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Production Planning & Control: The Management of

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Performance measurement of supply chain

management using the analytical hierarchy process
a b
R. Bhagwat & M. K. Sharma
a
Department of Mechanical Engineering, MBM Engineering College , Faculty of Engineering
and Architecture, JNV University , Jodhpur-342011, Rajasthan, India
b
Department of Production and Industrial Engineering , MBM Engineering College, Faculty
of Engineering and Architecture, JNV University , Jodhpur-342011, Rajasthan, India
Published online: 15 Nov 2007.

To cite this article: R. Bhagwat & M. K. Sharma (2007) Performance measurement of supply chain management using
the analytical hierarchy process, Production Planning & Control: The Management of Operations, 18:8, 666-680, DOI:
10.1080/09537280701614407

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 Production Planning & Control,
Vol. 18, No. 8, December 2007, 666–680

Performance measurement of supply chain

management using the analytical hierarchy process
R. BHAGWATy and M. K. SHARMA*z
yDepartment of Mechanical Engineering, MBM Engineering College, Faculty of Engineering and Architecture,
JNV University, Jodhpur-342011, Rajasthan, India
zDepartment of Production and Industrial Engineering, MBM Engineering College,
Faculty of Engineering and Architecture, JNV University, Jodhpur-342011, Rajasthan, India
Downloaded by [University of Maastricht] at 03:16 03 July 2014

Performance measurement of supply chain management (SCM) is a rapidly growing

multi-criteria decision-making problem owing to the large number of factors affecting
decision-making. The right choice of performance metrics and measures is critical to the
success and competitiveness of the firms in the era of globalisation. Recognising the multiple
objective nature of the problem, this paper proposes the use of the analytical hierarchy process
(AHP) methodology as aid in making SCM evaluation decisions. For pair-wise comparison in
AHP, a survey methodology is used. The methodology presented can help firms to prioritise
and formulate viable performance measurement strategies in the volatile and complex global
decision environment from different balanced scorecard (BSC) perspectives. A demonstration
of the application of this methodology in a real life problem is presented.

Keywords: Supply chain management; Performance measurement; Analytical hierarchy

process; Balanced scorecard

1. Introduction due to lack of a balanced approach and of clear

distinction between metrics at strategic, tactical, and
In the era of globalisation, supply chains are being operational levels (Gunasekaran et al. 2001, Hudson
treated as extended enterprises. This arises partly from et al. 2001). Some researchers (Browne et al. 1997,
the attempts of the enterprises, situated at geographi- Rolstadas 1998, Childe 1998, Gunasekaran et al. 2001,
cally dispersed locations, to build formal partnerships to Hudson et al. 2001, Gunasekaran et al. 2004, Folan and
gain a competitive advantage. According to Jagdev and Browne 2005a, b) identified SCM metrics and proposed
Browne (1998) supply chains as extended enterprises are a framework to classify them as financial and non-
responsible for the whole product life cycle, from financial metrics at different decision levels. But due to
material procurement and supply management, to the large number of SCM metrics given in the frame-
production and manufacturing, further to product work, firms faced further problems in identifying which
distribution and customer service, and finally to the measures are important to focus on in order to improve
recycling and disposal of end-of-life product. In recent overall business performance. Also this framework does
years, a number of firms have realised the potential of not completely provide a balanced picture of the total
supply chain management (SCM) in day-to-day opera- business performance from different perspectives, as it
tions management. However, they often lack the insight does not clearly highlight the business area which is
for the development of effective performance measures lagging or leading. Kaplan and Norton (1992) have
and metrics needed to achieve a fully integrated SCM proposed the balanced scorecard (BSC), as a means to
evaluate corporate performance from four different
*Corresponding author. Email: milindksharma@ perspectives: the financial perspective, the internal
rediffmail.com business process perspective, the customer perspective,
Production Planning and Control
ISSN 0953–7287 print/ISSN 1366–5871 online ß 2007 Taylor & Francis
http://www.tandf.co.uk/journals
DOI: 10.1080/09537280701614407
 Performance measurement of supply chain management
and the learning and growth perspective. Many firms
used BSC for SCM evaluation to give a more balanced
picture of business performance. However, prioritisation
of these different perspectives for a firm is again an issue
which needs to be addressed. In this paper an attempt is
made to prioritise SCM metrics and the different
performance measure levels with the help of the
analytical hierarchy process (AHP). AHP is also used
to prioritise the different BSC perspectives for SCM
evaluation. For pair-wise comparison in AHP, a survey
methodology is used.
The outline of the paper is as follows: section 2 throws
light on performance metrics and measurements in
SCM. Section 3 discusses performance evaluation
framework for SCM. In sections 4 and 5 the balanced
scorecard and the analytical hierarchy process are dealt
with respectively. Application AHP in SCM evaluation
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is reported in section 6. Section 7 gives the results and a
discussion. Finally, the conclusions and implications are
presented in section 8.
2. Performance metrics and measurement of SCM
In this section, we make an attempt to summarise some
of the most appropriate performance metrics and
Sales
and
market
Purchasing
Inventory
Back order
available
Customer
Credit check Inventory
order
file
Production
schedule
Production
Figure 1. The path of a customer order. Source: Christopher 1992.
667
measures of SCM treating supply chains as extended
enterprises identified and discussed by Jagdev and
Browne (1998), and Gunasekaran et al. (2001, 2004).
Folan and Browne (2005b) suggested that inter-
organisational performance measurement may be
divided into supply chain and extended enterprise
performance measurement: the former relying solely
on traditional logistics measures, while the latter
incorporates the structural aspects of the supply
chain system and adds non-logistic perspectives to its
measurement arena.
2.1 Metrics for performance evaluation of planned
order procedures
For any firm, the prime activity is to procure orders; a
typical order path is shown in figure 1.
From the figure, it is clear that the way the
orders are generated and scheduled will determine
performance of the downstream activities and
inventory levels. Hence, the first step in assessing
performance is to analyse the way the order-related
activities are carried out. To do this, the most
important issues—such as the order entry method,
order lead-time and the path of order traverse—need
to be considered.
Customer Ship
order customer
status order
Accounting
Invoice
Warehouse
Process
withdrawal
order
Shipping Transportation
documentation scheduling
 668 R. Bhagwat and M. K. Sharma
2.2 Supply chain partnership and related metrics
Recently, the buyer–supplier partnership has gained a
lot of attention from industry and researchers, resulting
in a steady stream of literature promoting it (e.g. Ellram
1991, Toni et al. 1994, McBeth and Ferguson 1994,
Graham et al. 1994, Landeros et al. 1995, New 1996,
Thomas and Griffin 1996, Towill 1997, Fisher 1997,
Maloni and Benton 1997, Gunasekaran et al. 2001).
According to Jagdev and Browne (1998) the framework
of extended enterprises describes how a manufacturing
system extends its boundary. The manufacturing enter-
prise focuses on core business activities, and out-sources
non-core business activities to outside suppliers and
other service providers. It encourages both the manu-
facturers and suppliers’ competitive ability, and
enhances their mutual dependency in order to achieve
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mutual success. Most of these studies stress how
partnerships improve supply chain operations.
Accordingly, an efficient and effective performance
evaluation of buyer and/or suppliers is not enough; the
extent of partnership that exists between them needs to
be evaluated and improved as well.
2.3 Measuring customer service and satisfaction
Extended enterprises develop loyal and long-term
relationships with key customers and treat them as
their most important partners. This measurement is
aimed at integrating customer specifications in design,
and setting the dimensions of quality and feedback for
the control process. They contain product/service
flexibility, customer query time, customer order fulfil-
ment time, logistics of delivery and post-transaction
service.
2.4 Production level measures and metrics
As an important part of SCM as extended enterprises,
the performance of the production process also needs to
be measured, managed and improved, and suitable
metrics for it established. This category consists of a
range of products and services, capacity utilisation, and
effectiveness of scheduling techniques.
