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Getting to World-Class Supply Chain Measurement

Debra Hofman, of AMR Research, writes about Getting to World-Class Supply Chain Measurement online at Supply Chain Management Review in their October edition.

The questions we receive run the gamut, from “What should we be measuring?” to “How do we get these numbers?” to “What do we do with the data once we get it?” What companies are in essence asking is, “How do we get to world class supply chain measurement?”

Debra first lists out some of the recounted obstacles with supply chain measurement:

  • Too many metrics
  • We see companies that are looking at hundreds, sometimes thousands of metrics.

    Perhaps, that is a symptom of too many managers and the need for measuring their performance in order to justify the exercise of having so many managers in the first place. Or perhaps, it could very well mean that no one has a clue of why each metric needs to be measured in the first place.

  • Endless debate over metric definition
  • There is a definitional problem when there are no accepted underlying truths that everyone can agree upon. When it is more important to define one’s success by a metric, then definitely a definitional game is going to be played.

    Clearly, some debate is healthy and, more importantly, necessary.

    and,

    There is a point, however, where debate becomes a form of resistance, providing a way to put off change.

  • Constantly changing metrics
  • One company we talked to described this as the “metric-of-the-year syndrome.”

    One wonders if there is correlation to office holder/manager of the year as well that is also behind the metric of the year or quarter. I’m sure that everyone understands that metrics measure i.e. report back how things are going and they don’t innovate new ways of doing things. Metrics reside on the feedback loop and not on the forward loop of acting.

  • Old data
  • Or the only available data. I have found frequently that this is the case. Like the old adage, “What you don’t measure is not important to you!”, those companies that don’t have a handle on their data are a goldmine for consultants.

  • Gaming the system
  • For example, in our benchmarking studies at AMR Research, we measure the perfect order, which is defined as an order that’s complete, accurate, on-time, and in perfect condition. An order that is split because product is not in stock for some of the lines on the order is considered incomplete, and therefore the whole order is imperfect. What some companies have found when they instituted this metric is that in these situations, people were canceling the original order and replacing it with two new orders that could be filled, thereby keeping the perfect-order rating up.

    I don’t think that I need to say more!!


    Read the rest of this entry »

    SCM Newz roundup

    1. PeopleSoft co-founder launches his ERP Workday. This is a news story that I’m following (from Business Week where I think I saw it first).

    Dave Duffield, the co-founder of PeopleSoft Inc., is hoping he can duplicate the success of his previous applications venture, although this time around, he’s focusing on hosted software.
    Duffield and some of his former PeopleSoft colleagues Monday announced the general availability of the first of four planned suites from their new on-demand enterprise resource planning (ERP) software company Workday Inc.

    This company should be something to watch and I’d be very interested in finding out how they take on the other ERP players and if there is something different in the way they do things.

    2. Infosys counts on processes.

    “It is like managing an assembly line spread across many locations, and to do that effectively, processes are critical,” said B.G. Srinivas, senior vice president and head of the company’s European business.
    To make sure processes are followed, Infosys has developed applications for project management, budgeting and quality measurement. “When you have these tools online, and a person from any location can access the information, then a certain transparency gets built into the process,” Srinivas said.

    Here’s something that is interesting that I (have heard about before) noted about their staffing strategy:

    The company is also able to add more staff to a project quickly if the customer requires it. At any moment, between 76% and 80% of Infosys staff are assigned to a project, with the others forming a “strategic bench” of staff waiting to be assigned.

    Now, that’s almost right when it comes to capacity utilization metrics (taken from a manufacturing or DC operations) and it looks like something that can be extended to other spaces as well.

    3. Open-source ERP vendor hustles in SAP’s back yard. Now, that’s interesting, to say the least.

    Synerpy allows businesses to download its business application software suite, avERP, free of charge and modify the product as they please. The product contains around 40% of the functions available in the offerings of large ERP vendors, including SAP, according to Brodner
    The vendor makes money from selling various services, such as consulting, programming and training. At the high end, Synerpy generates around $1,893 in revenue per user, according to Brodner. “Customers are free to decide how much support they want,” he said. “There is no obligation; it’s up to them.”

