It’s a well-known management axiom that you can’t improve what you don’t measure.
This concept has been attributed to such varied sources as management guru Peter Drucker, Sir William Thomson, also known as Lord Kelvin, and W. Edwards Deming, father of Quality Circles. The truth is that although almost everybody agrees on the concept, nobody really knows who said it first.
Agreeing that measurement of key processes is important is the easy part. The hard part is agreeing on the most important supply chain metrics and the best way to calculate and calibrate the results. One of the biggest mistakes people make when they begin using KPIs is focusing on too many supply chain metrics. The second most-common mistake is not connecting the chosen supply chain performance metrics to the company’s strategy.
The Value of Supply Chain Metrics
There are hundreds of possible metrics and KPIs available, but try to limit the ones you use to five or fewer. Using too many metrics is confusing and makes it hard for your team to focus on priorities. Too few metrics may not provide enough information to help guide the business. The key is to use metrics that work together to point you toward challenged areas.
Your ERP, supply chain, MES and quality systems gather and store hundreds or thousands of data points every day. In companies that use disparate business systems, it may be difficult or impossible to get a cohesive picture of a process because the data points are stored in different databases and may use different schemas. This makes it hard to correlate information across the entire supply chain and complicates or compromises using supply chain management metrics. Too much data, not enough data or data that’s hard to get at — all complicate choosing the right metrics for your business.
Used judiciously in the right metrics, the data from your business systems can show you how your company is performing against your overall strategies. Using a few well-chosen KPIs can function as an early warning system, providing insight into current or potential problems that may affect revenue or customer satisfaction.
Consider KPIs to be like a GPS system for your business. You want just enough guidance to get you to your destination without getting lost. Too much information distracts you and makes it hard to concentrate on where you’re going. Too little information leaves you wondering if you’re on the right path.
Regardless of the systems you use, the reality is that there are five simple metrics that can show the health of any company’s supply chain. They work together to help you understand how your business is operating and to pinpoint areas that need attention.