Supply chain management (SCM) systems is an expensive investment. The technology has an impact across the business, and the technology is usually a long-term cost, with a lifespan of 10 years or more.

Yet not all companies measure the results of their supply chain management implementation, or even know which targets they should set to gauge if improvements have been achieved.

This might be because SCM technology is imposed on them, for example, by a key customer, because a particular project or sourcing deal requires more sophisticated technology, or simply because there is a general feeling that supply chain management is a “good thing” and will naturally repay its investment.

There is, however, no shortage of tools available to measure the effectiveness of supply chain management systems. The supply chain discipline itself is rather fond of metrics: inventory turns, fill rate, defects per million opportunities (DPMO). But these measurements will not, in themselves, tell a CIO or CFO whether an investment in supply chain management software is justified.

The software industry offers tools such as business analytics and business intelligence applications, as well as measurement and reporting tools that are part of SCM itself. There are also plenty of reporting tools and executive dashboards that claim to give the time-poor business leader a snapshot view of what is happening in the supply chain.

Oracle and SAP have both championed the integration of real-time or near real-time data analysis into their respective business suites. Oracle’s recent $3.3bn acquisition of Hyperion, along with rival SAP’s continued investment in business intelligence tools, will only improve the ability of managers to see how effectively their supply chains are performing on a day-to-day basis.

But these tools alone will not tell company boards whether an SCM system is paying its way. To do so requires an understanding of the company’s business targets and ensuring that the supply chain investments are aligned with these targets.

“We can get closer to supply chain visibility, but it is less because of leading edge technology than because of the data and the business processes that go with it,” explains John Hannah, logistics practice head at IT consultants Morse. “The process must come before the technology. Reporting key performance indicators (KPIs) and metrics tend to follow the solution but rarely lead it.”

Some measures, such as SCOR (the Supply Chain Operations Reference model), are widely accepted as cross-industry diagnostic tools for measuring a supply chain’s performance.

Incorporating such measures into a supply chain project is the key to understanding the potential for improvements, as well as ensuring that all partners in the supply chain are using the same targets and terminology.

As supply chains lengthen, such issues become both more important and more difficult to tackle. A manufacturer might talk in units of production, a third-party logistics operator in tonnage and a retailer in SKUs (stock keeping unit). It is only possible to measure the effectiveness of a supply chain if all the parties involved talk in the same language – and numbers.

As a result, businesses that have already invested in the essentials of supply chain management technology are now devoting more energy to the quality of the data they hold and gather, and ensuring that data sets are accurate and compatible between supply chain partners. According to Morse’s Mr Hannah, master data management should now be a key part of any supply chain improvement project.

More accurate data also helps businesses to move from a historic view of supply chain management to a greater emphasis on forecasting and predictive analysis.

It is sometimes said that for managers, most supply chain systems are rather like looking at the business through a rear-view mirror. The latest systems claim to offer a view of the road ahead instead, and these are attracting more investment.

“We are seeing a shift from historic measurements to more emphasis on forecasting,” says Kevin Holmes, operational unit leader for the supply chain at IT consultants Avanade. “Companies are looking at anything from environmental factors to fashion shows to see how that impacts their demand.”

Such diversity of data, however, makes it all the more difficult to make direct comparisons between supply chain projects in different companies. Equally, it is not the case that a solution that applies to one business will work as well in another.

The number of partners in the supply chain, the amount of information that can be gathered at each step, and how easy it is to act on that information will all impact the profitability of a supply chain management project.

The types of products and their volumes also make it hard to compare results between companies: to take one example, the return on investment on just-in-time delivery will be very different for a car manufacturer and a fashion retailer.

But that does not mean that executives should not question the logic behind supply chain improvement projects. Whereas projects used to be driven mainly by the need to cut costs, today’s projects are more likely to also address the need for growth. Reducing inventory levels can be counterproductive in a high-growth environment if the result is stock outs and disappointed customers.

“If, as a CFO, you are given a proposal for a supply chain management system based simply on cost reduction, as a CFO you should question what you are going to do with the money saved, and how you will reinvest it in growing the business,” says Gary Hanifan, of Accenture’s UK supply chain management practice.