As the COVID-19 pandemic continues to disrupt business operations, customer demand and cash flow, there's a case for monitoring and incentivizing compliance with key performance indicators (KPIs) to drive results and manage uncertainty.
Regardless of where your company sits within the supply-chain ecosystem, managing risk and disruption requires prioritization of three key metrics.
Forecasting impacts procurement of long lead time materials, line scheduling and changeovers, inventory levels, overall cost structure and profitability. As a rule, forecasting involves sales and shipment history to drive a statistical baseline forecast that can then be adjusted via causal factors, such as customer collaboration, promotions and third-party macroeconomic or industry research. However, the pandemic’s disruption has made statistical forecasts unreliable indicators of demand. Even prior to the pandemic, achieving high forecast accuracy has been and continues to be challenging. What enablers can be deployed to support this metric?
Ultimately, a formal process for reaching a consensus for unconstrained and constrained forecasts is required that is based on your sales team’s best estimation of future sales order flow.
Manufacturing Schedule Compliance
As a rule, the manufacturing schedule is driven by a process whereby an unconstrained forecast is capacity leveled and optimized for supply constraints. This results in a constrained demand plan that is then adjusted as needed via the S&OP process to reach a consensus schedule. The production lines are sequenced via multiple criteria to minimize changeovers and maximize throughput. Surprisingly, it is not uncommon to find that compliance to the manufacturing schedule is much lower than planned. Lack of compliance may be driven by inconsistent KPI reward systems that allow operations teams to opt out to maximize production output.
Again, two enablers will drive a higher KPI metric.
Purchasing Schedule Compliance
The purchasing schedule is also driven by the S&OP process outlined above. The pandemic has been a significant contributor to lower-than-planned performance by suppliers, subcontractors and contract manufacturers across industries. In some extreme cases, the integrity of the supplier network may be impacted to the point of compromising the entire enterprise’s business continuity.
Managing these KPIs in times of crisis can be overwhelming, but a pragmatic action plan that incentivizes your team is a solid first step in confronting and overcoming any challenges.
In the short term, you'll gain additional insight to your business operation to help you cope with disruption — and begin the journey toward profitable resilience.
Serge Ratmiroff is director of global supply-chain consulting at Tata Consultancy Services.
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