Friday, February 8, 2008

Supply Chain / Value Chain Metrics - Getting Started (3) Government and Non-Profit Organizations

I have been fortunate to have worked with organizations in a wide variety of industries. As I was preparing the next entry in this Getting Started series, it occurred to me that I was writing it using language that would be most suited for those in, and working with, private for-profit companies.

One of the challenges that intrigues me in writing these blog entries is trying to describe my understanding of concepts and practices that I have used or seen used successfully in a style that effectively communicates to senior business executives, financial managers, functional or department managers, IT professionals, process modelers, small businesses, academicians, and anyone else who elects to read them.

During the course of these entries I hope I remember or am reminded to talk about how measuring business performance in process industries is similar to measuring performance in discrete industries. (That doesn't mean that there are not measurements and practices that are more suited to one industry than the other. It does mean that on time in full delivery, an example I used in my previous entry, can be used for either industry with equal success.)

More challenging might be trying to convey the similiarities between non-profit organizations and for-profit organizations. A government agency can provide a good or service to its "customers" just like a for-profit company. While it may not seem to make any sense to talk about revenue or profit margin as drivers for government or a not-for profit organization, there are more similarities then not. In the late 1990s, the US government commissioned a study that to determine whether or not commercial metrics could be applied to government performance. Ultimately, the government determined that metrics used by private industry translated very well for government use.

There are some adjustments that a government organization or not-for-profit organization will have to make. In some cases, revenue or sales measures don't seem to make sense. This top line of a profit and loss statement is fairly essential when doing some calculations. Substituting a budget allotment for sales fills the shortfall. (For-profit organizations may use the same technique for cost centers.) Similarly, the concept of profit may seem critical for private industry but irrelevant for government. There are any number of illustrations in which private industry sets profit goals to zero or negative (loss leaders or key value items) while government organizations employ revenue and profit goals.

As I describe how to get started using metrics, I recognize that I am not providing exhaustive descriptions that will necessarily align with every sector, industry, company or organization. I ask readers to view these entries in the broadest sense and if you have an unresolved question about applying to your situation feel free to make comments.

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