Firefighting drills, predicting the past, and managing your supply chain
February 18, 2019
February 18, 2019
Since the term “supply chain” was coined almost 40 years ago, the goal has arguably stayed the same: to optimize the flow of goods, information, and people. Supply chain professionals have been focused on reducing costs; doing more with less.
How oil and gas companies optimize and run their supply chains have been and will still be a function of the current technological advances, best operational practices, and the latest management thinking.
Historically the supply chain has been managed through the lens of Key Performance Indicators (KPI). Those KPIs allow supply chain managers to evaluate the health of critical functions such as planning and forecasting, sourcing and procurement, and logistics and distribution, for example. While KPIs are necessary to assess performance, there are several challenges with their use – they are backward looking:
KPIs are used to monitor the past and are not predictors of future performance.
KPIs are good at measuring functions within supply chain but are challenged when it comes to managing the end-to-end integrated supply chain proactively.
KPIs are mostly focused on the traditional cost components and not tailored to leverage the supply chain as a catalyst for profitable growth.
Today’s business and geopolitical environments are affecting the oil and gas supply chains in unusual ways—the pace of activities is faster than ever, the interdependencies of the companies are not only difficult to trace but also behave in a non-linear fashion (i.e., inputs don’t always translate to direct and immediately correlated outputs).
Still, many managers keep planning and executing their supply chains in a reactive, linear fashion; thus, the never-ending “firefighting drill” that many teams report. Here are some examples where KPPs can help you:
The aim is to have metrics that cascade from the essential matters the CEO is responsible for at the company level, down to the business unit and departments, to the teams within them and the people responsible for each role.
There is no single way to figure out what data should be captured to provide a prediction for a given outcome, but the following steps offer a proven approach once you know the question you are looking to answer.
KPIs are not going anywhere. At the same time, the current complexities, nonlinearities, and interdependencies of today’s oil and gas companies are just bound to increase. This increasing complexity will require managers to incorporate the use of KPPs to anticipate and monitor integrated end-to-end supply chain outcomes and leverage the supply chain as a catalyst for profitable growth.
Oil and gas companies that adopt this approach will be able to reap the benefits of improved performance, proactive planning, and anticipation of challenges. Companies that don’t are destined to live in the never-ending “firefighting drill.”