Fall 2007 issue of Horizons

knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS

and can keep an organization from moving ahead. Still other organizations constantly change their metrics. This inconsistency results in mixed signals sent to employees about what is truly important to the success of the company and does not allow management to effectively improve the supply chain process. Old Data Another challenge is capturing the data necessary to measure the metric. In many instances, collecting the data is possible but takes weeks or months to analyze. The result is that the data is useless by the time they receive it, and they are unable to act on the data to effect positive changes to improve the metric result. “Gaming” the System Inevitably, people will find a way to work “around” the system, often when they believe that not achieving a particular metric will have personal negative repercussions. It is important that the metrics measure processes, not people. Take, for example, a company that measures on-time delivery of product orders. An order is processed but not able to be filled due to an out-of- stock item. The employee then “splits” the order into two separate orders to show that each piece was shipped on time and maintain the on-time delivery metric. So what should you do when designing your supply chain measurement metrics? The first thing to do is clearly define your goal by asking yourself who will be using this metric and for what purpose. Keep the number of metrics small to allow you to consistently collect current, valid data, so that you can focus on what is driving your supply chain effectiveness. It’s important to be able to act on the changes in the data on a timely basis and make corrections “on the fly.” Maintain a balanced set of metrics, which include both financial and non-financial indicators, to ensure you are not measuring cost at the expense of service. Ensure that the metrics you choose drive the desired behavior. For example, if you measure on-time delivery, without measuring the accuracy, completeness and condition of goods, shipments might be received on time but is incomplete. Finally, understand how each metric impacts the others. Each metric should not be set in a vacuum, and certain metrics may drive others. Performing this step up front helps you identify the metrics that matter and understand what to do with the data once you’ve collected it.

Once you’ve developed solid supply chain measurement metrics that are custom fit to your organization and its strategy, do the following: 1. Set targets that are realistic and desirable to achieve. 2. Use the data to analyze the causes of undesirable performance and develop a solution to improve performance. 3. Stay excellent! Monitoring your performance gives you the ability to constantly improve.

Questions? Contact Mike Lewis, CPA Partner-in-Charge, Manufacturing & Distribution Services Group 314-290-3391 mike.lewis@rubinbrown.com

Managing your supply chain is key to any successful manufacturing or distribution business. Measuring your supply chain through metrics can make a big difference in performance.

36 u winter 2007 issue