Santa’s secret (supply chain) sauce

<!––>It’s official: Santa achieved all his KPIs this year.

According to our marketing department, he accomplished this feat with the help of our supply chain planning and optimization software. (Well, what else would you expect them to say? :-))

Had you pressed them for details, they would have told you that Santa’s phenomenal performance had a lot to do with something called ‘KPI-based planning’.

Skeptical? Excellent! That’s exactly how I feel when KPIs enter the conversation – and here’s one of the reasons why.

The company in question produced, packaged, and distributed high-end consumer goods across several countries. Their supply chain was complex and their margins were being squeezed by big retailers.

I was intrigued. How do you achieve your business goals?

The supply chain director smiled: We’ve defined a set of KPIs so our planners know what they’re supposed to achieve. Delivery performance is crucial – and of course there are other KPIs for the various planning departments. For example, trailer space utilization is an important metric for our logistics planners; while lead times and productivity are key measures for those planning packaging and production.

He then took me to see his group of twenty or so planners. It was exactly as he said. They were all, indeed, well aware of the metrics that were important to the company.

So far, so good, but I still couldn’t see how those high-level goals were being translated on the ground.

How exactly does this work out in your daily operations? How does it influence what you do?

Their replies were enthusiastic but vague. As I probed, it became obvious that all those KPIs were, in fact, aspirational KPIs: inspiring goals that had little effect on how planners actually assigned shipments to trailers, sequenced products on packaging lines, or created production batches. There was absolutely no link between the company’s high level KPIs and the micro decisions that were taking the company towards – or away from! – those goals.

Which brings me to an important point: While everyone knows that KPIs come in many flavors, few realize that they also play very different roles.

There are aspirational KPIs that give planners a vague sense of what to aim for.

There are post-mortem KPIs that tell them how they did – when it’s too late to make a difference.

And then there is what I call live aid: KPIs that actually enable planners to steer the business in the right direction because an intelligent system is constantly calculating the impact of any decision on the entire supply chain before the decision is taken.

For example, it’s probably unnecessary to tell planners who are creating batches that delivery performance (aspirational KPI) is important. They know that.

It’s also less than helpful to tell them that their delivery performance was good, bad or indifferent (post-mortem KPI) after the fact.

What they really need is an intelligent system that gives them immediate KPI-based feedback about the risk of late deliveries while they are trying to determine which batches to create. If you create this batch, delivery performance will go down by x percent. Do you still want to do it?

It didn’t take long for that supply chain director to appreciate the advantages of giving his planners immediate insight into the impact of their operational decisions. The result of equipping them with a supply chain-wide overview of the impact of any decision was entirely predictable: significant improvements in efficiency, productivity and, of course, on-time delivery.

Curious about the difference KPI-based planning makes? Check out the video evidence we compiled at another large organization involved in production, packaging, and distribution. Enjoy – and happy holidays!