Executive Briefings

Achieving Continuous Improvement in Complex Supply Chains Today

Has the march toward continuous improvement come to a halt? Far from it. The idea lives on, under new labels. First of a two-part article.

Remember continuous improvement? A decade or so ago, it was all the rage. Companies were rushing to embrace the concept under a trendy Japanese term, kaizen. Continuous-improvement techniques were applied with some success to manufacturing, as part of the quality craze.
More recently, the term has faded from management playbooks. The very notion seems to have left companies exhausted. Some have turned instead to finite projects with clear objectives.

The move away from continuous improvement, at least under that name, is understandable. The idea isn't tied to a single set of technological tools. It can't be reduced to an easy series of steps for implementation. Continuous improvement isn't a program; it's an attitude. Some might view that as a shaky foundation for a comprehensive quality initiative.

On closer examination, though, continuous improvement hasn't really gone away. It thrives today in concepts such as Six Sigma and Lean. It covers a wide range of software applications, including executive dashboards, supply chain event management systems and other business intelligence tools. And it has transcended the original goal of eliminating waste in the assembly line to involve nearly every aspect of the supply chain. Most of all, it is focusing on the ever-important goal of pleasing the customer.

Procter & Gamble has instilled a culture of continuous improvement throughout the organization, says Lora Cecere, research director with AMR Research Inc. The company employs a handful of key metrics to monitor supply chain performance. Then it uses the data to enact further improvements. All efforts are focused on "the moment of truth"-the presence of product on the shelf, when the customer wants it.

One of P&G's many projects addressed the issue of on-time delivery. The company's performance in that area had slipped from 96 percent to 94.5 percent-an unacceptable level for one of the world's largest producers of consumer goods. Lost sales were the result.
The problem, P&G knew, lay in its inability to seamlessly track a load from order placement all the way to proof of delivery. Multiple legacy systems and manual processes were needed to follow goods through the various stages of the supply chain.

Considering that P&G was shipping around 1,200 loads a day from 35 plants in the U.S. and Canada, that was no easy task. What was needed was a means of achieving shipment visibility through a single system. P&G turned to Supply Chain Monitor (SCM), supply chain event management software from Holland, Mich.-based LeanLogistics Inc.

Part of LeanLogistics' transportation management suite, SCM pulls together data from P&G and its many trading partners. Elements include order and loading information, trailer assignments, preferred carriers, scheduled pickup times, status of shipment en route, and delivery to the customer. Using predefined business rules and milestones, the system alerts users when anomalies pop up. As a result, P&G can take action to head off any disruptions.

"P&G wants to do everything it can to save a load," says Pete Stiles, vice president of marketing and strategy at LeanLogistics. For a shipment that was loaded late, that might involve the hiring of team drivers to cut down on transit time. In cases where a delay can't be avoided, P&G notifies the customer so that it can make alternative arrangements.

The system boosted P&G's on-time delivery rate to 97 percent, two percentage points better than expected, says Stiles. It has also resulted in longer-term benefits. With better visibility of orders, P&G can reduce inventory carrying costs while improving on order fill rates. And it can use the information about supply chain anomalies to detect and solve chronic problems. Prior to implementation of SCM, about half the glitches that occurred were the fault of P&G's carriers and other external partners, while half were internal in nature, says Stiles. Report cards generated by SCM and similar systems can be used as leverage to reduce carrier misbehavior, such as a pattern of rejecting shipments.

When Growth Brings Chaos
Smaller companies can adopt a attitude of continuous improvement as well. In fact, rapid growth may force them into the proper mindset. Overstock.com, the Salt Lake City-based online seller of discounted and closeout merchandise, has experienced a dizzying rise in business over the past few years. Revenues were up by 63 percent in 2005, and gross profits by 83 percent, although the company posted a net loss of $25m.

Overstock ran into problems trying to replace "shopworn" systems, chief executive officer and president Patrick M. Byrne said in a statement accompanying the results. The company also experienced "the maddest of scrambles" during the peak fourth-quarter shipping season. Byrne promised shareholders that things would improve this year.

