Executing the Supply Chain: Supply Network Governance Cycle
Despite the need to coordinate efforts within various elements of the supply chain has recently increased, companies do not yet understand the process of building efficient performance indicators for their operations knowledge areas.
Companies pursue continuous improvement and monitor performance through a set of lengthy and diverse indicators that allegedly represent a process or a cluster of processes.
Performance indicators should be used as decision supporting tools. For that reason, some attributes are expected:1
- They have to be quantitative. No performance output should be identified by words such as good, regular, bad, weak, partial, or equivalent. Metrics must be numbers—either absolute or relative (percentages).
- Performance indicators should promote the right behavior and appropriate organizational culture; therefore, it is desirable for a multifunctional approach to define them.
- Performance indicators must balance the effort to collect and analyze data and the benefits this indicator delivers to the business.
- Performance indicators must be visible to people, accepted by the organization, and shared within various departments.
- Only what is really important should be measured. The challenge is to define a short list of metrics that are relevant and capable of representing the health of the processes.
- Performance indicators are sensitive to process performance oscillation. A good performance indicator reacts according to minimal process performance deviation.
- The performance indicator must be easily understood by all stakeholders.
Ideally, any performance indicators have all attributes described here. This book introduces a methodology to support companies to define a precise and valuable set of metrics entitled the Supply Network Governance Cycle (SNG Cycle).
The SNG Cycle proposes a five-step roadmap that guides companies from the early stages of acquiring fundamental business visibility through process mapping to advanced people management policies. These five steps are as follows:
- Define the scope.
- Map the process.
- Analyze the risks.
- Define the metrics.
Review the SNG Cycle.
Figure 1.1 Supply Network Governance Cycle
1.1 Scope Definition
The mechanism the Supply Network Governance Cycle uses to identify the exact process scope (set of activities) to be mapped is the Supply Network Alignment Reference Model (SNAR Model) and its coding system (Oliveira and Gimeno 2014_01).
The SNAR Model provides a structured approach to map the extended supply network from different perspectives. These perspectives may vary both in scope (number of functions) and depth (functional details), using as an example a customer service team that is to map and monitor the transportation processes and its impact on several key customers.
Figure 1.2 SNAR Model
Figure 1.3 SNAR Model Customer Service and Transportation
A more specific approach identifies this environment according to the SNAR Model codification system: 01.02.01 (Transportation), 01.03.01 (Customer Service), and 02.01.02 (Preferred Customers).
Figure 1.4 SNAR Model coding system
The next example applies the methodology to the Demand Planning and Forecasting Knowledge area (SNAR 01.01.01).
Figure 1.5 Selecting knowledge area
Once the knowledge area is selected, it is required that the process to be mapped has its scope detailed. The following example indicates two key subprocesses:
- Finished goods demand forecasting [SNAR 01.01.01.a]
- Sales & operations planning [SNAR 01.01.01.b]
The control chart is a tool that identifies the evolution in each step of the SNG Cycle. The rightmost column indicates the score each step can achieve; the maximum overall score is 16 points.
Figure 1.6 SNG Cycle, control chart