Talk to any department in your organization about their internal metrics. Within a few minutes, you’ll easily be able to gauge whether or not it’s time for said department to revisit what they are measuring and why.
In departments with new members or constantly changing leadership, the rationale for measuring something is all too often“we’ve always measured this”. This response is enough to make an outside observer cringe, but inertia reigns supreme in many departments, and sometimes we cannot see the wood for the trees. Even more troubling, a metric that no one can explain may be utilized to make crucial business decisions. Doing a regular sanity check of what you are measuring is a great exercise to ensure that the department is in alignment with the organization’s goals.
What Business Outcome is the Metric Meant to Answer?
As obvious as this may be to some, everyone using a metric should know precisely what that metric is meant to answer, as well as what it is not meant to answer. Over time, as we are all moving from troubleshooting one issue to the next, it is easy for that metric to morph in people’s minds, to be reinterpreted as something that it isn’t. This is a great check to do both inside and outside the department. What does this measurement tell us about the health of the business? What does the measurement tell us about our effectiveness in meeting a particular business goal? If alignment on the definition isn’t there – or, worse, if no one any longer has a clue what the measurement is for – it’s time to determine if reeducation on, or elimination of, the metric is most appropriate.
If a metric doesn’t lead to increased utility for an internal or external customer, there’s a chance it isn’t worth measuring.
Would the Customer Pay For a “Good” Metric Score?
Occasionally, a metric is developed that may seem to be a great measurement of the department’s operations, but isn’t in line with the needs and expectations of our internal and/or external customers. Considering whether or not the health of this metric would be important to your customers is a great litmus test. Customers are generally willing to pay for product or service elements that add value. If a metric doesn’t lead to increased utility for an internal or external customer, there’s a chance it isn’t worth measuring.
Is the Metric Actionable?
A metric for which the department can’t put corrective actions in place to action is worthless. If, for example, a metric is identified as out of tolerance, but no actions can be taken to improve the performance, it’s probably worth examining the processes that prohibit improvement in this area.
A metric should be able to be controlled by whomever is doing the measuring
Does the outcome of the metric directly affect a business outcome, pass the test of customer value, but no actions can be taken to get better in this area? In this case, a reevaluation of process, interactions with other departments, or the involvement of upper management may be required. A metric should be able to be (at least for the most part) controlled by whomever is doing the measuring.
What Does This Mean For Demand Planning?
While an honest review of the metrics catalog is good for any department, it is particularly fitting for a Demand Planning organization – the department that is, by design and by nature, acknowledged as never perfect and yet constantly maligned for that fact. We’ve generally got more measurements for ourselves than most other departments, and it is important to always keep in mind why we are measuring what we are measuring. The minute we lose sight of the end goal of all this measuring we’ve lost. The end goal is, of course, to create a forecast that is as accurate as it possibly can be to allow the downstream supply chain to deliver customers the right product at the right time.
We’ve all heard Peter Drucker’s old business wisdom, “what gets measured, gets managed.” It’s all too true. This is why it’s so critical to measure the right things. In an ever-shifting business climate, it’s important to recognize that the measurements that drove the business in the past may not be appropriate for the future.
[Ed: Read more about two forecasting metrics that definitely do add value to any forecasting process, MAPE and FVA.]
Erin will be discussing forecasting metrics like volatility analysis and Forecast Value Add (FVA) at IBF’s BUSINESS PLANNING, FORECASTING & S&OP: BEST PRACTICES CONFERENCE in Orlando from October 16-19 2018. To see her and other world-leading experts, REGISTER HERE.