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In this series, CEPHAS principal Fane Friberg highlights the interdependent elements of an effective S&OP process for leaders of supply chain management. While some companies tend to fall back on the status quo, Friberg highlights why it’s critical to actually increase the frequency of the S&OP rather than decrease the operations. He has reviewed the importance of staying committed, strategic imperatives, participation, technology, rough-cut capacity planning, suppliers, and financials. Today, he concludes with key performance indicators.
Key Performance Indicators (KPIs)
The most critical external measure is customer experience. Hopefully, your customer base provides you with a supplier scorecard as part of their quarterly business reviews (QBRs) with you.
Your KPIs should always consider the customer’s perspective/view of your performance dividend. How do they quantify your performance? Look for daily incremental improvements along those identified and business metrics. Mathematically, a 1% cumulative improvement each day will result in almost a 40% annual increase.
- On-time delivery to their required date (99% of the time, their PO’s stated date as a receipt on their dock)
- On-time delivery to your commitment/promise (aka acknowledge date)
- Quality of goods received by the customer (be sure to encourage your customers to notify you of any delivery discrepancies; capture that data and perform systematic root-cause-and-corrective-actions)
- Cost (is your price consistent with their annual purchase price variance or PPV expectations and/or service level agreements (SLA) with your organization?)
- On-time starts, utilizing lead-times from the indented bill of materials
- Delinquency to the required date (what orders have you not yet shipped/delivered to your customer where their PO date has lapsed?)
- Delinquency to the required date (what orders have you not yet shipped/delivered to your where the dock date you committed to has lapsed?)
- The span of lateness (one day, one week, one month, etc.)
- Days sales in inventory (DSI)
- Inventory turns
Without question, during uncertain times, frequency needs to be increased, data needs to be more predictive, and process steps must be followed with integrity, analytics, and speed. Identified supply chain attributes must be managed to obtain the necessary organizational agility and generate a more resilient enterprise. As you explore your internal data elements, what are the paradigms that need to be challenged to drive improved performance, even during turbulent times?
Be self-critical of your S&OP process and participants. Look to drive continual improvement in the data to understand and manage supply chain risks. Implement longer-term commitments to the development of a professionally trained supply chain team. Be open to bringing in subject-matter experts and coaches not only during uncertain times but as viable resources for long-term success.
At the very least, the COVID-19 pandemic has complicated our world and business operations. Leverage the S&OP process to take action during these turbulent times to develop an extraordinary supply chain leading to sustained growth and profitability. Develop that foundational rock of OTIF as your competitive advantage.
Fane Friberg is principal of CEPHAS.