Building & Leveraging the Metrics

Framework for driving Enterprise

Performance Management (EPM)
A Supply Chain Management view

Tejas Faldu, Srikanth Krishna

Abstract
Failure to design a relevant and integrated metric framework greatly
reduces the capability of business intelligence systems to provide the
right insights for effective decision making. This paper outlines how a
metrics

framework

based

approach

to

enterprise

performance

management is a fundamental step to leverage investments in

business intelligence and analytics.

11 December 2005

According to an AMR Research report, EPM spending in 2005 was estimated to be close
to $22.2 Billion of which more than $9.5 Billion is being spent on Business Intelligence
systems and Analytic applications. Armed with such sizeable budgets, enterprises are
actively planning strategies to infuse analytics everywhere in their business.
As
enterprises undertake this analytics journey, they would need to answer some important
questions. Some of them are 9 Do all roles understand the financial impact of their performance on the overall
enterprise performance?
9 Is there an enterprise wide awareness and understanding of the overall strategic
and financial objectives of the enterprise?
9 Are all processes and roles of your enterprise mapped to some key metrics which
determine the success of their performance?
9 Can information be easily accessed and analyzed quickly to take right decisions at
the required time?
9 Is there a mechanism to periodically review actual performance measures and also
redefine performance measures in the changing business context?
9 Is there an integrated single view of performance across functions and across
hierarchies?
The answers to these questions reside in establishing an enterprise performance metrics
framework. Unless such a framework is built, investments in analytics and business
intelligence systems will give sub-optimal returns.
In this paper we demonstrate a process-oriented approach for establishing and using an
enterprise performance metrics framework using the illustration of how this is achieved
for Supply Chain Management in the CPG industry.

Business Case for Supply Chain Performance Management

Supply Chain Performance Management has been a critical focus area for leading CPG
players in their pursuit of developing agile, lean and efficient customer oriented supply
chains. One of the biggest challenges that CPG players face today is to maintain the
delicate balance of increasing material and transportation costs against the expectation of
improved service levels mandated by their key retail customers. This has resulted in
several CPG players today focusing on CPFR (Collaborative Planning Forecasting &
Replenishment) with their key retail customers as a means to improving perfect order
fulfillment, reduced cash-to-cash cycle times and much improved stock availability at the
shelf. To gain full advantage of such collaborative initiatives, building the right and an
effective supply chain intelligence infrastructure is a must.
In addition, with a view to gain information visibility many expensive and technology
intensive initiatives like DDSN, RFID, GDS etc. are being undertaken by these CPG
players. However, in this race many CPG players are still to establish an effective means
to determine the success of these initiatives. Unless this is done, the full potential of such
investments cannot be realized.

Pg 2

Such customer oriented process and technology initiatives are also forcing these CPG
players to realign supply chain performance measurement strategies. Traditionally, CPG
supply chains have been measured on more internal focused operational metrics like
manufacturing capacity utilization, days of inventory, warehouse throughput etc.. While
such metrics have helped CPG players to derive internal efficiencies, whether these
metrics were aligned to their overall strategic objectives or whether these metrics helped
them to win their customers in the marketplace, one is not sure.
The focus of this paper is to present various aspects of defining & building the Metrics
framework and how this can be effectively leveraged to help drive supply chain
performance.

A.

Building the supply chain metrics framework

Through this process, a balanced set of metrics aligned by various supply chain
functional areas like Demand Planning, Customer Management, Warehouse Management
etc. to meet various decision making requirements from a strategic, tactical and
operational standpoint are identified as a first step. These are then tightly coupled to the
underlying process & overall business strategy and the roles responsible for executing
these processes. A more detailed explanation on this process is provided in the following
sections.
1. Establish the right Metrics to measure the supply chain. The first step in building a
metric framework is to understand the key characteristics of a metric. Some of these
are:
Reliability - This refers to the consistency of the metric to measure a given
process. As long as the circumstances governing the process do not change
drastically, the metric should return a fairly consistent value.
A large diversified manufacturer uses Cost of Goods Sold (COGS) as the
basis for calculating Inventory Turns. Since the manufacturer had a
substantial import content for its raw materials, exchange rate fluctuations
led to sharp variations in COGS though overall sales was largely constant.
Such variations in COGS led to similar variations in Inventory Turns though
Sales & Inventory value the 2 key determinants of inventory turns were
constant. Under the circumstances, using COGS as a basis for computing
inventory turns made inventory turns an unreliable metric subject to a large
amount of random variation.