The embattled company is employing a combination of Six Sigma quality and business intelligence systems to get the job done. Overstock ships most of its merchandise out of a single distribution center in Salt Lake City, consisting of 700,000 square feet over two facilities. One is devoted entirely to returns processing and repair.

In the past, Overstock has struggled to "scrap together improvements to scale for next year's volume," says Dave Galgon, director of outbound fulfillment. "There are a lot of Band-Aids in place." Recently, however, the company began to apply the rigorous principles of Six Sigma and Lean to boost productivity and order accuracy. With the additional help of a business intelligence application from HighJump Software, it has reduced the rate of exceptions to the manifest by 95 percent, while doubling the packing rate per person in the warehouse.

Overstock took a close look at the receiving process. One approach was to do a better job of distinguishing between product groups as they arrived at the warehouse, Galgon says. Today, the facility is set up like a department store, divided into separate areas for items such as bedding, apparel, footwear and consumer electronics.

"We swim in an ocean of data. One of the most important things we do is filter that data and alert the user."
- Morris Cohen of MCA Solutions

On the receiving dock, workers used to sort product for putaway after receipt of an entire load. Now, individual items are received as soon as they come out of the truck. Shipments are broken down on the dock by size, style and other criteria, then built into pallets, which go straight into stock. The time from dock to stock, which used to range from 24 to 48 hours, will now be a consistent 24 hours, Galgon says. The company also intends to cut down dramatically on the processing of exceptions, which can account for up to 80 percent of receipts.

Each year, says Galgon, Overstock has gone back to HighJump to tweak the software and improve the logic that optimizes picking procedures. Modules deployed by the company include one for "smart slotting" and another for labor tracking. In the case of the latter, HighJump drew from its experience with Overstock to develop an application for all users.

Galgon says the push for continuous improvement can't succeed without commitment from all levels of management, from senior executives to the warehouse floor. "You have to impress upon people that you want them to contribute to an environment where they can be efficient, safe and clean," he says.

HighJump is no newcomer to the Six Sigma methodology, which seeks to reduce failure rates to infinitesimal levels. In January 2004, the vendor was acquired by 3M Company, one of the pioneers of Six Sigma and other quality programs. HighJump employees were trained in the use of Six Sigma and continuous improvement, says president and general manager Chris Heim. Then the company extended those theories to its business intelligence software.

Managing by Dashboard
A crucial element of any such technology is the executive dashboard, software which allows managers to monitor at a glance a series of key performance indicators (KPIs). HighJump has built some 500 screens into its products, although each customer utilizes no more than a handful of measurements, based on its unique needs. The tool gives users the data needed to pursue continuous improvement, says Heim.

Dashboards are only as good as the data they contain. The first step, then, is to set up a database that can act as the single point of storage for all relevant information generated by a company and its trading partners. In addition, the database must be scalable to accommodate rapid growth in sales, says Brad Fellows, senior partner of transportation, logistics and distribution with Teradata in Dayton, Ohio.

A subsidiary of NCR, Teradata offers data warehouse architecture to support performance monitoring and supply chain analytics. The company specializes in information related to transportation and distribution, supporting multiple modes.

Just above the database layer is a piece of business intelligence software called Supply Chain Intelligence (SCI). It can conduct basic analyses as well as complex, predictive routines. The application breaks down a supply chain into its various stages of handling, including all carrier interchange points. Users get continuous status information along with a means of identifying precisely where things go wrong, says Fellows.

One of Teradata's clients, a provider of outsourced logistics, is using SCI to improve cube utilization within trailers. The system draws on detailed information about the pieces of a shipment, including quantity, weight and packaging, then matches that up with the specifications of the container to generate an optimized load plan. The logistics provider can monitor how the carrier is loading its client's freight, to determine whether it is making best use of the available space.

The system is now moving from the ability to audit loading to the proactive development of a load plan. It will use information based on current conditions in the warehouse, not just historical data. It can even direct which dock to be used, as well as the proper sequence of loading. SCI includes a customizable dashboard with specified measurements such as cube utilization, pounds loaded per man-hour, and cost per mile.
Of course, merely having the data doesn't mean a company knows what to do with it. Managers must ensure that KPIs are monitored and measured on a routine basis, says Michael LaRoche, supply chain strategy practice leader with IBM Consulting Services. At the same time, companies must integrate planning among their production, distribution and sales organizations, backed by regular meetings and reviews.

