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Identifying the Right Metrics Is Your Starting Point

Analyst Insight: Tracking supply chain metrics can help organizations identify opportunities for quality and performance improvement. However, identification is half the battle; organizations must adopt practices that can lead to improvement. One of these practices is the development of close relationships with key suppliers and service providers. Through these relationships, organizations can realize improvements in both performance and quality. - Becky Partida, Research Specialist, APQC

Identifying the Right Metrics Is Your Starting Point

With the increased focus on the impact the supply chain can have on an organization's profitability and customer satisfaction comes the need for focused efforts on process improvement and increased quality"”from the organization, its supply chain service providers, and suppliers. By tracking metrics for the supply chain, organizations can identify areas for improvement.

For procurement, metrics can be used to evaluate the ability of suppliers to deliver products on time, complete and without damage. Metrics can also be used to measure the quality of the products themselves. For organizations in highly regulated industries, selecting quality suppliers and monitoring performance can be essential to the business.

Organizations also have opportunities to assess quality with regard to logistics. Metrics related to warehouse management and outbound transportation can inform an organization of deficiencies that can lead to costly delays in transporting finished goods to customers. For organizations outsourcing these functions, metrics can be used to monitor service provider performance and ensure that customers remain satisfied.

APQC recommends that organizations adopt a balanced and meaningful set of supply chain measures that look beyond costs. For example, for the procurement function, an organization could track metrics such as the:

"˘ total cost of the procurement process,

"˘ total cycle time to place a purchase order, and

"˘ percentage of supplier orders delivered on time.

For the logistics function, organizations could track:

"˘ warehouse cost,

"˘ total cost of logistics, and

"˘ perfect order index (the percentage of orders complete, on time, damage-free, and with correct documentation).

No matter which metrics an organization tracks, it should adopt practices that can lead to improvement. One of these is the establishment of close relationships with key suppliers and service providers. ATMI, a provider of technologies for the semiconductor, life science, and display industries, has adopted this practice. ATMI tracks supplier data and conducts supplier risk assessments. If ATMI determines a supplier is at risk, it considers investing more in the development of the supplier, procuring and holding extra inventory for the supplier, or working on continuous improvement processes with the supplier. These options allow ATMI to avoid having to go through the process of finding another supplier that provides the level of quality needed in the semiconductor industry.

Similarly, forming strategic relationships with logistics service providers can lead to higher quality service. Automotive company Jaguar delivers quality aftermarket and service support through a long-standing partnership with Unipart Logistics. Unipart Logistics provides global logistics services to more than 700 Jaguar dealers and invests in the creation and implementation of unique processes and products to continuously improve its service. Unipart Logistics is fully vested in Jaguar's business, from a new model's development through to its launch, and the support continues throughout the car's lifespan.

                                                      The Outlook

As organizations continue to look to the supply chain for opportunities to provide strategic benefit to the business, procurement and logistics functions will take a closer look at how tracking metrics can lead to cost savings and quality improvements. By extending performance measurement beyond the enterprise itself, organizations can use relationships with suppliers and service providers as an opportunity to improve the supply chain.

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