Validity - A valid metric is one that actually measures the concept we think it is
measuring.

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Many CPG Manufacturers today are focusing on making their demand

planning and fulfillment processes more agile and responsive through a
process of greater collaboration among Sales, Supply Chain and
Manufacturing. One metric for measuring how effective this collaboration
process is working could be the number of expedited work orders. While
this metric may suggest inefficient planning in the first place, from a
collaboration point of view it can be indicative of a more healthy process of
revising supply plans to reflect actual demand changes in the markets.

The relevance of metric thus depends on the context. If historically, work orders
had been expedited in the CPG supply chain as a result of frequent machine
breakdowns or delayed raw material shipments from suppliers, then the metric is
not a valid indicator of improved planning process efficiency. However, with a
status quo on machine breakdown and supplier delivery times, expedited work
orders was a valid indicator of an attempt to revise supply schedules to meet
dynamic demand changes.

Practicality - In addition to reliability and validity, good metrics must be practical

such that the required data can be retrieved with reasonable effort and cost.

Salience - They also need to be salient such that the concerned functions/people
will relate to the information provided by the metrics and can take meaningful
action based on such information.
In the above example, if expediting work orders is established as a positive
fall-out of the need to make the supply chain more responsive, the
Production Engineering function needs to proactively implement practices
and tools that allow production line-changeovers at minimal time and cost
as soon as they find an increasing trend of expediting of work orders.
In addition to the above defined characteristics of a good metric, some additional
considerations about metrics highlighted below would help building an effected
metrics framework:
9 metrics are most useful when they are embedded in a model that
represents a business process
9 the process performance insight that the metrics provide determines the
overall criticality of the metric & hence its classification into strategic,
tactical or operational metric
9 Constantly monitor and modify the metrics to suit the current business
context
9 Assign metrics to various roles that have process execution, monitoring
and tracking responsibility. This also helps design information delivery
systems based on data and information flow requirement across the
organization.

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9 Identify interdependencies of metrics and an metrics hierarchy which

defines how a metric is impacted by other lower level metrics and how
this metrics influences other higher level metrics
2. Link metrics to the overall strategic objectives. This again involves multiple steps :
9 Determine the strategic objectives under which you would like to evaluate
your supply chain typically these strategic objectives could represent the
effectiveness of the supply chain to meet customer requirements or it
could also be indicative of the intrinsic strength of the supply chain
processes to achieve desired cost objectives. These strategic objectives are
an outcome of the overall strategic intent of the enterprise.
9 Under each of these strategic objectives, build related supply chain metrics
hierarchy starting with high level metrics suggestive of the overall health
of the supply chain to mid level and lower level metrics that are more
tactical or operational in nature in terms of impact and review.
Some illustrative metrics across different classification has been tabulated below:
Strategic
Objective

Typical Metric

Class

What it signifies

Customer
Satisfaction

Perfect Order

Strategic

Reliability of the supply chain to meet customer

orders in full quantity, in time, meeting specified
and agreed quality standards and with complete
accuracy on documentation

Customer
Satisfaction

Manufacturing
Adherence

Customer
Satisfaction

Machine Downtime

Operational

Loss of manufacturing capacity due to various

reasons like machine breakdown, planned
preventive maintenance or stock-out of input
materials

Customer
Satisfaction

Supplier delivery schedule Operational

adherence

Ability of Vendor to supply as per planned supply

schedule

Operational
Excellence

Cash-to-cash cycle time

Strategic

Operational
Excellence

Total Supply Chain Cost

Strategic

Time taken between cash spent to purchase raw

material to the time taken to realize cash on sales to
customers. This consists of
o
Days of Inventory
o
Accounts Receivable in Days
o
Accounts Payable in Days
Total costs incurred in the supply chain including
Warehousing, logistics, purchasing, planning,
manpower costs etc.

