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Performance Management in Supply Chain and Operations – Steering Value Chain Activities Towards Exceptional Performance

Performance Management in Supply Chain and Operations – Steering Value Chain Activities Towards Exceptional Performance

Performance in Supply Chain and Operations – Steering activities towards exceptional performance

Digitalization of supply chains is dramatically changing today’s

Customer focus, product complexity Customization of products and services, ing deliveries and monitoring assets. New paired with shortened product lifecycles, faster deliveries, real-time , 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 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 -offs. The main drivers behind these develop- and big data in ments are customer requirements and (SCM) are disrupting established organiza- As a result, access to analytical insights is new , 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 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 margins.

Disruption of supply chains by digitalization and new technologies

Traditional Supply Chain

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Develop lan ource ae Deliver upport

roduct nnovation upply hain ourcing anufacturing ustomer Development lanning rocurement perations Distribution ervice

ast deployment anage and ith cloudbased roduct traceability monitor product technologies and control uality information

Digital Supply etworks Cost

uality

Develop Speed Source Make Deliver Support

Service

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 • ply chains from an end-to-end perspective. managed greatly affects an organization‘s • competitiveness and profitability. Proper The foundation is aligned metrics that drive alignment with the 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 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 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 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. • -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 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 • 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 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 metrics with shared functional metrics with shared accountability • Regional process and • Global process accountability accountability functional metrics with metrics with shared • Executive incentives shared accountability accountability • Executive incentives based on regional aligned with functional cross-functional • Cross-business metrics • Executive incentives objectives performance aligned to support aligned on global enterprise objectives cross-functional • Tools available to performance track key KPI’s • Targets evaluated formal- ly on a regular basis, and form the basis for continuous improvement

Developing Supply Chains Leading Supply Chains

Source: Deloitte

Leading supply chain performance management solutions build the bridge from strategic directives to successful execution.

5 Performance Management in Supply Chain and Operations – Steering value chain activities towards exceptional performance

What makes the difference? New technologies that drive supply chain However, the maturity of these supply Many companies have already implement- digitalization are being used increasingly chain performance management solutions ed a robust supply chain performance and allow for ad-hoc analyses and predic- varies. Leading companies differentiate in management and are steadily improving tive analytics as well as improving report four areas. their capabilities. visualization.

The four differentiators in supply chain performance management

#1 #2 Supply chain strategy End-to-end processes • Steering focus and related supply • Integrated business planning and chain processes customer centricity • Characteristic and • Transparency on inventory and metrics SCM costs

#3 #4 Organizational alignment Integrated technology • Individual employees reacting are • Single source of “clean” supply proactive to supply chain challenges chain and financial data • Continuous improvement is • Supply chain KPIs are calculated encouraged and distributed automatically

Source: Deloitte

Differentiator #1 – Supply chain Differentiator #2 – End-to-end process- for measuring customer service. Naturally, strategy sets the direction and es paired with transparency of inven- different service levels and business-spe- defines the steering focus tories and supply chain cost cifics are considered when overall supply The foundation for performance manage- Integrated business planning drives the chain performance is evaluated. ment is a company’s supply chain strategy alignment of Sales, Operations, and Fi- with its unique value proposition to cus- nance towards the highest possible state. Accurate inventory levels, including details tomers, the derived steering focus, and Planning information is coherent and on specific batches / serial items, are piv- related supply chain processes. Regardless always up-to-date. Supply chain end-to-end otal for taking meaningful decisions about of whether supply chains are response- processes have been identified, globally as well as managing oriented or configured for efficiency, the harmonized, and sustainably implemented. . Seamlessly integrated strategy defines what and where to meas- ERP systems act as the backbone of SCM inventory data allow the swift identification ure. Companies that have mastered the processes and their outcome, and the of level variances and enable detailed challenge of measuring the right areas in performance of the process in execution is root cause analyses in material flow move- their supply chain and that have the right accurately measured. ments. metrics in place can say why those meas- urements and steering are important for Customer centricity is the key to delivering Supply chain cost might be aggregated and the execution of strategy. exceptional performance. KPIs such as should be available at a cost component perfect order rate, delivery reliability, or level. The focus is often on production, delivery capability might be proper metrics warehousing, freight, and inventories, as

6 Performance Management in Supply Chain and Operations – Steering value chain activities towards exceptional performance

