From the Advisory Board: So you have the metrics, now what?
Benchmarking your performance is only the tip of the iceberg. It's what you do with that information that matters.
John Hill, Vice President, TranSystems -- Modern Materials Handling, 3/1/2009
Metrics, performance measures, key performance indicators and benchmarking. Users, academics and consultants alike have extolled the virtues and potential benefits of these tools for years—and who could quarrel with them? There is clearly value to be derived from establishing performance goals, measuring results and matching them against those from analogous operations. Within the latter, however, lies the rub! Where’s the analog? Can you be sure?
The amount of data currently being published by various groups and universities provides more insight into cross-industry performance than was available five years ago. Generally focused on functions and ratios drawn from order and shipment files, payroll records, the P&L and balance sheet, most of the published data lacks the granularity (forgive me) needed for drawing comparisons except at the highest level. With the exception of rare publications from the larger companies that have engaged consultants to help with peer benchmarking, data by vertical industry or type of business is difficult to find.
Frankly, it is unlikely that industry databases will ever be large, segmented or current enough to assure results and insights whose foundation and relevance can be fully relied upon by those who do make the effort to compile their own data for performance benchmarking. My comments are not intended to disparage the value of metrics analyses or benchmarking reports, but rather to point out that they should be viewed as data points (not gospel) when a company launches its own performance improvement initiative. To do otherwise might result in establishing targets well beyond (or behind) the organization’s ability to achieve them.
No one knows how well organizations are actually doing better than those charged with doing the work—at least intuitively! What if, then, instead of establishing a performance profile and devoting enormous energy to finding the perfect match, companies focused that energy on developing, maintaining and internally broadcasting their own metrics profiles, using scorecards to let the team know how it’s doing. Once internal metrics are developed, they should be analyzed with respect to an alignment with the company’s overall business strategy; e.g., if Amazon.com drove its logistics activities with measures focused solely on reducing delivery costs, it would cripple its ability to serve customers. Smart managers are ensuring that what is measured in the field is valued at the top of the organization”¹. Once aligned, it’s up to the “smart manager” to show the linkage between supply chain performance improvement and achievement of corporate goals—that is, if he or she wants support for process reengineering, new investment funding or workforce incentive programs.
Finally, back to benchmarking. Even if a given set of published statistics appears to fit, providing a good model against which you can benchmark your own performance is only the tip of the iceberg. How will the data be used to enhance performance? What network and process changes, technology and system modifications or additions, and partnering alignments can be made to accelerate balanced target achievement? How do you approach the reality that improvement in one area may in fact negatively impact performance in another? And, how do you enlist support and gain commitment from your internal and external teammates to play the game? Once you have unraveled the riddle, the real measure of your efforts will not be significant breakthroughs in one or two areas, but the impact of combined contributions from each area of your supply chain that will show up in corporate financials—as good a measuring tool as you can find.
| Author Information |
| John Hill can be contacted at . |
| References |
| ¹Adapted from Keeping Score: Measuring the Business Value of Logistics in the Supply Chain, CLM, 1999 |
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