Schedule Tactical

Ability of Manufacturing to supply as per planned

manufacturing schedule and hence meeting desired
inventory levels for a make to stock item or
meeting desired customer delivery schedules for
make to order items

Table 1: Metrics Classification

9 Create the detailed metrics framework. This is a multi-step process

through which an exhaustive set of related metrics is created. This process
involves
9 Associating a set of metrics with each supply chain process.
9 Mapping the metric to the role that is directly accountable and responsible
for the measurement and performance of the metric. Certain roles may
need to be identified for the metric from a performance review standpoint.

Pg 5

9 Identifying the importance of the metric based on the information and

process health insight it conveys (Strategic, Tactical or Operational)
9 Build high level interdependencies of metrics based on common
knowledge and understanding of basic processes
9 Identify the various hierarchies for which data will need to be obtained to
enable a comprehensive view of the metric
9 Determine how the metrics will need to be computed
9 Determine also the frequency at which the metrics will be measured this
will also be governed by the granularity of available data and the costbenefits associated with a certain measurement frequency.
The table below provides an illustrative metrics framework for the Inventory
Management process
Metrics

Performance Class
Attribute
Asset
Strategic
Utilization

Measurement Formula
UOM
Hierarchy
Product
(Average Total No.
inventory
value/Monthly
sales
value)*12

Inventory
Carrying
Cost

Cost

Tactical

Product

Finished
Goods
Inventory

Asset
Utilization

Operational Product,
Geography

Inventory
Turnover
ratio

Inventory Cost
Adjustment
Value

Tactical

Product,
Geography

Freq.

Role

Metrics
Metrics
influenced influenced by
Monthly Supply Planner, Cash-to- Forecast
Supply
Chain cash cycle Accuracy,
Manufacturing
Head
time
Schedule
Adherence,
Sales Returns
Inventory
Value Monthly Financial Analyst, Total
Inventory
value*cost of
Supply
Chain Supply
Value, Cost of
capital
Capital
Head
Chain
Costs
FG inventory Value% Daily
Supply Planner, Days
of Forecast
value and % of
Sales Manager
Inventory Accuracy,
Manufacturing
total inventory
Schedule
value
Adherence,
Physical
Value,% Monthly Supply Planner, Total
Warehouse
Inventory
Warehouse
Supply
Shrinkage
value - System
manager, Supply Chain
inventory
Chain head
Cost
value

Table 2: Metrics Framework

Metrics and Metrics framework are highly interdependent and need to be developed in an
iterative and concurrent manner. Metrics framework is useless if they are populated with
weak metrics metrics which are not reliable, valid, salient or practical. Metrics by
themselves are useless unless embedded in a relevant framework that reflects latest
changes in critical business processes. The challenge therefore is to jointly optimize the
quality of the metrics and the quality of the metrics framework

B.

Leveraging the supply chain metrics framework

In this section, we demonstrate how the metrics framework can be leveraged to enhance
supply chain performance
1. Generate Insights using Cause & Effect Guided Analysis

Pg 6

A Metrics framework will have a collection of relevant metrics that are inter-related to
establish a cause and effect relationship which impacts the overall business process
represented by the framework. The fundamental requirement for building insightful and
effective metrics framework is a comprehensive and in-depth understanding of the
underlying processes. This is illustrated using the example of how retailers, CPG
manufacturers and their suppliers are joining hands to build consumer driven supply
networks.
The figure below attempts to build a simplified supply chain collaboration process model.
Greater Collaboration
across the supply
network

Increase availability of
POS data & Shelf
inventory

Enhance visibility
of Promotion Plans

Improve Store-SKU
Forecast Accuracy

Increase Product
Availability at Shelf

Reduce Inventory
levels

Fig 1 - Supply Network Collaboration Process Model

This model highlights how enhanced collaboration (Cause) between CPG players and the
retailers can lead to improvements in product availability at the shelf (Effect) as well as
improvements in inventory turns (Effect). We can now focus on Product Availability at
the Shelf as an effect and start building a metrics model using metrics that would describe
the various causes influencing Product Availability at the Shelf. As we do this, we would
soon realize that Collaboration across the supply network is one of many such causes.
Ability of the CPG manufacturer to reliably meet supply schedules or the ability of the
retailer backroom to ensure speedy clearance of goods could be causes impacting Product
Availability at the Shelf. A more detailed guided analysis path for Product Availability at
the Shelf has been depicted in Fig 2.