2.5 Performance evaluation of delivery link
These measures are designed to evaluate the perfor-
mance of delivery and distribution cost in supply chain.
The typical measures for delivery performance evalua-
tion are lead-time reduction in the delivery process,
on-time delivery (delivery-to-request date, delivery-to-
commit date and order fill lead-time), distribution
mode, the delivery channel, vehicle scheduling, and
warehouse location, the percentage of goods in transit,
quality of information exchanged during delivery,
number of faultless notes invoiced, and flexibility of
delivery systems to meet particular customer needs
(Novich 1990, Gelders et al. 1994, Stewart 1995).
2.6 Supply chain finance and logistics cost
The aim of the logistics function is to ensure that the
right product is delivered to the right destination at the
right time, in the right quantity, and at the least possible
cost. According to Jagdev and Browne (1998) logistics
will help make decisions on such issues as, warehouse
location, selection and coordination with the transport
company, resource management, scheduling, dispatch-
ing, demand forecasting, order processing, materials
requirements planning, etc. Determining the total
logistical cost can assess the financial performance of a
supply chain. It is necessary to decide on a broad level of
strategies and techniques that would contribute to the
smooth flow of information and materials in the supply
chain environment. They are used to assess the financial
performance of the supply chain, such as assets cost,
return on investment, and total inventory cost.
3. Performance evaluation framework for SCM
Many manufacturing and service organisations have
used performance measures and measurement systems to
determine their performance (Mettanen 2005). Rouse
and Putterill (2003) argued that a performance measure-
ment (PM) framework assists in the process of perfor-
mance measurement system building, by clarifying PM
boundaries, specifying PM dimensions or views and may
also provide initial institutions into relationships among
the PM dimensions. Hudson et al. (2001) investigated
strategically aligned performance measures, which can
help stimulate continuous improvements; this was
achieved by linking performance measures to specific
improvement efforts and helping to drive performance
towards critical strategic objectives, which were designed
to be revisited and updated regularly. Folan and Browne
(2005) presented different performance measurement
frameworks specifically designed for the inter-organisa-
tional environment. They further developed a perfor-
mance measurement system looking into the
requirements of extended enterprise, via two perfor-
mance measurement frameworks: the structural
extended enterprise balanced scorecard and the proce-
dural framework for the selection and implementation
measures. Browne et al. (1997) developed the ENAPS
approach of performance measurement, which consists
of a generic set of performance measures and indicators
 Performance measurement of supply chain management
Table 1. A list of key SCM performance metrics (Gunasekaran et al. 2001).
Level Performance metrics
Strategic Total cash flow time
Rate of return on investment
Flexibility to meet particular custo-
mer needs
Delivery lead time
Total cycle time
Buyer–supplier partnership level
Customer query time
Tactical Extent of co-operation to improve
quality
Total transportation cost
Truthfulness of demand predictabil-
ity/forecasting methods
Product development cycle time
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Operational Manufacturing cost
Capacity utilisation
Information carrying cost
Inventory carrying cost
and uses a process-oriented top down approach.
It contains a large number of performance measures/
metrics as discussed in an earlier section of the paper.
Turner et al. (2005) suggested that application of
performance measures has developed in the last decade
or so from what were traditional financial performance
measures to now encompass a wide range of non-
financial performance measures. This growth in the use
of non-financial performance measures was stimulated
by various models such as the strategic measurement and
reporting technique (SMART) (Cross and Lynch 1988–
1989), the balanced scorecard (Kaplan and Norton
1992), the European excellence model (EFQM 1999)
and the ABCD checklist for operational excellence
(Wight 1993). Traditional performance measures have
been heavily criticised in the literature for encouraging
short-termism (Banks and Wheelright 1979, Hayes and
Garvin 1982), lacking strategic focus (Skinner 1974),
encouraging local optimisation (Hall 1983, Fry and Cox
1989), encouraging minimisation of variance rather than
continuous improvement (Johnson and Kaplan 1987,
Lynch and Cross 1991) and not being externally focused
(Kaplan and Norton 1992). In an attempt to overcome
these and other criticisms, performance measurement
frameworks have been developed and provide a balanced
view between external and internal focus (Keegan et al.
1989), between levels in the organisation (Cross and
669
Financial Non-financial References
p
p Stewart (1995)
Christopher (1992), Dobler and Burt
p (1990)
Bower and Hout (1988), Christopher
p (1992)
Rushton and Oxley (1989),
p Christopher (1992)
p p Christopher (1992), Stewart (1995)
p Toni et al. (1994)
Mason-Jones and Towill (1997)
p
Graham et al. (1994)
p
p Rushton and Oxley (1989)
Fisher (1997), Harrington (1996)
p
Bower and Hout (1988)
p
p Wild (1995)
p Stewart (1995)
Levy (1997), Lee and Billington
p (1992)
Stewart (1995), Dobler and Burt
(1990), Slack et al. (1995), Pyke
and Cohen (1994)
Lynch 1988–1989), between results and determinants
(Fitzgerald et al. 1991), between the four perspectives of
the balanced scorecard (Kaplan and Norton 1992) and
the multiple perspective of the stakeholders of the
performance prism (Kennerley and Neely 2000).
Gunasekaran et al. (2001) illustrated and discussed
different performance measures and metrics of the
SCM with the help of a framework that gives cohesive
picture to address what needs to be measured, and how it
can be dealt with. The framework developed is shown in
table 1.
The metrics discussed in this framework are classified
into strategic, tactical and operational levels of manage-
ment. The metrics are also divided into financial and
non-financial so that a suitable costing method based on
activity analysis can be applied. However, due to the
large number of metrics and measures given in the
framework, firms find it difficult to use. Not many firms
use all metrics and measures in day-to-day business
operations. Also, this framework does not provide
guidelines to prioritise these metrics. Further, firms
require a comprehensive way to analyse their operations
from every angle that covers all perspectives of business.
Some companies used a balanced scorecard approach
for this purpose. The balanced scorecard is widely
promoted, through articles (Kaplan and Norton 1993,
Bourne 2005, Bhagwat and Sharma 2007a), books
 670 R. Bhagwat and M. K. Sharma
How do we look to
shareholders?

