At many companies, supply management primarily uses only cost- and operations-based metrics to demonstrate the value of the function. Often, supply management has a reputation for using, and sometimes obsessing over, narrowly focused metrics that are misunderstood by or of little concern to the business.
This is true even at companies with more mature supply management groups – functional maturity does not always equal “measurement maturity.”
While inwardly focused metrics may be “safe” and what is expected of supply management, if the function is going to progress from tactical to strategic, the goal for most supply leaders ultimately should be alignment with stakeholders. Supply management must push beyond its own internal perspective to understand the business and, whenever possible, adopt the metrics that drive the enterprise.
Based on interviews with CPOs, CFOs, and other leaders at global corporations, a CAPS research report, Metrics of the Future: Moving Supply Management Beyond Cost Reduction, uncovers the common levels of progression of metrics and value reporting maturity.
The five levels of the metrics maturity model:
Foundational: cost- and operations-based measures of success. Supply management reports cost savings (reduction and/or avoidance) to the C-Suite and is recognized primarily for cost and operations contributions.
Structural: supply management tracks soft measures (e.g. project performance, innovation), but these are not consistently reported to the C-suite.
Actionable Intelligence: supply management expands quantitative measures beyond cost reduction, such as working capital improvement, risk management, cycle time, and policy compliance in its reporting outside the function. While a general shift is occurring to go beyond cost reduction measures, shared measures across functions do not exist.
Emerging Influence: Quantitative measures from Actionable Intelligence are reported to the C-Suite, while softer measures are shared with other functions that contribute to shared business goals. Preliminary incorporation and use of emerging technologies (e.g. big data, analytics, and predictive modeling) to create responsive metrics that anticipate changes and trends enabling proactive supply management engagement.
Strategic Integration: supply management and functional stakeholders are aligned with shared objectives, strategies, and reporting. Supply management is recognized as a key contributor to overall business success.
These broadly defined activities represent a progression from supply management department specific objectives to fully aligning with specific stakeholders and the corporate objectives, Typically, each level includes and builds upon the prior level’s activity.
A partner in achieving cost savings goals
It’s important to note that at advanced levels of maturity, supply management addresses the issue of total cost head-on, considering waste, risk, specifications, and planning.
Getting to the Strategic Integration level requires a larger effort to change the mindset and culture within supply management. It requires a commitment to engage with stakeholders, understand their problems, and help to solve them. To do this, supply management must learn to let go of many of its “own” metrics that no one else participates in.
As supply management leadership leads the function up the curve of metrics and value reporting maturity, they’ll find they no longer need to prove themselves as an outside function coming in, but instead can be seen as a key, strategic contributor to business success.
As one CFO at a global corporation succinctly stated in an interview with the CAPS research team:
“If [supply management] is partnered with the business and delivering business results, shouldn’t it use the same metrics used by the businesses?”
What is your org’s metrics maturity level?
A PDF of the maturity levels is available to members and non-members with a free CAPS Library account. Download the Metrics & Value Reporting Maturity Model now.
Dive deep into Metrics of the Future
CAPS members can also access the Metrics of the Future: Moving Supply Management Beyond Cost Reduction report, a webinar recording and slides, and the CAPS Metrics Index, which details and provides calculations for many of the metrics found in the original research report. All are available to CAPS members in the CAPS Library now: