Performance Management in Supply Chain and Operations – Steering value chain activities towards exceptional performance Digitalization of supply chains is dramatically changing today’s performance management Customer focus, product complexity Customization of products and services, ing deliveries and monitoring assets. New paired with shortened product lifecycles, faster deliveries, real-time transparency, technologies encourage process automa- increasing digitalization, and closer global scale, cost competition in fulfillment, tion and precision in execution, while the cooperation between partners increase and increased sustainability efforts are the exponential growth of data permits first- performance management demands on result. hand insights with the help of analytics to supply chains. achieve better management of conflicting The digital transformation of supply chains supply chain objectives and trade-offs. The main drivers behind these develop- and big data in supply chain management ments are customer requirements and (SCM) are disrupting established organiza- As a result, access to analytical insights is new technology, which have already re- tions. Sensors and connected devices are no longer limited to executives and supply shaped traditional supply chains. being deployed increasingly, e.g., for track- chain leaders. Performance Management in Supply Chain and Operations – Steering value chain activities towards exceptional performance Today, materials planners, customer order activities to identify performance deviations established supply chain and operations managers, and also professionals out- and irregularities has become easier and is processes, and the metrics a company side supply chain departments can easily based on more information than in the past. utilizes. prioritize their daily operations by using cross-functional supply chain information. On the other hand, real-life use cases In summary, proven approaches to supply and the increasing application of Industry chain performance management need However, there are two sides to trade-offs. 4.0 technologies are transforming supply to be rethought to cope with increasing On the one hand, with the help of new chains across multiple industries towards customer requirements, technological technologies, companies can coordinate digital supply networks. The technology advancements, and ongoing challenges in and manage their entire network better is already there and has hit the ground. supply chain complexity as well as pressure and more efficiently. Analyzing value chain It affects all areas of the value chain, the to increase revenues and profit margins. Disruption of supply chains by digitalization and new technologies Traditional Supply Chain nalyticssensordriven aetouse suggested replenishment roactive sensing ith 3D rinting and uality control Develop lan ource ae Deliver upport roduct nnovation upply hain ourcing anufacturing Logistics ustomer Development lanning rocurement perations Distribution ervice ast deployment anage and ith cloudbased roduct traceability monitor product technologies and inventory control uality information Digital Supply etworks Cost uality Develop Plan Speed Source Make Deliver Support Service Innovation Agility Source: Deloitte 2 Performance Management in Supply Chain and Operations – Steering value chain activities towards exceptional performance The key elements of supply chain Key elements to be considered are: In a nutshell, they are the bridge between management strategic directives and successful execution • Supply Chain Strategy Supply chains comprise the flow of prod- by using available information to steer sup- ucts, information, and money. How they are • Organization ply chains from an end-to-end perspective. managed greatly affects an organization‘s • Planning competitiveness and profitability. Proper The foundation is aligned metrics that drive alignment with the business strategy is • Management, and intended behavior at the management essential to ensure strong overall perfor- and operational levels. Ultimately, this will • Control Activities mance. create value for both shareholders and The combination of these elements fills the customers. Supply chain performance management is gap between the business’s decision-mak- a unified approach to improving the effec- ers and IT systems for performance meas- tiveness and efficiency of all supply chain urement with data structures and reporting processes. tools. Optimizing the end-to-end value chain with the help of an integrated solution Clear objectives and target-setting Goal-oriented Flexible data information warehouse solutions Integrated Performance Management Supply chain Integrated technical transparency solutions Aligned metrics covering entire SCM Source: Deloitte 3 Performance Management in Supply Chain and Operations – Steering value chain activities towards exceptional performance Optimizing the end-to-end value chain Current state of supply chain Among the reasons may be country-specific through an integrated solution performance management regulations or a unique business / supply Well-managed supply chain processes are The purpose of a successful performance chain steering logic. This complicates in- an important differentiator in the highly management approach is to give a com- formed decision-making and in some cases competitive environment of commoditized plete and well-balanced view of all relevant results in significant cost to fulfill reporting markets. Supply chain transparency is a key supply chain information and underlying requirements. and companies are increasingly developing activities. one-stop-shops for supply chain informa- Balanced reporting ensures that trade-offs tion and reporting. Key performance indicators (KPIs) are are transparent and properly managed. intended to structure the desired infor- KPIs should cascade from strategy to Integrated performance management in mation in different dimensions such as tactics, and to the operational level. Suc- Supply Chain and Operations focuses on: customer service, costs, and assets. Ideally, cessful organizations enable employees KPIs are aligned across the reporting hier- to understand the performance levers • A common understanding of supply chain archy levels and are available as required. they influence and how they affect overall objectives and disciplined target-setting Further supporting metrics allow deep performance. • Goal-oriented information on target dives into root causes to identify irregu- achievements to all relevant stakeholders larities. However, for most companies the Standardized processes and metrics are and the addressing of key messages to ex- reality is different. prerequisites for realizing such advanced ecutives, managers, and professionals integration. These include: Many companies have implemented • Supply chain transparency by considering • Planning details throughout the entire supply chain performance measurement and aligning supply chain processes and Sales and Operations Planning process systems solely focusing on a limited num- technology with the organizational struc- ber of considerations. Most systems are • Customer service levels ture isolated, static, and with metrics that are • Accuracy of current inventories • Aligned and agreed-upon supply chain backward-looking and often not holistic. metrics covering all perspectives in supply Root cause analyses are limited by data • Transparency of supply chain costs chain management and also process per- aggregation, with the loss of full details, or formance indicators to enable root cause are simply not possible due to the lack of analyses in the event of deviations information. An end-to-end perspective has often not been considered and an inte- • Integrated technical solutions for the grated performance measurement concept gathering of information and the distribu- has not been implemented. tion of reports covering the full cycle from planning to reporting to intervention Supply chain leaders and the business of- • A flexible enterprise data warehouse and ten face complex reporting landscapes with the adaptability of metrics, reports, and numerous options to measure and calcu- layouts late performance. Different KPI definitions as well as specifics in the corporate struc- ture and business processes make it hard to compare overall supply chain outcomes. The supply chain reporting should provide a balanced view on customers, demand and supply as well as on financials. 4 Performance Management in Supply Chain and Operations – Steering value chain activities towards exceptional performance Leading performance management solu- using an overall perspective to optimize tions utilize joint metrics to ensure the the end-to-end value chain and to manage integration of all functions, for example, trade-offs. Advanced solutions with dash- finished goods inventory is shared between boards exist that visualize a comprehensive Production and Sales. KPIs might be com- suite of supply chain information at a single municated to key supply chain partners glance. Maturity levels of performance management in supply chain and operations Emerging Developing Defined Advanced Leading • Informal operational • Standardized • Trend analysis of • Standardized • Optimized trade-offs performance metrics performance metrics performance measures metrics with formal in performance meas- within business units target- ures from conflicting • Local functional • Regional functional setting process objectives metrics and • Local functional