supply chain metrics that matter
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Supply Chain Metrics That MatterTRANSCRIPT
© 2009 AMR Research, Inc. | Page 1
Eric O’DafferResearch Director Gartner AMR Supply Chain GroupApril 20, 2010
Healthcare Supply Chain Metrics That Matter:
A Discussion
© 2009 AMR Research, Inc. | Page 2
Life SciencesLife Sciences
Healthcare Value Chain Model
HealthcareHealthcare
PatientPharmaBiotechMed DevGeneric
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Linking Strategy to Value in the Healthcare Value Chain
Value in HealthcareHigh Quality Patient Care at Optimal Economic Cost
Shared Vision and Goals
Transparency
Aligned Metrics
Extension of Supply Chain Services
Business Process Governance
Understanding Demand
Inventory Management
Compliance
Communication
Timely and Accurate Data
Knowledge and Info Sharing
Sustainable Collaborative Relationships
Joint Value Creation
Demand-Driven Value-Network StrategySupporting the Business Strategy with Demand-Driven Capabilities
Consciously Executing Value-Based Trade-OffsOutside-In Focus Coupled with Inside-Out Excellence
Demand-Driven Value-Network StrategySupporting the Business Strategy with Demand-Driven Capabilities
Consciously Executing Value-Based Trade-OffsOutside-In Focus Coupled with Inside-Out Excellence
© 2009 AMR Research, Inc. | Page 4
Challenges of Metrics
Too many metrics!
Endless debate over definition
Constantly changing metrics
Data too old by the time it’s collected
Silo behavior
Gaming the system
Define a clear strategy
Cultural wars; lay down the lawImplement measurement strategy now
Fix data issues
Cross-functional metrics
Motivate consistently
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A Multitude of Metrics
Cash-to-Cash Cycle
Internal Fill Rate
Supply Cost as % of Net Patient Revenue
External Fill Rate
Inventory
Supply Chain Cost
Perfect Order
SKU Reduction
Demand Forecast
% Spend on Contract
Transportation Cost
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Hierarchy of Supply Chain Metrics
A tiered system of metrics to improve supply chain effectiveness – the top tier assesses a company’s supply chain health, while the two successive tiers diagnose the root cause of performance gaps and provide insight for corrective action.
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The Hierarchy of Supply Chain Metrics
Supplier Quality
Supplier On-Time
Purchase Costs
Dir MtlCosts
RM Inv
Cost Detail
Production Schedule Variance
Plant Utilization
WIP + FG Inventory
Order Cycle Time
Perfect Order Detail
Correct
DiagnoseAP AR
Inventory Total
Cash-to-Cash
AssessDemand Forecast
SCM Cost
Perfect Order
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Supplier Quality
Supplier On-Time
Purchase Costs
Dir MtlCosts
RM Inv
Cost Detail
Production Schedule Variance
Plant Utilization
WIP + FG Inventory
Order Cycle Time
Perfect Order Detail
Correct
DiagnoseAP AR
Inventory Total
AssessDemand Forecast
SCM Cost
Perfect Order
(Weak)
(Strong)Demand Forecast
Perfect Order
SCM Cost
AP Inventory Total AR
Cash-to-Cash
Supplier Quality
Supplier On-Time
RM Inv
Purchase Costs
Dir MtlCosts
Cost Detail
Production Schedule Variance
Plant Utilization
WIP + FG Inventory
Order Cycle Time
Perfect Order Detail
Correct
High Inaccurate Shipments
“Consciously Incompetent”
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Supplier Quality
Supplier On-Time
PurchCosts Dir Mtl Costs
Cost Detail
Production Sched
Variance
Plant Utilization
Order Cycle Time
AP ARInventory
Total
Cash-to-Cash
Perfect Order
SCM Cost
Demand Forecast
Assess
Diagnose
Correct
WIP + FG
Inventory
On par
Below par
Above par
Key:
Perfect Order Detail
Large Consumer Products CompanyLarge Consumer Products Company
“Consciously Excellent”
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Metric Definition
• Goals: Different metrics portfolios for different goals
• Balance: Keep the portfolio balanced, cross-functional, and practical
• Alignment: Align to business and supply strategy
• Right-sized: Keep it small: avoid the “mushroom effect”
• Standards: Address standards vs. customization
Measurement Best PracticesDevelop a metrics strategy
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Measurement Program Implementation• Plan: Develop migration plan for the metrics with timeframes and
milestones• Scope: Define feasible and actionable scope, by supply chain, end-to-
end• Process: Pay attention to ownership, roles, responsibilities, and structure• Culture: Manage the culture and motivation• Tools: Invest in the tools that will enable repeatability• Pilot: Use pilots to test the approach• Tradeoffs: Beware of tunnel vision and understand the
interdependencies • Turning data into action: Identify conclusions using patterns and levers,
prioritize results, and manage the communication• Power through Process: Institutionalize the measurement program
through a business process to make it “sticky”
Measurement Best PracticesDevelop a metrics strategy
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Making performance management sustainable over time
“North-South”Goal
Alignment
MeasurementAptitude
Leadership
Continuous Improvement
Culture
Power Through Process
STICKY
GLUE
“East-West”Process
Performance
What makes it “sticky”?
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Level of change seen amongst better demand forecastersin profitability performance over the last 12 months
56%
51%
47%
46%
45%
Improved supply chain costs
Improved manufacturing productivity
More successful NPDL
Better perfect order performance
Lower inventory levels
Benefits realized as a result of demand forecast accuracy improvement
Your Manufacturing Partners are Already Seeing the Value
Source: 2009 AMR Healthcare Study
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Demand Visibility is on the Radar Screen
13. What are your company’s main supply chain objectives today?
14. LIST THOSE MENTIONED IN Q13. Which one is your company most successful at today?n= Healthcare Providers only, n=60
Value Analysis Programs
Asset Management
Provide Real-time Visibility to Trading Partners
Talent Recruitment Strategy
Integrating Supply Chain and Patient Care Systems
End–to-End Electronic Sourcing
Supply Chain Metrics System
Sustainability Optimize Materials Management
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The Hierarchy of Supply Chain Metrics
Supplier Quality
Supplier On-Time
Purchase Costs
Dir MtlCosts
RM Inv
Cost Detail
Production Schedule Variance
Plant Utilization
WIP + FG Inventory
Order Cycle Time
Perfect Order Detail
Correct
DiagnoseAP AR
Inventory Total
Cash-to-Cash
AssessDemand Forecast
SCM Cost
Perfect Order
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Provider Supply Chain Metrics
Correct
DiagnoseCash-to-Cash
Assess
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Big questions to answer …
• How do you sense demand? Who sees it? What do you do with it?
• Do you use demand data in Supply Chain tradeoffs? • Do you have a Joint Value Creation strategy with key /
segmented Suppliers?• Have you defined a measurement strategy that outlines
how you will use the metrics?• How do you pull this together in a Value Chain strategy?
© 2009 AMR Research, Inc. | Page 18
Other Questions, Comments or ideas to share?