Financial Perspective
Goals Measures

What must we excel at?

How do customers
see us?

Internal efficiency +
Customer Perspective Customer satisfaction Internal Business
Are we satisfying = Financial Success Are we
customer needs? Goals Measures Goals Measur working
effectively and
efficiently?
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Innovation and Learning Perspective

How can we serve customers How can we continue to
better in the future? Goals Measures improve and create value?

What are the emerging opportunities and challenges?

Figure 2. Relationships between the four perspectives in the balanced scorecard. Source: Kaplan and Norton 1992.

(Kaplan and Norton 1996, 2000, Olve et al. 1999,
Jagdev et al. 2004) and conferences (e.g. Norton 1997).
Bhagwat and Sharma (2007a) suggested the use of the
balanced scorecard for SCM evaluation. In their model
they suggested to put different SCM metrics into
different BSC perspectives to give a balanced picture
of SCM performance evaluation.
4. The balanced scorecard
The need for performance measurement systems at
different levels of decision-making, either in the industry
or service contexts, is undoubtedly not something new
(Bititci et al. 2005). Robert Kaplan of Harvard
University and David Norton, an American manage-
ment consultant have presented the BSC concept in a
series of articles published in Harvard Business Review
(Kaplan and Norton 1992, 1993, 2000). They have
argued that traditional financial accounting measures
offer a narrow and incomplete picture of business
performance, and that a reliance on such data hinders
the creation of future business value. As a result they
suggest that financial measures be supplemented with
additional ones that reflect customer satisfaction,
internal business process, and the ability to learn and
grow. Their BSC is designed to complement ‘financial
measures of past performance with their measures of the
drivers of future performance’. The name of their
concept reflects intent to keep score of a set of items
that maintain a balance ‘between short term and long
term objectives, between financial and non financial
measures, between lagging and leading indicators, and
between internal and external performance perspec-
tives’. The early image of the BSC serving the CEO like
a control panel serves an aircraft pilot seems to have
expanded to include mechanisms to alter the course of
action as well. Now, the BSC seems to serve as a control
panel, pedals and steering wheel (Malmi 2001). Figure 2
shows the relationship between the four BSC
perspectives.
Balanced scorecard has received tremendous applica-
tion as a comprehensive multifaceted solution to the
day-to-day business management problems in the USA,
the UK, Japan and several other economically devel-
oped countries and the wave of its wider applications
has also reached other developing countries. Many
companies are adopting the balanced scorecard (BSC)
as the foundation for their strategic management
system. Some managers have used it as they align their
businesses to new strategies, moving away from cost
reduction and towards growth opportunities based on
 Performance measurement of supply chain management
more customised, value-adding products and services
(Martinsons et al. 1999). But not all companies make
use of all the BSC perspectives all the time. Some
specific factors influence one or two perspectives more
than others. Hence, companies are facing challenges
deriving strategies to prioritise the different BSC
perspectives based on their relative importance on a
day-to-day basis. In this paper, the authors have used
the analytic hierarchy process to address this issue in the
following sections.
5. The analytic hierarchy process
The analytic hierarchy process (AHP) is a multi-criteria
decision-making tool developed by Saaty (1980). The
Downloaded by [University of Maastricht] at 03:16 03 July 2014
AHP is a systematic procedure for representing the
elements of any problem, hierarchically. According to
Jagdev et al. (2004) since decision-making in the strategy
formulation domain is often fraught with uncertainty,
the manager should be able to express a degree of belief
and confidence in his judgment. AHP provides a theory
and a corresponding methodology, which support the
modelling of unstructured problems. A hierarchy is
structured from the top (objectives from a managerial
standpoint), through intermediate levels (criteria/sub
criteria on which subsequent levels depend) to the lowest
level (which is usually a list of alternatives). It organises
the basic rationality by breaking down a problem into
smaller and smaller constituent parts and then guides
decision makers through a series of pair-wise compar-
ison judgments (which are documented and can be re-
examined) to express the relative strength or intensity of
impact of the elements in the hierarchy. These judg-
ments are then translated to numbers. AHP uses pair-
wise comparison of the same hierarchy elements in each
level (criteria or alternatives) using a scale indicating the
importance of one element over another with respect to
a higher-level element.
The AHP method has the following advantages
(Abdul-Hamid 1999).
. A subjective decision process can be formalised
owing to the hierarchy structure. This leads to
accurate decisions.
. Ensures consistency of the decision judgment.
. Clearer understanding of the problem by dividing it
into sub-problems.
. The comparison may be made by teams or an
iterative process until an agreement is reached by
the team members.
. Sensitivity analysis may be performed by the results
using computers before final judgment is rendered.
671
The tedious calculations of the AHP process are no
longer a problem using computers and specialised
software such as Expert ChoiceTM software. AHP has
been used in a wide range of applications such as plant
layout (Abdul-Hamid 1999, Dweiri and Meirer 1996),
new product screening (Calantone 1999), part-machin-
ing grouping (Ziilal and Arikan 2000), vendor selection
(Partovi et al. 1999), quality function deployment
(Bergquist and Abesysekera 1996), performance assess-
ment (Jagdev et al. 2004) and material selection (Dweiri
and Al-oqla 2006). Jagdev et al. (2004) used this
technique as a measure of manufacturing performance
(MOMP). They have used AHP to prioritise the
elements within the specific MOMP map hierarchy.
Use of AHP in a problem like SCM evaluation,
however, is not prominent in the literature.
6. AHP in SCM evaluation
This work presents the use of AHP in SCM evaluation.
The AHP can be the best tool for prioritising and
choosing the best measure and metric for day-to-day
business operations. The hierarchic portrayal of a
problem is as follows:
An overall performance measurement system (PMS)
of a SCM is decided by three criteria performance
measures in the hierarchy, strategic, tactical and
operational level. These are further divided into sub-
criteria performance measures for different decision
levels in the hierarchy. The problem is to decide which of
the four balanced scorecard perspectives is most critical
from the SCM performance evaluation point of view.
The first step is the decomposition or structuring of
the problem as a hierarchy. In the first (or top) level is
the overall performance measurement system. In the
second level are the three factors or criteria, which
contribute to the goal (overall PMS), in the third level
are the fifteen sub-criteria, and in the fourth (bottom)
level are the four BSC perspectives, which are to be
evaluated in terms of the criteria and sub-criteria in the
second and third levels. The pictorial representation of
the hierarchy is as shown in figure 3.
The criteria important to the overall PMS are:
A. PMS at strategic level (Ps).
B. PMS at tactical level (Pt).
C. PMS at operational level (Po).
In addition to creating the basis on which the
performance of the organisation is assessed, perfor-
mance measures strongly influence management in
the strategic decision-making task. Consequently, the
importance of the performance measurement as an
influence on the strategic direction of the organisation
 672 R. Bhagwat and M. K. Sharma

P-overall Level-1
(Goal)

Level-2
(Criteria)
P-strategic P-tactical P-operational

Level-3
(Sub-criteria)
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Level-4
(Alternatives)
Financial Customer Internal business Learning & growth

