Supply Chain Performance Measures

Every CEO must always be concerned with the competition. In today’s economy the battlefield is shifting from individual company performance to what we call Supply Chain Performance. Supply Chain Performance refers to the extended supply chain’s activities in meeting end-customer requirements, including product availability, on-time delivery, and all the necessary inventory and capacity in the supply chain to deliver that performance in a responsive manner. Supply Chain Performance crosses company boundaries since it includes basic materials, components, subassemblies and finished products, and distribution through various channels to the end customer. It also crosses traditional functional organization lines such as procurement, manufacturing, distribution, marketing & sales, and research & development. To win in the new environment, supply chains need continuous improvement. To achieve this we need performance measures, or “metrics,” which support global Supply Chain Performance improvements rather than narrow company-specific or function-specific (silo) metrics which inhibit chain-wide improvements. We describe a number of supply chain performance measures that are expressly designed to support and monitor Supply Chain Performance improvements across the supply chain and illustrate the shortcomings of several common metrics. Charlie slammed the door on the way out of his boss’s office. As operations manager for a major aluminum processing facility, he was proud of the fact that he had in past months achieved significantly high production figures for high margin specialty milled orders. But his boss had just berated him for producing fewer tons of low margin aluminum than budgeted. Charlie was a victim of a “bad” performance measure or metric. Raw tonnage is an inappropriate measure of supply chain performance for a diverse product line where gross margin per ton varies considerably. The use of “bad” metrics can be a major impediment to the implementation of effective integrated supply chain management in today’s highly competitive business environment.