It's Not Just About the Data -- It's About Acting on the Data
Supply Chain Management Review recently ran a story authored by AMR Research -- essentially a repurposed research brief -- that talks about how best to turn data into action. According to AMR, it's critical to not only develop a measurement strategy by identifying what metrics are best to tract and then implementing a measurement program, but also to "turn the data into action." This is step is "the last mile of the journey, and often the most difficult one. It's where many companies flounder and where measurement efforts often die." To prove its point about how data and insight can lead to action, AMR sites the case of detecting and acting on patterns in supplier facing metrics. "Consider the financial connection between supplier performance, days payables outstanding, and direct material costs. One example we often see is poor supplier performance combined with high direct material costs and short days payables outstanding. A company in this situation is receiving poor service from its suppliers, despite the fact that it is paying them a lot and quickly. Clearly, this represents an opportunity to revisit the terms and agreements of those supplier relationships."
To this example I would also add the supply risk correlation between declining supplier performance and overall supplier financial viability. This is an established metric that a number of solutions providers (e.g., Open Ratings (D&B) and SAS) have observed over the years. Indeed, when quality or on-time performance drops, there's often a much more complicated story behind the scenes that could spell disaster for your organization if it goes unaddressed. Above all, as AMR suggests, it's not just about discovering the data -- it's about acting on it. So ask yourself: what are you going to do differently in 2008 when it comes to proactively intervening when it comes not only to Spend Management opportunities but also supply risk management?
- Jason Busch
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I don't know, but if anyone can tell me, I'd be grateful. The Supply Chain Management Review recently ran an article titled Supply Chain Measurement: Turning Data Into Action that, apparently, uses a three step process to help you transition from making measurements to taking actions, which is, of course, the reason you're measuring in the first place. If the measurements indicate that there is something that can be improved, then you should take action.
The steps are outlined as follows:
Understand Interdependencies - Use Themes and Patterns
Identify the Tradeoffs and Analyze Root Causes
Develop and Prioritize Action Items
I could be wrong, but I thought that patterns were generally used in object oriented design to represent standard relationships and interactions between objects and classes, without specifying the final application objects or classes that will be involved. In addition, I thought that themes were pre-configured graphical user interface customizations that are generally used to customize the look and feel of an operating system or window manager. I don't see what either of these have to do with supply chain measurements. Furthermore, this looks more like a prescription for modernizing a classic procedural software application into a modern object oriented software application than it does for supply chain improvement. I have to say I'm just a little confused.
The article doesn't help much. With regard to understanding interdependencies, it says to think of the data as a narrative; your job is to reveal the final story. A narrative? Are we supposed to be writing a work of fiction? Then it says that the data can be sliced into different thematics and that it's helpful to visually map the metrics to the themes. Are we supposed to be creating works of art?
Then it goes on to say a a successful analysis of themes, interdependencies and tradeoffs reveals is where the levers are in your supply chain. Levers? Where did they come from? Now you have to be a mad scientist too?!?
About the only thing I understood in this article is that supply chains are complex, and that's why you shouldn't try to summarize everything about a supply chain in a single, short, article. Because you end up using so many metaphors that, by the end of it, your audience will, like Pinky, be stunned so senseless that all they can do is ask about the "metal floors"*.
* Check out Sourcing Innovation this Saturday for details ...
but I digress.
The article highlights some good points, but didn't frame it properly on step 0 which is Defining the attributes of the supply chain need to support business strategy (i.e., start with the D in DMAIC), then work backwards from current vs. actual performance on appropriate output metrics to then prioritize the causal metrics which support them. AMR SCM heirarchy pyramid is good high level view of that. That said, using a "relations diagram" rather than Ishikawa/fishbone is a great way to understand relationships between all the metrics (e.g., negative relationship- aka "tradeoff"). That way, you can then look at implementing a solution (technology, services, etc.) as a "root solution" to a set of root causes which will then impact the output performance metrics of importance to you (based on priorities and measurement). Using a sourcing "wave" type approach of payback vs. effort/time is useful to help prioritize and then assign to various folks in organization.
There are lot of tools that can help with pieces of this whole process (e.g., PowerSteering on the tail end to track project portfolio), but that's a whole separate discussion.
any other practitioners want to chime in?
Great comment.
(1) It was clear.
(2) It was concise.
(3) It hit the main point.
(4) It probably contained more information than the entire SCMR article.
Question: So why aren't you writing for the SCMR?
P.S. Saturday's post is on a different topic. (But still confuses poor Pinky to the point where he has to ask about the "metal floors".)
In my experience, the existing spend analysis tools are a huge gimick because they don't shoot up a big red flashing sign saying, "Here is the savings here! This is your problem! Fix this!" When you manage to completely load the data from 110 purchasing systems into one central repository, assign a commodity classification, and align the supplier identification numbers, you get...well...alot of data that most customers don't know what to do with. (And I'm ignoring the mistakes in the classifications and supplier consolidation. That's a real problem, but a different problem.)
So what do they do? They use the data reactively. Not proactively to find savings. They know they are going out to meet with Supplier X today to negotiate a new agreement so they look up how much spend they have had with supplier X over the last year.
I guess there is a benefit to that data, but it's far from the goal of Monetizing the Eyeballs. Err...or whatever the goal was.
Spend analysis tools are just tools. Dopey static reports and dashboards that allege to "find" savings and "highlight" them for you, or even "recommend" what to do in particular categories, are, indeed, a gimmick. At best, they'll "discover" some of the low hanging fruit that you'd find trivially on your own the first time you combine your 110 ERP systems together.
The key is to use spend analysis tools to dive more deeply into your data, using your own insight and that of other key practitioners in your organization. At BIQ, we'd argue that you should build many datasets, by vendor by commodity even, in order to perform invoice analysis and benchmark existing vendor performance -- and that you need to learn how to do this yourself.
Just because you get carpentry tools for Christmas, doesn't mean that the tools come out of their toolbox late at night and build the house for you. But they should be excellent tools, they should be modestly priced, and it should be easy to learn how to use them.
Thank you for your insightful post. Lately, I’ve been feeling in the dumps and thinking that perhaps I’ve fallen behind my peers in how my team is using data for opportunity identification. Sure, we slice, we dice, mince and wince – but are we good????
Your statement “In my experience, the existing spend analysis tools are a huge gimmick (sic) because they don't shoot up a big red flashing sign saying, "Here is the savings here! This is your problem! Fix this!".,
I now feel pretty good knowing that my peer competitors are morons – making us truly equals.