Readiness is a concept military types should love—and that‘s part of the problem. We are quantitative people by nature and place a high premium on objective metrics. We crave precision. But formulas for gauging readiness neglect intangible factors of enormous consequence.
Not everything that counts can be counted just as not everything that can be counted counts. For instance, a military institution’s culture—its deep-seated worldview and way of doing things—permeates, shapes, or perhaps misshapes everything it does.
How do you judge, with precision, whether the cultural fundamentals are sound?
Not solely through clerical work. Estimating a force’s fitness for battle is never easy—in large part because the authorities define the term readiness vaguely at best.
The Joint Chiefs of Staff, for example, define readiness as “the ability of military forces to fight and meet the demands of assigned missions.” Well. I’m glad we cleared that up. Readiness means being ready to do what you exist to do.
U.S. Fleet Forces Command adds to the explanation pieced together by the Joint Chiefs. Fleet Forces Command raises, trains, and equips naval forces and delivers them to combatant commanders to execute missions in the field.
The command oversees everything from budgets to logistics to maintenance to education and training policy. It vows to “integrate readiness resource metrics for personnel, equipment, supply, training, and ordnance to provide a comprehensive means of assessing capabilities-based operations.”
To gauge readiness, it seems, demands that the leadership gauge just about everything a naval service is or does. And to do so using metrics.
That’s as it should be. The danger stems from our natural human tendency to observe and quantify what we can quantify, exclude the intangibles, tally up the results, and declare our services “ready” based on this objective and orderly—but highly partial—process of measuring, calculating, and aggregating.
We could trick ourselves through fixating on what can be counted and neglecting the rest. Your typical intelligence specialist should be taken to task for counting what they can detect—ships, planes, tanks, stuff of all types—and discounting what remains out of sight.
Net assessments tend to yield a fragmentary picture deriving from fragmentary data. They mislead if taken too literally.
It’s a constant guessing game when it comes to explaining how to size up an adversary. Commanders must “guess, so to speak,” about what response our actions will summon forth from the enemy and from third parties when we take up arms.
We are simply warning military leaders and officials not to be enamored by objective-seeming measures of military might, to discount the sheer mass of data that need to be measured, or to disregard the subjective nature of crucial data.
These are estimates, after all, and should be taken as provisional. This goes to the nature of martial affairs. To judge the potential of the services ability to conduct combat, leaders must devise metrics to infer the state of seamanship, combat prowess, and fighting spirit in the ranks.
Let’s not quantify what we can quantify, ignore the rest because we find it difficult, and declare ourselves fit for action.
Measuring readiness sounds like a bookkeeping problem. Reading too much into the numbers could delude us about our prospects in strategic competition and war.
Once DoD constructs a road map it can develop a set of performance metrics or key performance indicators to ensure it knows when it is meeting its objectives. Organisations should choose a limited number of metrics and align executive to management-level measures. Continuous improvement in an organisation relies on “measuring, measuring, and measuring again.”
The current interest in performance measurements has led to a variety of supporting
adages or cliches in the industry, such as: “Anything measured improves., “What you measure is what you get., Anything measured gets done. And “You can’t manage what you do not measure.”
These are not new business ideas, but there are a few new twists. Using measurements
to support manufacturing operations stem from time and motion studies of operations used to manage production lines and warehouse operations.
But these techniques led to exaggerated business processes that transitioned into “running a business by the stopwatch” with executives treating staff as if they were highly reliable, predictable machines to be monitored and controlled. Over time, the workplace’s view of
performance measurement were replaced by a focus on a measuring a business’ performance rather than that of the individual.
Companies have expended significant amounts of time and effort to re-engineer their supply chains through business process change and technology focused on implementing integrated supply chain management principles. But despite the applied resources, there has been little sign of realised benefits since, they generally lack formal approaches and tools needed to measure these improvements.
Measurement is important since it affects behaviour that impacts supply chain performance to provide the means by which a company can assess whether its supply chain has improved or degraded. Companies have tracked performance based largely on accounting principles certainly important in assessing whether or not operational changes are improving the condition of an enterprise, but insufficient to measure supply chain performance.
Some of the reasons include that measures tend to be historically oriented and not focused on providing a predictive forward-looking perspective, Measures do not relate to important strategic performance, like war fighter customer service targets and product quality and the measures do not directly tie to operational effectiveness and efficiency.
