taking the measure of metrics

What, metrics again? Aren't we getting tired of hearing about metrics? Maybe, but we hope not. A set of metrics is indispensable. It's how you keep score.

Without good, relevant measurements, you don't know whether you're winning or losing. You can't tell if you're gaining ground or falling behind. Actually, without metrics, you don't even know if you're in the game.

In both the United States and Europe, study after study has shown that companies that measure performance consistently outperform those that don't—and by an ever-growing margin. Simply put, the leaders measure, the laggards often don't, and the dominators definitely do.

But it's also true that some of the losers regularly measure performance. How can that be? Easy. They're measuring the wrong things. They haven't learned what to measure—what really moves the needle when it comes to supply chain, and corporate, performance. Interestingly, many of these outfits are downright aggressive and intense in their measurement and reporting. But all too often, their efforts yield little or nothing in the way of improvements because they have their eye on the wrong ball.

So knowing what to measure—and what not to bother with—is critical. Measure and report on everything, and performance will collapse under the weight. It's vital to focus on the few critical measures that profoundly affect the business (or the function) and put aside all the other possibilities. This holds true whether you're measuring corporate supply chain performance or pick/pack operations.

What to measure?
To a company contemplating which metrics to adopt, the vast array of options might seem an embarrassment of riches. But our view leans toward a few "musts" at the corporate level—the "cosmic" metrics, if you will: cash-to-cash cycle time, supply chain cost (as a percentage of sales), perfect orders, and economic value added (EVA).

If a couple of these don't strike you as natural supply chain measures, you're not alone. Most will agree that "supply chain cost" and "perfect orders" are relevant measures, but choke a little on the other two. We'll fight hard on this point.

Let's take cash-to-cash cycle time (the period from the time a company pays for raw materials, supplies or merchandise to the time it receives payment for products sold). That may not strike you as a supply chain matter until you consider that in the overall supply chain, we have enormous and diverse responsibilities, including sourcing and procurement, supply and supplier management, and physical distribution. We have—or ought to have—profound influence on trends in cash-to-cash. We're supposed to be about speed, about inventory management, about continuous improvement in all aspects of the supply chain. Cash-to-cash should be a major measure of our operational success.

The same reasoning applies when it comes to EVA. What we do in supply chain management is (or should be) focused on getting the most out of assets (or on maximizing the return on newly employed assets)—in other words, on adding value.

But the most important metric of all—the one you want to track religiously, relentlessly, rigorously—is customer satisfaction. If you measure nothing else, measure customer satisfaction. And do it right.

Measure it often, and measure it on both transaction and overall bases. Use a variety of techniques, including telephone surveys, return cards, focus groups and questionnaires. Wherever possible, use outside professionals to design and execute customer satisfaction measurement programs. Your organization may have the resources to conduct its own research, but the odds are that it doesn't have the objectivity. The independence of the evaluation is vital to its accuracy and usefulness.

Companies that let their focus stray from customer satisfaction are likely to pay dearly for the lapse. Even in the best of times, and with the best of performance, losing customers is inevitable. Losing sight of satisfaction levels only increases an organization's exposure to customer losses. Replacing those customers is incredibly expensive, and regaining the lost business is an iffy proposition at best.

We haven't even touched on the almost infinite world of granular operational measurements. The keys to success here are the usual—simplicity, focus and visibility.

These measures range from "transactional productivity in putaway" to "relationship structures in sourcing and procurement," and include almost everything in between. But all elements of the supply chain—including the planning functions (think forecast accuracy)—can and should have active and relevant metrics.

The caveat: As you delve deeper into individual granular metrics, keep in mind that they are all part of a balanced approach to achieving corporate supply chain objectives.

Making metrics real
Of course, metrics only add value when you do something with them—and the first thing to do is communicate what you've learned. While we advocate the sharing of overall supply chain performance measures, associates also need visibility of the metrics over which they have direct control. A forklift driver who's kept informed about trends in dock-to-stock time is far more likely to be engaged in efforts to improve performance than one who's left in the dark.

How should measurements and results be communicated? Clearly, early, and often, which is easier said than done. Whether the metric is "units per hour" or "on-time delivery" or "total supply chain cost vs. budget," performance stats need to be posted—or published—as soon as information becomes available and at intervals dictated by the natural business cycles. That is, measuring unit costs or total supply chain costs on a weekly basis might not provide much in the way of meaningful information, but weekly stats on group performance might prove invaluable. The trick is to find the time cycle that informs soon enough to permit corrective (or congratulatory) action, but which is also long enough to incorporate all the factors that affect performance over the long haul.

As for communicating the results, companies do this in a variety of ways, from corporate memoranda to hand-written production sheets pinned to a bulletin board. In any given workplace, the choice will be dictated by such factors as the source of the report, the audience, and the local culture.

Metrics, done right, spotlight an organization's current performance. In addition, they can help establish targets, the "could be" for groups and individuals. They let you know where you stand on the journey from "was" to "will be."

But, you may ask, do metrics stimulate improved performance? Yes, though the purpose is not to drive people to meet the target just because it's the target. The larger aim of measured and reported objectives is to provide a window into failure, to help identify not only when, but why, the goal is still out of reach. Then, it becomes management's responsibility to clear away the obstacles and do whatever it takes to allow people to meet and exceed published expectations. Making measured progress along the way, of course.