Performance Management: Getting Everybody On the Same Page

Performance management is helping companies survive in today's volatile economy.

Actively managing the performance of your supply chain has never been more important. Increased globalization, volatility in demand and commodity costs, regulatory requirements and greater dependency on suppliers and other partners have significantly increased the risk of doing business. Knowing inventory positions, delivery dates and fill rates is not enough. You must also understand the impact of supply chain changes on total cost or cash flow and optimize supply chain effectiveness for better corporate results. This requires end-to-end visibility into factors that drive performance — such as cash-to-cash cycle times, overall supply chain cost and the quality of order fulfillment.

Modern business ecosystems are not what they were a decade ago. Traditional supply chains involved only factories, suppliers, distributors, carriers and customers. This relatively simple model no longer exists for most companies. Processes that were once linear are now dispersed. Multiple parties that purchase materials, manufacture and deliver products to market are no longer a part of a “chain” as much as they are networks. These networks are expensive to manage and difficult to oversee in terms of risk and compliance. Success requires actionable and timely insights into supply chain performance across business processes.

Business Intelligence

Business intelligence technology enables companies to collect, aggregate, transform and manage crucial insights culled from enterprise systems. However, much of this crucial information may be buried within those systems and dispersed across multiple documents and databases. You may not even know what data you need to make decisions. Your supply chain metrics may also lack formal definitions and standards common in finance and other areas of your business. In addition, it's likely that neither your business manager nor your IT department has the time to create the modern and flexible information architecture your enterprise requires to address evolving supply chain needs.

So, the challenges you face are daunting. To meet or exceed your current corporate goals, you and your team must respond to supply and demand with greater speed and efficiency. Your operations must be visible and, most importantly, flexible enough to respond to network needs while controlling cost and risk.

Technology Changes Supply Chains

One answer is a supply chain performance management application that provides visibility into supply chain processes, such as order-to-cash. You stay clearly informed about performance metrics, such as shipment reliability, perfect-order fulfillment or supply chain cost. You also understand underlying factors, such as production cycle times, order backlogs or warehouse cost, and even correlations and mutual impacts of one on the others.

These insights help you take immediate action for short-term benefits — adjusting batch sizes to compensate for fuel cost increases, for example — and improve supply chain performance in the long run. Enhanced supply chain performance will, in turn, improve financial performance by reducing costs, increasing working capital and strengthening customer loyalty.

Until recently, spreadsheets supported supply chain performance efforts (and let's face it, they are still widely used). The biggest problem with spreadsheets is they cannot provide a single version of the truth. You cannot integrate and reconcile spreadsheets with the processes that underlie supply chain management nor use them to gain real-time data.

Technology, such as RFID and wireless sensor networks (WSNs), has brought voluminous data to the supply chain, allowing you to identify and track your products using radio waves. The received data can be transmitted to your enterprise resource planning (ERP) and supply chain management (SCM) systems, where it can be collected, manipulated and managed by business intelligence, just like any other data.

RFID and WSNs can detect, aggregate, correlate and track events at every level of your operations. These technologies allow you to monitor and control your supply networks at a level of granularity that was previously impossible. The benefits of this are obvious. Should a product recall be necessary, for example, you have a clear record of the source and its current location. Instead of recalling an entire production batch, you can recall just the defective units.

With RFID and WSNs, manually created traceability logs are relics. Instead, quality-control personnel, armed with RFID scanners, read product data at every stage of its lifecycle. Not only can you learn who examined each product, but also when and where.

Many other technological improvements can be suggested for the supply chain. However, you must work with your IT department to ensure proper governance. In a survey of manufacturers, Forrester Research found that only 41% of supply chain improvements generated positive return on investment. This means you must carefully consider IT deployments and align them with corporate strategy.

Metrics That Matter

So, you should focus on metrics that matter. In today's IT-heavy supply chain networks, plenty of data points exist. In any given situation, however, only a few numbers are truly important. Unable to identify the right key performance indicators (KPIs), managers may focus only on improving the measures under their immediate control — an approach that fosters silo thinking and frequently sacrifices overall supply chain network effectiveness. For example, isolated focus on capacity utilization may result in excess inventories.

With the right metrics architecture, an organization can break down functional silos and align stakeholders behind common goals — such as improving cash-to-cash cycle time, reducing total supply chain cost or delivering perfect-order goals. A supply chain performance management application can help you identify and monitor the metrics that really matter.

At the enterprise level, these might be perfect-order fulfillment rate, forecast accuracy or supply chain cost. At the department level, such metrics might include on-time delivery by suppliers, plant utilization or order-cycle time.

A prebuilt metrics architecture within the application should be based on the Supply Chain Operations Reference (SCOR) model and other frameworks yet remain flexible enough to meet your company's specific requirements.

Metrics should be defined, documented and associated with specific individuals within your supply chain network. This fosters accountability — a key premise for strategy-aligned supply chain execution. In the end, the right metrics drive individual behavior, and behavior drives enterprise performance.

You Must Do This Now

The ability to see how each component of your supply chain functions at a detailed level enables you to make smarter, more efficient decisions, optimizing both your distributive functionality and flexibility. In today's globally distributed environment, companies have fluctuating demand and high product complexity. To run a responsive supply network, you must analyze operations in real time.

Quarterly snapshots of supply chain activities alone won't cut it anymore. With each passing day, the need for modern modeling and optimization processes becomes greater. If you don't have a detailed, real-time view of your supply chain, you will be unable to compete in today's marketplace. A limited view will also prevent you from aligning your supply chain strategy with your corporate goals. With the right supply chain performance management architecture, you will be able to manage an extended, globally dispersed, responsive supply network; use models to view the performance of your network; execute based on visibility gained by closing the loop; link strategy to execution; and systematically measure, monitor and optimize strategy and performance.

If this all appears obvious — just good business practice — you're right. Nevertheless, many companies do not align corporate, departmental and individual goals on a single, clear trajectory. So, what can performance management offer you? In a word: success.

Stephanie Buscemi is vice president of marketing for enterprise performance management and governance, risk and compliance; Denise Vu Broady is vice president of strategic business development; and Nenshad Bardoliwalla is the former chief technology officer for enterprise performance management and governance, risk and compliance; all at SAP AG, a supplier of enterprise solutions headquartered in Walldorf, Germany. They are also co-authors of Driven to Perform: Risk-Aware Performance Management from Strategy through Execution (Evolved Technologist, 2009). For more, visit www.driventoperform.net.

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