A Supply Chain Finance Lingua Franca

“If you don't know where you are going, you'll end up someplace else.” – Yogi Berra

There is no shortage of metrics for organizations today:  financial metrics, supply chain metrics.  personal objectives,  business intelligence,  dashboards, analytics.  For many companies, the challenge is not data but making the data usable to enable timely decisions.  One version of the truth would be nice, too, as represented in a single set of numbers.  In a recent conversation, an executive threw down a folder full of dozens of pieces of paper on the desk in front of me and commented with exasperation, “This is my dashboard!”  There is a challenge in aligning operational metrics with financial performance to enable sensible and timely decision making toward financial goals, shareholder return, and—oh yeah—customer service and satisfaction.

What is the goal?

Taking a breath and looking at the fundamentals, a good place to begin is the end.  What is your business goal?

• Increase revenue?
• Reduce costs?
• Increase profitability?
• Increase margin?
• Increase market share?
• Shareholder value?

This may seem simplistic, but there is a debilitating disconnect for many organizations between what companies are trying to achieve and how they are actually operating.  What gets measured gets done, and the measures or their targets do not align with the strategic goal of the organization. 

What is the measure?

Individual operational metrics may be very meaningful to a particular person or department.  However, these individual metrics are meaningless in isolation until there is a direct link to business goals through an integrated financial and operational business metrics system.  Bob in the warehouse and Sally in procurement need the right rules to play nicely together and stop being at odds with one another with competing metrics and targets.  An intentional orchestration of operational metrics cascading in rank-and-file alignment to the company objectives is required. 

What is the point?

Supply chain is the most strategic asset and potentially the most significant competitive differentiator available to the C-suite in achievement of corporate objectives.  According to Joseph Francis of the Supply Chain Council 1, supply chain generally accounts for between 60 percent and 90 percent of all company costs.  The challenge is alignment.  The trouble with alignment is language.  An integration of operational metrics to financial performance is possible through the linking of tools like SCOR, DuPont Model, and EVA in defining the ability for supply chain to be the strategic enabler of financial performance.   When the team hears ROIC or Perfect Order, the same definition and meaning should run through everyone’s heads.  As Enrico Camerinelli 2 states, the entire team needs a common language—a supply chain finance lingua franca.  In the next installment I will share what I‘ve coined, “The Four Languages of Supply Chain.”

(1) “Measuring Supply Chain Performance” Francis 

(2)  “Measuring the Value of Supply Chain” Camerinelli