Measuring Supply Chain Processes

You can look at a supply chain in terms of flows, functions, communities, or systems. But in order to manage a supply chain, you need to be able to measure what's happening. Virtually every process in a supply chain can be measured with quantitative metrics or qualitative metrics.

Quantitative metrics are objective, numerical indicators. Qualitative metrics describe intangible characteristics. For example, quantitative metrics might include things like current inventory levels or the amount of money spent on transportation. Qualitative metrics could describe the level of engagement of your employees or how satisfied your customers are with your service. The table lists some common types of qualitative and quantitative metrics.

Quantitative Metrics versus Qualitative Metrics

Collecting measurements costs money and takes time, so it is important to decide which metrics you really need. The key is to identify the steps in each supply chain process that will be most useful in understanding how things are working and what decisions you need to make. The metrics that give you this insight are called key performance indicators (KPIs). The KPIs in one business or facility can be very different from the KPIs in another — it just depends on which processes are most important in each.

A good way to look for improvement opportunities in any process is by comparing your own performance to that of someone else. For example, you can compare the KPIs from one facility to the KPIs at another facility. Comparing KPIs between facilities, and even between companies, is an example of benchmarking. Companies can benchmark their supply chain KPIs using the SCOR Model, which is covered in Chapter 5. Benchmarking has become so popular that there are many companies whose entire business is built on collecting supply chain KPIs from each of the firms in an industry and then providing all the companies with benchmarking reports.

Companies (even competitors!) share benchmarking data all the time. But sharing business information can also lead to problems if it violates laws such as the Clayton Anti-Trust Act. Before you start benchmarking with other companies, it's a good idea to talk your plans over with a corporate attorney so that you are sure it's okay.

There are lots of different ways to look at a supply chain. In order to manage a supply chain well, you need to understand each of these perspectives, and use them to select the KPIs that give you visibility into how your supply chain is performing. Benchmarking those KPIs against other facilities, and other companies, can reveal both the areas where you are doing well and opportunities for improvement.