Top management's job is to define a corporate vision of supply chain quality, then assign responsibilities to each level of the organization for carrying it out. Such guidance will serve as the basis for selecting the right KPIs, and guarantees that the company-wide push for continuous improvement won't lose momentum.

The campaign must also be extended to external supply chain partners, such as suppliers, carriers and distributors. But cooperation should never be assumed, says LaRoche. The company has to make the case for collaboration. Would-be partners must possess what he calls "the four Cs": compatibility, with each side deriving benefits from the relationship; commitment on the part of all senior managers; the capability of both sides to make use of the data provided; and control, with the role of each party in making key decisions clearly delineated.

How to Keep Score
Scorecards, based on data drawn from dashboards and other sources, are invaluable tools for fostering collaboration, says AMR's Cecere. With hard data on vendor quality in hand, companies can push for better performance from their service partners.

While vendor scorecarding isn't a new idea, it has yet to reach its full potential. A recent survey by AMR found 22 percent of respondents using customer scorecards as a driving force for improvement, says Cecere. Another 20 percent had the data, but were examining it infrequently. Thirty-nine percent were not using it on a widespread basis, and 19 percent didn't have the data at all. This despite the fact that dashboards and scorecards have already demonstrated a big impact on corporate bottom lines. Benefits include more successful new-product introductions, faster identification of problems in the supply chain, and accelerated time to market.

Morris Cohen, co-founder of Philadelphia-based MCA Solutions, stresses the importance of measuring beyond the four walls of an organization. Many existing measurements are focused on internal concerns, such as efficiency. Companies must also adopt external benchmarks, such as overall value to the end customer.

That's especially critical in a service-intensive environment, says Cohen. He cites an MCA study of U.S. automotive manufacturers, who were found to be maintaining a 93-percent off-the-shelf fill rate for parts ordered by dealers. Not so impressive from the customers' point of view, however: 50 percent of them were waiting a day or longer for their parts to be delivered.

MCA focuses on the service supply chain, which has been shown to have a direct impact on supplier profitability. The vendor markets decision-support software, providing a real-time connection to underlying transactional systems such as enterprise resource planning, product lifecycle management and customer relationship management. Based on data from those sources, the MCA tool makes recommendations related to long- and short-term planning. For example, it can help a supplier to decide whether to bid on a particular contract. Or it can guide decisions on the placement of inventory.

MCA's dashboards provide information that can be used to fix weak links in a company's supply chain, whether internal or external. No decision-support system could exist without them, according to Cohen. "We swim in an ocean of data," he says. "One of the most important things we do is filter that data and alert the user."

Of prime importance is the establishment of a feedback loop, whereby performance data helps a company to keep on improving its product and service levels. Such a system can better align a supplier's offerings with what the customer really needs.

Blue Sky Logistics Inc., based in Dallas, is a new logistics service provider formed by several industry veterans. President Steve Hensley says companies often struggle with organizational silos that prevent them from pursuing continuous improvement. Managers of different processes might even be pitted against one another, based on their performance incentives. For example, a manufacturing operation might be considered successful to the extent that it keeps churning out product. But an efficient warehouse needs to minimize inventory. Meanwhile, sales is tied to neither, intent only on making quarterly quotas. Says Hensley: "You have to look at the supply chain horizontally."

Blue Sky collects "events" across the supply chain and ties them to pre-established alert triggers. In the process, it compares actual performance with industry best practices, to determine how well an operation is actually running.

The system is designed to deal with problems on a day-to-day basis. It also generates graphs which show the performance of various links in the chain on a long-term basis. And it shares relevant information with service providers via a standard Web browser.

A Proactive Approach
The information allows vendors to behave proactively. When a company's inventory gets down to a pre-established minimum, the supplier can be alerted. The system will either send out a replenishment order automatically, or inform a designated person, who can then take appropriate action.