Balanced Scorecard Approach recommends the use of executive information systems
tracking a limited number of balanced metrics that are closely aligned to strategic objectives. While not specifically developed for supply chain performance measurement, Balanced Scorecard principles provide excellent guidance to follow when doing it. The approach recommends a small number of balanced supply chain measures be tracked.
One of the criticisms of traditional approaches is that it focuses on short-term
results, but providing little insight into the success of an enterprise towards generating long-term value. For example, DoD can report many successful time periods, while simultaneously shortchanging its readiness of war fighter customer base by not applying adequate resources towards product quality or new product innovation.
While some approaches may provide guidance for supply chain measurement,
they provide less help in assessing specific metrics to be used. A key driving principle promoted by the Balanced Scorecard, is that measures should be aligned to strategic objectives. But supply chain strategy differs for every company and depends upon its current competencies and strategic direction.
Companies, for example, can generally fall into the following developmental
stages that will dictate the types of measures and the degrees to which they
will need to focus:
Firstly, metrics where this focus on individual functional departments. Second, metrics focused on cross-functional processes, not individual function departments. Third, metrics focused on external and cross-enterprise metrics.
Most companies have focused their performance measurement on achieving functional gains aimed at integrating their supply chains and increasing their degree of enterprise-wide integration and extended enterprise integration. In order to achieve these types of objectives, their performance measurement systems will need to align to include: Function-based measures, Process-based measures, Cross-enterprise measures and number of measures to be use and alignment of executive to management-level measures.
A major problem encountered with most performance measurement systems is that they are functionally focused. Within these systems, each functional area measures its performance in its own terms, with individuals evaluated based on their ability to meet objectives consistent with performance measures.
Teams working under these measurement systems tend to drive operations toward improving their own area’s performance, frequently at the expense of performance in other functional areas. When each functional area sets its performance measures in isolation from those of others, it often leads to deficits in functional sharing between teams and conflicting organisational goals.
When manufacturers use the following types of function-based supply chain-related performance measures in isolation of each other, there is a tendency to create conflicting goals among functional areas as follows: Customer Service/Sales, Logistics, Manufacturing , and Purchasing.
It is apparent use of only function-based measures could drive teams toward changing functional performance in entirely different directions. These types of measures alone have reinforced deficits in sharing between functional teams, reducing the effectiveness of many supply chains and fostering arms-length transactions among departments, leading to processes that are slow to respond. Performance improvement initiatives get focused on a single objective that frequently runs counter to increasing the efficiency of the total supply
To help integrate their supply chains, companies are starting to improve on existing deficits in team communication by organising around cross-functional processes. This is done by either creating departments responsible for an overall process or creating cross-functional teams that drive an overall process, such as: Order fulfillment, New product development/introduction and Total cycle time.
To support these organisational changes, companies are supplementing function-based measures with some process-based performance measures. While this approach does not advocate the total elimination of function-based measures, it places focus on the performance of an overall process, using these measures as diagnostic information to assess what is affecting overall performance.
The cross-functional process approach to measuring supply chains is applicable for inter- as well as intra-enterprise processes. For example, many would agree the two most important bottom-line measures of overall supply chain performance relate to: availability of the right products at the point of consumption and total landed cost to get the products to the point of consumption including all material, manufacturing, transportation, warehousing, and inventory costs along the supply chain.
While these are recommended supply chain measures, it is rare for one organisation to control its whole supply chain performance. Supply chains are typically comprised of many value-adding trading partners that control the portions in which they transact business. While this might be the case, supply chain tactics principles dictate that significant benefits can accrue when integrated inter-enterprise processes are in place, to link and optimise the supply chain.
To ensure the effectiveness of cross-enterprise processes, a company should measure performance of parts of their supply chain that lie outside their own enterprise. This leads to the question of “Should you measure what is not within the domain of your enterprise or what you cannot control?”
Most executives would answer “no” to that question, stating that it is useless to measure anything on which you have little or no control. But in situations where performance directly or indirectly impacts the availability or cost of products at the point of consumption, the answer should be “yes” to that questions.
At times it does makes sense to measure what you cannot control, as you may uncover a deficiency in your supply chain’s performance. Once found, initiatives can be developed to address the problem and the performance measures can be used as the “call to action.” These initiatives usually involve some form of program aimed at taking some level of control of upstream or downstream supply chain activities – extending beyond one’s enterprise.
