Simple metrics drive results. Whether a food and beverage manufacturer or an aerospace distributor, measuring the “right” metrics will focus attention on key issues and drive results. From OTIF (on-time-in-full) to projected past due to reasons for operational inefficiencies, metrics will rally the team on the appropriate topics and highlight the bottleneck issues to ensure success.
Manufacturing & Distribution Metrics
Proactive manufacturers and distributors monitor a core set of metrics. Most clients track revenue month-to-date (MTD) and year-to-date (YTD). Some clients track total backlog while others track booked orders. Many track past due and a customer satisfaction metric such as on-time-delivery (OTD), on-time-in-full (OTIF), or fill rate. Differences start at this point with some clients tracking inventory levels, purchase price variances (PPV), operational efficiencies, waste/ scrap, inventory accuracy levels, a measurement of production output, quality metrics such as parts per million (ppm), holds, warehousing efficiencies, picked, packed and shipped units, freight costs, customer complaints, quotes, and many others. For example, read our article on Walmart and OTIF metrics.
How to Choose Metrics
With so many choices, the question becomes how to choose which metrics to track. If you track too many metrics, your metrics lose meaning and waste precious time and resources. If you track too few metrics, your team might focus on the wrong activities to drive results. If you track the appropriate number of metrics but focus on the wrong metrics, your team will not focus on the “right” activities. So, how do you know how many metrics to measure and which are the “right” ones for your business/ department?
After consulting with manufacturers and distributors for almost twenty years, it has become apparent that common sense will provide the answer. Start with your company objectives. Every client has a sales (revenue) goal. Thus, measuring progress to that goal makes sense to focus attention on potential issues that could negatively impact achieving that goal. Similarly, what other objectives are important to your company? Your metrics must drive the correct behaviors to focus attention on what the executives want to achieve.
If you are in a cash crunch, you should highlight inventory. If you are experiencing negative consequences due to supply chain risk, develop a metric around % of products and /or suppliers within your control or # of products reshored, nearshored, or with backup suppliers. Use uncommon common sense to drive the results desired. Do not overcomplicate it with metrics that might be helpful but will distract from the mission. No clients have excess resources to track metrics that will not add significant value.
Client Examples
In a building products manufacturer, the focus was on pounds produced and sku-level efficiencies. Because every executive from the CEO to the VP of Manufacturing focused on these metrics, the sites found ways to increase the pounds produced regardless of impacts to customer service and other areas of the business. For example, if Operations could run certain products where they gained pounds more quickly, they emphasized those items and deprioritized the ones that required more effort to gain pounds. Unfortunately, the outcome was that the metrics did not focus attention on the appropriate actions to drive results. We refocused attention on schedule adherence, past due/ projected past due, and capacity availability. Executives gained visibility to see how to fit in additional orders to increase revenue without increasing capacity, and they were able to plan ahead to keep service levels high while optimizing manufacturing efficiencies.
In an aerospace manufacturer, the focus was on profitability at each site as the General Managers were incentivized by profitability and revenue. This led to a focus on profit, not inventory levels. Fast-forward a year later, and executives wanted to reduce debt and increase cash flow; however, the site metrics did not encourage sharing of inventory if one site leader would lose and the other won in terms of profitability. The executive team assigned an executive to focus on inventory, provided the teams with resources including our support as inventory and supply chain management consultants, and added an inventory levels metric to the site’s performance and tied it to potential bonuses. In the next several months, we reduced inventory in the core product lines by 30-40% while maintaining / improving service levels, and the inventory team achieved a collective “win”.
The Bottom Line
Metrics will drive performance. Every company has limited resources, and so they need to focus only on what will drive results. Use uncommon common sense, and you will know which metrics to track and how many to track to achieve bottom line business results.
If you are interested in reading more on this topic:
SIOP Metrics: 5 Key Baseline Measurements