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Keeping Score: Developing an Effective Strategy for Supply
Few business areas need to be measured more extensively, more frequently, and more effectively than logistics. Yet current measurement practices still leave much to be desired, according to James Keebler, Ph.D, and author of Keeping Score, one of the latest books on supply chain management.
Keebler, an assistant professor with St. Cloud State University, says there is a strong association between measurement and operational performance, yet research on the logistics measurement programs of more than 350 companies shows that many firms do not comprehensively measure.
"It's alarming that there are such low levels of measurement within companies. But between companies it's even less developed. Even the best firms leave a lot on the table," he says.
Partly to blame, no doubt, is the fact that the practice of measuring and benchmarking can be fraught with complications when it comes to actually dealing with the data. The complications that can emerge in the exercise involve determining the purpose of the measures, how to capture the data, the quality of the information returned, its ultimate usefulness to the company's strategy, and the eventual administration of a particular measure.
Keebler says the problem with figuring out the purpose of measuring is that companies will often have trouble defining the customer that the measure serves, and that customer's expectations. Not only is there a lack of understanding, he says, but measuring is hard work, and there is often uncertainty about its strategic value, not to mention some reluctance and lack of communication between functional areas within companies, and between trading partners.
"How do you take the incentive to take (this kind of project) on? Those concerned are afraid that if there is measurement, and the results show low performance, they will get in trouble," says Keebler. "Some companies have beat up people so bad they don't want to measure ... We have to stop blaming people."
The first step towards an effective measurement strategy is understanding what will be important to your organization. The next step is to look at current measures already in place. "For example, do you have 650 reports on file that no one ever reads?" asks Keebler. Next, decide what future measures there should be, evaluate and prioritize them, develop a measurement prototype, implement and test it, and then finally, train and roll it out.
When it comes to the complicated task of defining what measures should be introduced in future, says Keebler, "have some way to dimensionalize quality, i.e. develop a perfect order of how your operation should progress. This includes knowing the rules and when to break them by acknowledging approved exceptions to a certain standard." But, even once past the hurdle of figuring out what's important to measure, says Keebler, the process of getting information is not without its major roadblocks. Expect further problems to emerge, such as the unavailability of certain information, and perhaps a lack of resources to collect data. According to Keebler, sometimes this means that a well-planned systems setup for gathering measurement data may well go out the window.
"Then, sometimes it's better to set about manually and take action if systems implementation takes a long time," says Keebler. And when the data does come through, the next obstacle to overcome is the quality issue. "This is a big one, and a consistent one we won't get over without joint definitions from customers," says Keebler.
Problems arise when the most important quality measurement data, such as on-time delivery, order cycle time, invoice accuracy and order fill, is not precisely defined or similarly interpreted and what's more, is not quantitative (it's soft data versus hard data).
"Some 40 percent of on-time delivery is not defined. How can you deliver if you don't know what you're talking about?" says Keebler, adding that striving for efficiency as a quality measurement takes second place to striving for effectiveness.
Companies should keep in mind that some measurement plans are simply not useful, and do not facilitate trust among those who are being examined.
"We don't have measures for knowledge workers who create sustaining relationships. We don't reward planning. We keep the box lickers but we don't reward those with vision," he says.
In fact, when evaluating criteria for individual metrics, consider this checklist:
The validity/reliability of the measure:
The robustness of the measure:
The usefulness of the measure:
The completeness of the measure:
The level of detail:
"Operational measures are different from accounting measures. Logistics can't roll the numbers," Keebler explains. The adage 'if you can measure it you can manage it' does not necessarily hold true in logistics. "Every measure needs an owner to care about its quality, its usefulness and its customer, and to take corrective action. And until customers of measures and owners of measures get together, what gets measured doesn't necessarily get managed.
"What gets rewarded gets managed," he says. In administering a measurement program, it is important to remember that 'supply chain' is 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. "It's not a table for two - it has to be at least for three."
It's not just a buyer-seller (relationship)," Keebler says. Developing and implementing a measurement plan is a project which can require a great amount of close collaboration, and it is here, suggests Keebler, that Europeans have a slight edge over North Americans.
"Europeans are better at collaboration that North Americans," he notes, commenting on how many times he has observed that North Americans, despite their reputation for promoting teamwork, can be reticent about actually opening up to each other and throwing ideas back and forth in a group setting.
Ultimately, for a successful measurement plan, logistics companies must choose the right partners and understand potential benefits and costs. They must mutually define what will make for a successful operation, and jointly define roles, responsibilities and communication expectations. Not an easy task to be sure but the payoff, research shows, makes it worthwhile.
Many more articles in Logistics & Supply Chain in The CEO Refresher Archives