PERFORMANCE

MEASUREMENT ALONG
THE SUPPLY CHAIN
Introduction

“You can’t improve what you don’t measure”

– Companies using performance measurement are
more likely to achieve leadership positions &
twice as likely to handle a major change
successfully.
– Performance measurements vary from company
to company.
– World-class status may initially cost more.
– Adding several tiers of suppliers & customers
complicates performance measurement.
– Performance measures must be visible &
communicated to all members of the SC.

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Performance measurement system
(PMS): Desirable Features
• Transparent
• Simple
• self-regulating
• Objective
• Motivating and stimulating to all
stakeholders

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Viewing the SC as a
Competitive Weapon
Understanding End Customers
Supply chains need to look at each segment of
the market they serve & determine the needs
of those customers.
– Variety of products required
– Quantity & delivery frequency needed
– Service level desired
– Product quality desired
– Price of the products

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Viewing the SC as a
Competitive Weapon (Cont.)
Understanding SC Partner
Requirements
Supply chain strategies must consider the
potential trade-offs existing between:
– Cost
– Quality
– Quantity
– Service

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Viewing the SC as a
Competitive Weapon (Cont.)
Adjusting SC Member Capabilities
– SC members audit their capabilities &
partners’ to determine consistency with
needs of end customers & SC.
– Firms & their partners must continually
reassess performance with respect to
requirements.
– The best SC performers are more
responsive to customer needs, quicker to
anticipate changes in the markets, &
control costs much better.

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Traditional Performance
Measures
Traditional Performance Measures
– Traditional cost-based information does not
reflect the underlying performance of an
organization’s productive systems; costs &
profits can be hidden or manipulated.
– Decisions to maximize current stock prices
do not necessarily reflect that the firm is
performing well.
– Financial performance measures, while
important, cannot adequately capture a
firm’s ability to excel in these areas.

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Traditional Performance
Measures (Cont.)
Use of Organization Costs, Revenue,
& Profitability Measures
Problems associated with using costs & profits
to gauge performance:
– Uncontrollable environmental forces (e.g.,
windfall profits that occur when prices rise
due to supply interruptions)
– Accurate attribution of cost, revenue, or
profit contributions to the various
functional or business units

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Traditional Performance
Measures (Cont.)
Use of Performance Standards &
Variances
Establishing standards for comparison purposes
can be troublesome.
– Employees & managers do whatever it takes to
reach the goal
– Shoddy work & “Cooking” the books.
Performance variance- the difference between
the standard & actual performance.
– Managers can be pressured to find ways to make up
these variances, resulting in poor decisions.

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Traditional Performance
Measures (Cont.)
Use of Firm-Wide Productivity &
Utilization Measures
These measures are useful but have the same
problems as revenues, costs, & profits.
– Productivity decisions may actually increase costs
& reduce quality.
– Tendency to continue producing & adding to
inventory to keep machines & people busy.
– Less time is spent doing preventive maintenance &
training for greater performance & profits in future.
– Traditional measures favor the short-term.

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World-Class Performance
Measurement Systems
Developing World Class Performance
Measures
– Identify the firm’s strategic objectives.
– Develop an understanding of each functional area’s
role & the required capabilities.
– Identify internal & external trends likely to affect the
firm & its performance over time.
– For each functional area, develop performance
measures that describe each area’s capabilities.
– Document current performance measures & identify
changes that must be implemented.
– Assure the compatibility & strategic focus of the
performance measures to be used.
– Implement the new performance system.
– Periodically reevaluate the firm’s performance
measurement system.

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SC Performance
Measurement Systems
Performance measurement systems must:
– Link SC trading partners to achieve breakthrough
performance in satisfying the end users.
– Overlay the entire supply chain to assure that all
contribute to supply chain strategy.
In a successful chain, members jointly agree on
a SC performance measurement system.
Demand driven supply networks are supply
chains with enough flexibility to quickly respond
to changes in the marketplace

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SC Performance Meas.
Systems (Cont.)
Environmental sustainability-
– Addressing the need for protecting the environment &
reducing greenhouse gas emissions as well business
& consumer needs
Green supply chain management (GSCM)-
– Sharing of environmental responsibility along the SC
such that sound environmental practices predominate,
& adverse global environmental effects are minimized.
Carbon footprint-
– Supply chains evaluate design configurations and
various options for reducing total carbon emissions

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SC Performance Meas.
Systems (Cont.)
Supply Chain Performance Measures
1. Total SCM costs: cost to process orders; purchase &
manage inventories; & information systems.
2. SC cash-to-cash cycle time: Avg. # of days between
paying for materials & getting paid by SC partners.
3. SC production flexibility: avg. time required to provide
an unplanned 20% increase in production.
4. SC delivery performance: avg. % of orders filled by
requested delivery date.
5. SC perfect order fulfillment performance: average %
of orders that arrive on time, complete, & undamaged.
6. Supply chain e-business performance: avg. % of
electronic orders received for all SC members.
7. Supply Chain Environmental Performance: % of SC
w/ISO 14000 partners; avg. % env. goals met.
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The Balanced Scorecard
Developed by Kaplan & Norton to align an
organization’s performance measures with
its strategic plan & goals. The BSC
framework consists of four perspectives:
– Financial perspective
– Internal business process perspective
– Customer perspective
– Learning & growth perspective

Also referred to as scorecarding

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 Four Perspectives
Customer Perspective How do
What must Objectives Measures Targets customer see us?
we excel at? How do our
customers see
us?

Internal Business Innovation and Learning

Objectives Measures Targets Objectives Measures Targets
Vision How can we
What must and continue to
we excel at? improve and
Strategy
create value?

Financial Perspective
Objectives Measures Targets
How can we
How do we How do we look continue to
Look to to
improve and
stakeholders?
shareholder? create value
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The Balanced Scorecard
(Cont.)
Web-Based Scorecards
Dashboards
– Web-based software applications used to design
scorecards, which also link via the Web to a firm’s
enterprise software system.
– Provide managers a way to see real-time
progress toward organizational milestones & help
to ensure that decisions remain in sync with the
firm’s overall strategies.

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 How Does a Balanced Scorecard
Assist in Strategy Implementation?
1

It helps gain 2

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consensus and
ownership
Making Formulate
It translates
strategy a strategy into
continuous Navigate STRATEGY Communicate
operational
process terms
Execute
4 3

Making Strategy It enhances

Everybody’s Job accountability of
managers to achieve
transformation
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targets
Supply Chain Operations
Reference (SCOR) Model
Developed by the Supply-Chain Council for
SCM diagnostic benchmarking, & process
improvement. The SCOR model separates
supply chain operations into 5 process
categories:
– Plan
– Source
– Make
– Deliver
– Return

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SCOR Model (Cont.)

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SCOR Model (Cont.)

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SCOR Model (Cont.)

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SCOR Model (Cont.)

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SCOR Model (Cont.)
Additions have been made to the SCOR
model
– Original SCOR model did not address sales &
marketing processes, some aspects of service, &
support processes (i.e., HR & technology
development).
Customer Chain Operations Reference model (CCOR)
– Defines the customer part of the SC as the
integration of Plan, Relate, Sell, Contract, Service,
& Enable processes.
Design Chain Operations Reference model (DCOR)
– Defines the design portion of the SC as the
integration of Plan, Research, Design, Integrate,
Amend, & Enable processes.

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Remarks

• PMS helps in assessing the

strength as well as identifying the
‘weak spots’
• It directs improvement process
• It motivates variety of
stakeholders
• Guides in implementing strategy

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