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From: Food Quality & Safety magazine, August/September 2006

Timely Performance Measurement and Analytics in a Demand-Driven World

Understand how to Measure Performance within your Organization and with Partners

by Beth Berndt

As discussed in parts one and two of this series, perfect order fulfillment for the food and beverage manufacturer in a customer-driven marketplace requires excellence in both planning and execution. This includes being responsive to customers, while forecasting and managing continuous and unexpected change in both actual demand and supply processing, through all levels of the food and beverage supply chain.

In addition, the final critical element in attaining perfect order fulfillment as a food and beverage manufacturer in a demand-driven world, is establishing real time performance management, along with historical analytics, to provide short, medium and long term visibility of business relationships and processes. By defining target level measurements of expected performance with demand and supply trading partners, as well as internally across the organization, a company can compare these perfect order metrics against the timely, ongoing feedback of actual performance results. Collecting actual results is often achieved using automated methods, for real time activity and performance feedback. This information can then be compared against agreed upon target performance metrics, to provide both manufacturers and trading partners a new level of visibility and granularity about the effectiveness of the entire supply chain to provide each customer with the right product, at the right price, at the right time, and for the right cost.

Retailer Demand-Driven Performance Metrics

An example of this collaborative exchange of business metrics can be seen by today’s large retailers, who actively collaborate with suppliers around performance metrics, with the goal of improving perfect order performance for customers. While business applications like Wal-Mart’s Retail Link focus largely on providing inventory visibility at stores and local distribution centers, such applications allow retailers to share plans and forecasts with suppliers and manufacturers. These applications also provide a broad range of reports and key performance measures (i.e. zero sales products, products out of stock at the store or point of use, in-stock measurements, projections of inventory run-out, etc.), to help suppliers identify and respond to demand and fulfillment opportunities and issues.

As companies like Wal-Mart continue to change their own inventory carrying policies, retailers are now targeting minimum inventory levels from suppliers to local distribution centers, with new focus on immediately cross-docking incoming products from supplier’s trucks, to retailer’s store delivery trucks. The goal, of course, is to reduce the absolute value of inventory retailer’s own, while also driving down warehouse holding and logistics movement costs.

A further goal is to move to scan-based trading, where supplier payment is triggered at the point of store check out. While this certainly incents suppliers to lower inventory buffers, it also ensures retailers’ store shelves are always stocked at appropriate levels for consumers – the ultimate execution of the customer driven perfect order. Collaborative tools and business processes like these are being used today by Wal-Mart’s leading suppliers, and over time will become more prevalent throughout demand-driven supply chains.

How Well Do You Know Your Demand-Driven Supply Chain?

For the food and beverage manufacturer, it’s an opportunity to ask yourself how often you evaluate competing supply strategies and services such as collaborative forecasting, supplier outsourcing, contract manufacturing, quality testing, or packing, distribution and transportation execution? Do you know the related costs and the service impact when choosing between each of these alternate strategies? Are you able to negotiate desired levels of services with customers and suppliers, and even within your own manufacturing plants and departments, and then apply the terms and conditions of the agreement, based on the immediate feedback of measurable results during actual supply execution?

Being able to attain perfect customer order creation and execution, requires having on-demand access to this kind of performance-based information, in support of making competitive business decisions that add value for both your customers and your own company. Given the accelerated speed of business today, delighting customers while growing revenue and improving overall profitability requires timely feedback of short term actual performance results and accurate historical trend analysis.

Collecting execution-based data about actual demand and supply activities in real time or near real time, at the necessary level of granularity, is critical to perfect order attainment, and should not be limited to just your own internal planning and manufacturing processes. For effective performance management, the food and beverage manufacturer needs to define and manage the business based on internal, customer and supplier target metrics, which might include specific products, quantities, timelines, levels of quality, windows of responsiveness to change and goals around rewards and penalties associated with hitting or missing targeted results during actual execution, all within their end-to-end demand driven supply chain.

Focus on the Right Performance Measures

Food and beverage manufacturers may be tempted to continue focusing on performance metrics originally developed when they operated on a ‘push product to inventory’ rather than a more competitive ‘customer pull’ based, demand driven business strategy. Such make to stock metrics have traditionally been related to either efficiency or cost factors.

Certainly accurate costing is still important, along with manufacturing efficiency, utilization rates, and return on capital. While all of these internal metrics remain important business standards, in a demand-driven supply chain, measuring service performance in your customers’ terms is even more critical.

Look at the whole supply chain. Analyze actual sales in detail. Measure forecast accuracy by product and customer, not just at the product line level, in order to understand perfect order performance and other supply chain metrics. Provide your sales team incentive, not on their forecast accuracy, but on their ability to continually improve forecast accuracy. Continuous improvement is a better goal than measuring absolute forecast accuracy, though setting a realistic minimum accuracy target is also important. Once you’ve set forecasting performance goals, follow up by measuring and rewarding sales and marketing appropriately against these goals.

It’s important to measure out-of-stock occurrences, not just at the distribution center, but as close to the point of use as possible. Focusing on these and similar external measures of service performance will help move your business towards being more demand driven.

Lot Tracking Visibility and Shelf Life

Both customer and government regulations dictate that food and beverage manufacturers provide track and trace audit control by individual inventory lot, following through the entire supply chain, from source to end consumers.

The ability to automate the collection of every material transaction (i.e. real time data collection) and to be able to perform timely customer spot audits that ultimately confirm the safe and secure handling of a product lot (i.e. execute against stringent performance metrics) – this, in itself, is a key metric of the manufacturer’s demand driven supply chain, a supply chain that focuses on further accelerating inventory turns and keeping material fresh and in constant motion.

The useful shelf life of inventory ingredients, intermediates and finished good lots, often with very low inventory stocking level policies, given demand fulfillment lead times, places extra emphasis on forecast accuracy and demand planning, in a demand-driven supply chain. This provides a clear example of the importance of real time information and visibility of material aging and shelf life by product lot and inventory location, in the plant and throughout the supply chain. Manufacturers can better manage their business based on the critical performance metric of both expiring and expired material as potential waste, as well as the impact on revenue due to lost opportunities as unmet sales demand, or as credited sales returns.

Leveraging Evolving Technologies

New technology advancements continue to provide food and beverage manufacturers improved opportunities for real time performance visibility and management, as well as offering data mining tools for improved historical trend analysis.

The Supply Chain Council (http://www. supply-chain.org) lists several hundred key performance indicators straddling its Plan, Source, Make & Deliver SCOR model. Sales, manufacturing, supply chain, financial, and purchasing are some of the key analytics and performance areas to focus on in support of your demand driven perfect order performance goals.

By leveraging new business tools like these, based on the same investment rationale that manufacturers apply every day when investing in capital equipment to help streamline their plants, performance management and analytics tools can help food and beverage manufacturers improve perfect order performance in their demand-driven supply chains.

Summary

While improving responsiveness to customer demand is important, being demand-driven is about more than just being responsive and executing efficiently. Understand how to measure performance within your own organization, as well as with both your demand and supply trading partners. Include your customer’s success measures in your own perfect order definition.

Aim for continuous improvement, both in manufacturing processes, as well as with trading partners, based on agreed upon and meaningful performance target metrics that can be supported by ongoing performance results as proof points. These results should be accessible for near real time visibility, as well as for ongoing historical trend analytics, within the manufacturer’s business, but just as importantly, with all suppliers and customers in the demand-driven supply chain.

Beth Berndt is director of industry solutions for consumer products at Ross Systems. Reach her at 770-351-9600 or bethberndt@rossinc.com.

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