Thursday, April 28, 2005

Measuring the supply chain

Business Times p.B4
Thursday, April 28, 2005

By Moje Ramos-Aquino, FPM
Measuring the supply chain

FOLLOWING the input-process-output (IPO) model we discussed earlier, we realize the importance of measuring the supply chain. All the entrepreneurs we interviewed so far realize that one of their key value creation processes is the management of the supply chain.

One trader was aghast to find a very expensive imported machine part ordered by a customer years ago unserved, gathering dust and occupying precious space in her warehouse.

Paul Niven (Balanced Scorecard Step-by-Step; John Wiley & Sons) defines a supply chain as “a set of three or more organizations directly linked by one or more of the upstream and downstream flows of products, services, finances and information from a source to a customer.” He continues, “most of us think of the supply chain as comprising three main processes: sourcing and procurement, order fulfillment and planning, forecasting and scheduling. In industry after industry, supply-chain practices are becoming the key basis of competition, and little wonder since the stakes are very significant.”

It becomes imperative for an entrepreneur to gather relevant data, measure and analyze them to better manage their supply-chain. Authors Karl Manrodt, B. Manrodt, David A. Durtsche, D. Michael Ledyard James S. Keebler/002-7437947-2516053" David Durtsche, Michael Ledyard and James Keebler (Keeping Score: Measuring the Business Value of logistics in the supply Chain; Council of Logistics Management), suggest going back to basics for effective supply-chain measurement.

First, “strategy matters. Communicating the strategy also matters. If people don’t know what the strategy is, they really won’t know how to respond when faced with a problem that needs to be solved. Strategy should not only help entrepreneurs determine what measures to use, but also assist in determining how much weight or emphasis to place on each measure.”

Second, “slowing down and defining the metrics should also be done at work, but preferably in front of everyone. The measure could have been defined by the customer, or defined jointly with the customer. Coming up with clear standards is much more difficult for direct-to-customer retailers. Instead of dealing with just a handful of major customers, the retailer is faced with thousands of people whose expectations may change based on their last experience with the firm, a competitor, or even another unrelated provider. The challenge here is to understand what is critical to key traditional market segments, such as age, income, and so on. Another way is to segment the customer group based on usage of products or services.”

Third, “know your costs. Deciding on how much customer service to offer requires detailed cost information. Use the data to perform cost-benefit analyses.”

Fourth, “Take a ‘process’ view. Define your measure at the process, not the functional, level.”

Fifth, “Focus on key process measures for the various supply-chain activities. Some of these measures are:

Involving trading partner: customer complaints, on-time delivery, over/short/damaged, returns and allowances, order cycle time, overall customer satisfaction, days sales outstanding, forecast accuracy, perfect order fulfillment, inquiry response time.

Internal focus: Inventory count accuracy, order fill, out of stocks, line item fill, backorders, inventory obsolescence, incoming material quality, processing accuracy, case fill, cash/cash cycle time

Efficiency measures: outbound freight cost, inbound freight cost, inventory carrying cost, third party storage cost, logistics cost/unit vs. budget, cost to serve.

Productivity: finished goods inventory turns, orders processed/labor unit, product units processed per warehouse labor unit, units processed per time unit, orders processed per time unit, product units processed per transportation unit.

Utilization: space utilization versus capacity, equipment downtime, equipment utilization versus capacity, labor utilization versus capacity.

Remember, if you can not measure your supply chain, you can not manage it. If you can not manage, you can not improve.

ASTD 2005. An opportunity to learn from the outstanding practitioners and network with 16,000 other participants is offered by the American Society for Training and Development in their Annual International Conference and Exposition on June 5-9 in Orlando, Florida. Please go to or call Grace Victoriano at 715-9332 for details.

To avail of discounted registration fees, please write delegation code “10429860” on your registration form.

(The author, president of Paradigms & Paradoxes Corporation, assists entrepreneurs in their quest for human resource and organizational development toward business excellence. Her email address is

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