Step 4: Measurement system design

Step 4 is concerned with determining the inputs and arrangement for data collection and analysis necessary to inform our KPIs. Note that our SPM process didn't start with this but rather it is here, all the way at step 4 and that is because we are starting with the outputs in mind then designing the measuring system to achieve this. If we were to start with available data or measures and build KPIs from here then our SPM system will only be as good as the things we can measure easily.

What to measure

There are many things we could measure, and many different sources of information. This step requires a degree of creativity to determine the most efficient way to secure data that will inform a KPI and it is possible that the practicalities of measurement may require us to reframe or redefine our KPIs. After all, there is little point designing a brilliant scorecard of insightful KPIs if we can't secure the inputs needed to produce them. Designing a measurement system is therefore somewhat iterative in order to get it right.

It is important too, to look beyond the obvious measures. There is often a tendency to look for measures of how effective something is, on-time, in full deliveries or conformance to specification. However, Van Weele (1984) suggests there are two dimensions to measuring performance and we should consider both efficiency and effectiveness. Efficiency is the relationship between planned and actual sacrifices that are made to achieve the goals. Effectiveness is the extent to which a goal can be met using a chosen course of action. Gordon (2008) also suggests we should measure the supplier's business practices and processes as well as their performance. So in designing a measurement regime to collect and analyse specific information in order to create a score-card of insightful KPIs, it is possible we need to consider a range of different sources, types of data collection, ways to interpret data, analysis techniques and data presentation methods. Table 6.1 provides an extensive list of the sorts of things that get measured for different areas of supply and supply chain performance. Many of these are measures, some are indicators but this table can help to consider where data and insight can come from.

Two-way measurement

For some important suppliers, measuring their performance may be enough, but for others, where the ability to collaborate is key, understanding how we are performing within the relationship is equally important if the relationship is to be effective. This dimension is frequently ignored and seems to be a product of mindsets such as 'the supplier is there to serve us' or 'the supply can absorb this'. However, poor performance on our part could hinder a relationship and worse still we could remain blissfully ignorant as suppliers rarely voice such issues unless they are confident in the relationship (we will explore 'voice of the supplier' in Chapter 11). This drives protectionist behaviour in the supplier who might put in place arrangements to work around, compensate for our poor performance, stockpile, build in contingency and so on, all of which increase their costs and so we ultimately end up paying for this. Typical areas of poor performance on our part that can hinder a relationship include:

• poor, conflicting or late communication;

• inaccurate forecasting;

• delays, cancellations and postponements;

• difficult interpersonal relationships;

• lack of flexibility or unrealistic demands;

• late payment, payment issues, excessive challenge of fair invoicing; and

• administrative and bureaucratic burdens placed on the supplier necessary for them to retain business (eg admin processes, audit questionnaires or entry onto new ERP systems).

For the critical few where two-way measurement is appropriate and necessary, this enables us to take an interest in how efficient and effective we are within the overall relationship, but there is an art to doing this effectively. Two-way measurement systems must be designed so they help suppliers to have a voice. Simply sending a questionnaire asking the supplier to rate our performance is unlikely to produce anything meaningful as they may well just tell us what they think we want to hear. Questions such as 'rate our

TABLE 6.1 Measures/indicators for different areas of supply and supply chain performance

Measures/indicators for different areas of supply and supply chain performance

overall relationship' or 'rate how well we communicate key information' are unlikely to get a supplier to reveal concerns as a low score triggers questions that might lead to needing to reveal a problem with a specific individual. Two-way measurement must therefore first give the supplier a voice and make them feel safe about sharing concerns, and then needs a means to solicit information in a focused way about specific aspects of the relationship. Questionnaires have their place, but sometimes better quality information comes face-to-face between individuals, one either side, who have come to trust each other. Where questionnaires are used the questions need careful thought. Success comes through positive and constructive questioning, which in turn will highlight issues but without needing to make accusations or cause loss of face. Questions such as 'what things would make communication more effective?' or 'how can we become even more effective at working together?' can help. This type of questioning is less quantitative and requires interpretation but can be more useful overall and opens up channels to discuss improvements. From here parties may be able to work towards jointly developed KPI that measure specific aspects of a relationship where needed.

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