As we’ve described in some of our recent posts, S&OP is one of the key tools, to drive excellence, in the Supply Chain arsenal . Through a routine monthly process of analysis and review, S&OP helps many companies to plan and help balance supply and demand but while it’s simple in practice S&OP can be a tough nut to crack.
S&OP is dependent on the flow of accurate information and at its heart getting the appropriate KPI’s for S&OP can be key in getting the process to function effectively. Lack of appropriate data is often one of the reasons for the S&OP process failing with one of the most common questions being “Am I using the right KPI’s”.
There isn’t an easy answer. There are literally thousands of KPI’s that could be used. Every organization is different and thus drive a different KPI requirement. However, even though there is a myriad of options, for those starting the journey there are some broad themes to pick up on.
KPI’s work best when they are a mix of strategic, tactical and operational. Getting the mix right is important – too much or too less of one thing will force you to miss what’s important. At it’s worst finding the right metric can sometimes feel impossibly hard and there can be a tendency to measure something for the sake of it. Remember that you’re free to update your KPI selection at any time, keep an open mind on swapping out the things that don’t work.
The key aspect to bear in mind is that KPI’s need to be aligned with the business strategy. It’s pointless having a KPI leading to objectives that are not relevant to the business. The S&OP KPI’s should matter.
For some companies, the answer to this is to base the KPI’s on the perspective of the stakeholder. For example the customer perspective. In this instance, you’ll consider things that are important for that stakeholder group, metrics might include things like
% on time Delivery
% customer returns
Other companies might review the flow of material and base their S&OP KPI’s around these. These groups typically include:
Usually, there is a fourth group where the first 3 data sets are integrated, portraying a bigger picture, these reports usually present a more holistic view and are usually presented in the form of a dashboard.
Underneath these groups will be key metrics for example Supply KPI’s might include
* Supplier on time delivery
* Inventory information
* Production forecasts
Many large organizations might want to run multiple versions of the same scorecard (i.e. in different locations) this offers the ability to roll up dashboards from a group perspective.
Others may scenario plan, with a specific focus on forecasts and how to react to various potential outcomes.
However, you move forward, just having a chart isn’t enough – the KPI should be a living and breathing thing, it should follow the usual best practice – i.e. have an owner, a target, the data should be easily obtainable and issue free, calculations should be known and verifiable. The KPI allows for performance to be tracked against an objective and actions set where these objectives are not met.
It can be astonishing just how many S&OP KPI’s can be used. Even those considered essentials can amount to a challenging number for some. If you find your S&OP process underperforming perhaps one of the reasons is that you’re KPIs are not as effective as they could be and are not driving the right behaviors and outcomes. By opening the hood of the process and giving them a fresh look you’ll be helping to fine tune of the most important processes within your business.
As Supply Chain professionals we’re all looking to do the best job we can. As such we’re often involved in focussing on continuous improvement activities and when it comes to improvements one of the first steps is to zone in on our own processes – but how well do we know them and do we have to really know them well if we’re going to change them?
There are a variety of models for capturing, reviewing and improving processes. Steps like PDCA (Plan do check act) offer a structured method of stepping through processes to analyze areas of effectiveness and areas for improvement.
In the supply chain world, we’re led by KPI’s and data. Areas for improvement usually start here with an area being highlighted as under-performing and requiring attention.
Most businesses have a plethora of processes and there is a danger of getting dragged into reviewing too much. One of the first steps is to zone in on areas that actually require change, this is greatly helped by focussing in on the critical issues. This isn’t always easy and many times you can’t see the wood for the trees. For many businesses, this will be led by issues affecting cost and performance.
Once those key underperforming processes have been identified it’s important to understand the potential improvement strategy from the outset so as to avoid the analysis stage dragging on for months. For example, if you’re looking at the purchase order process and you’re looking to improve it through implementing a new computer system then how much effort should be spent looking at and mapping existing process steps? Will they not be simply be overwritten by the new system? Clearly, you need to make sure you really do understand what functional and process elements need to be maintained in the new process and systems but you need to do this swiftly and in a way where you don’t just replicate what’s already broken.
The typical continuous improvement process review will involve
1/ Identifying areas of change
2/ Understanding the process
3/ Obtaining buy-in for change
4/ Implementing change
In point 2 the process usually identifies areas of waste (cost/poor performance) that can be removed (through tools like 7 wastes). Once identified, you can implement recommendations and implement. These improvements can be both small and large scale (being part of a wider change program).
There can be significant benefits in re-engineering processes, making the supply chain more agile and more cost-effective and ultimately better performing. Many organizations bring about these changes through introducing technology but it all generally starts through looking at what you do and how you can do it better.