Any effective system for managing supply chain data will operate at both the tactical and strategic levels, the latter a must for continuous improvement. Hensley divides the problem into three categories: "firefighting," for dealing with the crisis of the moment, "fire prevention," for reducing the occurrence of such problems, and "fireproofing," for stopping them from happening altogether.

"It's up to customers to define to us what mucks up their world," says Hensley. "We figure out how to get the data." Blue Sky makes that determination based on an intensive study of the client's supply chain.

Blue Sky draws from a menu of metrics defined by the Supply Chain Operations Reference (SCOR) model of the Supply-Chain Council. That's a good start, says Hensley, but companies also must be able to compare KPIs before and after making changes in their supply chain. "No one is going back and saying, how much more did this gauge put back in the pot?"

Blue Sky will continue to rely on the SCOR model to design performance metrics for its clients. At the same time, it will use those benchmarks to trigger improvements in the supply chain. It wants to work with supply chain planning vendors on a system that will create "resolution paths" for situations that diverge from expectations, such as sales exceeding targets within a given period.

Companies don't need a lot of metrics to improve their supply chains, says Bill Read, managing partner of supply chain strategy with Accenture. They just need the right ones. At the senior executive level, between three and five are sufficient for a high-level view of operations, he says. Each subsequent level of management will have a like number of metrics, drilling down to more specific processes. Combined with a continuous quality process such as Six Sigma, that gives a company all it needs to measure progress toward the creation of the perfect order-the right product, on time and damage-free, accompanied by the right information.

Companies needn't purchase the latest piece of technology to improve their performance. Some get by just fine with paper charts hanging on the office walls, says Read. The important thing is to have some kind of a formal system that draws on accurate information from multiple sources, applies it to strict performance measures at all levels of the organization, and feeds it back for analysis and further improvement.

Terms like kaizen might be fading away, but the notion of continuous improvement is steadily taking hold in the logistics and supply chain arena. Ten years ago, a majority of companies had not applied classic quality techniques to that function. "Have the numbers gone up?" asks Read. "Are there more formal programs? From my observation of the marketplace, the answer is yes."

Next month: Continuous Improvement and the Lean Revolution

Remember continuous improvement? A decade or so ago, it was all the rage. Companies were rushing to embrace the concept under a trendy Japanese term, kaizen. Continuous-improvement techniques were applied with some success to manufacturing, as part of the quality craze.
More recently, the term has faded from management playbooks. The very notion seems to have left companies exhausted. Some have turned instead to finite projects with clear objectives.

The move away from continuous improvement, at least under that name, is understandable. The idea isn't tied to a single set of technological tools. It can't be reduced to an easy series of steps for implementation. Continuous improvement isn't a program; it's an attitude. Some might view that as a shaky foundation for a comprehensive quality initiative.

On closer examination, though, continuous improvement hasn't really gone away. It thrives today in concepts such as Six Sigma and Lean. It covers a wide range of software applications, including executive dashboards, supply chain event management systems and other business intelligence tools. And it has transcended the original goal of eliminating waste in the assembly line to involve nearly every aspect of the supply chain. Most of all, it is focusing on the ever-important goal of pleasing the customer.

Procter & Gamble has instilled a culture of continuous improvement throughout the organization, says Lora Cecere, research director with AMR Research Inc. The company employs a handful of key metrics to monitor supply chain performance. Then it uses the data to enact further improvements. All efforts are focused on "the moment of truth"-the presence of product on the shelf, when the customer wants it.

One of P&G's many projects addressed the issue of on-time delivery. The company's performance in that area had slipped from 96 percent to 94.5 percent-an unacceptable level for one of the world's largest producers of consumer goods. Lost sales were the result.
The problem, P&G knew, lay in its inability to seamlessly track a load from order placement all the way to proof of delivery. Multiple legacy systems and manual processes were needed to follow goods through the various stages of the supply chain.

Considering that P&G was shipping around 1,200 loads a day from 35 plants in the U.S. and Canada, that was no easy task. What was needed was a means of achieving shipment visibility through a single system. P&G turned to Supply Chain Monitor (SCM), supply chain event management software from Holland, Mich.-based LeanLogistics Inc.

