Right Measures and Measurement Systems
The right measures and measurement systems represent the fourth pillar supporting purchasing and supply chain excellence. Unfortunately, there are many roadblocks between measurement and improved performance. Some of these include (1) too many metrics, (2) debate over the correct metrics, (3) constantly changing metrics, and (4) old data. Overcoming these roadblocks requires that the organization know what it wants to measure, has a process in place to measure it, and has accessibility to the right data. The next step involves taking action on the measurement data.18 Finally, as with any planning system, the targets are revised to reflect the realities of the marketplace, competition, and changing goals of the organization.
Why is measurement so important? First, objective measurement supports fact-based rather than subjective decision making. Secondly, measurement is also an ideal way to communicate requirements to other supply chain members and to promote continuous improvement and change. When suppliers know their performance is being monitored, they are likely to perform better. Many firms use the measurement system not only to improve future supplier performance but also to recognize outstanding performance. For example, Lockheed-Martin Corporation awarded Atlantic Fasteners its STAR supplier award.19 Of Lockheed’s Electronic Systems 4700 suppliers, only 36 have received the STAR award. Measurement also conveys what is important by linking critical measures to desired business outcomes. The measurement process also helps determine if new initiatives are producing the desired results. Finally, measurement may be the single best tool to control purchasing and supply chain activities and processes.
Although there is no definitive or prescriptive set of supply chain measures, and there certainly is no one best way to measure supply chain performance, we do know that effective measures and measurement systems satisfy certain criteria. These criteria, which Exhibit 1.5 summarizes, provide a set of principles with which to assess supply chain measures and measurement systems.
These four enablers support the pursuit of progressive approaches and strategies that begin to define purchasing and supply chain excellence. If organizations ignore these areas, they will see their ability to develop progressive practices and approaches fall short of competitors that have stressed these enabling areas.