of agreement
Collecting measurements costs money and takes time, so it’s important to decide which metrics you really need. The key is to identify the steps in each supply chain process that will be most useful for understanding how things are working and what decisions you need to make. The metrics that give you this insight are called key performance indicators (KPIs). The KPIs in one business or facility can be very different from the KPIs in another, depending on which processes are most important to each organization. (For more information about metrics, see Chapter 16.)
A good way to look for improvement opportunities in any process is to compare your own performance with that of someone else. You can compare the KPIs from one facility with the KPIs at another or from one company to another, for example. Comparing KPIs in this manner is an example of benchmarking. Companies can benchmark their supply chain KPIs by using the Supply Chain Operations Reference (SCOR) Model, which is covered in Chapter 5. Benchmarking has become so popular that many companies have built their entire businesses on collecting, evaluating, and reporting on supply chain KPIs.
There are lots of ways to look at a supply chain. To manage a supply chain well, you need to understand each of these perspectives and use them to select the KPIs that give you visibility into how your supply chain is performing. Benchmarking those KPIs against other facilities and other companies can reveal areas in which you’re doing well and opportunities for improvement.
Chapter 3
Digging into Your Supply Chain
IN THIS CHAPTER
Before you can manage something, you have to understand how it works and what you want it to do. A supply chain is no exception. Many kinds of supply chains exist, and each of them needs to deliver a different kind of product or service to meet customers’ needs. This chapter covers the factors that define how a supply chain needs to perform and how each factor affects costs. Then the chapter discusses how trade-offs are managed in every supply chain.
Prioritizing Supply Chain Goals
A friend of mine has a sign on her desk that reads “Good, Fast, Cheap … Pick Any Two.” The message is relevant for supply chain management because you often have to figure out what’s most important to you and be willing to compromise on the rest.
Step 1: Understand what customers value
To make good decisions about what to prioritize in a supply chain, start with your customers. Because the purpose of a supply chain is to deliver value to a customer, the first step in engineering and managing a supply chain is understanding exactly what your customers value. They may value having a wide variety of products to choose among, for example, or they might prefer to have a smaller number of options at a lower price. Alternatively, your customers may value having products available immediately for pickup or to have products delivered to their homes at a time that they choose.
Your customers may actually want “all of the above,” but each choice creates different requirements for a supply chain, and the choices may be contradictory. It often helps to choose a key customer and focus on their specific preferences.
Some great techniques are available to help you identify what customers value most. One of the most popular of these techniques is officially called Quality Functional Deployment (QFD), but many people call it the House of Quality (HOQ). Figure 3-1 shows an example HOQ, which looks like a bunch of boxes with a roof on top. To build an HOQ, first you interview customers to determine which characteristics or features they value most. Then you match those features with your design to ensure that you’re focusing on delivering products and services that genuinely meet your customers’ needs.
FIGURE 3-1: Example HOQ.
https://hbr.org/1988/05/the-house-of-quality.
Another common technique for determining customer preferences is called A/B testing. To perform an A/B test, you give your customer a choice between two options: A and B. Online shopping sites frequently use A/B testing to see which products or ads are most attractive to customers, but A/B testing can also be used in face-to-face experiments.
Step 2: Recognize your competitors
The next step in prioritizing your supply chain goals is recognizing your competitors. In the age of e-commerce, your competitors may not be who you think they are. Many traditional retail stores, for example, have been slow to realize that their most aggressive competitor is not another brick-and-mortar store, but a website: Amazon.com. Amazon.com isn’t competing only with retailers, however; it’s also competing with trucking companies, warehousing and distribution companies, and even technology companies such as Apple and Microsoft.
To understand who your real competitors are, you need to stop thinking about the product or service that you sell and start thinking about the problem that it solves. Clayton Christensen of Harvard Business School called this approach to matching your product with a customer’s problem the Jobs to Be Done Theory. Think about what “job” your product or service does for your customers and what other products or services might be able to do that same job better, faster, or cheaper. These alternative products (or services) are your product’s real competitors, and you need to design and manage your supply chain so that your product can do that same job better than its competitors.
Step 3: Understand your products or services
The next step in prioritizing your supply chain goals is understanding the characteristics of your products or services. The easiest way to illustrate this step is to show how different kinds of products need to achieve different goals to deliver the greatest value to their customers.
WHAT JOB DOES A MILKSHAKE DO?