Part of LeanLogistics' transportation management suite, SCM pulls together data from P&G and its many trading partners. Elements include order and loading information, trailer assignments, preferred carriers, scheduled pickup times, status of shipment en route, and delivery to the customer. Using predefined business rules and milestones, the system alerts users when anomalies pop up. As a result, P&G can take action to head off any disruptions.

"P&G wants to do everything it can to save a load," says Pete Stiles, vice president of marketing and strategy at LeanLogistics. For a shipment that was loaded late, that might involve the hiring of team drivers to cut down on transit time. In cases where a delay can't be avoided, P&G notifies the customer so that it can make alternative arrangements.

The system boosted P&G's on-time delivery rate to 97 percent, two percentage points better than expected, says Stiles. It has also resulted in longer-term benefits. With better visibility of orders, P&G can reduce inventory carrying costs while improving on order fill rates. And it can use the information about supply chain anomalies to detect and solve chronic problems. Prior to implementation of SCM, about half the glitches that occurred were the fault of P&G's carriers and other external partners, while half were internal in nature, says Stiles. Report cards generated by SCM and similar systems can be used as leverage to reduce carrier misbehavior, such as a pattern of rejecting shipments.

When Growth Brings Chaos
Smaller companies can adopt a attitude of continuous improvement as well. In fact, rapid growth may force them into the proper mindset. Overstock.com, the Salt Lake City-based online seller of discounted and closeout merchandise, has experienced a dizzying rise in business over the past few years. Revenues were up by 63 percent in 2005, and gross profits by 83 percent, although the company posted a net loss of $25m.

Overstock ran into problems trying to replace "shopworn" systems, chief executive officer and president Patrick M. Byrne said in a statement accompanying the results. The company also experienced "the maddest of scrambles" during the peak fourth-quarter shipping season. Byrne promised shareholders that things would improve this year.

The embattled company is employing a combination of Six Sigma quality and business intelligence systems to get the job done. Overstock ships most of its merchandise out of a single distribution center in Salt Lake City, consisting of 700,000 square feet over two facilities. One is devoted entirely to returns processing and repair.

In the past, Overstock has struggled to "scrap together improvements to scale for next year's volume," says Dave Galgon, director of outbound fulfillment. "There are a lot of Band-Aids in place." Recently, however, the company began to apply the rigorous principles of Six Sigma and Lean to boost productivity and order accuracy. With the additional help of a business intelligence application from HighJump Software, it has reduced the rate of exceptions to the manifest by 95 percent, while doubling the packing rate per person in the warehouse.

Overstock took a close look at the receiving process. One approach was to do a better job of distinguishing between product groups as they arrived at the warehouse, Galgon says. Today, the facility is set up like a department store, divided into separate areas for items such as bedding, apparel, footwear and consumer electronics.

"We swim in an ocean of data. One of the most important things we do is filter that data and alert the user."
- Morris Cohen of MCA Solutions

On the receiving dock, workers used to sort product for putaway after receipt of an entire load. Now, individual items are received as soon as they come out of the truck. Shipments are broken down on the dock by size, style and other criteria, then built into pallets, which go straight into stock. The time from dock to stock, which used to range from 24 to 48 hours, will now be a consistent 24 hours, Galgon says. The company also intends to cut down dramatically on the processing of exceptions, which can account for up to 80 percent of receipts.

Each year, says Galgon, Overstock has gone back to HighJump to tweak the software and improve the logic that optimizes picking procedures. Modules deployed by the company include one for "smart slotting" and another for labor tracking. In the case of the latter, HighJump drew from its experience with Overstock to develop an application for all users.

Galgon says the push for continuous improvement can't succeed without commitment from all levels of management, from senior executives to the warehouse floor. "You have to impress upon people that you want them to contribute to an environment where they can be efficient, safe and clean," he says.

HighJump is no newcomer to the Six Sigma methodology, which seeks to reduce failure rates to infinitesimal levels. In January 2004, the vendor was acquired by 3M Company, one of the pioneers of Six Sigma and other quality programs. HighJump employees were trained in the use of Six Sigma and continuous improvement, says president and general manager Chris Heim. Then the company extended those theories to its business intelligence software.

