It’s Monday morning – you’ve had your morning coffee, and you are ready to start a productive day, dare I say week.
As an excellent supply chain manager, you’ve implemented a supply chain key performance indicator (KPI) dashboard. Maybe it’s fancy, maybe it’s not. Either way, it’s aimed at helping you fulfill your goal of improving supply chain visibility. Even better, it’s laid out in a way that helps you balance the supply chain triangle of cash, service, and cost.
Perhaps it even looks something like this:
Image source: Arkieva
The dashboard above represents a dashboard sequence created by Luc Baetens from business consulting firm Mobius.
Judging from the above dashboard here’s the analysis and questions that you might gather:
- My current turnover is $10M less than the budgeted amount, and that’s probably because it’s up by $5M compared to year one.
- My earnings before interest, tax, depreciation, and amortization (EBITDA) is down by 3% compared to the budget.
- We seem to be doing well in fulfilling on time in full at about 90%, but we are down by 1% from last month. What happened?
- Excellent, our capacity utilization is up by 2%, and we are currently operating at an 80% capacity
- Our forecast accuracy has decreased by 4%. We are currently at a 60% forecast accuracy. How can we get that number up?
Although this analysis provides a snap shot of current business metrics; it misses the mark in capturing the details on how the metrics are derived. This is because the metrics are consequence based and do not have levers that we need to control the performance. To find the levers, you must think about the cause and concern. In my upcoming webinar on using early warning indicators to predict supply chain issues, I cover this topic in more detail.
Understanding the 3Cs for improving supply chain performance
To help explain the cause-concern-consequence sequence (that is the 3Cs), I’ll use a simple example. When you are driving and the engine overheats, it is a concern . It is a concern because when the engine overheats, the engine might cause your car to breakdown. Monitoring the temperature of the engine is a last-ditch effort to mitigate undesirable consequences. Proactive measures need to concentrate on the causes. The engine overheating might be caused by low coolant, low oil level, poor combustion, and so on.
To solve this problem and help you proactively prevent car breakdowns, modern vehicles have sensors that check for the potential causes continuously. These sensors check for low coolant, low oil pressure, and a variety of other things that provide a warning, even before it becomes a concern. So, in this example, when your check engine light comes on, that might be a signal that you could be low on coolant. If your original plan was to send your car in when the normal maintenance schedule is due, it would probably be in your best interest to modify your original plans and take your car to the repair shop as soon as possible.
To summarize as shown below in the diagram:
- The consequence = Car breakdown (having to call AAA for help, running late, etc.)
- The concern = Engine overheating
- The Cause = Low coolant, low oil pressure, poor combustion, etc.
- Early Warning = Check engine light
I mage Source: Arkieva Figure 2
This type of analysis is also often shown in the form of a bowtie diagram.
Applying the 3C analysis to your supply chain
You might be thinking: that seems simple enough. Why aren’t many businesses doing this?
The answer to that glaring question might be associated with the fact that, while the cause-concern-consequence exercise may sound simple, it can be tedious, and perhaps even impossible, without the right technology tools. To ensure that businesses are measuring possible causes within the supply chain, there is often the need to use statistical charts to measure processes that seem ‘out of control.’ And most importantly, there is the need for Out-of-Control Action Plans (OCAP) to tell businesses when to act and what action take.
Looking at the dashboard shown above, the decrease in fill rate is a consequence. The concern could be unexpected, sudden, and significant increase or decrease in demand, and the cause could be a change in the overall sentiment about your brand. For instance, receiving a positive or negative review in social media that could have led to an unexpected increase or decrease in demand. In this case, an early warning indicator could track how the market place is responding to your products by tracking market sentiments using sentiment analysis tools. Therefore, helping you to identify when there could be a possible increase or decrease in demand to help you prepare ahead of time. Essentially, by keeping an eye on the cause, you can get a better control on the consequence by changing the plan sooner..
- Consequence = increase in the number of customer orders that are unfulfilled
- Concern = sudden increase or decrease in demand
- Cause = overall change sentiment about your brand in the marketplace either positively or negatively
For businesses interested in mitigating supply chain risk and improving overall company performance, there is the need to establish a system that creates a flag or an alert, like my previous example with the check engine light. This type of warning signal allows businesses to re-plan, and potentially curtail problems before they become a concern and then lead to an unfavorable consequence. I’ve worked with many businesses that have been able to make positive performance and profitability changes and have eliminated fire-fighting activities as a result of early warning indicators.
A similar analysis can be made for other production, service, or profitability metrics. This type of supply chain performance measurement and dashboard approach, goes beyond the fancy graphs and charts and looks at the root of a possible supply chain issue. Getting to the bottom of the problem allows an opportunity to fix issues ahead of time. Then, you will be in better shape to lead your business to increased profitability and service levels.