Figure 3. Pictorial representation of the problem hierarchy.

cannot be ignored. According to Jagdev et al. (2004) the
most relevant information required by an organisation is
that which supports strategic level decision-making. The
decisions to expand into new markets, to develop a new
product, to invest in a new technology or a new
programme of process improvement are all examples
of strategic level decision-making. Tactical level in any
organisation is the level that facilitates the long-term
strategies of the strategic level. This is middle level
management that gives directions and guidelines to the
operational level staff. Operational level is the real actor
in the organisation that transforms the vision of the
strategic level with the help of the managerial decisions
of the tactical level staff.
The sub-criteria important to the PMS at strategic
level (Ps) are:
A. Total cash flow time.
B. Rate of return on investment.
C. Flexibility to meet particular customer needs.
D. Delivery lead time.
E. Total cycle time.
F. Buyer-supplier partnership level.
G. Customer query time.
The sub-criteria important to the PMS at tactical level
(Pt) are:
H. Extent of cooperation to improve quality.
I. Total transportation cost.
J. Truthfulness of demand predictability/forecast-
ing methods.
K. Product development cycle time.
The sub-criteria important to the PMS at operational
level (Po) are:
L. Manufacturing cost.
M. Capacity utilisation.
N. Information carrying cost.
O. Inventory carrying cost.
In the AHP, elements of a problem are compared in
pairs with respect to their relative impact (‘weight’ or
‘intensity’) on a property they share in common. Pair-
wise comparisons are reduced to a matrix form. When
sets of elements are compared with each other a square
matrix is produced. The square matrix has an equal
number of rows and columns together with eigenvectors
and eigenvalues. The reason for this computation is that
it gives a way to determine quantitatively the relative
importance of factors. The factors with the highest
values are the ones that should be concentrated on for
developing a plan of action. AHP structures the problem
hierarchically and a matrix is arranged to compare the
relative importance of criteria in the second level with
respect to the overall objective or focus of the first level.
Similar matrices are further constructed for pair-wise
comparisons of each sub-criterion in the third level
with respect to the criteria in the second level.
 Performance measurement of supply chain management
Similarly matrices are also constructed for pair-wise
comparisons of each alternative in the fourth level with
respect to the criteria and sub-criteria of the second and
third level respectively. These are shown in tables 2 to 8
and discussed in the section 6.2 of the paper.
A survey methodology was used when making the
pair-wise comparisons and the following types of
questions have been noted to occur.
In comparing one element with another:
. Which is more important or has a greater impact?
. Which is more likely to happen?
. Which is more preferred?
All the questions asked appeared to fall in one of
these three categories. In comparing criteria it is asked
which criterion is more important. In comparing
alternatives with respect to criteria and sub-criteria it
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is asked which alternative is desired.
6.1 Survey
The target of the study is the small- and medium-sized
enterprises (SMEs) operational in the western part of
India that includes three states (of which two are major
contributors to the national economy in terms of
various economic parameters and one is still in a
growing stage but emerging very fast as a strong SME
base in the country). Two states selected for the study
have very rich infrastructure in terms of road transport,
power and labour and a large number of multi-national
companies are operating here successfully. However, the
third one has moderate resources but is progressing very
fast and in the future a lot of direct foreign investment is
expected in the state. In the study two developed states
and one developing state were chosen deliberately so as
to get a better insight into issues in two different
working environments. The target SMEs were selected
from the following sources:
. Industrial directory.
. Directory of ISO 9000 certified companies.
A structured questionnaire was designed based on the
initial feedback received from a pilot questionnaire and
then personal interviews were held with academicians,
experts, consultants and major SMEs operational in the
western region of the country. It was then administered
to 210 SMEs operational in the area for at least five
years for their feedback, deploying random stratified
sampling, to ensure a wide geographical and industrial
spread. The SMEs surveyed covered manufacturing,
high tech engineering, finance, packaging and distribu-
tion sectors. Of all the SMEs surveyed 20% were
exclusively export oriented units (EOUs). Table 9
provides the number and percentage of SMEs covered
673
Table 2. P-overall performance (level 1).
Po 1 2 3 Weights
1 P-strategic 1.00 6.00 8.00 0.755
2 P-tactical 0.17 1.00 0.20 0.067
3 P-operational 0.13 5.00 1.00 0.178
Maximum eigenvalue ¼ 3.4134.Consistency ratio ¼ 0.0913.
in the survey where n ¼ 210 and those responding
n ¼ 147 or 70%. The response rate was 70%, which is
good, according to Bhagwat and Sharma (2007b), in the
Indian context.
6.2 An illustration of subjective judgments
using the scale
In table 2, which represents the second level of
hierarchy, the cells of the matrix have been filled in
with the subjective judgments using 1 to 9 scales and
based on the preference and perception of the criteria
for the overall performance measurement. For example,
when asked, ‘With respect to overall performance
measurement, what is the importance of perfor-
mance measure at strategic level (P strategic) to
performance measure at tactical level (P tactical)?’
If the P strategic was much more important then the
integer 6 was entered in the corresponding cell; its
reciprocal, or 1/6 was automatically entered for the
reverse comparison. In the same way other cells of the
matrix were also filled in. According to the majority
of respondent’s feedback in the survey, different ranks
are entered in the table.
At the next level, the elements to be compared pair-
wise are the different performance metrics of the SCM
with respect to how much more desirable or better one is
than the other in satisfying each criterion in the second
level. There are three matrices (tables 3, 4 and 5) of
judgments since there are three criteria in the second
level.
In the bottom level, the four BSC perspectives are to
be pair-wise compared for each of the SCM perfor-
mance metrics (sub-criteria). There are fifteen matrices
(put together in table 6) of judgments since there are
fifteen sub-criteria in the third level (A to O as stated
earlier).
Priorities are synthesised from the second level down
by multiplying local priorities by the priority of their
corresponding criterion in the level above and adding
them for each element in a level according to the criteria
it affects. This gives the global or composite priority of
that element which is then used to weight the local
priorities of elements in the level below compared by it
 674 R. Bhagwat and M. K. Sharma
Table 3. P-strategic (level 2).

