No Time to Spare: A Guide to Supply Chain Performance Management - InformationWeek

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No Time to Spare: A Guide to Supply Chain Performance Management

Marketplaces are dynamic. The competition is fierce. When it comes to managing the supply chain, there's no time to lose. Here's a guide to performance management metrics that will help your organization act decisively in pursuit of business objectives.

This is just the first of many trade-offs that must be made among supply chain objectives. Despite repeated claims that you can have it all, the reality of business isn't so kind. The company that isn't willing to make clear choices among conflicting objectives is just going to muddle along somewhere in the middle, missing the opportunity for excellence in its chain.

Hard as it might be to establish a consistent set of objectives at the corporate level, still more is required: These objectives have to be aligned across and within the company's individual departments. Because supply chain management spans so many areas of operation, it's particularly vulnerable to interdepartmental conflict. For example, manufacturing may be trying to hit its cost targets by lowering inventory levels even as sales is fighting to meet its quotas by increasing the variety of finished goods on hand. The result: Inventory levels are being driven up and down at the same time. No measure of inventory levels, however systematic, is going to improve performance in the face of these opposing forces.

Choosing Informative Metrics

Once your organization sets a clear and consistent array of objectives, it's time to select the metrics that will track progress toward these goals. The difficulty here is that there are so many different metrics to choose from, many of which provide different views of the same type of performance. To simplify the selection process, I've developed a framework that organizes supply chain metrics into four major categories: measures of time, cost, efficiency, and effectiveness (see Figure 2). The following paragraphs provide a brief overview of the choices in each category.2 At the end of the overview, I'll provide some guidelines for making the best choices.

FIGURE 2 Supply chain metrics.

Time. The most common measures of time are simple intervals, such as fulfillment lead time and replenishment lead time. Another important interval is cash-to-cash time. This time typically runs about 70 to 90 days, indicating a pretty sluggish flow for something as vital as cash, but it can usually be brought down into the 30-day range.3 The king of cash-to-cash times is Dell Computer, which drives this metric down into the negative range by getting paid by its customers before paying its suppliers.

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