How you implement metrics makes a difference to performance. Learn why how you measure, also matters.
Measuring What Matters.
Does Your Supply Chain Reporting Actually Drive Performance?
The metrics most important ti business leaders should first be understood in a holistic manner and then individually. This way their impact on business performance are connected to the drivers of change internally, and at the organizational level, helping to predict and plan for subtle, unpredictable outcomes that occur while making adjustments to operational processes.
The Three Pillars of Organizational Performance
To bridge the gap between daily logistics and corporate success, performance should be analyzed across three distinct levels:
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Strategic Level: High-level goals that align with the company’s long-term vision (e.g., market share, ROI).
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Tactical Level: Mid-term targets that focus on process efficiency and resource allocation.
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Operational Level: Day-to-day measurements of specific tasks and immediate outputs.
By mapping disruptive risks and interrelated connections from an operational perspective first, leaders can allocate the right Key Performance Indicators (KPIs) to specific inputs, ensuring that small adjustments lead to positive shifts in overall performance.
Useful perspectives on performance can be approached from these three levels:
1. Strategic Level
2. Tactical Level
3. Operational Level
Once the disruptive risks and interrelated connections to organizational performance are mapped from an operational perspective, the measurements for key activities can be allocated and attention on specific to supply chain management inputs can provide insight for positive adjustments to overall performance.
The Financial Impact of Focused Management
Research backs the metrics imperative. According to a landmark study by Gunasekaran (2004), a survey of firms found a 76% affirmative response indicating that efforts focused on carefully managing supply chains produced direct financial benefits.
To isolate these gains, many organizations use a model that categorizes performance measures into four core supply chain activities:
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Plan: Forecasting and demand management.
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Source: Vendor performance and procurement efficiency.
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Make/Assemble: Production reliability and throughput.
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Delivery/Customer: Order fulfillment and satisfaction levels.
While these categories provide a solid framework, the most effective KPIs are those determined on a case-by-case basis, tailored to the specific needs of the business.
Out of 21 completed and returned surveys, “76% affirmative response … showed that effort focused on carefully managing supply chains produced financial benefit for participating firms.”
(Gunasekaran, 2004)
The Collaboration Component: Gaining Buy-In
For metrics to work, they cannot exist in a vacuum. Successful implementation requires two critical ingredients: Unified Frameworks and Executive Sponsorship. For a supply chain to be efficient, all entities, such as departments or partner companies, must be using the same ‘drivers’. Drivers in this context, are categories of measurement. In certain situations where this unification is absent, the “bullwhip effect” occurs because different parts of the chain are responding to different, often conflicting, signals. (Gamme, 2015) In a supply chain context, successful implementation of performance measures are most likely when an executive sponsor is designated, research supported by Gunasekaran (2004). This approach emphasizes that for performance measurements to be truely effective, they must be “committed to throughout the business,” requiring top-down heirarchical, and centralized authority structure.
Performance metrics as they pertain to supply chain management can use the model proposed by researchers to isolate performance measures into these four supply chain management activities; (1) plan, (2) source, (3) make/assemble, and (4) delivery/customer
(Gunasekaran et al., 2001).
One study found when defined KPI’s are evaluated and established as a general guide to implementing globally relevant performance improvement strategies that, unifying and collaborating efforts will provide a distinct and superior understanding of inputs and their results, especially relevant within there are otherwise disconnected facets of multiple programs running internally, a portfolio structure. Therefore, a unified portfolio management system (PMS) increases collaboration between entities.
While effective in isolating the inputs and mapping effects of incremental or significant changes to process, measurement activities need to have key performance indicators determined on a case-by-case basis for the best results. For effective use of performance measurements, the determination of these measures must be developed together and committed to throughout the entire business. (Gunasekaran, 2004) So, testing the framework on an entire chain would also test the usefulness of the drivers. (Gamme, 2015) The drivers are general categories and can be applied to basically any supply chain, however these must be tested to ensure the same measures will work across all entities within a specific supply chain.
“… Testing the framework on an entire chain would also test the usefulness of the drivers.”
(Gamme, 2015)
There is a growing debate regarding whether individual metrics can function independently – or if a holistic perspective is required for an accurate response to every one. However, modern systems and technologies are rapidly bridging the gap between visibility and responsiveness. The prevailing wisdom is shifting toward a “less is more” approach: focusing on fewer metrics with greater emphasis on relevance, while balancing both internal operational data and external factors.This demonstrates an all encompassing perspective on performance need not apply to every situation in the supply chain to achieve valuable results.
The Future of Metrics: AI and Automation
How can leaders make their implementation strategies more effective? The answer lies in digital transformation.
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Artificial Intelligence (AI): Using AI to refine metric selection, identifying which data points actually correlate with success.
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Automation: Removing human error and delay by automating reporting and data collection.
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Sensors (IoT): Providing the real-time operational transparency required for agile decision-making.
Improvement is rarely successful when siloed. True supply chain excellence requires participation from departmental stakeholders and a commitment to a shared vision of success.
Key Definitions:
Unified Framework: The definition of a Unified Framework (specifically a Unified Performance Measurement System or PMS) is derived from the research of Niclas Gamme (2015) and the broader SCOR (Supply Chain Operations Reference) model logic. Source: Gamme, N. (2015). Measuring supply chain performance through KPI identification and evaluation. Chalmers University of Technology.
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Key Concept: Gamme argues that for a supply chain to be efficient, all “entities” (departments or partner companies) must use the same “drivers” or categories of measurement. Without this unification, the “bullwhip effect” occurs because different parts of the chain are responding to different, often conflicting, signals.
Executive Sponsorship: The definition of Executive Sponsorship is a cornerstone of the Project Management Body of Knowledge (PMBOK®) and the Prosci ADKAR® Model for Change Management. Source: Project Management Institute (PMI). A Guide to the Project Management Body of Knowledge (PMBOK® Guide).
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Key Concept: Research by Prosci consistently shows that “active and visible executive sponsorship” is the number one contributor to successful project outcomes. In a supply chain context, this is supported by Gunasekaran (2004), who emphasizes that for performance measurements to be effective, they must be “committed to throughout the business,” a feat that requires top-down authority.
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Referenced and Recommended Reading
- Gamme, N. (2015). Measuring supply chain performance through KPI identification and evaluation. [Master’s thesis, Chalmers University of Technology]. Department of Technology Management and Economics, Division of Operations Management. Gothenburg, Sweden.
- Gunasekaran, A., Patel, C., & Tirtiroglu, E. (2001). Performance measures and metrics in a supply chain environment. International Journal of Operations & Production Management, 21(1/2), 71–87. https://doi.org/10.1108/01443570110358468
- Gunasekaran, A., Patel, C., & McGaughey, R. E. (2004). A framework for supply chain performance measurement. International Journal of Production Economics, 87(3), 333–347. https://doi.org/10.1016/j.ijpe.2003.08.003
- Project Management Institute. (2021). A guide to the project management body of knowledge (PMBOK guide) (7th ed.). Project Management Institute. https://www.pmi.org/
