Supply Chain Metrics 1 - Measuring Up to High Standards

It's probably just a coincidence, but the rise in popularity of supply chain management happens to coincide with the emergence of sabermetrics. No, you're not going to find that term defined in any business management journal; sabermetrics is the application of statistical analysis and research to the game of baseball. When personal computers became affordable in the early 1980s, supply chain analysts and sabermetricians alike fell in love with databases and spreadsheets that could crunch months' worth of product forecasts and decades' worth of box scores in minutes, rather than days. These days, "keeping a scorecard" is as much a part of the supply chain language as it is sports talk.

To paraphrase John Thorn, co-editor of Total Baseball, statistics are not just a cold-blooded means of dissecting profit and loss reports in order to examine a company's performance; rather, statistics are a vital part of the supply chain. The supply chain may be appreciated without statistics, but it cannot be understood without them.

To continue the sports analogy, back in the spring of 2001, the only event in which athletic footwear and "Just Do It" icon Nike seemed to be excelling was poor planning. Philip Knight, Nike's CEO, had to explain why the company's shoe sales were 24 percent less than expected, which led to an earnings shortfall of approximately $100 million. Much like a beleaguered baseball manager explains away a loss by pointing to a key player's failure to lay down a bunt in the late innings, so too did Knight point his finger at a convenient scapegoat: He blamed it on his supply chain plan.

Specifically, Knight singled out the problems Nike had implementing a new supply chain planning system. Those implementation problems, he explained, were what led to unforeseen product shortages and excesses. The installation of the software had been rushed (Knight didn't dwell on his role in making that decision, much as a baseball manager tends to gloss over whether a player was rushed to the big leagues before he was ready), and that led to conflicts between Nike's legacy order management system and the new demand and supply planning software. As a result, the company made too many of one style of shoe and too little of another, building up inventories of shoes few people wanted while experiencing shortages of more popular brands.

Simply put, Nike was having major league problems matching the right orders to the right customers. And Wall Street responded promptly, as Nike's share price dropped 19 percent when the glitch was announced.


More on this soon....