How to Measure Supply Chain Integration
Brian Hoey - July 16, 2020
When you think about supply chain integration, you probably think about all of the benefits it's supposed to drive in terms of visibility, transparency, and cohesion up and down the supply stream. What you might not think about, however, is how to figure out what level of integration your supply chain already has. And yet, without setting a benchmark for the current level of visibility and interoperability within your supply chain, how do you know where to focus your integration efforts? How do you know where the gaps are in your IT ecosystem? How do you evaluate your integration growth over time?
Simply put, you can’t effectively drive supply chain integration improvements without first understanding the existing level of integration within your own supply chain. To do this, you’ll need to get a handle on your supply chain technology and evaluate each touchpoint in turn to find gaps and areas for improvement. The paradox here is that the even the evaluation process will require a modicum of visibility—meaning the worse your integration picture is the harder it will be to measure—but this kind of IT inventory-taking is becoming an increasing crucial process for supply chain players who want to remain competitive.
Why (and How) You Should Integrate
Here, it’s crucial to note that supply chain integration means different things to different people. Most people immediately think of IT integration with suppliers or vendors, but organizations also need to shine a light on internal integration and even customer integration. The former is in many ways a necessary prerequisite to robust integration in other areas, while the latter represents a chance to drive towards the more responsive and adaptive value streams of the Industry 4.0 revolution. In these ways, you can position yourself to gather data more quickly and effectively, analyze that data using advanced analytics workflows, and then operationalize the results of those analytics up and down your value stream. The result is improved efficiency and increased responsiveness to disruptions.
Like we said, internal integration is generally your best bet for establishing a baseline level of IT cohesion. To make this happen, start by taking an inventory of what tools and processes are already in use across your operation:
- Which teams are utilizing which technologies, and with what strategic or tactical purpose in mind?
- How do these various solutions connect with one another (if at all)? If an inventory planner changes her forecast for the coming month, is that information automatically imported into the transport management system on the logistics side?
- Are any departments using Shadow IT that’s not approved by IT or management? If so, what needs are they trying to address with that deployment?
- How easy or difficult is it to track the fulfillment of a single order from end to end?
An additional benefit of undertaking this process first is that it gives you insights into integration challenges that you may face when it comes time to get your suppliers on board, such that you’ll be prepared to tackle them as needed.
Supply Chain Integration KPIs
Once you have the answers to the implementation questions we raised above, you can begin to track your integration levels internally. Again, this is an area where you’ll want to start by setting benchmarks with an initial inventory, and then track progress over time using the same KPIs. Of course, the benchmark itself should give you at least a gut feeling of how close or far from your ideal level of integration things stand at the moment. By the same token, you can use an internal benchmark to get a handle on how well you’re doing in other areas, like supplier or customer integration.
Here are a few KPIs you might start with:
- Forecast accuracy: Pick a department or a business area and measure by what percentage recent forecasts have been off. The better integrated your supply chain is, the better your forecasts should be—since you’d ostensibly have a trove of usable data to analyze.
- Total gigabytes of data: Again, an integrated system should make large caches of data available to multiple different connected solutions at a moment’s notice. Not all data is created equal, and the mere fact of having a giant trove of badly sanitized data doesn’t do very much for you, but the amount available in your centralized system could suggest something about your ability to gather information across touchpoints in the first place.
- Expected OEE vs. actual: Your overall operational efficiency will, in itself, take some sketching out—but if you go department by department from procurement and demand planning to production and logistics, you can get an idea of what your efficiency levels should be. In an environment where each touchpoint is integrated with the next and different functions have visibility into one another, you’ll be able to maintain this level of efficiency even as order fulfillment is handed off from one department to the next. If you aren’t reaching those efficiency levels, it suggests that disruptions and disconnect are cropping up between these touchpoints, meaning they’re not as well integrated as you believed.
Based on these KPIs, you can begin to pinpoint any gaps in your integration efforts and address them with a clear set of operational outcomes in mind.
Integration and Digital Maturity
Again, once you’ve established these KPIs for your internal supply chain integration, you can apply the same techniques to getting a handle on your supplier/vendor integration, etc. And, by tying your KPIs to things like forecasting and efficiency that drive business outcomes, you can successfully create alignment between integration efforts and larger strategic objectives. Naturally, this is going to be a work in progress—as you continue trying to create connectivity up and down the value chain, you’ll want to periodically re-measure the KPIs above and whatever others may seem applicable.
At the end of the day, successful supply chain integration can be a big part of Industry 4.0 adoption—meaning that you can ultimately leverage that increased connectivity and transparency into smarter, more adaptive workflows throughout the value chain. Because of the potential for this kind of IT evolution, it can be helpful to also measure your digital maturity levels while you’re taking stock of your integration. Your digital maturity is a key factor in your ability to get smarter and more data-driven over time, and you can learn how to measure it here.