Lora Cecere: “All the metrics must be in balance”
“Some companies are under the impression that they can first ‘milk’ one performance indicator before moving on to the next one. But in fact, all the metrics must be in balance,” says Lora Cecere from Supply Chain Insights. The analyst was joined by Bram Desmet, managing director of Solventure, to present her latest book, Supply Chain Metrics that Matter, in Brussels on 18 March 2015.
Cecere wanted to write a book to help supply chain teams within companies communicate with their finance colleagues in a completely different manner. “Nine out of ten companies get stuck because they’re unable to manage the holistic system. They are often measuring individual metrics versus the whole,” states Cecere.
“Supply Chain and Finance still don’t understand each other sufficiently. Supply chain professionals needs to understand financial balance sheets, and finance people should learn to speak the language of supply chain. They lack understanding of their inventory,” says Cecere. Her research has revealed that companies who succeed in closing the gap between Sales and Operations have 11 percent faster stock turns.
Desmet from Solventure is impressed by Cecere’s latest findings, which he describes as ‘groundbreaking’, saying: “I can think of few other authors who have pushed back the boundaries in supply chain thinking at a global level in the past five years.” That was a good enough reason for him to invite a number of supply chain professionals to join him and Cecere in an interactive session to discuss topics from her book.
The aim is to achieve a better trade-off between profitability and working capital. Desmet mentioned a company whose inventory turns, despite being ‘best in class’, are out of balance with profitability. This is a good example of focusing on a single KPI rather than all of them. Lora Cecere makes substantial use of orbit charts to illustrate this. “They are an elegant method of visualising the situation for the CFO,” says Desmet.
The third element that Cecere has added is resilience. “How quickly do companies bounce back after a crisis? That was a problem for Alcatel Lucent, for example,” says Desmet to illustrate his point. That French-American company drastically reduced its inventory following the financial crisis, but when demand returned to its original level more quickly than expected the company’s suppliers were unable to keep up. The result was a lack of stock, because the Chinese suppliers gave priority to Alcatel Lucent’s Chinese competitor.
Hence, Alcatel Lucent was forced to turn away orders and struggled to generate turnover. After the first quarter of 2010, the Dutch CEO announced a loss of 515 million euros, which was 100 million euros more than in the first quarter of 2009 at the height of the crisis. “Resilience also requires alignment,” concludes Desmet.
Supply Chain Metrics that Matter
In the book Supply Chain Metrics that Matter, Cecere presents the findings from her research into corporate performance. She tells the story of ‘Joe’, a fictional character based on one of her clients, who embarks on a journey towards metrics maturity. Cecere names Cisco and Intel as examples of companies who have completed that journey successfully. The key message that Cecere is keen to get across is that the supply chain is a complex system that has to be managed holistically, end-to-end. The story in the book describes the process that firms should go through.