An old adage, right? Who can argue with a quantitative approach to identifying and solving business problems? After all, numbers don’t lie, but they also don’t tell the whole truth about business performance. Before you stop reading this blog because it appears that I am anti-metric, nothing can be farther from the truth. How you use Strategic & Operational Metrics or KPIs to make effective and efficient business decisions is the key to improving your business performance.
90% order fill level over the past year, a 25% reduction in inventory value over the last three months, a 50% reduction in days for the order to cash cycle. Great performance, why look further, we have a World-Class Supply Chain! World-Class Supply Chains understand what are the contributing factors that allow for such results. For example, your child brings you his report card for the past semester. Since I paid for my children’s college education, I got to review their grades. I pay for the performance. A quick scan of the report online and I immediately started asking about the lower grades, not the highest grades. Why? I wanted to discuss the root cause of why the grade was lower than expected. What could my child do differently to achieve a better result with his classes in the future? What changes would allow for a different outcome? It’s human nature to hone in on the lower scores and ignore the higher scores. I was remiss in my initial performance analysis. Over time, my children and I adjusted our approach to include both higher and lower scores in our analysis. Root cause analysis on both the high and low scores is critical to overall improvement. High scores can teach us as much about performance as low scores that we improve.
My children understood the relationship between operation and strategic metrics. For an operational perspective, they understood that if their grades/metrics were not consistent with the agreed-to expectations, they were in danger of losing their college funding which was aligned to the strategic goal/metric, debt-free graduation from college.
Many companies we work with have few metrics and in most cases, have not aligned their strategic metrics to their operational metrics. Furthermore, individual employees have no idea how their actions or lack of actions impact the metrics that are tracked. The alignment of people, processes, and technology to the strategic and operational metrics is where the real business value is found.
At Reveal, we use a proven approach to foster this alignment. Our oVo Methodology (ongoing Value optimization) approach begins by working with our client to define the strategic and operational metrics for their supply chain. Because our clients use SAP ECC, they have already purchased many the reporting mechanisms to track and report on these metrics in a consistent and ongoing way on a daily, weekly, monthly and yearly basis. With numbers in hand, we teach our clients how to do root cause analysis using these metrics to ensure they continue to optimize their supply chain to obtain lasting business results.
Weekly metric performance reports provide limited value. Conducting root cause analysis and providing corrective actions to improve overall performance daily, provides lasting value. Using information via metrics daily, to change tomorrow’s outcome, is where the real business value lies.
Many of us have failed the first quiz given in a college course. Nothing like getting a failing grade to tell each one of us that we need to change our study habits, read the textbook more thoroughly, not skip class and drink less beer the night before the quiz. In other words, after the root cause analysis was completed, most of us took corrective actions to improve our grade on the next quiz or exam. Using business metrics is like college grades; if we pay attention they tell us what we are doing well and what we must improve. The grade itself provides value, but alone to does not improve future performance unless we take proactive corrective action.
Both of my children graduated from college debt-free. Strategic and operational metrics and performance stayed aligned.
To learn more about how our oVo® Methodology (Ongoing Value Optimization) approach can help you take our online self-assessment to understand where your organization rates on the Business Maturity scale.Tags: Operational Metrics, SAP, Supply chain