When it comes to supply chain and logistics, figuring out the right approach to measuring performance is a challenge. Assuming you can start with a clean slate, are there any guiding principles to selecting the “right” metrics?
“Usually, there are three things that companies do wrong when trying to measure the performance of their organization,” said Jason Minghini, VP Best Practices at Kenco Group in a recent episode of Talking Logistics. “One is they have way too many metrics. Sometimes I walk into facilities and ask for their scorecards and they give me this Excel spreadsheet with 1,000 different measures in it and it looks like a Christmas tree. Conversely, a lot of organizations don’t measure hardly anything at all. So when you ask them what’s important either to their customers or shareholders, they really can’t give you a firm perspective of what’s important, so they don’t measure anything at all. The third thing that [companies often overlook] is having metrics that are skewed to one side or the other — either skewed to the customer perspective or skewed more internally to the shareholder perspective, so it’s not a balanced approach.”
If you’re looking for a rule of thumb, “make sure that whatever you’re measuring is important to both your customers and shareholders, and make sure it’s a balanced approach,” added Minghini. “If you’re measuring everything, then nothing is important.”
Part of the challenge is trying to figure out the correlation between what you’re measuring and the objectives of the organization. “There’s a lot of different things that you can go out and measure,” Minghini said, “but the most important thing is figuring out the [one to five] things that you can measure, that you can measure every day, and that will actually push your organization forward from a customer and shareholder perspective.”
Jason went on to discuss the different perspectives that companies should include in their balanced scorecards (Financial, Customer, Employees, and Processes), as well as metric categories beyond cost and service that are also important in logistics, which he discusses in the short clip below:
Is there a metric category that many companies overlook?
“A lot of organizations leave out employee morale and they struggle with how to measure it,” says Minghini. “It can be measured a million different ways, such as engagement scores like the ones offered by Gallup. A very simple and basic measure that organizations can start with is turnover. Do I have a lot of employee turnover or low employee turnover? Turnover is an indication of how well you’re developing and engaging your workforce to actually help you achieve all of the other measures we talked about [cost, productivity, safety, quality, and service].”
I encourage you to watch the rest of my conversation with Jason (embedded below) for additional insights and advice on this topic, but I’ll wrap up with this takeaway:
“The problem today in a lot of organizations is that a lot of metrics are what I would call lagging indicators. If you look at a lot of financial metrics, a lot of performance metrics, they come out at the end of the month or maybe even three weeks into the next month and there’s nothing you can do about those measures — it’s happened, it’s in the past, it’s like trying to drive on a windy road in the mountains while looking in your rearview mirror; it’s not going to work out very well.
“So, what you have to do is turn a lot of your lagging indicators into leading indicators and try to measure those processes from a weekly, daily, or even hourly perspective to be able to enact change…Go from being reactive to proactive and then go to predictive.”
Which supply chain metrics matter the most? Do you have too many or too few metrics in your organization? Are your metrics lagging indicators or leading indicators? Post a comment and share your thoughts and experience on this topic!