Pg 7

Product
Availability at the
Shelf

Store Inventory
Availability

Forecast
Accuracy

POS & Shelf

Inventory
Availability

Promotion
Plan
Visibility

Backroom
Clearance time

Ordering
Efficiency

Order
Quantity vs.
Demand

Documentati
on Accuracy

Ordering
Frequency

CPG
Manufacturer
OTIF Delivery
Performance

Staff
Productivity

Customer
Transit
Time
variance

Order
Fulfillment
Time

Manufacturi
ng
Schedule
Adherence

Quality
Adherence

Warehouse
Productivity

Collaboratio
n Process
Adoption

Fig 2 A Guided Analysis path for Product Availability at Shelf

This guided analysis helps determine the root causes impacting product availability at the
shelf. As is evident above, Collaboration process between the CPG manufacturer and the
retailer is only one of the many processes impact product availability. This model also
highlights the need to collect many other important metrics like Forecast Accuracy, Order
Fulfillment times, Manufacturing Schedule Adherence etc. In the absence of a good
model, we would only have data regarding Product Availability at Shelf and not of the
related metrics, severely limiting the ability to use the end result data in any constructive
manner.
Each enterprise is expected to have a metrics model that is unique in terms of number and
types of causes, hierarchy of causes and criticality of causes to the end effect. Some of
the key points to be considered while defining the metrics model can be summarized as
follows:
9 No metrics model is likely to identify all relevant variables however,
enterprises need to make a conscious effort to build a metrics model that is
comprehensive while providing an in-depth cause and effect analysis. This
can be best achieved by deploying a cross-functional team that has a
strong understanding of underlying processes. More process-oriented
companies also support such teams with advanced statistical and quality
tools to help them determine highest impact causes. Most importantly,
such a team should have a stake in terms of accountability and
responsibility for the metrics being measured and the resultant actions
emanating from these metrics.

Pg 8

9 Despite use of advanced statistics, some element of judgment and

approximation on behalf of the team developing the metrics model is
unavoidable. Given this imperfection, the attempt therefore should be to
identify the most relevant & highest impact causes keeping in mind that
each additional metric in the model requires investment of time, effort and
money to collect the right data and to ensure its quality over time.
9 Like metrics, models tend to be highly contextual in nature. They are very
much dependent on the team of people developing them their knowledge
of underlying processes and causes, goals for measurement and their
vision of how a supply chain performance measurement system should
integrate with the overall enterprise performance management objectives.
Besides people, another important factor which constrains the ultimate
design of the metrics model is data in terms of availability, accuracy and
cost of obtaining this data. In the above example, getting accurate and
real-time data on product availability is itself likely to pose a major
challenge. This in turn, would decide how the metrics model would
ultimately shape up.
9 Metric models cannot be static. Depending on the nature of business
changes, changes in process maturity as well as changes in the vision of
the enterprise, metrics models will need to be refined to align with the
latest enterprise objectives and needs. As the IT landscape of the
enterprise changes, some metrics which might have been consciously
ignored because of data availability reasons may now need to be
accommodated in the model to make the model more robust and relevant.
2. Data Analysis across various dimensions
While a metrics model provides the various metrics or attributes for analysis, another
dimension of analysis is the hierarchy of data. Typically, data hierarchy allows one to
move up or down on a particular attribute.
Product Hierarchy
Geography Hierarchy
FORECAST
ACCURACY

