Chain of Thought

Mine Your Metrics for Meaning

Dematic North America CEO John Baysore started his company's first full day of “Supply Chain Rebound” conference sessions with some news that supported the event's theme. Not only has his company added 200 engineers to its staff since it acquired HK Systems last year, but it is looking for 150 more. Senior Vice President Mike Kotecki piled on more good news about the economy with these numbers representing U.S. industry: 189,000 new manufacturing jobs added this year and inventories on the rise.

But those are general feel-good stats you would expect from the hosts of this kind of conference. The real work was yet to be done by conference speakers whose job was to inspire the 350 attendees to do their part in the recovery by improving their supply chain performance.

Joseph Tillman, of Supply Chain Visions Ltd., reported that the real bellwether of recovery is consumer confidence, and unfortunately the most recent gauge of it was below 50, which is considered a retreat. So the fact that companies are still interested in investing in technology, as evidenced by attendance at this very conference, is heartening. A big part of that is because the bosses of these attendees are pressuring them to reduce costs, so many came to Tillman's session to hear about the supply chain best practices that will help them accomplish that mission.

Tillman said it takes more than adopting a laundry list of metrics to raise the performance bar. Any metric, whether on-time shipping or perfect orders, must be:

1. Objective—tied to the work being done at your site;

2. Results oriented—employees being measured should be involved in collecting performance numbers ; have them post a sign in the workplace to ensure goals are being reached. These should be compared to historical data. This will help ensure buy-in from those being measured.

3. Tied to root causes—why didn't we reach this goal? This shows where to focus efforts. Sometimes the answer lies outside the group and points to another;

4. Action-oriented—once causes are found, share them with all groups involved, especially those that might be keeping your group from reaching its goals. Don't point fingers, but share data, and ask “what can we do to help you improve?”

5. Tied to corporate goals. Your organization can't be best at everything, so choose those goals that best align with your company's stated goals.

Performance improvement for Joseph Shaw of Ahold USA lies in streamlining his supply chain. That's easier said than done for a company in food and grocery. Ahold manages a portfolio of 90,000 products from 5,000 vendors. Defining performance metrics surrounding this management effort started with realizing that 15,000 of those 90,000 products are critically important and should be their core focus. Those are then broken down by commodity, category and vendors. From there, 1,700 products were analyzed.

Then the Ahold DC network was analyzed for which products could be co-located. Optimal DC locations were selected based on product demand. But that's the easy part of network rationalization. The hard questions include the cost of a new building and the material handling systems it will house. The question may become “why do I need to relocate?” Then there's transportation rationalization: how can I ship in full truckloads to get a better rate? Can I consolidate distribution points? How many DCs can I shut down? But remember, when trying to make transportation more efficient, factor in driver hours of service. Going over that limit can counterbalance any transportation efficiencies.

The end product should be a baseline model managed by one person so it can be revisited periodically and its history can be understood. That person will understand the quirks that went into the first go-round and he or she can help the organization avoid making the same mistakes twice.

More from the Dematic conference in tomorrow's blog post.

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