According to the U.S. Bureau of Labor Statistics, the Consumer Price Index (CPI) for all Items rose 7.5 percent for the 12 months ending January, the largest 12-month increase since the period ending February 1982. Inflation also surged with an annual rate of 5.4 percent in September, marking the highest rate in the past 13 years.
The Bureau of Economic Analysis says that the personal consumption expenditures (PCE) price index for December increased 5.8 percent from one year ago, reflecting increases in both goods and services.
Freight costs are up, ports are congested, container costs are outrageous, oil prices are surging, labor is in short supply, manufacturing capacity has been shut-in because of COVID, and supply chain is a household phrase for the first time. But for all the hyperbolic reporting of these challenges, what do companies truly know about their supply chains? It might be argued that the issues are so evident that everyone knows what’s going on with the supply chain. If that were true, companies would manage the challenges, but the W. Edwards Deming statement that you can’t manage what you don’t measure still holds. Companies still grapple with measuring the performance of their supply chains, so the struggle lives on.
The struggle is real and complex!
The 7 Rs of Supply Chain
The right stuff, in the right quantity and the right condition, to the right customer, in the right place, at the right time, for the right cost – frame the basic building blocks of effectiveness and efficiency performance measurement. Include reliability, responsiveness, and agility to round out what’s covered in the SCOR Model. Drop in measures for health, safety, environmental impact, social equity, and proper governance to cover aspects of the new normal. Throw in adaptability, flexibility, and scalability just to complicate things. Finally, add a dash of availability and assurance to the gumbo of supply chain performance measures.
If that wasn’t enough, supply chain leaders need to consider leading and lagging measures; descriptive and predictive analytics; measures for each internal supply chain discipline – procurement, contracting, logistics, inventory management; measures for first, second, and third-tier suppliers as well as first, second, and third-tier customers; across all activities – planning, scheduling, executing, close-out; aligned with business objectives and business models.
How can I find the needle in the haystack?
Dr. Eli Goldratt rightly stated in “The Haystack Syndrome” that we are drowned in oceans of data; nevertheless, it seems as if we seldom have sufficient information. And yet supply chain professionals are deploying new digital applications to generate larger haystacks of data at an ever-increasing pace. The hope is these new digital tools with embedded statistical capabilities and economic models will produce sufficient information.
What technology has delivered is a new haystack of information! The supply chain professional can now more easily benchmark internally and externally, provide evidence of service to internal and external customers, demonstrate adherence to laws and regulations, and identify process improvement opportunities. Unfortunately, although information is necessary, it is not sufficient, and the haystack has shifted higher. The critical task for today’s supply chain leader is determining how to move up the DIKW pyramid from the haystack of information to the pinnacle of wisdom.
“Where is the wisdom we have lost in knowledge? Where is the knowledge we have lost in information?” — T.S. Eliot, The Rock
What is the “pinnacle of wisdom” and why bother?
The pinnacle of wisdom has a few key components.
Each function within the company is working from a clear set of performance measures founded on clean data, generating information aligned with other business function performance measures, and that produce the knowledge and wisdom to support the overall goals of the business.
There is a framework for how each performance measure impacts the other functional performance measures and that makes the trade-off value between competing business outcomes clear for decision makers.
Management attention is focused on targeted decisions that lead to action resulting in less risk, improved customer retention, increased employee satisfaction, and sustained increasing profitability.
Do you need help climbing up the DIKW pyramid? Stinnett’s team are experts in the design of performance measurement scaffolding by working backwards: starting from capturing the key goals of your company, then moving to identifying the key decisions your business needs to make, and finally to designing the data foundation required for those decisions.
We can help your company establish the hierarchy of decisions that are critical to your company’s business and identify linkages and tradeoffs between decisions. Let us escort you to the pinnacle of wisdom!