Judging Supply Chain Performance

Most global companies with a manufacturing footprint in multiple regions of the world find their similar-looking inbound component supply chains actually behave and perform very differently across various sites. Companies are surprised to see variations in component pricing, lead times, safety stock levels, upside buffer inventory levels, package quantities, and several other factors, which ultimately lead to significant variation in supply chain performance.

To understand the causes and address the variations in supply chain performance among sites, many companies take the qualitative benchmarking route. The maturity of supply chain processes and practices is studied, and best-practices are deployed at sites with lower performance. SCORmark, an alternate quantitative benchmarking methodology, analyzes and addresses the performance variations using metrics and scorecards, in conjunction with processes and best-practices.

Based on experience, most companies achieve better results with internal benchmarking using a quantitative methodology. The quantitative approach has several benefits that global companies can leverage to address variations in supply chain performance among manufacturing sites. This approach allows companies to compare key performance indicators and metrics across multiple sites and to identify the metrics and underlying processes that must be improved at specific sites. Here are four benefits of the quantitative approach:

  1. The standardized approach saves on time and effort. With a focused approach, most companies are able to complete the benchmarking exercise in a few weeks, if not a few days. Managers can then devote their time to interpreting the results and then taking action.
  2. Collecting data to compute metrics and create scorecards accounts for most of the time-and-effort investment. Yet once the data sources have been identified, companies can rapidly repeat the exercise in the next benchmarking cycle. As a result, companies are able to benchmark the supply chain performance across multiple sites every few months, identify areas of improvement, and develop a roadmap for better performance.
  3. This methodology drives different sites toward a common definition of metrics. It is hardly surprising that some metrics are often defined and calculated slightly differently by individual sites. A frequent example is the on-time delivery (OTD) metric — multiple definitions such as when parts are required by the customer or when they are promised for delivery exist within companies. Comparison of metrics among sites is meaningful only if they are defined consistently.
  4. The rapid repeatability of this approach provides another benefit. Managers quickly understand the link between performance, key metrics, and underlying processes and are able to interpret results from the benchmarking exercise. As knowledge associated with benchmarking accumulates within the company, the role and cost of external consultants diminish.

If you've faced similar issues related to significant performance variations across different sites globally, or you have used a benchmarking technique to address variations, I invite you to share your insights.

5 comments on “Judging Supply Chain Performance

  1. elctrnx_lyf
    September 4, 2011

    the most critical part of this exercise would be to actually identify the data sources. wrong slection of this could result in jargon and at the same time the interpretation skills are really important to arrive at right solutions. I'm just wondering if there is a standard software with provision for custom options can be really useful for the ems and component supplier across the world to assess the performance of their supply chain. If we add a very good intelligient interpretation algorithm to such tool can greatly reduce the human need. Any ideas on this already.

  2. Daniel
    September 6, 2011

    Lalit, benchmarking is an important factor in performance monitoring across industry. But for benchmarking, who is providing the guidelines are important. Like ISO or QA agencies, there should be some apex bodies to quantify the bench marking standards. In normal, most of the companies are rating products themselves with better performances because the standards are fixing internally. The same standard may vary across different companies for the same product. So there should be some apex bodies to standardize and quantify the metric values.

    September 6, 2011

    I have participated din many benchmarking exercises over the years.  The most fruitful ones spent a lot of time upfront developing the correct metrics and automating the data collection system.  This helped overcome the hurdles of people collecting disparate data or not cooperating with data collection because of the perceived burden.  Then we incentivized people to improve the metrics and benchmarking system itself.  I believe benchmarking is key to running a worldclass business.

  4. Taimoor Zubar
    September 6, 2011

    I agree with FLYINGSCOT here that benchmarking is very essential in assessing the overall performance of the supply chain and in identifying the weak areas. Besides the difficulty in obtaining data, one other issue that's usually faced is the reliability of the data. Accuracy of the data is of prime importance in order for the benchmarking activity to be successful.

  5. saranyatil
    September 12, 2011

    The idea of algorithms and software sounds good but i am just thinkin about the input and data that needs to be fed. It should never become time consuming.

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