Role Hierarchy

Time Hierarchy

Division

Categor
y

Brand

SKU

Country

Region

State

City

Head of
Sales

Regional
Manager

Area
Manager

Territory
Executive

Yearly

Quarterl
y

Monthly

Weekly

Fig 3 An illustrative data hierarchy

In the previous example, while forecast accuracy is a metric for measuring the demand
planning process and Promotion Plan visibility one of the causes impacting forecast
accuracy, the analysis would be more meaningful if we could also conclude on the
performance level of forecast accuracy across products, across geographies and across

Pg 9

roles participating in the demand planning process. Knowing this would help arrive at the
exact location of the root cause.
Using such data hierarchy, one would also find that a particular metric can have multiple
causes related to a specific data hierarchy. For example, forecast accuracy at a Country
level may be the key cause for poor performance of promotions. However, going down
the geography dimension to a particular region, one may find that at a regional level, it is
not forecast accuracy that is the key cause but it is supplier compliance to schedule that
has led to delayed supplies and hence poor promotion performance. This helps us to
focus on regional supplier compliance issues while addressing forecast accuracy at a
national level.
3. Quantify financial impact of supply chain metrics using Scorecards. This is the
process be which typical supply chain metrics are linked to financial KPIs. For
example, Cash-to-cash cycle time metrics model can be linked to Return on Assets.
Similarly, Total Supply Chain Cost metrics model can be linked to Net Margin
through Cost of Goods Sold. Establishing the link with financial measures helps
quantify the performance of Supply Chain as well understand its full impact on the
enterprises top line and bottom-line. This is an important step. When supply chain
metrics like Perfect Order or Cash-to-cash cycle time are linked to financial measures
like Profitability or Return on Assets or Investments, they provide a completely new
focus and rigor to how these processes are managed. A sample Supply Chain
scorecard is produced below :
Typical Metric

Performance
Attribute

Benchmark

Strategic
Objective

Baseline

Entitlement

Target

Actual

Benefits
from
Improvement

Perfect Order Reliability

Customer
Satisfaction

75%

90%

80%

60%

$50M savings in
Lost
Sales
revenue

Order
Fulfillment
Time

Responsiveness

Customer
Satisfaction

3 days

2 days

2 days

3 days

$10M additional
revenue
from
surge orders

Forecast
Accuracy

Process
Improvement

Operational
Excellence

85%

95%

90%

75%

Cash-to-cash Asset Utilization

cycle time

Operational
Excellence

90 days

75 days

85 days 105
days

Total Supply Cost

Chain Cost as
a % of COGS

Operational
Excellence

15%

10%

10%

18%

VMI as % of Process
total

Collaboration
Efficiency

50%

65%

50%

15%

Key enabler to
Customer
Satisfaction and
Operational
Excellence
$70M reduction
in
working
capital;
$10M
savings
in
interest cost
$45M reduction
in Direct Cost;
$20M reduction
in Indirect Cost
$15M reduction
in
working
capital

Table 3: Supply Chain Scorecard

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Using such scorecards help enterprises determine priorities for investments to improve
processes and related technology. Such a scorecard also helps establish a standardized
single version of truth on supply chain performance that is quantified and can be easily
understood by all entities of the organization.
4. Review the Supply Chain Scorecard in the Sales & Operations Planning process.
While metrics reflect the overall health of the supply chain and its various functions,
they need to be supported with a process mechanism which enables a joint review and
formalization of corrective plans from a cross-functional perspective. With the
emergence of consumer driven supply networks, such a mechanism may also involve
multiple players like retailers, CPG manufacturers, third-party logistics service
providers and vendors in the review process. Some key best practices for
implementing effective S&OP processes include :
9 Establish a prescheduled meeting with a well-defined agenda involving
Retailer, CPG Manufacturer & any other critical players in the supply network
along with their cross-functional teams
9 Articulate and quantify the performance for the supply network as a whole
which in turn leads to performance measures for individual players of the
supply network and also helps speedy determination of causes of failures
9 Need to have representation by key decision makers including Executive
involvement that can take deterministic action and unite multi-functional
objectives
9 Adequate groundwork on performance review and failure analysis needs to
be undertaken at a functional level to the supply network performance review
in the S&OP meeting so that the S&OP meeting is more of a confirmation
only with no surprises
9 Benchmark supply network performance with the best in the industry and
across industries use these benchmarks to continually raise the bar on
performance
On the other hand, one of the key challenges to enable an effective S&OP is to have an
efficient IT capability to aggregate and structure enormous amounts of supply chain
information & data originating from disparate IT systems such that it enables an overall
view of the supply network.

