The Monthly Metric: Post-Pandemic Priorities
A year ago, the coronavirus (COVID-19) pandemic changed many aspects of business and the supply management profession, including data and analytics — which, as was reported in this space then, became more about survival than strategy at many companies.
In that time, The Monthly Metric has discussed the role of procurement analytics during and after the pandemic as much as the metrics themselves. That holistic perspective has become more befitting, as in the U.S., administration of vaccines is accelerating, public-health restrictions are relaxing and businesses growing more hopeful of a return to normal operations.
Data and analytics is evolving from a core business function to a core business function, according to research by Gartner, the Stamford, Connecticut-based global business research and advisory firm. That information — and the metrics that provide the measuring sticks — will be more important to executives than ever before, so it will be critical for supply managers to harness, organize and quantify the miles of figures.
Helping practitioners develop and improve this skill is a mission of Institute for Supply Management®’s (ISM®) Data and Analytics Committee. CAPS Research, the Tempe, Arizona-based program in strategic partnership with ISM and Arizona State University, recently unveiled its Metrics of Supply Management Dashboard, a suite of more than 100 KPIs that a company can track and compare with others across its industry or sector.
What could a post-pandemic supply management metrics dashboard look like? Based on Inside Supply Management®’s discussions with subject-matter experts during the last 12 months, three areas have stood out:
Deliveries and Inventories
Among the impacts COVID-19 has had on business and procurement, the one generating the most discussion is the potential end of the era of lowest-cost sourcing and just-in-time (JIT) manufacturing and inventory. What a new model would look like is unclear, but tracking supplier deliveries and inventories — especially as port congestion, airfreight capacity limitations and truck-driver shortages continue — will be especially critical.
As Tracey Smith, MBA, MAS, CPSM, president of Numerical Insights LLC, a boutique analytics firm in Charlotte, North Carolina, told The Monthly Metric in 2019, “(E)ven if you knew exactly what your demand is and it never changed, there will still be supplier performance variability. When you put those two pieces together, it gets even more complex. You’re trying to predict what you need, but you have (to account for) the delivery variation from a supplier.”
Supplier delivery time, on-time delivery, average warehouse capacity used and inventory turnover ratio will remain critical analytics to track. Valuable benchmarking data can be found in the ISM® Report On Business® Supplier Deliveries and Inventories indexes, as well as the manufacturing report’s Buying Policy section, which details lead times.
One of the recurring themes of The Monthly Metric since its inception in 2017 is the lack of analytics measuring risk, and a big reason is that it’s generally a reactive assessment. This sentiment has intensified during the pandemic.
“The only way you can tell how you’re doing on risk is if there’s a failure,” Lisa M. Ellram, Ph.D., MBA, C.P.M., Rees Distinguished professor of supply chain management at Miami University in Oxford, Ohio, said earlier this year. “Purchasing does a lot to (manage risk) and make a company run more smoothly, and you notice it more when it's not working. But the qualitative measures are difficult to capture.”
With risk measurement analytics of limited value after a breach, developing more proactive measurements remains a work in progress. With risk-management experts emphasizing the importance of supply chain mapping, risk management score can help identify likely disruption locations. Total cost of ownership and contract compliance are fundamental metrics that can be helpful in identifying or mitigating disruptions.
Among emerging metrics are (1) percentage of supply with alternate sources and (2) percentage of suppliers with a good financial audit. Also, with cyber breaches a “when, not if” threat for many companies, (1) cyber security breaches and (2) customers affected by cyber security breaches are KPIs to track.
While cost savings and other financial issues could be less of a priority after COVID-19, they will still be top of mind among the C-suite and shareholders. That dynamic should be embraced by procurement organizations, as the pandemic has spotlighted the value of supply managers, giving them an opportunity to be more influential in their companies.
“(P)rocurement is being pulled into other operations and is asked to help, potentially pulling (the function) into areas that have been off limits for a long time.” Chris Sawchuk, principal and global procurement advisory practice leader for The Hackett Group, a Miami-based business consultancy, told The Monthly Metric last year.
In this area, percentage of spend influenced by procurement, procurement savings and procurement ROI are mainstay metrics.
Also, such dynamics as improving concept-to-market times have raised awareness of the potential benefits of involving suppliers in the R&D process; as a result, incremental revenue from supplier innovation is an emerging metric. “If you’ve built those kinds of supplier relationships and trust and involving them in R&D … (that) goes up into the revenue stream, where you can look at the P&L and balance sheets and see the impact procurement is having on an organization,” Jim Fleming, CPSM, CPSD, Program Manager, Certification at ISM, said earlier this year.
Metrics Moving Forward
After the 2008 financial crisis, procurement metrics underwent a shift, with an increased emphasis on bottom-line tracking and targets. After the pandemic, how far the pendulum shifts in the risk-mitigation direction is to be determined, but for many organizations, the evaluation process has likely begun.
“In many cases, procurement processes and metrics were designed to handle some variability, but not a shock like this,” Sawchuk said last year. “So, I think organizations will go back and examine the breakdowns and what they need to rethink. Are the metrics themselves still relevant? And of the metrics that are reevaluated, are the targets still valid?”
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