    It looks like they’re following the standard open source model and in an industrial application that is bound to be successful if they have a good product. On the one hand, you have SAP or SAP like firms that sell their multi-million dollar, multi-year and can’t tell you if you will really succeed software implementation and on the other hand you’ve got these small open source free software people who only sell consulting services. And its the latter that seems to really think that Enterprise related implementation are more service than anything else.

    4. Is the Electronics Supply Chain in danger?
    So leads the article from the EDN Network by Ed Sperling that recounts the current state of affairs in the global electronics supply chain. He notes the following good things that are happening or have happened:

    The electronics supply chain has never been more effective at reducing the boom-bust inventory cycles.
    Manufacturing is running leaner. Orders are being checked and re-checked to avoid the kind of double bookings that wreaked havoc in 2001.

    So what’s the concern then?

    Consolidation into regional monopolies, such as glass manufacturing in Korea, silicon on insulator substrates in Taiwan and consumer electronics manufacturing in China mean that natural disaster, political unrest and even breakdowns in local logistics could stall supplies that will have rippling effects across the electronics industry;
    Communication throughout the supply chain, while a vast improvement over what existed prior to 2001, still is far from perfect. Distribution executives and foundries are in regular communication with suppliers and manufacturers-sitting squarely between the two, in many cases-but they don’t have insight into each other’s business;
    Reliance on one or two vendors can greatly impact demand for finished goods and the exposure of companies to lawsuits if something goes wrong, as it did with Sony’s battery recall.

    I think the first point is probably the most important one and customers of these foundries and OEMs have to be wary about adjusting their inventories to buffer such disruption and be at a moment’s notice to act proactively at the first sign of issues cropping up. The second point is a more structural issue that will get sorted out as the need becomes apparent – it will be competitively advantageous to do so. The third point is also a part of risk mitigation and is related to the design and procurement programs that one has in place but its something that hits you out of the blue. However, it will hit everyone out of the blue – the question is whether you’re ahead of your competitors or not.

    5. M&S read to start national roll-out of item-lelvel RFID.

    Marks & Spencer is planning to deploy item-level radio frequency identification (RFID) tags at almost all its clothing stores after successfully trialling the technology in selected stores last year.

    Marks & Spencer is a rather large and established retailing chain based AFAIK out of the UK. Their RFID trial is bound to have an impact and its effect on M&S’s bottom line will be keenly watched.

    Marks & Spencer started its item-level RFID trial at the beginning of the year when its spring/summer clothing ranges came into stores.
    Two months ago the retailer announced that it had extended the item-level trial to include its autumn/winter clothing range. By extending the project for a second fashion season, Marks & Spencer almost doubled the number of tagged items, from 25 million to 49 million.

    6. Forbes and McKinsey Quarterly report on Carrefour China: Lessons From A Global Retailer. During my Singapore living days, I used to frequent Carrefour by Suntec city and I thought that the word hypermarket was an apt description of how big the place was. Carrefour entered China in 1995 and since then,

    it has become the largest. Today it operates 73 hypermarkets in 29 cities, from Urumqi (in the western reaches of the Middle Kingdom) to Harbin (near the Russian border) to Kunming (in the south). Carrefour also operates the Champion supermarkets and Dia convenience stores. Its 2005 turnover was about $2 billion (including value-added tax), making China Carrefour’s fifth-largest market. The company expects its sales in China to go on growing by 25% to 30% annually over the next five years.

    Read more about the experiences of Carrefour in China at the linked site.

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    About me

    I am Chris Jacob Abraham and I live, work and blog from Newburgh, New York. I work for IBM as a Senior consultant in the Fab PowerOps group that works around the issue of detailed Fab (semiconductor fab) level scheduling on a continual basis. My erstwhile company ILOG was recently acquired by IBM and I've joined the Industry Solutions Group there.

    @ SCM Clustrmap

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