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Are functional KPIs preventing your Supply Chain to become more flexible?
I have seen several Supply Chain teams struggle to improve flexibility in their backend operations. They have understood the benefits of flexibility and they have the requisite talent with the right attitude, but the organisation finds it difficult to move the needle. Why is it so?
Deeper discussions reveal that the problem lies in execution. Let me illustrate with two specific examples.
If the demand for a product has slowed down and the Planning team wants to cut the production plan, there is resistance from the plant. They insist on producing as per the original MPS. The root cause lies in their functional KPI, which often reads as ‘Adherence to monthly MPS’. If they cut the production, they would score less on this KPI.
Similar dynamics exist with the Procurement team. If the Planning team wants to postpone delivery of certain items, it is rarely executed by the Procurement team. The root cause in this case as well lies in their functional KPI ‘Vendor OTIF as per the original PO’.
If we want to make the Supply Chain more flexible and responsive to demand changes, we must abolish such functional KPIs. All the functions should instead focus on the overall objective of better product availability and product freshness.