Managing by Dashboard
A crucial element of any such technology is the executive dashboard, software which allows managers to monitor at a glance a series of key performance indicators (KPIs). HighJump has built some 500 screens into its products, although each customer utilizes no more than a handful of measurements, based on its unique needs. The tool gives users the data needed to pursue continuous improvement, says Heim.

Dashboards are only as good as the data they contain. The first step, then, is to set up a database that can act as the single point of storage for all relevant information generated by a company and its trading partners. In addition, the database must be scalable to accommodate rapid growth in sales, says Brad Fellows, senior partner of transportation, logistics and distribution with Teradata in Dayton, Ohio.

A subsidiary of NCR, Teradata offers data warehouse architecture to support performance monitoring and supply chain analytics. The company specializes in information related to transportation and distribution, supporting multiple modes.

Just above the database layer is a piece of business intelligence software called Supply Chain Intelligence (SCI). It can conduct basic analyses as well as complex, predictive routines. The application breaks down a supply chain into its various stages of handling, including all carrier interchange points. Users get continuous status information along with a means of identifying precisely where things go wrong, says Fellows.

One of Teradata's clients, a provider of outsourced logistics, is using SCI to improve cube utilization within trailers. The system draws on detailed information about the pieces of a shipment, including quantity, weight and packaging, then matches that up with the specifications of the container to generate an optimized load plan. The logistics provider can monitor how the carrier is loading its client's freight, to determine whether it is making best use of the available space.

The system is now moving from the ability to audit loading to the proactive development of a load plan. It will use information based on current conditions in the warehouse, not just historical data. It can even direct which dock to be used, as well as the proper sequence of loading. SCI includes a customizable dashboard with specified measurements such as cube utilization, pounds loaded per man-hour, and cost per mile.
Of course, merely having the data doesn't mean a company knows what to do with it. Managers must ensure that KPIs are monitored and measured on a routine basis, says Michael LaRoche, supply chain strategy practice leader with IBM Consulting Services. At the same time, companies must integrate planning among their production, distribution and sales organizations, backed by regular meetings and reviews.

Top management's job is to define a corporate vision of supply chain quality, then assign responsibilities to each level of the organization for carrying it out. Such guidance will serve as the basis for selecting the right KPIs, and guarantees that the company-wide push for continuous improvement won't lose momentum.

The campaign must also be extended to external supply chain partners, such as suppliers, carriers and distributors. But cooperation should never be assumed, says LaRoche. The company has to make the case for collaboration. Would-be partners must possess what he calls "the four Cs": compatibility, with each side deriving benefits from the relationship; commitment on the part of all senior managers; the capability of both sides to make use of the data provided; and control, with the role of each party in making key decisions clearly delineated.

How to Keep Score
Scorecards, based on data drawn from dashboards and other sources, are invaluable tools for fostering collaboration, says AMR's Cecere. With hard data on vendor quality in hand, companies can push for better performance from their service partners.

While vendor scorecarding isn't a new idea, it has yet to reach its full potential. A recent survey by AMR found 22 percent of respondents using customer scorecards as a driving force for improvement, says Cecere. Another 20 percent had the data, but were examining it infrequently. Thirty-nine percent were not using it on a widespread basis, and 19 percent didn't have the data at all. This despite the fact that dashboards and scorecards have already demonstrated a big impact on corporate bottom lines. Benefits include more successful new-product introductions, faster identification of problems in the supply chain, and accelerated time to market.

Morris Cohen, co-founder of Philadelphia-based MCA Solutions, stresses the importance of measuring beyond the four walls of an organization. Many existing measurements are focused on internal concerns, such as efficiency. Companies must also adopt external benchmarks, such as overall value to the end customer.

That's especially critical in a service-intensive environment, says Cohen. He cites an MCA study of U.S. automotive manufacturers, who were found to be maintaining a 93-percent off-the-shelf fill rate for parts ordered by dealers. Not so impressive from the customers' point of view, however: 50 percent of them were waiting a day or longer for their parts to be delivered.