Employees must these are typically the largest cost com- Differentiator #4 – Integrated technol- ponents. Leading companies utilize a total ogy and adaptive reporting understand landed cost perspective and challenge their Technology is a key enabler of world class actual SCM cost. For example, logistics supply chain reporting and performance the levers they rebates agreed by Sales are verified by management. Successful companies Operations and are objected to if rebate operate an enterprise data warehouse that influence and how conditions and prerequisites are not met. serves as single source of “clean” data for analyses. Source systems ensure consist- it affects overall Differentiator #3 – Organizational ent data provision in close to real-time with alignment and clear accountability for sufficient details to fulfill reporting needs performance. metrics and allow for ad-hoc analyses. External Leading companies structure their organi- data is collected as required and seamless- zation according to the principle of custom- ly integrated with in-house supply chain er centricity. The objectives of supply chain information. organization are clearly defined. By using an established set of SCM KPIs, individual Reporting can be described as a centralized employees are proactively reacting to sup- data highway with a uniform reporting lan- ply chain challenges and risks. guage which is integrated, cross-functional, and adaptive. A supply chain dashboard The complete set of supply chain KPIs, in- application creates a single point of entry cluding additional metrics such as process and provides an overview of the relevant indicators, needs to reflect all relevant per- supply chain metrics over multiple dimen- formance attributes and should be avail- sions such as brands, products, locations, able to the whole organization. Cascading customers, and segments. metrics permit a deep dive into single process measurements and enable more A solid reporting process en- detailed analyses to identify irregularities. sures continuous and automated monitor- Reasonable targets and established thresh- ing. Supply chain KPIs and related process olds cover all dimensions of supply chain performance indicators are measured and performance. Continuous improvement is distributed proactively to relevant stake- encouraged by a performance holders. Predictive algorithms are used process and recurring (cross-functional) for advanced and to feedbacks. determine timely corrective actions along the end-to-end supply chain. The of performance manage- ment systems is typically with the CFO, who forms with business functions such as Sales and Operations to achieve transparency of the company’s perfor- mance.

7 Performance Management in Supply Chain and Operations – Steering value chain activities towards exceptional performance

Looking ahead – further development Trends in management reporting and spectively provide a personalized view and of performance management in SCM key theses of reporting 2020 enable target groups of one. When design- Many companies are evaluating the op- In an information-enabled supply chain ing reports, neuroscience insights will be portunities of new technologies offered by organization, more and more data is avail- increasingly incorporated and design will Industry 4.0 and are conducting pilot use able. Deloitte predicts that reporting will be no longer based on matters of taste. Au- cases. Information transparency and the in- advance towards finding the most relevant tomation frees up human time and robotics ter-operability of machines and people are information in the data jungle by using are being increasingly applied. the key drivers that take supply chains and web to quickly react to new events, their performance to the next level. predictive analytics with sound “what if?” Organizational boundaries are gradually scenarios, and preselected content using being removed through flexible , As a result, supply chain performance artificial intelligence. communities, and virtual organizations. management is gradually evolving, due to This will affect the decision-making process faster access to information and new ways Managers’ new working styles will shift that accelerates through , of gaining insights. Trends with significant reporting towards an always-on state with interactive discussions in “war rooms”, and impact on how supply chains are managed 24/7 availability. Reporting systems pro- a shared performance culture. include:

• Ongoing digitalization of supply chains and resulting exponential growth in data from Trends for advancing management reporting connected devices, e.g., fleet assets, con- tainers, deliveries, and in-use products

• A shift to real-time data enabled by sen- sors covering geo-locations and condi- tions such as temperature and pressure

• New ways of visualizing SCM insights and increasing the use of predictive methods to forecast sales, evaluate maintenance requirements, or detect product quality issues early enough for a proactive mitiga- tion management

• Easier linking of internal supply chain data with external data sources, e.g., traffic and meteorological data for navigating trucks, the status of outsourced processes for enabling full supply chain transparency, or financial information about suppliers for improved supply chain

• Improved analytics capabilities using cloud technologies and in-memory data storage that allow for fast analyses and the processing of large amounts of data

In order to capitalize on trends and im- proved reporting possibilities, performance management frameworks and reporting systems should be investigated and up- Source: Deloitte dated. Given the changes in supply chain management and in customer behavior, it is essential to maintain the right focus on what and where to measure.

8 Performance Management in Supply Chain and Operations – Steering value chain activities towards exceptional performance

Is it time to improve your company’s If one of these symptoms is present, it is With state-of-the-art supply chain perfor- performance management in supply time to rethink your company’s perfor- mance management – from strategy to pro- chain and operations? mance management capabilities and the cesses to technology – Deloitte has gained Customer expectations and new technol- approach to measuring and managing extensive experience covering a full range ogies are transforming supply chain man- supply chains. of services in performance management as agement faster than ever. a discipline and in managing value chains The Deloitte difference from an end-to-end perspective. Signs of concern are suboptimal overall Deloitte supports companies to drive supply chain performance, inefficient large-scale transformation initiatives in Deloitte can help your organization to allocation, individual targets that their supply chains, helps to institutionalize improve transparency and your ability to are not aligned with strategic objectives, performance management, and enables manage supply chains and turn insights operational managers without clear ac- the organization to steer their value chain into action to increase overall performance. countability, or reporting analyses efforts activities towards exceptional performance. that fail to highlight potential issues in a timely manner.

Deloitte’s core services for Performance Management in Supply Chain and Operations

Supply chain strategy End-to-end processes

Supply chain strategy Performance management cascading diagnosis and benchmarking

Value driver identification and Supply chain performance performance attributes improvement

Supply chain performance Steering, reporting and analytics metrics and target setting capabilities, processes and

Organizational alignment Integrated technology

Performance culture Enterprise data warehouse and and dialogue reporting implementation

Information and data Decision rights alignment modeling

Performance incentives Dashboard and management alignment report design

Source: Deloitte

9 Performance Management in Supply Chain and Operations – Steering value chain activities towards exceptional performance

Your Contacts

Andreas Flegel Carsten Wutzler , Supply Chain Senior Manager, Supply Chain Tel: +49 (0)151 5800 5993 Tel: +49 (0)151 5800 4269 [email protected] [email protected]

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Issue 03/2017

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