Utilize appropriate performance metrics

7 Utilize appropriate performance metrics

It is a truism that performance measurement shapes behaviour. This is particularly the case in business organizations where formal measure- ment systems drive the business. In functionally based organizations these measurements often are based upon departmental budgets and are underpinned by objectives such as cost minimization, asset utiliza- tion and efficiency, and productivity improvement. Whilst on the face of it these objectives may appear to be desirable, they will not necessar- ily encourage agile practices within the organization. If, for example, a manufacturing facility is measured on, say, unit cost of production then the incentive will be to go for big batch sizes to take advantage of economies of scale. However, such actions will probably lead to a loss of flexibility and the creation of additional inventory. If, on the other hand, time-based metrics were to be employed then the focus could be on cycle-time reduction, set-up time reduction and other measures that encourage agile practices.

A further incentive to agility can be created by linking processes to customer-based metrics. One such widely used measure is ‘perfect order achievement’. A perfect order is one where the customer gets exactly what they want at the time and place they want it. It will also usually

be the case that different customers may well have different require- ments and expectations, so the definition of what constitutes a perfect order will have to be specific to each segment, channel or even individ- ual key accounts.

4 C R E AT I N G T H E R E S P O N S I V E S U P P LY C H A I N

A fundamental tenet of agility is customer responsiveness, hence the need to ensure that the primary measures of business performance reflect this imperative. ‘Time to market’ and ‘time to volume’ are pow- erful metrics employed by companies such as Sony and Canon where short life cycles dictate a focus on rapid response to fast-changing tech- nologies and volatile customer demand.

In the past, the focus of many companies was primarily on efficiency,

i.e. a continuing search for lower costs, better use of capacity, reduced inventories and so on. These are still worthy goals today but the prior- ity has shifted. Now the emphasis must be on effectiveness. In other words the challenge is to create strategies and procedures that will enable organizations to become the supplier of choice and to sustain that position through higher levels of customer responsiveness. This is the logic that underpins the concept of the agile supply chains.

A routemap to responsiveness

The shift in the balance of power in the distribution channel has high- lighted the need for the business to be driven by the market rather than by its own internal goals. However, for organizations to become truly market-driven, there has to be a sustained focus on responsiveness across the business and its wider supply chain. There are many prerequisites for responsiveness and Figure 4.14 summarizes the key elements.

The responsive business will have agile suppliers and will work very closely with them to align processes across the extended enterprise. It will also be very close to its customers, capturing information on real demand and sharing that information with its partners across the net- work. Internally the business will also be focused on agility through the way it organizes – breaking through functional silos to create process teams. In terms of its manufacturing and sourcing strategy, the respon- sive business will seek to marry the lean and agile paradigm through de-coupling its upstream and downstream processes, utilizing the prin- ciples of postponement wherever possible.

Those companies that can follow this routemap will be more likely to be the leaders in their field. More often than not, when we look at the successful companies in any market, they tend to be the ones that

LOGISTICS AND SUPPL

Standardization/ modularization

of scale

Y CHAIN MANAGEMENT

Process management

The

Organizational response

Flexible

De-couple the

responsive

supply chain

business

agility

Cross-functional Set-up time

teams reduction

Visibility of

replenishment

time reduction

re-engineering

real deand

programmes