Editor’s note: This post originally ran last year. Since it’s a relevant topic, we wanted to share it with you again.
Is the current performance of your supply chain network optimal? How do you gauge network performance, know which numbers are important to you, and understand what they mean?
You don’t have to be a data scientist to answer questions like these. And you do not need to know high-level math or the intricacies of building complex models to get a sense of when a consultant’s expertise is needed.
Think of a general practitioner who monitors a patient’s vital signs and prescribes remedies when his or her observations indicate that there is an illness. If the illness is serious or requires deep knowledge of a particular condition, the general practitioner will probably recommend the services of a specialist.
Here are five supply chain basics that all managers can analyze on an ongoing basis to keep tabs on the health of their supply chain networks.
- Do you have the right metrics? Metrics show how your supply chain is performing—providing they are the right ones to do the job. Inappropriate metrics can give a false or incomplete picture of supply chain performance. First, understand what your priorities are and establish goals for your supply chain. Is cost minimization the overarching objective, for instance, or is maximizing service levels—or a combination of both—more important? Second, what metrics are the best indictors of performance in terms of these goals? There are many to choose from, depending on the information you need. How much are you spending to move 100 pounds of freight? What are your warehouse fill rates and lead times? What is your primary carrier’s cargo acceptance rate? These are examples of metrics that may or may not support your goals.
- Benchmark your operation using the selected metrics. There are two broad types of benchmarking: internal and external. Internal benchmarking refers to activities within the four walls of the enterprise. It’s important to use your analyses to set realistic expectations. For example, setting a goal of 100% truck utilization might be desirable, but the way your logistics function is structured, or the nature of your business model and markets, might dictate that a realistic goal is 80% truck utilization. External benchmarking pertains to the world outside of your enterprise. What is happening in the industry in key areas such as average freight rates per mile and transportation spend? There are various types of reports and databases available in the market that you can use to benchmark your supply chain; the important thing is to choose the ones that help you to set the right expectations.
- Continuous checks on compliance. To what extent is your supply chain operation in compliance with the performance criteria you’ve created? For example, what is the difference between your stated cost-per-mile targets and the actual cost-per-mile achieved? You have contracted with a new transportation management system (TMS) provider; how many suppliers are using the automated features of the TMS and how many are still using manual systems to track orders? When day-to-day performance is out of step with your requirements, find out the root causes by asking questions of stakeholders. Troubleshoot the problems until you bring actual performance back into alignment.
- A watching brief on industry trends. This analysis differs from external benchmarking because it involves keeping abreast of broad industry trends and anticipating future developments. Consider, for example, a situation where carrier capacity is starting to tighten. You might conclude that three months down the road when spare capacity is probably going to be scarce, your current targets for carrier acceptance rates might be unrealistic and need to be adjusted. It’s important to keep an eye on relevant trends so you can fine-tune your network when needed. There are countless industry reports and indices you can draw on to help you keep pace with broad market developments.
- Are your resources fully utilized? In all likelihood you manage a wide range of resources—from a logistics team to a TMS and equipment assets such as trucks—and an important indicator of the overall health of your operation is the extent to which these resources are utilized. How much of your team’s time is fully used? Perhaps you recently adopted a powerful business intelligence tool as part of an investment in TMS technology. Is the tool being used to its full potential? The range of resources that can be monitored is extremely wide, but in general human resources rank first in importance, followed by technology and physical assets. Keep the math simple; if team members are working productively 160 hours out of a possible 200 hours per week, then the utilization rate is obvious.
As mentioned, in addition to helping you check the daily pulse of your supply chain, these analyses indicate when expert help is needed. For example, a consultant can help you find the right combination of effective metrics if this is proving problematic, or do a deep-dive analysis on what particular metrics are telling you.
Another benefit of this systematic approach to monitoring supply chain efficiency is that armed with data from these simple analyses, you are in a much better position to ask the right questions should a consultant’s time be needed.