Supply Chain Metrics 3 - What Makes a Supply Chain Leader?

Here's the good news: Whereas the Singhal/Hendricks study exposes the vulnerability of poorly managed supply chains, another study conducted by Accenture (in partnership with INSEAD and Stanford University) reveals that companies identified as supply chain leaders have a market cap up to 26 percentage points higher than the industry average. That begs the question: So what makes a supply chain leader, anyway?

That's where the statistical approach comes in. If you can measure the performance of your supply chain, then you'll be able to determine how close you are to being best-in-class. But how do you know exactly who is the best at supply chain management? When Fortune magazine identifies the top-performing companies in a given industry, it uses the straightforward standard of annual sales. When it comes to identifying the top supply chains, though, merely counting up dollars and cents won't get the job done. After all, a supply chain that is truly best-in-class will encompass numerous operations and processes that don't necessarily show up on a profit-and-loss sheet, such as planning and forecasting, procurement, transportation and logistics, warehousing and distribution, customer service, and other key factors in the overall supply chain equation.

Measure Satisfaction

Automaker Hyundai uses its parts distribution operation to build customer loyalty. The company's goal is to provide high levels of customer service while keeping its costs as low as possible. In this case, the customers are Hyundai dealers, and through dealer satisfaction surveys the company has learned that order fill rate is the number-one driver of satisfaction. "If needed parts are available, our dealers are happy," explains George Kurth, director of supply chain and logistics with Hyundai Motor America.

So to ensure that it's keeping its dealers happy while keeping its costs down, Hyundai measures the facing fill rate, which is the order fill rate from the warehouse assigned to the dealer. "If we can keep that fill rate very, very high, it's good for dealer satisfaction and it reduces transportation costs," Kurth notes. "Shipping from the assigned warehouse on our dedicated delivery route is cheap. We pay for the truck no matter how full it is. If the part is not available from the assigned warehouse, we have to ship from another warehouse via an expedited carrier. We can satisfy the dealer and get the part there on time, but the cost soars."

Hyundai's facing fill rate on orders is about 96 percent, which is considered good for the automotive industry. The automaker also measures the fill rate for its entire warehouse network, which is 98 percent, also a high score for automakers. Kurth isn't satisfied with that score, though, because "that still means that 2 percent of the time, I have to use premium transportation."

Transportation costs, however, are just part of the total supply chain cost, which also includes inventory and productivity costs. Hyundai monitors the amount of inventory it carries at any given time, with the understanding that best-in-class for the automotive industry is never going to equate well with the high-tech industry's goals. "We tend to carry a lot of parts inventory because our automobiles last several years," Kurth says. "In contrast, Dell has virtually no parts inventory because a six-month-old computer is obsolete."

To stay on top of current automotive industry trends, Hyundai belongs to an independent automotive and heavy equipment group that collects performance and cost metrics from member companies and provides benchmarking services.


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