The Editor's Page -- The Path To Profit: Measure It!

One of the more tantalizing conclusions of the IndustryWeek 2002 Value-Chain Survey research reported in this issue is that many of today's value chains could be dramatically improved if managers only knew and tracked a few more metrics. Among them, the cost of order processing, including order entry and maintenance, order fulfillment, invoicing and accounting; and the cost of logistics, including transportation, warehousing and inventory carrying costs. While this may seem obvious to operations executives accustomed to measuring the cost, cycle time and quality of every step in the production cycle, the survey found that other links in the value chain have a lot of work to do. More than half the respondents to the customer order management part of the survey don't know what their order management costs are, even though more than 80% said tracking order management costs has a significant (40%) or moderate (42%) positive impact on business. Meanwhile, two of five respondents to the logistics and distribution segment have no idea what their total logistics costs are. Survey research and other IW reporting show that knowing such metrics is critical not only to wring excess cost from the processes, but to enable customer-focused, value-added, profit-making decisions in value-chain links that have been traditionally viewed as cost centers. Consider the example of IndustryWeek's European Best Plant Siemens AG, Medical Solutions Computed Tomography (Medical Marvel). The company tracks first pass yield, cycle time, and on-time delivery for each of the following metrics: order management, scheduling, materials logistics, assembly, testing, shipping and installation. As Editorial Research Director David Drickhamer reports: "Knowing the costs of each of these sub-processes . . . Siemens CT managers can optimize the total process to best serve the customer. . . . [while] delivering higher economic value added" for the company. He cites the company's decision to deliver by airfreight all the X-ray systems shipped to customers outside Europe. It's more costly, but "it accelerates the total cycle time, decreases the amount of capital tied up in inventory, and speeds cash flow." Such a decision could not be intelligently made without detailed knowledge of how each metric affects cost, cycle time and quality of the finished, delivered product. While the identification of a single value-chain benchmark remains elusive, the results of the IW Value-Chain Survey provide plenty of links in the chain that when measured and tracked provide powerful information to enable you to make customer-focused, profit-generating decisions. What are you waiting for? Patricia Panchak is IW's editor-in-chief. She is based in Cleveland