Supply chains in the electronics industry are becoming increasingly global and more complex as organizations try to support strategic management objectives such as entering new markets, increasing the pace of new product introductions and improving the reliability and speed of order fulfillment even while trying to lower manufacturing costs.
In order to achieve these objectives, companies must work closely with strategic component suppliers, contract manufacturers, logistics providers and distributors. They also have to streamline their supply chains and enable it with the latest technology innovations.
However, organizations that want to streamline their supply chains must first understand what is working well, what is not and where the opportunities for improvement are. These companies need to have a way to measure the performance of their supply chain on an ongoing basis.
Traditional approaches of measuring supply chain performance, such as scorecards, dashboards and reports showing supply chain metrics, suffer from three shortcomings. Often these metrics are not linked to strategy, have a silo approach and the hierarchy is typically flat.
Let's examine each of these shortcomings more closely.
1. Not linked to strategy. It can be difficult to see how a supply chain metric affects your overall objectives. If a certain metric is trending in the wrong direction, which aspect of your supply chain strategy will be affected? Without a framework that links each metric to a certain element of strategy, the context behind a metric can get lost.
When such context is missing, it becomes a challenge for organizations—large OEMs in particular—to get everyone to see the common vision. For example, a mobile device company's overall objective may be to increase service levels to maximize sales opportunity, while minimizing costs. Hence 99 percent-plus fulfillment level becomes a key target.
However, if increasing customer service level is a primary strategic initiative, then undue focus on reducing inventory at the expense of service levels is not appropriate, though it may affect ability to reduce cost.
As a result cost reduction may have to be obtained through other strategies that do not impact service levels. Without being able to link metrics to strategy, the context behind the importance of metric gets lost.
Next-generation supply chain performance management (SCPM) systems will need to be able to show the link between any metric and the element of strategy it impacts.
2. The silo approach limitation. Current supply chain analytics solutions do a good job of showing the performance of metrics for individual departments, such as cost per unit manufactured or process yield information from contract manufacturer for the operations team, or percentage of on-time delivery against committed date, or fill rate for the customer delivery organization.
However, this type of a silo approach sacrifices the overall process and end goals in the interest of improving the performance of an individual department. As a result, functional silos are reinforced within the organization.
The key to success is to measure the performance of overall business process in such a way that poor performance of a departmental metric could be overlooked in the interest of increasing the overall business process performance "for example trade-offs between manufactured cost and customer responsiveness metric to improve customer loyalty.
To achieve this, next-generation SCPM systems will need to do more than show departmental metrics"they need to have a process orientation.
3. The flat hierarchy problem. The metrics that help you measure the overall performance of your supply chain are not standalone—they are related to each other, sometimes in a hierarchical fashion. Such relationships help you drill down and better understand root cause more effectively.
For example, if a hierarchical relationship were developed between percentage on-time delivery against committed date and those metrics that affect it, your system will tell you that on-time delivery against committed date is trending down despite contract manufacturer's on time shipment metrics holding, because demand forecast accuracy is down.
However, most current supply chain analytics have no way to define such relationships. The next-generation SCPM systems will need to be able to define and show relationships between metrics.