Delivering the Metrics framework

This is the domain of Supply Chain analytics. Supply Chain analytics is the process of
extracting, transforming and presenting supply chain information on a common
information platform in various presentation formats like dashboards, reports, email alerts
to fulfilling the diverse information needs of operational managers, senior executives as
well as remote users or business partners.
At the core of the solution is a Data Warehouse being fed supply chain information from
various operational transactional systems like ERP, CRM and other data sources
supporting the various supply chain process. The solution maybe powered by

Pg 11

sophisticated analytical tools for smart reporting, generation of exception alerts or for
predictive modeling and scenario planning.
The front end of the Supply Chain Analytics solution needs to be speedy, easily
accessible and user friendly. One of the best ways to present & deploy supply chain
metrics to the various levels of the enterprise is to use Dashboards that are bolted on the
data warehouse. They provide the flexibility to customize presentation of data for various
supply chain metrics in a variety of formats like graphs, dial indicators etc. all in a single
screen. Each screen, metrics displayed on the screen and drill feature can be customized
to meet the varying requirements of the users.
An operational visualization of the Supply Chain Analytics solution is that of executives
and managers at different levels of the supply chain function making day-to-day
operational, tactical and strategic decisions through supply chain metrics embedded into
scorecards and presented in the dashboards. For example, the customer service manager
company can open his/her Dashboard first thing in the morning and immediately have a
quick understanding of customer-wise sales and service levels achieved across different
warehouse for the previous day. He can use this snapshot to build certain supply priorities
for his customer and their orders. In most cases, he would also be supported with Alerts
guiding him to establish priorities for the day. He can also undertake an investigation
across various product & location dimensions to pinpoint the warehouse and the product
where there has been a supply disruption.
On the other hand, the Head of Supply Chain can see the 5 most crucial supply chain
KPIs defined by him using some standard daily or weekly reports. If he decides to
investigate any of the metrics further, he can drilldown into the metric as well as slice and
dice it by different dimensions of the data. For senior executives, the best practice is to
provide a guided analysis path using metrics framework, thereby restricting the number
of metrics, the number of drill paths and the number of dimensions by which he can slice
and dice the metric. The metrics, primarily strategic and tactical, are tailored for him and
secured so no lower level associates would be able to view them.

Closing Comments
Enterprise Performance Management (EPM) describes a process-centered approach to
business decision-making. It is meant to improve a businesss ability to gain insight and
manage its performance at all levels using a metrics framework combining stakeholders,
managers, and employees within an integrated management environment. EPM should be
a business critical process driven by metrics, supported by business intelligence and
executed by people. Given the increasingly competitive and constantly changing
economy, tapping into this critical asset is the key to sustaining competitive advantage.

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Bibliography:
1. Metrics and Models for the Evaluation of Supply Chain Integration by Jonathan
A. Morell, Ph.D.
2. Supply Chain Clarity Issue 5 Feb 2005 the newsletter of Supply Chain
Analytics Ltd
3. The Intelligent Supply Chain : Taking Enterprise to the Next Level by John
Hughes
4. Enterprise Performance Management : Article by Data Management Group
About the Authors:
Tejas Faldu (tejas_faldu@infosys.com) is a Senior Consultant with Retail and CPG practice of
Infosys. He has over 10 years of domain experience in various areas of supply chain
management in the CPG industry. He is currently involved in developing business led IT solutions
for the Retail & CPG industry.
Srikanth Krishna (srikanth_krishna@infosys.com) is a Senior Project Manager with Retail and
CPG practice of Infosys with 9 years of experience in this Industry. He has worked with large
global organizations to develop and implement solutions for Enterprise-wide initiatives on
Business Intelligence, Data warehouse & Intranet Portals with Dashboards

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