Supply chain measurement is essential for an effective c-commerce strategy. While the rewards are large, packaged application vendors are still scrambling to build solutions, and metrics are emerging. SCM performance management is a key component to collaborative commerce (c-commerce), enabling an enterprise to see into existing operations and thus be more flexible and responsive to changing business conditions. Through collaborative Internet-enabled technologies and performance management, enterprises can improve agility, monitor effectiveness and drive competitiveness within the extended supply chain. Many vendors claim to offer applications that support enterprise or collaborative supply chain performance management, but there is no clear leader in the market, leaving users to choose between four classes of immature solutions. The Necessity and the Opportunity: While implementations of SCM analytics can be difficult (determining the right metrics and gathering and cleaning data), the need for a supply chain performance management system is growing. Outsourced operations and strategic sourcing projects are accelerating the need for enterprise performance management and continuous improvement. Through 2004, enterprises that implement interenterprise metrics to measure the value of c-commerce initiatives will increase their ROI over a five-year period (0.7 probability). As supply chains change from linear to nonlinear customer delivery models for both products and services, performance management is key to guaranteeing that each enterprise cannot only measure its own performance; but also, monitor and evaluate outsourced dependent operations. In the face of this opportunity, many enterprises are rushing into extended supply chain collaborative performance metrics without rationalizing the processes of collaborative performance measurement. To be successful, enterprises must rethink existing processes to design effective outward-facing processes and determine extended supply chain metrics to enable differentiation. While future B2B relationships will use common metrics to manage risk, determine entry, identify preferred trading partners, and monitor and correct behavior, users today must design and develop their own metrics, performance management solutions and processes. Because of the complexity of this undertaking, progress on a common standard is not expected until 2003, with fewer than five vendors expected to deliver solutions that measure multidimensional supply chain effectiveness for multiparty processes (see Figure 1). Successful Collaborative Performance Measurement The Metrics: Although enterprise metrics have been defined through industry consortia with available historical benchmarking (see Note 1), the right measurements for multiparty, outward-facing processes are still emerging. These are being developed by supply chain innovators and e-marketplace providers — an interenterprise model is not expected before the second half of 2002. Users interested in developing performance measurement systems for collaborative, extended supply chain performance measurement projects should use the following guidelines: 1. Enterprise performance management should precede collaborative supply chain measurement. Successful efforts in measuring extended supply chain performance start with enterprise performance measurement to develop an understanding of performance measurement and to build the data sources. Since the data for supply chain performance measurement is often not readily available, these processes can take 12 to 18 months. It is critical to understand internal performance before engaging a trading partner in measurement activities. In planning for a supply chain analytics project, extra time should be allowed to identify, harvest and cleanse data to ensure that KPIs have a meaningful tie to business objectives. Industry consortia and benchmarking sources are useful in determining industry specific KPIs and benchmarks. 2. Focus on KPI Definition — The Devil Is in the Detail: Common enterprise KPIs include supplier performance, supply chain response time, forecast accuracy, inventory balances, manufacturing cycle time and delivery performance. However, users find that even the three-level SCOR Model (see Note 2) must be used with caution to ensure a consistent definition. The SCOR Model is a general standard enabling enterprises to define KPIs differently (e.g., how on-time delivery is defined — is it the date the goods were shipped, the date of arrival or the time dropped in the customer's trailer yard?). To be successful and to benchmark accurately against the competition, trading partner communities must rationalize and define metrics rather than allow participants to define their own "version of truth." 3. Start and End With the Business Agreement: Successful performance management of extended trading relationships starts with the business agreement. While many metrics are "nice to have," evaluation of collaboration pilots supports the assertion that sustainable performance measurement systems are closely tied to the agreement. 4. Plan for Complexity: Complexities include the inconsistency of measurement definition, semantic reconciliation, information accuracy and data latency. By definition, supply chain data is complex with large data sets to cleanse and normalize. 5. Where Possible, Take Advantage of ABC Analysis: Supply chain performance measurement is converging with activity-based costing and activity-based budgeting (see Note 3). Rather than measuring past performance, these projects aim to create value-based investment by answering the following questions: What is the true cost of customer service by customer across the extended supply chain? What are the true costs of outsourcing goods and services? How well is the extended supply chain performing and where does performance need to be improved? Current State of SCM BI Applications Most ERP and SCM vendors are investing in marketing and building new BI applications. However, even well-known software vendors' solutions — such as i2 Technologies or SAP — are immature with few (or no) live customers (see Note 4). Users must evaluate four classes of solution: Additional modules offered by SCM suite vendors: SCM and SCE vendors that have included supply chain analytic solutions as part of their offering. Emerging SCM performance management specialists: Best-of-breed vendors that have packaged supply chain performance management and industry specific KPIs for heterogeneous application environments. Solutions offered as an additional module by ERP expansionists: As an extension of ERP, ERP vendors in the late 1990s marketed application suites that included operational, executional and analytical capabilities. As these processes became more collaborative, ERP II developed as a set of business practices optimizing enterprise and interenterprise processes for collaboration, operational and financial processes. (retail), New modules being developed by BI suites and platforms: Enterprise BI suites offer multiple styles of BI functionality, including ad hoc query, reporting, charting, multidimensional viewing and light analysis (such as trending). Enterprise BI suites focus on scalability, usability and manageability. BI Platforms are a more complete BI offering, with a complete set of tools for the creation, deployment, support and maintenance of BI applications. These are data-rich applications, with custom end-user interfaces, organized around specific business problems, with targeted analyses and models. Selection should be made by a cross-functional team of IT and business professionals focusing on the trade-offs of these four classes of solution, as illustrated in Figure 2. Bottom Line: While enterprises should embrace supply chain performance initiatives, the initial focus must be on enterprise performance management. Due to the complexity of collaborative performance measurement, users must be conservative in project expectations and resist market hype, as vendors are offering BI tools, but are struggling with product delivery. Gartner's Decision Framework Research Note DF-12-7521, 23 May 2001. Inside This Issue... Supply Chain Excellence through Inventory Visibility Measuring Collaborative Supply Chain Effectiveness Collaboration Lessens Semiconductor Supply Chain Swings The E-Business Philosophy: Supply Chain Management Will Sustain Profitability Tell Us What You Think! Entire contents © 2001 by Gartner, Inc. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. 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