Attribution Analysis in Supply Chain
Supply Chain function in most organizations is multi-faceted and requires management through a complex hierarchical organizational structure. At one end are Forecasters who manage the most upstream function and at the other end are executioners (production and procurement managers) who manage the most downstream function of supply chain. These functions have evolved over a period of time, found to be most optimal and is based on simple principle of segregation of duties.
While these functions are distinct, the key supply chain metrics are cross-functional in nature. Fulfilment rate as an example refers to the extent to which a supply chain fulfils demand in the supply chain. While carrying excess stock improves the fulfilment rate, it is detrimental to the stock turnover rates and consequently the working capital to total asset ratio. Note that these supply chain metrics collects and commingles the functions of forecaster, supply chain planner and executioner. Most of these metrics widely used across industry does not give any attribution analysis of hits and misses in the supply chain to these core functions.
In this regard, the APICS organization came up with one recommended metrics framework of SCOPA or Supply Chain Operations Performance Analysis. The link makes for an interesting read where distinction of supply chain performance is made in alignment with different functions.
The key philosophy of SCOPA is to draw a distinction in key metrics between the planning and execution function. An overall supply chain performance is based on the combination of both these functions. A planning function can be measured by making a hypothetical assumption that execution is perfect. Thus the planning service level is dependent on the actual sales, forecast and safety stock protection for a time bucket. In the same vein, execution service level is simply the function of actual and planned sales.
In one of the existing projects, we are in the process of implementing the basic framework of SCOPA. The main intent of implementing SCOPA is to understand and correct the planning or the execution as the case may be, using the attribution analysis report. This is expected to positively impact inter-departmental behaviour, make the discussion more data oriented and apolitical.
While SCOPA focuses on drawing a distinction between planning and execution function, it might be important to extend this philosophy within the planning function itself. Example a planning function depends on the forecaster (sometimes known as the demand planner) and the supply chain planner(who looks at the supply side of the chain). It may be naive to measure the forecaster based on forecast accuracy using the formula - forecast minus actual sales. The reason is that actual sales is a function of capacity constraints, downtimes of resources or even leadtimes in supply chain. A demand planner does not have control over any of these aspects. One accuracy measure could actually be forecast minus unconstrained customer orders as received in the order management system. Orders based on requirement date rather than delivery date would be the key difference between unconstrained and constrained orders. This means that customer order data is captured in the system that is not adjusted based on supply chain constraints like stock availability or stock capable-to-be-made available.
A supply chain planner instead could actually be measured based on the difference between unconstrained customer order and constrained customer order. The key function of supply chain planner is to mobilize the supply side to react, reconfigure and remodel, in some cases, to meet the unconstrained customer orders. This means the key metric is actually dependent on the stock availability and stock capable-to-be-made available.
While all of the above does not downplay the "teamwork" required by different functions to make the supply chain service levels optimal, these metrics act as important feedback factors and re-inforce the right inter-functional behaviors. After all, coming together is a beginning, keeping together is progress and working together is success. Individual commitment to a group effort makes a team, company, society and civilization work. And what could be better than these KPIs to goad this individual behavior.