As more companies implement supply chain programs, they will be placing greater emphasis on cross-enterprise processes, extending beyond their enterprise. This will lead to the need to implement performance measurement systems that include some external measures, including some for processes that lie outside of a company’s domain of control.
A major challenge for many companies when developing a supply chain performance measurement process is limiting the number of measures. Most companies are involved in complex business operations that span across multiple business divisions and geographical boundaries, involving many sub-processes, tasks, and organisational departments.
Wanting to measure everything, there is a tendency to measure too much. The number of measures needs to be limited to ensure the process is not too cumbersome to administer. To ensure that a reasonable number of metrics is defined, an organising framework is required to select only those that are most important.
A key-enabling concept taken from the Balanced Scorecard approach is to focus the measurement process on managing the business, not monitoring and controlling it. Measures should be aligned to supply chain performance objectives to be achieved, not to mandate teams are adhering to managerial practices and directions. In this way supply chain performance, not actions, are measured.
To establish a rational set of performance measures, businesses need to start with an understanding of the strategic supply chain objectives of a company’s executive team. For example, to what degree is the company trying to achieve functional, enterprise-wide integration and extended enterprise integration excellence?
Once understood, a limited and balanced set of measures directly aligned to strategic objectives needs to be developed with supply chain performance indicators according to strategic intent to include a balance of cause and effect type metrics . In addition to executives, teams also need more detailed performance measures to track both tactical and operational types of activities.
Using lower level measures, managers can gauge how well teams are doing relative to the overall strategic goals set in place by the executive team. In addition, lower-level metrics enable executives to drill-down into the more diagnostic metrics, detecting where corrective actions are needed.
Targets for supply chain performance measures must be established to framework for determining the answer to questions that arise when evaluating a performance metric: Has the metric improved from the last time it was reviewed? By how much? How close is the metric to where it should be?
Efforts aimed at picking a set of balanced metrics, performance targets need to be jointly, not individually, developed. To achieve objectives some metrics may need to increase and others may need to decrease. Each metric in the set has to be viewed in conjunction with the others to determine its proper target. For example, in a situation where a company is trying to achieve same day delivery, delivery times should decrease, while warehouse handling and transportation costs might actually increase.
So while there a variety of ways in which to set performance targets, they should always be jointly set in the context of strategic objectives. Generally, there several methods that can be used to set performance targets: Historically based targets, External benchmark, Internal benchmarks and Stretch Goal targets.
Historically based target setting is the most frequently used among all the methods, because it is easier. In using this method, performance targets are based on historical baseline levels. Once the baseline metrics are established, the same procedures and systems that were used to establish the baseline numbers can also be used on an ongoing basis to measure changes in the metrics.
Using external benchmarks to help set performance targets is currently popular, but difficult to use in practice. In general, benchmarking has been in the business limelight for a long time, with companies looking outside their operations for best practices and performance comparisons. This method relies on collecting information on performance metrics of companies internal and external to one’s industry.
While appealing, the external benchmarking method has a major shortcoming in determining if a set of companies are available/comparable because big amount of analysis is required to ensure that external benchmarks are meaningful, especially when using data from companies that operate within different business environments e.g., differing products or sales channels, But external benchmarks, especially from one’s competitors, may be extremely important towards keeping an organisation supply chain competitive.
Once external benchmarking metrics are collected, a company’s internal metrics are generated and a gap analysis is done – typically looking at the best-in-class within their own industry as well as external to it. This is followed by more analysis to assess the degree to which the company can achieve these performance levels, including what business practice changes are necessary to close the gaps.
Performance target setting using internal benchmarks is a common approach, since it requires only internal measures usually operating in similar business environments.. Within this method, comparable functional departments, processes, and facilities within a company are measured in the same way. For example, there may be a set of metrics in use for all warehousing facilities, another set for all manufacturing plants, and another set for all customer service departments.
While this internal benchmarking method is easier to implement, the organization is stretched to achieve better performance. That is, using a “best-in-class” internal organisation to set targets may limit the company’s performance relative to its competitors. The use of Stretch Goals target setting is a relatively new method of conducting an analysis to project how its supply chain performance could be improved by implementing the business changes necessary to achieve these improvements and put a set of performance targets in place based on estimates made during the analysis.
While conducting an optimisation analysis is an intuitively appealing method for determining performance targets, it is not always the easiest to do. Another alternate approach involves the use of supply chain simulation analysis that includes conducting what-if studies on initiatives to improve performance. The results of these studies could then be used to set theoretical targets.
