4. Performance Measurement • Critical •Confusing • Changing
- 5. Making Sense ofMeasurement •Basics •Roles Critical •Challenges •Myths Confusing •New Roles •Guidelines Changing
- 6. How well doyou know performance measurement?
- 7. Q1: Which ismore important? • Strategy? • Performance measurement?
- 8. Answer • Strategy, whilesetting the overall direction of the firm, is often vague and meaningless to most people. • Measurements convert strategy and the business model into actions that they have to take; measurements makes strategy concrete!
- 9. Measurement starts withthe business model Value
- 10. The Flow • Whois our key customer(s)? • What is our value proposition? • What does the customer value? – Order qualifiers – Order winners – Order losers • What is the Desired Outcome? • These determine how frequency of measurement!
- 11. The Importance ofMeasurement • One of the most powerful management disciplines, the one that more than any other keeps people focused and pulling in the same direction, is to make an organization’s purposes tangible. Managers do this by translating the organization’s mission – what it, particularly, exists to do – into a set of goals and performance measures that make success concrete for everyone. This is the real bottom line for every organization – whether it’s a business or a school or a hospital. Its executives must answer the question, “Given our mission, how is our performance going to be defined?” – Magretta & Stone, Management. 2002, p. 129
- 12. Q2: The Primarygoal of Performance Measurement • Monitor and control • Communicate
- 13. Performance Measurement -Goal • Communicate – Goals – Expectations – Consequences • Sell – Get commitments • Educate – What is important – What is not important • Direct – To gaps • Measure/Correct
- 14. Q3: We shoulduse the same measures throughout the firm? • True? • False?
- 15.
- 16. How do wecommunicate? • Top management – Output measures (after the fact) • Sales • Market share • Quality problems reported – Why? • Get their support • Resources • Time
- 17. How do wecommunicate? • To our subordinates/suppliers • Output measures are useless except as score keeping. • Need predictive or process measures – Measures associated with the process – Identifies process attributes that we should manage to achieve the desired outcome(s)!
- 18. Process Measures Example Leadtimes • Our goal is to reduce lead times, what aspects of the process are suitable for being process measures? • Answer – Number of steps in the process – Distance covered – Number of people who touch the order – Setup times
- 19.
- 20. Q4: Measures andmetrics mean the same thing? • True? • False?
- 21. Measures versus Metrics •A measure is a verifiable indictor stated in quantitative (e.g., 95% inventory accuracy) terms and intended to close the gap between value, strategy, and specific activities. • Objectives – Measure – Teach
- 22. Metrics are different Metricsbring 3 elements together Metrics Measure ConsequenceStandard Some thoughts • A metric without a standard is meaningless! • A metric with the wrong standard is dangerous!
- 23. Q5: When itcomes to measures, the more the better? • True? • False?
- 24. The Goldilock’s Principle •Measures are best if: – There are not too few • Over-focus – There are not too many • Confusion • Gamesmanship • Focus on what you can do well
- 25. Then what isjust right? • For decision-makers: – 5 +/- 2 has been found to be about right!
- 26. Implications • If youwant to introduce a new measure or metric and you are at 7 something has to go! • Measure what you need, not what you can. • Avoid conflicts in measurement systems. – The lesson of a cereal company • Measures have life cycles. • Beware bad data!
- 27. Q6: Measures areaccurate indicators of performance? • True? • False?
- 28. Truth of Measures •Measures are often imperfect proxies for performance and desired outcomes. • Just because the numbers look right, don’t assume that the desired changes are taking place. – A pharma story – A company tries to change its strategy from lean to innovation. • Measures are subject to the telephone game effect.
- 30. Q7: Measurement problemsindicate problems in performance? • True? • False? It depends!
- 31. Word of MouthCommunications Requirements Past Experience Expectations Perceived Performance Actual Performance Performance Standards Management Perceptions of Expectations External Communications Gap 2 Gap 3 Gap 5 Gap 4 Gap 6 CustomerSeller Gap 1 Opportunities for Errors
- 32. The Advent ofForwardcasting! • If you focus on the past, then the measures ultimately become punitive! – The past is done, move on! • New approach – Measures describe future goals – Periodically, we compare actual progress with desired progress • If on track, keep going • If off track, why? What can be done to reorient activities to achieve future goals.
- 33. Q9: Within thesupply chain, measures should be aligned? • True? • False?
- 34. Through Whose EyesDo We See the World Through our own! Through our customers’
- 35. Measurement starts withthe business model Value
- 36. Making Sense ofMeasurement •Basics •Roles Critical •Challenges •Myths Confusing •New Roles •Guidelines Changing
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- 39. Comments • Measures andmetrics are: – Critical – Confusing – Changing • Increasingly important • New insights require new approaches • Developing measures is a key skill of the strategic supply chain manager.
- 40. The Three Lawsof Metrics • Management has a desired to measure quantitatively everything. • Every metric will generate under desired or unexpected behavior/results. • There should be balance – Long term vs. short term – Making money now vs. investing in the future – Outcomes vs. processes.
- 41.