1 2 3 4 5 6 7 Weights

1 Total cash flow 1.00 0.25 0.20 0.33 2.00 0.14 0.25 0.047
2 Rate of return on investment 4.00 1.00 0.20 0.33 0.20 0.17 0.50 0.056
3 Flexibility to meet particular customer needs 5.00 5.00 1.00 0.50 3.00 0.25 1.00 0.168
4 Delivery lead time 3.00 3.00 2.00 1.00 3.00 1.00 1.00 0.216
5 Total cycle time 0.50 5.00 0.33 0.33 1.00 3.00 2.00 0.131
6 Buyer-supplier partnership level 7.00 6.00 4.00 1.00 0.33 1.00 3.00 0.254
7 Customer query time 4.00 2.00 1.00 1.00 0.50 0.33 1.00 0.127

Maximum eigenvalue ¼ 9.0468. Consistency ratio ¼ 0.067.

Table 4. P-tactical (level 2).

1 Extent of cooperation
to improve quality
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The pair-wise comparison for the second level
1 2 3 4 Weights (table 3) of the hierarchy, which is concerned with
comparing the relative desirability of the different SCM
1.00 7.00 3.00 1.00 0.402
performance metrics with respect to the criteria of the

2 Total transportation cost 0.14 1.00 0.17 0.25 0.052 second level, it is observed that the buyer–supplier
3 Truthfulness of demand 0.33 6.00 1.00 0.20 0.149 partnership metric is found to be the most preferred
predictability/forecasting (0.254) followed by the delivery lead-time (0.216) in the
methods P-strategic matrix. It is evident that for any successful
4 Product development 1.00 4.00 5.00 1.00 0.397
cycle time supply chain, the strategic coordination between both
supply chain partners (buyers and suppliers) is impor-
Maximum eigenvalue ¼ 4.3587. Consistency ratio ¼ 0.0329. tant. This result shows the importance of a long-term
buyer–supplier partnership in a supply chain. It is
Table 5. P-operational (level 2).
interesting to note that financial metrics such as total
1 2 3 4 Weights cash flow time (0.047) and return over investment
(0.056) are perceived as least important metrics. This
1 Manufacturing cost 1.00 0.33 2.00 3.00 0.251 result has changed the preconceived notion about SCM
2 Capacity utilisation 3.00 1.00 5.00 2.00 0.495
3 Information carrying cost 0.50 0.20 1.00 1.00 0.119 performance measurement. It may be counter intuitive
4 Inventory carrying cost 0.33 0.50 1.00 1.00 0.135 to the general belief that financial measures always lead.
SCM metrics at tactical level (table 4) give the extent of
Maximum eigenvalue ¼ 4.2108. Consistency ratio ¼ 0.0781.
cooperation (0.402) and product development (0.397) as
the preferred desirable metrics compared with others.
These results are not surprising as, at middle level, one
as criterion and so on to the bottom level (tables 7 of the important tasks of the tactical level is synchro-
and 8). nisation and cooperation among the several entities of
business that help the supply chain to deliver in the best
possible manner. Performance measure metrics related
7. Results and discussion to cooperation and product development may be given
higher importance at tactical level to evaluate supply
Clearly from table 2, P-strategic (0.755) is perceived to chains. At the operational level (table 5), capacity
be the most important criterion followed by the utilisation metric (0.495) followed by manufacturing
P-operational (0.178) and P-tactical (0.067). It reveals cost (0.251) is among the front-runners. This level is the
that performance measurement at the strategic level is key player that really transforms the objectives of the
the most important whereas the measures at tactical strategic level through the tactical level operators. As it
levels rated least important. It also suggests that deals with the ground realities to convert the goals of
performance measures that reflect the strategic perfor- upper level management, issues related to day-to-day
mance for long term are preferred. It is interesting to operations are likely to lead quite often.
note that performance measures at operational level Similarly, the pair-wise comparison for the third
have been preferred over the same at tactical level. level of the hierarchy (table 6), which is concerned with
It shows that the day-to-day performance measures comparing the relative desirability of the different BSC
play more significantly than the same of the middle perspectives with respect to the criteria and sub-criteria
level management. of the upper levels (columns A to O of table 6
 Downloaded by [University of Maastricht] at 03:16 03 July 2014

Table 6. Priorities with respect to different SCM metrics at strategic, tactical and operational level (Level 3).

