HOW TO MEASURE SUPPLY CHAIN PERFORMANCE

E d w a r d H . F r a z e l l e , P h . D . RightChain™ “Dr. Frazelle, our CFO is upset about our inventory levels. He believes they should be lower. What should we do?” I said, “I think you should stop calling me because you are either not listening to or not implementing what I am recommending. You are on the inventory see-saw; lowering inventory levels to satisfy finance until sales complains about service levels and then raising inventory until finance complains.” He said, “You’re right. Will you come talk to our CFO?” That was the start of a significant supply chain journey for them; a journey to the land of balance and optimization. Since “a house divided against itself cannot stand”, alignment is one of the most important characteristics of a healthy system of metrics. The metrics need to align the objectives of the supply chain with the business; to align the objectives of the supply chain activities with one another; and to align externally with metrics that allow benchmarking with peers. Spanning Imagine a bridge that reached 70% of the way from one side to another. What use is the bridge? That seems like a ridiculous question, but many systems of metrics only span a portion of the activities or concerns they are meant to cover. For example, there are three main constituent groups of a supply chain – employees, customers, and shareholders. If a system of supply chain metrics excludes the concerns of one of those groups, it is incomplete and potentially | 9