MCA focuses on the service supply chain, which has been shown to have a direct impact on supplier profitability. The vendor markets decision-support software, providing a real-time connection to underlying transactional systems such as enterprise resource planning, product lifecycle management and customer relationship management. Based on data from those sources, the MCA tool makes recommendations related to long- and short-term planning. For example, it can help a supplier to decide whether to bid on a particular contract. Or it can guide decisions on the placement of inventory.

MCA's dashboards provide information that can be used to fix weak links in a company's supply chain, whether internal or external. No decision-support system could exist without them, according to Cohen. "We swim in an ocean of data," he says. "One of the most important things we do is filter that data and alert the user."

Of prime importance is the establishment of a feedback loop, whereby performance data helps a company to keep on improving its product and service levels. Such a system can better align a supplier's offerings with what the customer really needs.

Blue Sky Logistics Inc., based in Dallas, is a new logistics service provider formed by several industry veterans. President Steve Hensley says companies often struggle with organizational silos that prevent them from pursuing continuous improvement. Managers of different processes might even be pitted against one another, based on their performance incentives. For example, a manufacturing operation might be considered successful to the extent that it keeps churning out product. But an efficient warehouse needs to minimize inventory. Meanwhile, sales is tied to neither, intent only on making quarterly quotas. Says Hensley: "You have to look at the supply chain horizontally."

Blue Sky collects "events" across the supply chain and ties them to pre-established alert triggers. In the process, it compares actual performance with industry best practices, to determine how well an operation is actually running.

The system is designed to deal with problems on a day-to-day basis. It also generates graphs which show the performance of various links in the chain on a long-term basis. And it shares relevant information with service providers via a standard Web browser.

A Proactive Approach
The information allows vendors to behave proactively. When a company's inventory gets down to a pre-established minimum, the supplier can be alerted. The system will either send out a replenishment order automatically, or inform a designated person, who can then take appropriate action.

Any effective system for managing supply chain data will operate at both the tactical and strategic levels, the latter a must for continuous improvement. Hensley divides the problem into three categories: "firefighting," for dealing with the crisis of the moment, "fire prevention," for reducing the occurrence of such problems, and "fireproofing," for stopping them from happening altogether.

"It's up to customers to define to us what mucks up their world," says Hensley. "We figure out how to get the data." Blue Sky makes that determination based on an intensive study of the client's supply chain.

Blue Sky draws from a menu of metrics defined by the Supply Chain Operations Reference (SCOR) model of the Supply-Chain Council. That's a good start, says Hensley, but companies also must be able to compare KPIs before and after making changes in their supply chain. "No one is going back and saying, how much more did this gauge put back in the pot?"

Blue Sky will continue to rely on the SCOR model to design performance metrics for its clients. At the same time, it will use those benchmarks to trigger improvements in the supply chain. It wants to work with supply chain planning vendors on a system that will create "resolution paths" for situations that diverge from expectations, such as sales exceeding targets within a given period.

Companies don't need a lot of metrics to improve their supply chains, says Bill Read, managing partner of supply chain strategy with Accenture. They just need the right ones. At the senior executive level, between three and five are sufficient for a high-level view of operations, he says. Each subsequent level of management will have a like number of metrics, drilling down to more specific processes. Combined with a continuous quality process such as Six Sigma, that gives a company all it needs to measure progress toward the creation of the perfect order-the right product, on time and damage-free, accompanied by the right information.

Companies needn't purchase the latest piece of technology to improve their performance. Some get by just fine with paper charts hanging on the office walls, says Read. The important thing is to have some kind of a formal system that draws on accurate information from multiple sources, applies it to strict performance measures at all levels of the organization, and feeds it back for analysis and further improvement.

Terms like kaizen might be fading away, but the notion of continuous improvement is steadily taking hold in the logistics and supply chain arena. Ten years ago, a majority of companies had not applied classic quality techniques to that function. "Have the numbers gone up?" asks Read. "Are there more formal programs? From my observation of the marketplace, the answer is yes."

Next month: Continuous Improvement and the Lean Revolution