BSC perspectives A B C D E F G H I J K L M N O

Financial 0.553 0.381 0.102 0.110 0.320 0.220 0.319 0.123 0.641 0.474 0.147 0.346 0.356 0.217 0.420
Customer 0.175 0.381 0.353 0.410 0.151 0.289 0.432 0.193 0.200 0.322 0.174 0.228 0.078 0.258 0.169
Internal business 0.087 0.074 0.226 0.312 0.428 0.172 0.164 0.359 0.080 0.152 0.133 0.221 0.411 0.391 0.328
Innovation and learning 0.185 0.164 0.319 0.168 0.101 0.320 0.086 0.325 0.079 0.052 0.546 0.206 0.156 0.134 0.083
max 4.2937 4.6385 4.0709 4.0812 5.5995 4.4430 4.4430 4.0457 4.2272 4.0972 4.5675 4.7894 4.1533 4.7894 4.4716
C.R. 0.0108 0.0813 0.0262 0.0301 0.0524 0.0641 0.0541 0.0169 0.0841 0.0360 0.0210 0.0924 0.0568 0.0624 0.0747
Performance measurement of supply chain management
675
 676 R. Bhagwat and M. K. Sharma
Table 7. Priorities with respect to P-strategic, P-tactical and P-operational.
BSC perspectives P-strategic
Financial 0.227
Customer 0.326
Internal business 0.234
Innovation and learning 0.213
Table 8. Priorities with respect to P-overall performance.
1 Financial perspective 0.247
2 Customer perspective 0.286
3 Internal business perspective 0.254
4 Innovation and learning perspective 0.213
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represent the sub-criteria of P-strategic, P-tactical, and
P-operational respectively as marked in earlier section).
The sub-criteria of P-strategic are represented in
columns A to G; P-tactical columns are H to K; and
P-operational columns are L to O. From the viewpoint
of total cash flow time metric (A) the financial
perspective (0.553) of the BSC is perceived to be the
most important perspective followed by the innovation
and learning perspective (0.185). Further, regarding
rate of return on the investment metric (B), both
financial and customer perspectives are equally (0.381)
desirable. As both the SCM metrics (A and B) are
financial in nature, these results are obvious. It is
interesting to note that under the cash flow time
metric, BSC perspective of innovation and learning has
also received higher weight, which indicates that under
cash flow time, innovation and learning is also
important for performance measure. Further, the
result also shows that for rate of returns on the
investment, the customers’ perspective related perfor-
mance measures might also be vital. Customer
perspective (0.353 and 0.410) is again perceived as the
most important perspective in flexibility to meet
particular customer needs (C) and delivery lead-time
metrics (D) respectively. In today’s era of mass
customisation both these metrics influence the custo-
mer most in any supply chain. In supply chain
performance evaluation metrics related to customers’
needs and delivery lead-time have been rated higher.
Internal business perspective (0.428) and innovation
and learning perspective (0.320) are perceived as
preferred BSC perspectives in total cycle time (E) and
buyer–supplier partnership (F) metrics respectively.
One of the basic objectives of the supply chain is to
reduce the cycle time while focusing on internal
business operations to cut down unproductive activities
and optimise the total cycle time. This result is in line
P-tactical P-operational
0.212 0.345
0.205 0.149
0.224 0.350
0.359 0.156
with the objectives of supply chain performance. For a
better buyer–supplier partnership, implementation of
new ideas and developments are necessary. Customer
perspective (0.432) is found to be the most important
in customer query time metric (G). In the SCM metric
from a tactical level view, priorities with respect to
extent of cooperation to improve quality (H), internal
business perspective (0.359) is observed as most
preferred BSC perspective, whereas this perspective is
not perceived as preferred perspective (0.080) in metric
like priorities with respect to total transportation cost
(I). Customer perspective is found to be the second
most important, (0.322) and (0.174), in priorities with
respect to truthfulness of demand predictability/
forecasting methods metric (J) and product develop-
ment cycle time metric (K) respectively. Both the
metrics are important from the view of the customer in
the supply chain and hence considered customer
perspective as crucial aspect of business. Further, it
also validates that for forecasting demand, the custo-
mer perspective is one of the important. The financial
perspective is perceived as the most important in SCM
metrics such as manufacturing cost (0.346) (L) and
inventory carrying cost (0.420) (O). Both metrics being
financial in nature, these results are obvious, whereas
internal business perspective is perceived as the most
important BSC in SCM metrics, such as capacity
utilisation (0.411) (M) and information carrying cost
(0.391) (N). By focusing on the day-to-day internal
business both these metrics could deliver better results
to supply chains.
The above results show that the assumed different
BSC perspectives have been preferred and given weights
by different sub-criteria at strategic, tactical and
operation levels. This will help practitioners in identify-
ing the important sub-criteria, which may play an
important role in the evaluation of SCM from a
different perspective.
Next, the eigenvectors from each level of the hierarchy
are merged via a process called ‘synthesisation’ (Saaty
1980); this results in overall prioritisation of different
BSC perspectives of the overall performance measure-
ment (P overall) and performance measurement at
different decision levels, viz. P-strategic, P-tactical and
 Performance measurement of supply chain management
Table 9. Breakdown of the survey and responses.
Number of SMEs
Sector Surveyed Responded
Manufacturing 97
High tech engineering 58
Finance services 20
Packaging and distribution 15
Service utility 20
P-operational. The results of this step for the SCM
performance measurement are the overall rankings of
the four BSC perspectives.
For the criterion P-strategic (table 7) the customer
perspective (0.326) is perceived as the most important
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BSC perspective followed by the internal business
perspective (0.234). It shows that for performance
evaluation of SCM from strategic view, the sub-criteria
of SCM that are related to customer perspective and
those which affect internal business operation should be
considered most. It can be further argued that to survive
in the present era of globalisation, the SCM should
