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Aligning Metrics to Achieve Supply Chain Goals

Metrics are a critical component in effectively managing a supply chain. So how does one know which metrics to use and how they affect achieving the desired supply chain goals? You would never drive a car without a speedometer because you know local police are using radar to measure your speed. The metric of speed also can be an indication that the driver, passengers, or others may be at risk. Therefore, it is important to know how fast you are going in order to avoid paying a fine or encountering a potentially hazardous situation.

Although it is easy to determine what metrics and information you must see while driving an automobile (such as speed, revolutions per minute [RPM], fuel level, and engine temperature), it is not so easy to decide what you need to know when managing a supply chain. When choosing a metric, it is important to remember that you get what you measure, so the metrics you choose will drive performance. Choosing the proper metrics allows managers to see how they are doing, but more importantly, it drives behavior for desired performance. Choosing the right metrics makes the difference between being a proactive manager or a reactive “firefighter.”

Planning for Uncertainty

Uncertainty is one characteristic that drives how to structure a supply chain. The greater the level of uncertainty, the higher the need is for flexibility and responsiveness. The strategy for managing a military supply chain is similar to a civilian company’s strategy for bringing a new product to market; both are driven by the level of uncertainty present.

The product life cycle is a tool that companies use to determine how to manage a product in terms of quantity, pricing, distribution, and promotion. The product life cycle consists of four phases: introduction, growth, maturity, and decline. (See chart below.)

When considering the levels of uncertainty in conjunction with the product life cycle phases, it is difficult to plan for demand in the introduction phase. For example, nobody had an accurate idea of the demand for Cabbage Patch Kids in the 1980s until the manufacturer realized it could not match supply with demand. But, as the marketplace matured, demand became more certain and it became easier to predict how much supply would be needed to match demand.

The same is true for a military operation. As a theater of operations matures, uncertainty decreases and demand becomes more predictable. Therefore, the metrics employed should depend on the level of uncertainty in the supply chain. The ability to be responsive should be employed and measured in the early stages of a conflict.

Supply Chain Buffers

When an operation varies in levels of certainty, three supply chain buffers—inventory, capacity, and time—allow logisticians to absorb the varying levels of uncertainty. Most often, they are not used exclusively but in conjunction with one another. Buffering with inventory is the most commonly known strategy. It consists of holding “just-in-case” or “safety-stock” inventory. A commonly known example of this is the Army Pre-positioned Stock program.

The method of buffering with capacity can vary depending on the operation. Buffering with capacity in the military is often done with transportation or lift capacity. Materiel may be concentrated in one or multiple geographic locations. When the need arises, the lift will be directed to move the materiel where it is needed.

Buffering with time can be done by adjusting the required delivery date to a later time. This option is often not feasible, which drives the requirement to use other buffering options. The manner in which buffers are employed determines how successful supply chain managers will be. Let’s look at three different types of operations and how they align their supply chains while using these buffers.

A company that produces bottled water cannot buffer with time or capacity. If one brand of bottled water is out of stock, a customer will normally select another brand. Customers will not backorder bottled water with express delivery because the express delivery charge will cost more than the price of the water. The problem cannot be fixed with additional capacity because the likelihood of backordering water is so low. Therefore, the company must buffer with inventory.

Another company provides refreshments at a sporting event. The company cannot buffer with time because the event only lasts a short time. It cannot buffer with only inventory because the refreshment stands do not have enough customers to distribute the product. Thus, the company must buffer with both inventory and capacity by sending sales representatives out to the customers.

A company that provides human organs for transplant cannot buffer with inventory because organs are perishable. It cannot buffer with capacity because it would be unethical. So it must buffer with time.

The strategy used to employ buffers depends on two things: the marketplace in which you operate and, most importantly, the level of maturity of the operation. With the military supply chain, uncertainty decreases as a theater of operations becomes more mature. Therefore, how managers employ supply-chain buffers depends on the phase of the operation. The goal of establishing a metric is to see how well the buffers are working and to avoid future lapses in providing service to the customers.

As a product moves through the various stages of the product life cycle, efficiency becomes more important in supply chain strategy. The same is true for a military supply chain. As a theater matures, supply chain managers need to become more aware of how well they are using their resources—inventory, capacity, and time. (See chart below.)

Defining Goals

The goal in managing any material is simple: to match demand with supply. The level of responsiveness or efficiency you wish to attain while matching supply with demand should correlate to the level of demand uncertainty. In a mature theater, supply chain managers should be more concerned about metrics that align with efficiency, such as inventory changes, equipment and personnel utilization, and other “lean” metrics. (A product or system is defined as lean if it is accomplished with minimal buffering costs.) However, in an immature theater, they should be more concerned about metrics that align with responsiveness, flexibility, and coordination, such as equipment and personnel availability, communications status, and time spent awaiting transportation.

Once you understand how to structure your supply chain based on the level of uncertainty and the three buffers used to absorb uncertainty, the final step is to look at each phase of a military operation and determine the goals of using those buffers. For example, during the introduction to a new theater of operations a supply chain manager’s goal should be to have enough of the right materiel on hand and the capacity to handle future demand. To support this goal, you must align metrics or controls that will allow you to determine if you are meeting or deviating from that goal. Some metrics to support your goal might be—

  • Equipment and materiel due-ins by days outstanding. What do you not have, and how long has it been due in?
  • Equipment on-hand ratings (measures capacity). Do you have what you are supposed to have?
  • Personnel on-hand ratings (measures capacity). Do you have the personnel you are supposed to have?
  • Communications status with suppliers and customers (ensures that no operation falls victim to time).
  • Critical items at zero balance (measures critical inventory).
  • Number of customer demands (measures capacity required to support).
  • Time awaiting transportation (ensures you do not fall victim to time).

Supply chain managers must have a good idea of where they are and where they hope to be. Choosing the right controls and metrics is a critical component of this process. The proper metrics will allow supply chain managers to quickly assess their status and apply the resources or supply chain buffers needed to better meet the organization’s strategic goals.

A key component in choosing the right metrics is understanding where an organization is and where it needs to be. Having this understanding is the major difference in being a proactive manager with a vision and being a reactive manager who constantly has to shuffle work priorities. In order to avoid a future crisis, you must understand the expectations of your organization and incorporate the appropriate metrics to guide and drive performance.

Major Joseph M. Mrozinski is the chief of the Materiel Management Division, U.S. Army Medical Materiel Center, Southwest Asia, at Camp As Sayliyah, Qatar. He holds a B.S. degree from The Citadel and an M.B.A. degree with concentrations in supply chain management and corporate finance from Pennsylvania State University. He is a graduate of Intermediate Level Education and the Medical Logistics Management Internship Program.


 
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