supply chain performance measurement trends
TRANSCRIPT
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Supply Chain Performance
Measurement:
Trends and Transformations
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Steven A. Melnyk
• Professor of Operations & Supply Chain Management Department of Supply Chain Management Eli Broad Graduate School of Business Michigan State University East Lansing, MI 48824-1122 USA
• +15174326410
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Introduction
Understanding performance
measurement
Introduction – understanding performance measurement
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Performance Measurement
• Critical
• Confusing
• Changing
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Making Sense of Measurement
•Basics
•Roles Critical
•Challenges
•Myths Confusing
•New Roles
•Guidelines Changing
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How well do you know performance measurement?
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Q1: Which is more important?
• Strategy?
• Performance measurement?
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Answer
• Strategy, while setting the overall direction of the firm, is often vague and meaningless to most people.
• Measurements convert strategy and the business model into actions that they have to take; measurements makes strategy concrete!
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Measurement starts with the business model
Value
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The Flow
• Who is our key customer(s)?
• What is our value proposition?
• What does the customer value? – Order qualifiers – Order winners – Order losers
• What is the Desired Outcome?
• These determine how frequency of measurement!
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The Importance of Measurement
• One of the most powerful management disciplines, the one that more than any other keeps people focused and pulling in the same direction, is to make an organization’s purposes tangible. Managers do this by translating the organization’s mission – what it, particularly, exists to do – into a set of goals and performance measures that make success concrete for everyone. This is the real bottom line for every organization – whether it’s a business or a school or a hospital. Its executives must answer the question, “Given our mission, how is our performance going to be defined?”
– Magretta & Stone, Management. 2002, p. 129
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Q2: The Primary goal of Performance Measurement
• Monitor and control • Communicate
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Performance Measurement - Goal
• Communicate – Goals – Expectations – Consequences
• Sell – Get commitments
• Educate – What is important – What is not important
• Direct – To gaps
• Measure/Correct
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Q3: We should use the same measures throughout the firm?
• True? • False?
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360 Leadership Model
self
Superiors
Subordinates
Upstream Downstream
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How do we communicate?
• Top management
– Output measures (after the fact) • Sales
• Market share
• Quality problems reported
– Why? • Get their support
• Resources
• Time
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How do we communicate?
• To our subordinates/suppliers
• Output measures are useless except as score keeping.
• Need predictive or process measures – Measures associated with the process
– Identifies process attributes that we should manage to achieve the desired outcome(s)!
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Process Measures Example
Lead times
• Our goal is to reduce lead times, what aspects of the process are suitable for being process measures?
• Answer
– Number of steps in the process
– Distance covered
– Number of people who touch the order
– Setup times
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360 Leadership Model
self
Superiors
Subordinates
Upstream Downstream
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Q4: Measures and metrics mean the same thing?
• True? • False?
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Measures versus Metrics
• A measure is a verifiable indictor stated in quantitative
(e.g., 95% inventory accuracy) terms and intended to
close the gap between value, strategy, and specific
activities.
• Objectives
– Measure
– Teach
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Metrics are different
Metrics bring 3 elements together
Metrics
Measure
Consequence Standard
Some thoughts
• A metric without a standard is meaningless!
• A metric with the wrong standard is dangerous!
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Q5: When it comes to measures, the more the better?
• True? • False?
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The Goldilock’s Principle
• Measures are best if:
– There are not too few • Over-focus
– There are not too many • Confusion
• Gamesmanship
• Focus on what you can do well
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Then what is just right?
• For decision-makers:
– 5 +/- 2 has been found to be about right!
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Implications
• If you want to introduce a new measure or metric and you are at 7 something has to go!
• Measure what you need, not what you can.
• Avoid conflicts in measurement systems. – The lesson of a cereal company
• Measures have life cycles.
• Beware bad data!
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Q6: Measures are accurate indicators of performance?
• True? • False?
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Truth of Measures
• Measures are often imperfect proxies for performance and desired outcomes.
• Just because the numbers look right, don’t assume that the desired changes are taking place.
– A pharma story
– A company tries to change its strategy from lean to innovation.
• Measures are subject to the telephone game effect.
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Q7: Measurement problems indicate problems in performance?
• True? • False?
It depends!
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Word of Mouth Communications Requirements Past Experience
Expectations
Perceived
Performance
Actual
Performance
Performance
Standards
Management
Perceptions of
Expectations
External
Communications
Gap 2
Gap 3
Gap 5 Gap 4
Gap 6
Cust
om
er
Sel
ler
Gap 1
Opportunities for Errors
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The Advent of Forwardcasting!
• If you focus on the past, then the measures ultimately become punitive! – The past is done, move on!
• New approach – Measures describe future goals
– Periodically, we compare actual progress with desired progress
• If on track, keep going
• If off track, why? What can be done to reorient activities to achieve future goals.
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Q9: Within the supply chain, measures should be aligned?
• True? • False?
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Through Whose Eyes Do We See the World
Through our own! Through our customers’
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Measurement starts with the business model
Value
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Making Sense of Measurement
•Basics
•Roles Critical
•Challenges
•Myths Confusing
•New Roles
•Guidelines Changing
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Final Comments
Concluding Comments
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Final Comments
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Comments
• Measures and metrics are: – Critical – Confusing – Changing
• Increasingly important
• New insights require new approaches
• Developing measures is a key skill of the strategic supply chain manager.
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The Three Laws of Metrics
• Management has a desired to
measure quantitatively everything.
• Every metric will generate under
desired or unexpected
behavior/results.
• There should be balance
– Long term vs. short term
– Making money now vs. investing in the
future
– Outcomes vs. processes.
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Questions