Hopefully, you’ve heard of the goal-setting strategy known as SMART, which stands for setting goals that are Specific, Measurable, Attainable, Relevant and Time-Sensitive. One of the most important components of that strategy is setting the right “measurable” metric. When the right metrics are chosen, they can effectively drive desired behaviors.
As opposed to picking out a variety of incomprehensible metrics, it’s better to concentrate on a few essentials. Below are a few basic rules deciding on and setting up metrics for your supply chain operation.
What Metrics Will Best Measure Supply Chain Success
Consider Organizational Goals
Prior to picking specific supply chain metrics, management should first consider important organizational objectives. These big picture goals are served by a company’s various business units, such as production, quality assurance and shipping departments.
Organizational goals are based on markets, economic conditions and competitive advantage. Typical organizational goals include growth objectives, cost reductions, high customer satisfaction scores and prolonged profitability.
Identify Department-Specific Directives
As with every other department in a company, supply chain management must translate high-level objectives into more specific, department-level goals. Each department can achieve general objectives like cost minimization or customer satisfaction by focusing on more specific details.
Department directives can then be boiled down into specific metrics. These metrics might apply to department-wide processes or be task-specific. For instance, the organizational objective of customer satisfaction could be translated into a high rate of on-time deliveries.
Develop a Scoring System
Not all metrics should be considered equally. For example, on-time delivery rate is a more important metric than sticking to a daily cleaning schedule. As soon as supply chain management has defined a collection of specific metrics, a balanced scoring system must be developed with weighting based on priorities.
The most important metrics should measure the effectiveness of processes most strongly related to revenue generation. Measurement of particular metrics can offer insight on larger goals and processes.
Supply chain employees are usually most responsible for recording key data points. They must know what to record and recording frequency.
Establishing Recognition and Improvement Plans
The last step for developing a supply chain measurement system is to set up plans for recognition and improvement. This requires the establishment of baseline performance indicators for each metric. Benchmarks can then be used to compare performance relative to past performance and objectives.
When the department is able to improve on benchmarks, management should reward performance accordingly. Recognition and rewards should be based on the weighted scoring system.
A benchmarking system allows management to closely study differences and/or gaps in performance. This type of analysis requires a strong understanding of fundamental abilities that can drive performance differences. Ideally, an analysis can be used to establish interim targets for performance improvement.
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At ZDA, we specialize in helping our clients in supply chain navigate these challenging times. Need help finding the right people for your supply chain business? Please contact us today to find out how we can help your company.
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