constantly gauge the customers and market trends to
design and deploy new strategies continuously through
internal operations. With respect to P-tactical and
P-operational the innovation and learning (0.359) and
internal business (0.350) perspectives are perceived as
the most important BSC perspectives respectively. This
result shows that at middle level management, issues
pertaining to the new ideas, product/process develop-
ments and training, etc. should be concentrated on.
It will help to transform the vision of the strategic level
management by executing ideas at operational level,
which usually controls the day-to-day execution in any
organisation. So, at this level, focusing on the internal
functional activities could be crucial for any supply
chain management. To summarise, it can be seen that
internal operation is getting consistently comparable
weights at strategic, tactical and operational levels. The
results are justified, as one of the major objectives of
SCM is to synchronise the internal operations with
respect to operations/requirements of suppliers/
customers.
Finally in P-overall (table 8), the customer perspective
(0.286) would be selected first followed by the internal
business perspective (0.254). It shows that for overall
performance measurement, the criteria related to
customer perspective and internal business operations
should be focused on most as compared to other BSC
perspectives. In summary, the above results suggest
prioritisation of different SCM metrics together with the
677
Percentage
Surveyed (210) Responded (147)
71 46.2 48.3
42 27.7 28.6
13 9.5 8.8
7 7.1 4.8
14 9.5 9.5
different performance levels. It further ranks the
different BSC perspectives in SCM evaluation.
8. Conclusions and implications of the study
The AHP approach, as a decision-making tool presented
in the paper, is efficient in dealing with multi-criteria
decision-making problems. Since performance measure-
ment of SCM is a problem facing decision-makers
nowadays, especially in the era of globalisation, AHP
involves the process of choosing among many alter-
natives based on multiple criteria and sub-criteria and
explained in detail using Expert ChoiceTM software. The
AHP method divides the complex problem into sub-
problems, which make it easier to decide and keep
consistent the rendered judgment regarding the choices
considering all factors affecting it. The decision maker
can perform sensitivity analysis on the selection choices
and the sub-criteria to account for variations (changes)
of the pair-wise comparisons and have a high degree of
confidence in his/her judgment.
Results of this study give useful insights to managers
to prioritise different SCM metrics. It gives rationale to
decide which decision level performance plays the most
important role in overall performance measurement.
At the same time it also gives priority to different BSC
perspectives rationally in day-to-day business operations
and has contributed to important issues of SCM
performance measurement theory and practices.
This paper also:
. contributes to the performance evaluation of SCM
practices. It points out the importance of key
players in the performance measurement of SCM,
and the nature of roles they need to play;
. provides insights to prioritise SCM metrics at
different decision levels viz. strategic, tactical and
operational in the organisation;
. throws light on prioritising performance measure-
ments at different decision levels also. It further
 678 R. Bhagwat and M. K. Sharma
helps firms to focus on the most critical perfor-
mance measures while giving them the top priority;
. gives a balanced performance evaluation of SCM.
A balanced scorecard not only helps organisations
in faster and wider progress monitoring of their
operations, but can also help in improving their
internal and external functions of business, such as
engineering and design applications, production,
quality improvement, materials management, quick
response, gaining lost market shares, proper
implementation of business strategies, etc.;
. articulates which BSC perspective is important in
firm-specific contexts at different decision levels
and how to prioritise different perspectives from
the point of view of the overall performance
measurement throwing light on the management
of supply chain. It focuses on critical factors that
Downloaded by [University of Maastricht] at 03:16 03 July 2014
are likely to contribute for the successful perfor-
mance measurement of SCM.
Acknowledgement
The authors thank the anonymous reviewers for their
helpful and constructive comments.
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Rajat Bhagwat is an Associate Professor in the Department of Mechanical Engineering, JNV

University, Jodhpur. He has also worked as a Research Assistant in the University of Hong Kong,
Hong Kong. His areas of research interest include simulation modelling, information systems, and
modelling and control of flexible manufacturing systems. He has working experience in industrial
projects in the areas of production, planning and control, capacity expansion, and layout planning.
He has been awarded a postdoctoral fellowship at the University of Bordeaux, France. He has
published a number of papers in international journals and conferences.
 680 R. Bhagwat and M. K. Sharma
Milind Kumar Sharma has taught many subjects related to production and industrial engineering and
operations management. Prior to joining the JNV University, Jodhpur, in 1998, he served in industry
for four years. He has been awarded research projects under the Career Award for Young Teacher
Scheme by the All India Council for Technical Education (AICTE) and University Grants
Commission (UGC), New Delhi, India. His areas of research interests include management
information systems, performance measurement, supply chain management and small business
development. He has published research papers in Production Planning & Control, Computers &
Industrial Engineering, International Journal of Productivity and Quality Management, Journal of
Manufacturing Technology Management, International Journal of Globalization and Small Business,
International Journal of Enterprise Network Management and Measuring Business Excellence. He is
currently editing one international journal as a special issue editor on performance measurement.
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