Technology has almost revolutionised the management and execution of supply chain functions within business today. With vast amounts of innovative hardware and software solutions (either stand alone systems or those that are built into existing modular MRP/ERP systems) available businesses are increasingly looking at how these can be applied to deliver benefit and leverage their position in the marketplace.
Successful utilization of technology can be a critical. For supply chain teams successfully applying technology can deliver:
• Simplification and Improved efficiency
• Improved management information
• Improved compliancy
• Improved forecasting
• Improved accuracy
Technology can be applied to almost every facet of the modern supply chain supporting both tactical and strategic objectives. Whilst simply throwing money at software vendors and consultants in the vain hope that some might stick and deliver benefits is never a good idea. Businesses must consider a targeted, goal orientated approach closely reviewing its operations, understanding specific weaknesses and considering what improvements would deliver strategic value.
One approach is to review the various elements of the supply chain and consider where and how technology could be applied to solve either specific problems or to deliver processes that improve competitiveness. For example:
Planning and Management: With increased visibility and controls inventory controllers can better manage company assets. With software based management reporting forecasting can be simplified and usage rates closely monitored which can deliver clearer buy signals and drive improvements in restocking practices (EOQ’s, Lot sizes etc) driving down costs whilst retaining service levels.
Integration: Delivering closer ties between trading partners facilitating efficiency and accuracy allows organizations to change their emphasis from tactical processes to strategic processes (SCM for example) that can deliver true value.
Warehouse Management: Introducing technology into the warehouse can ensure that the material handling controls are integrated, warehouse space is utilized the best effect and that the inventory overall is managed efficiently.
There is a wide range of technology available from Warehouse management systems through to vastly efficient hand held scanners through to product tags such as RFID which cal all deliver benefit when applied correctly.
Planning: Whilst many MRP systems have dedicated planning tools organizations must ensure they leverage this functionality. Robust planning ensures that resources (labor and material) come together at the same time and that the business maximises it’s own “engine room” a planning system that is not delivering means a business that doesn’t deliver either.
Finance: Whilst almost every finance system will manage the key tasks (bought ledger, sales ledger etc) to truly control costs organizations must get smart at looking under the hood of their business ascertaining key cost drivers and opportunities. For the supply chain this is centred around two areas – firstly by ensuring that the systems that manage product “bill of materials” and costs are closely integrated and secondly by having a robust supplier spend analysis system.
Asset management: Technology can help to manage assets and help mitigate risk within the supply chain. Asset management can be labour intensive and is often linked with meeting key service levels (i.e. repair turnaround times). With technological systems, asset management (including the control of rotable stock pools) can be simplified with improved management information and controls.
Purchase to Pay (P2P) Through applying workflow and flexible controls implementing a software based purchase to pay solution can deliver many benefits from integration, efficiency, control and savings. Purchase to Pay is a huge area and deployments can be small (focus on a key part of the process) or significant (focus on many or all of the purchasing process).
Technology will always be a moving feast. There will continue to be innovation in terms of functionality and its application we have only seen the start of the technological revolution and businesses must continue to be tuned into software/hardware lifecycles to avoid being caught in the “legacy application” trap. A failure to consider an appropriate supply chain technology strategy can not only impact efficiency but can also impact competiveness as other businesses use new tools to better serve the market.
There is an old saying in quality terms: That which cannot be measured, cannot be improved’ and despite its longevity, it is a saying that still rings true today. You do need to be able to measure your supply chain in order to ensure that you can make some improvements and think about it; if you don’t measure your supply chain and all your competitors do just that, then who is going to be left behind?
But Why KPIs?
KPIs are Key Performance Indicators and they are actually a set of metrics that can be used to measure business performance, growth and productivity. KPIs are a good way to measure performance within the supply chain because they are objective and they form a good overall view of how well an organisation is, or conversely is not, performing.
What Is A KPI?
A KPI is an advanced metric. A metric is a way of measuring and assessing the performance of any business activity, but a KPI has an inherent strategic value, so it is a little like a structure; first you have the metrics, then you have strategic metrics, which are in reality KPIs.
A good KPI is an objective tool with which to measure your organisation. Your organisation cannot hide from a true KPI, but remember that the KPI has to have a specific strategic value, it is not simply a metric.
In a sense the name sums up what should be looked for. A KPI has to be key when it is of fundamental and strategic importance to the company and is in essence. So a metric to measure how long it takes to deal with incoming post is a metric, it cannot be a KPI, because it is not a ‘make or break’ aspect of the company.
Next the indicator has to be about Performance. Although we all think that we know what performance means, this has to be clarified; performance is something that can be influenced by the organisation. The price of steel on the international market cannot be influenced by that organisation, so it is not a KPI.
The KPI is indeed a KPI if it can provide information on the likely future performance of a company. That is to say that it needs to be able to influence future activity not merely be a case of recording past or historical activity.
How KPIs help
KPIs are, as we have seen, objective, strategic, relate to performance and are likely to influence future activity, so they are a very important tool for an organisation to use. Metrics are useful, but you can use metrics to measure anything, so they are not strategic and what you really want to measure is the strategic performance of the company.
The objectivity of the KPIs is also important. We have all seen statistics and we have all seen the way that the statistics can be interpreted to suit whoever is quoting the statistic. But with a KPI, there is nowhere to run and nowhere to hide; because they are strategic and because they present raw data, they cannot be slanted, misrepresented or even falsified to suit the needs of the person presenting them. So there is very much an emphasis on the objective nature of the performance and this can be of enormous benefit to companies.
In effect, without using KPIs there is always a danger that you are looking in the wrong place and are not looking at statistics that are of strategic importance and you could even be looking at statistics that have been subjectively misrepresented; and that is a scary thought indeed!