As business conditions continue stabilizing after the coronavirus pandemic, organizations are still processing lessons learned as they determine what their supply chains will look like moving forward.
However, one truism, strengthened by COVID-19 impacts, remains: You can’t manage what you don’t measure.
In April, the Forbes Business Council offered 15 suggestions for business leaders to lower supply chain costs while improving performance; five of them involve data and metrics. Wrote a council member, “(L)eaders need to gather and analyze data on key metrics, such as supplier performance, inventory levels and transportation costs. This enables leaders to make informed decisions based on data, leading to a more efficient and cost-effective supply chain.”
Over seven years of The Monthly Metric, this space has on occasion devoted a month to presenting previous articles for review or in case you missed them, on such topics as spend, inventories and risk. With end-to-end supply chain performance in mind, this edition focuses on a variety of disciplines. To read each story in full, click on the link above the headline.
Synopsis: This self-defining analytic is based on a percentage, as described by Coupa, “of spend put through pre-negotiated contracts to enable better prices and terms.” A higher percentage of on-contract spend indicates that a procurement organization is driving more value.
Insight: “There was no tapering off, even though you would assume buyers would be more frantic. … (P)rocurement’s rigor in awarding contracts never came down. (The pandemic) has been a time for procurement to step up and lead, and this is one of those metrics where it’s happened.” — Michael Van Keulen, CPO of Coupa, the San Mateo, California-based business spend management technology platform.
Synopsis: Companies should continue to evaluate safety-stock levels in preparation for the next unexpected crisis, and most have to keep excess inventory as a buffer against the ebbs and flows of consumer demand and supplier delivery times, two of the most variable dynamics in business. Safety-stock level helps determine reorder point, and other inventory metrics can work in tandem.
Insight: “It’s a matter of how much a company can tolerate putting additional money into inventory. If it can’t, the decision is already made. It’s going to have to take the risk that the (current) safety-stock levels will be sufficient, and an additional factor is that companies have shareholders. They have to consider the preferences of shareholders versus those of the supply chain versus finance versus the executives.” — Tracey Smith, MBA, MAS, CPSM, president of Numerical Insights LLC, a boutique analytics firm in Williamsville, New York.
Buying Policy (Lead Times)
Synopsis: An often-overlooked section of the Manufacturing ISM® Report On Business® is Buying Policy, which details a measurement of vital importance to supply managers — lead time. That section’s table measures average lead times in three categories: (1) capital expenditures (machinery, plant equipment, software and the like), (2) production materials and (3) maintenance, repair and operating (MRO) supplies.
Insight: “When people are looking at lead-time changes across industries and specifically within their own industry, that's very valuable intelligence that price increases are probably coming, and they need to do something to protect the business.” — Institute for Supply Management® CEO Thomas W. Derry.
Time to Awareness and Resolution
Synopsis: While these metrics have no consensus definitions and benchmarks, they are critical: The longer it takes to be aware of a disruption like a supplier delay or manufacturing asset failure, the longer it takes to resolve it, increasing the chances of an inventory stockout.
Insight: “You need to have clear data that allows you to monitor the process out at a granular level. And then you need to have clear responsibility to know exactly who is to be made aware, as well as the person or the team that needs to respond.” — Marco Sandrone, senior research director with the supply chain practice at Gartner, the Stamford, Connecticut-based global business research and advisory firm.
Scope 3 Emissions
Synopsis: Scope 3 emissions make up the largest share of most companies’ greenhouse gas (GHG) emissions, and measuring them is an inexact science. Still, trends indicate companies are warming to, or at least accepting, such disclosure — especially as legislative trends continue to suggest it won’t remain voluntary.
Insight: “Tackling Scope 3 emissions … requires both the expert knowledge, measurement tools, and resources within an organization and the ability to collaborate across the value chain in scalable ways that bring others — like suppliers, customers and employees — along on the journey.” — Kyra Whitten, vice president, sustainability at Flex, a global supply chain and manufacturing technology provider, in a World Economic Forum (WEF) article.
Cash-to-Cash Cycle Time
Synopsis: ISM’s website traffic reports indicate this is the most-read edition of The Monthly Metric, which seems fitting since cash-to-cash cycle time can reveal a lot about the overall health of a supply chain, even though it suggests an emphasis on finance. It measures success in such disciplines as customer service, inventory management and supplier relations.
Insight: “For healthy companies, the windfall can be reinvested in ways that more directly affect value creation, such as growth initiatives or increased balance-sheet flexibility. Moreover, the process of improving working capital can also highlight opportunities in other areas, such as operations, supply chain management, procurement, sales and finance.” — a 2014 McKinsey & Company report.
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