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Measuring what matters

Posted on: 24-10-2016 12:28:35878


Metrics are a funny thing

They are the way we keep score, the way we determine whether we are winning, the way we identify whether we are making progress.

Yet continually, when I work with organizations, I find that they do no such thing. Instead they are used to defend positions, shift blame, protect status quo’s and more often than not, simply show that the function is doing its bit to cut costs.

What’s measured is managed, as the saying goes, so having these measures probably explains why there is so much bad management in business.

The Supply Chain is often a guilty participant in this practice.

Supply Chain metrics are constantly used to determine the ‘best‘ Supply Chain, and on the surface the metrics chosen seem completely sensible. Days of Inventory, Inventory Turns, Order Lead Times, Return on Working Capital, Cost of Goods Sold. Hard to find fault there, surely Mr. Culey.

On the surface I agree – but let’s dig a little deeper.

Is there ‘one’ superior supply chain?

Is the best Supply Chain the one that employs the least people (reducing the Cost of Goods Sold), or the least inventory (reducing Cost of Working Capital), or the fastest turning stock? Or the one that does the most FTL’s?  What is best?  Surely it depends on the Supply Chain? Surely it depends on the strategy? Surely it depends on what the customer values and is willing to pay for?

Well, here’s my definition.

‘The best Supply Chain is the one that consistently engages, integrates and aligns the activities of the Value Chain around progressively improving the profitable delivery of customer and consumer delight’.

There are seven elements to this definition:

  • Understanding what customers, products and / or services are contained in this value chain
  • Understanding what delights these customers, so they progress from being satisfied to loyal, and from loyal to raving evangelists
  • Creating and communicating a clearly defined strategy to deliver this transition
  • Cross-functional integration and alignment of activities to ensure the successful execution of the strategy
  • Engaged, passionate employees empowered to both contribute and find innovate new ways to deliver the strategy
  • Ability to track and see continual progress over time, and work together to identify the root causes of issues, and their solutions, without blame
  • A focus on continual profit improvement rather than cost cutting (and yes, they are very different).

Now if your next question is ‘what delights the customer?’ then you are asking the right things. (You might also ask ‘what’s our strategy?’)  You’ll also probably appreciate that your business has many different customers, who value very different things so the answer may change dependant on the Value Chain. These customers also bring very different levels of value and profitability to your business.

Ways to delight these customers are varied and plentiful, and can come from pretty much every different area of the supply chain. However, unless you understand who they are, what it is they value and how you can contribute to the delivery of that value, then how do you know what to measure in order to ensure you are delivering it?  One of my main business mantra’s is ‘you can’t control what you don’t understand, and you can’t improve what you cannot control’. So start by understanding who your customers are, what they value, what levels of value they bring so that you can develop a strategy to deliver that value, understand how each function contributes to the delivery of that value, how they can align their activities behind this strategy and integrate with other functions to help each other to succeed.

The trouble I have found with most companies is whilst they measure pretty much everything, most of the measures are short-term focused, driven by the constant drive to reduce costs, and exclude both employee engagement and customer delight from the equation. They are also an average measure of performance across the whole business. These measures drive the conversation to a place where the Supply Chain is constantly viewed as a short term cost collector that has to be continually squeezed to do things cheaper, faster and with less people.  

This is not engaging for your employees; it is unnerving.

We must change this. We can change this.

A Focus on Customer Delight

Every contact with the customer, from the way the product is labelled, to its packaging, pre-delivery information, through to how returns and complaints are handled are an opportunity to create or destroy long term value. Every contact with customers (or suppliers) is an opportunity to reinforce your brand, engage your people, and create loyalty. As Peter Drucker famously put it; ’There is only one valid definition of business purpose: to create (and retain) a customer’.

You have different value chains in your business. Each value chain contains a mix of different customers and products /services. These bring different levels of value.  Work with your team to understand what the customers you value most, value most. Then work together to understand how you can progressively improve the delivery of that value.

Engaging the workforce

Engagement, as Dan Pink wrote in ‘Drive’ is made up of 3 key components: Autonomy, Mastery and Purpose. Each function, freed from the shackles of short-term cost cutting, will then become creative, autonomous innovators of ways to work better in order to become masters in the delivery of profitable customer delight, be that through improving service, reducing complaints, identifying excess goods or eliminating waste – and the icing on the cake is that they will become engaged behind this purpose because it will be something they believe in.  There is no shortage of studies that demonstrate the hard, bottom line impact that employee engagement has on business performance.

The metrics that matter will then become apparent. Each link in the value chain will easily identify the 1-3 things they can own and improve to enable the strategy (now they know what it is), delight the customer and help the chain become more profitable.  These may (or may not) be things they were measured on before – they may not even be things that improve the performance of their function – but they will be the things that will make a massive difference to the performance, perception and profitability of your value chains.

More importantly your team will willingly own the accountability for them because they will now understand how they directly contribute to the delivery of value (and how not doing these things can destroy value). They will therefore own the accountability for both the measures and the results – which is what metrics are really designed to do. This is turn will engage them in working together to find ways to control and continually improve performance, because they will now be engaged in the endeavor, rather than concerned about metrics that previously seemed to continually threaten their job security.

Alternatively, you can measure the things you’ve always measured – however don’t be surprised when you get the results you always achieved.

Your choice.

Sean Culey
Value Chain Thought Leader

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