For example, a “what-if” study might be conducted to assess inventory reductions that might accrue from statistical stock setting. Estimated reductions would be used to reset performance targets for inventory turns. Setting performance targets on a stretch goal basis is most useful for insuring balanced set of metrics is developed. Often, only by doing a thorough analysis can one assess how an initiative would impact comprehensive aspects within a supply chain.
In practice, a combination of these performance target-setting methods must be used. No one method is practical for determining targets since you cannot always get a full set of comparable benchmarking information or conduct the extensive analyses needed to develop a full set of potential performance targets.
Application vendors are faced with a challenge when trying to provide supply chain performance measurement functionality within their products. Users often wish to include metrics relating to information not residing within the vendor’s application database.
This is especially the case when measuring the performance of cross-functional and inter-enterprise processes, which involve drawing information about any functional department within a company, or about customer/supplier activities. Most advanced planning and scheduling applications focus on the future, rarely concerned with what went on in the past except relative to measuring forecast errors.
Traditionally, supply chain application vendors have focused their development efforts on enabling planning, scheduling, and execution, targeted toward supporting decision-making, not tracking historical performance. Some vendors have functionality to report historical supply chain performance focused around either functional or planning-related metrics.
One application reports on historical product performance by providing users with shop floor data collection applications and uses constraint-based costing methods to assess product level production performance. Similar to other supply chain solutions, the application provides refined estimates of manufacturing performance representing only a portion of the overall supply chain performance measures needed.
We have concluded that there is no one recommended approach or set of measures to be used to measure one’s supply chain performance. While promoting the importance of measuring supply chain performance, experts really have no definitive set of metrics to recommend. Application vendors we polled enable a limited range of supply chain performance measures and are improving and planning to add more functionality to their product sets.
For those users just getting started, implementing supply chain performance measurement should not be done all at once. For example, one could start by first implementing executive-level scorecard measures in a manual fashion. This could then be followed up with more automation, through the use of application tools and the addition of managerial-level metrics.
As application vendors develop more capabilities in the area of performance measurement further automation of the process can be implemented over time. We recommend the following steps be taken when implementing supply chain performance improvement and measurement:
Have executives articulate the strategic supply chain objectives, including the degree of focus to be placed on achieving functional, enterprise-wide integration and extended enterprise integration.
Define more tactical and operational, executive/team level objectives and measures providing diagnostic information on whether executive objectives are being met. Breaking down the higher-level measures typically does this. For example, these might be measures for a particular plant’s cost for a specific class of material.
Identify supply chain initiatives that specifically address the executive and team performance improvement objectives. For example, this might include a core supplier program reducing the number of material suppliers to ones with the lowest cost, meeting quality standards.
Establish targets for all metrics defined, using a combination of historical performance, external/internal benchmarks, and estimates obtained from operational quantitative analysis of the supply chain initiatives. A timeline for achieving the targets needs to be established for each metric, consistent with the schedules developed for the supply chain initiatives.
Implement new initiatives in concert with a formal measurement system to
keep track of performance improvement over time, using a combination of whatever vendor application technology makes sense.
While these steps are useful for getting started, ongoing supply chain performance measurement requires steps be revisited on a routine basis, as objectives change and new programs and initiatives are undertaken. Keeping the measurement/metrics process aligned to supply chain objectives and activities will provide the information
needed to drive your supply chain’s performance, helping to ensure that resources are appropriately applied and desired strategic change is happening.
There are several lessons/questions for your company to get started in taking action to meet important goals of measuring supply chain performance:
1. Measurements are important to directly controlling mobile vehicle behaviour and indirectly to performance
2. A few key measurements will go a long way toward keeping a company on track towards achieving its supply chain improvement objectives – like those on a speedometer and a gas gauge.
3. Seemingly relevant, but cumbersome, measurements are of little use, and are possibly a hindrance, in helping to improve supply chain performance –like the odometer in the car.
4. Picking the wrong measures and leaving out important ones could lead to supply chain performance degradation – like running out of gas.
5. Driving a supply chain based only on after-the-fact performance measures, like losing an important customer is not very effective like the way getting speeding tickets and running out of gas is an expensive way to drive a car.
6. Must decide for yourself why is selecting performance measurement important?
7. What general approaches are available to measure supply chains?
8. What methods are available for setting performance targets?
9. . What are application vendors doing to support supply chain performance
10. What are the first practical steps your company must take to get started?