The Bee Hive

I once read the following quote from Eli Goldratt, the author of The Goal:

"Tell me how you will measure me and I will tell you how I will behave. If you measure me in an illogical manner, do not complain about illogical behavior" 

Nothing drives change like a well-designed set of performance measures. And as business guru, Dr Michael Hammer observed, "There will be more change in the supply chain field in the next 5 years than in the preceding 15."  Clearly, few activities are more important to implementing supply chain strategy than the design of new performance metrics that promote process-oriented behavior. A supply chain should satisfy 10 performance measures.

1. Measures must address the root drivers of success - Often it's easier to measure symptoms than root drivers. A reason for failures in this area may be that it is easy to calculate symptoms and difficult to obtain data on causes, bringing to mind a statement by Albert Einstein: "Not everything that counts can be counted, and not everything that can be counted counts."
2. Measures must be shared across all functions - One set of metrics is needed for manufacturing, procurement, sales, marketing, and logistics. Leadership conveys the relevance of metrics to each function.For example, the sales department influences inventory levels and needs to be accountable for them, just as the manufacturing department drives customer service.
3. Measures should be tied to compensation - Linking performance measures to compensation makes it more likely they will be met. The converse also is true. Metrics perceived to be outside one's control have little positive impact on behavior, and point to a deficiency in training or leadership.
4. Measures should be relevant to all areas in the organization - Arrange small, group training sessions to brainstorm ways individual actions impact overarching measures, such as cost, assets, and response. Walmart's Sam Walton says it best in The 10 Most important Words in the English Language: "People do not support that which they do not help create."
5. Measures should be linked to the overarching corporate strategy - It is important to answer the question, "What's really important to the corporation?" This should be followed by "What performance measures in the supply chain will lead to achievement of corporate goals?" Simple diagrams, showing relationships of each metric to the organization's stated goals are needed.
6. Measures should be balanced - every measure needs another measure, pulling in the opposite direction, to balance results. For example, customer availability and inventory levels are offsetting measures. When managed together as simultaneous initiatives, they create balance and void sub-optimization.
7. Measures should be globally common - In a global or multi-divisional company, common vocabulary is necessary to share best practices. the performance measurement system facilitates a common vocabulary. When measured in a standard manner, healthy competition takes place between business units.
8. Measures must be tempered - The reaction to measures should be tempered to avoid overreacting and creating non-value-added work. Quality management guru W. Edwards Deming wrote that it is the responsibility of management not to react to predictable variability.
9. Measures must be linked to goals that drive best practices - The best performing companies established breakthrough targets through benchmarking, which drove excellence. The ability to set motivational breakthrough goals is a rare skill and reflects directly on the essence of strong leadership.
10. Measures must be feasible - It's too easy to invent metrics that are impossible to calculate. Accurate and timely data results are necessary from ubiquitous ERP implementations. Not having timely and accurate data is like hitting golf balls in the dark, and the next morning using the golf balls to adjust your swing.

Today's business leaders realize that the supply chain will be the basis of competition in the 21st century. Supply chain-focused metrics will be the foundation of that change.