Performance Measures

in Supply Chain
Management

ZIKRUL MCIPS; PMP

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Q1. The measuring performance in supply chain may impact on improvement of
Supply Network. Explain with example.

 Cost reduction
 Service improvement
 Continuous improvement progress
 Improved/reduced stockholding
 Improved quality outputs
 Improved delivery/schedules
 Improves process control/systems
 Reduced transaction costs
 Improved supplier base management
 Improved communications
 Measures specific to the organization

ZIKRUL MCIPS, PMP

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Q2. Define the characteristics an effective performance
measurement system.

SMART
 Acceptability: The method should be accepted by all SC partners, purchasing
staff, not just the ‘owners.’ Buy in.
 Achievability: Standards of performance and timescales for improvement must
be realistic and within the individual’s control
 Appropriateness: The methods and factors must be relevant to the work of
individuals and the department or Function.
 Flexibility: Methods and measurements must be reviewed and adapted as
circumstances change. Change management.
 Continuity: Methods should be retained over a reasonable period, to allow
comparison of performance over time.
 Comprehension: Methods should be uncomplicated and easily communicated.
(In this respect, too much data is as counter-productive as inadequate data.)
 Credibility: The method and measures should be convincing enough to secure
‘buy in’ by all parties
 Cost: The cost of measurement should not be out of proportion to the perceived
benefit of the exercise.

ZIKRUL MCIPS, PMP

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 Q3. Outline the comparison Supplier and buyer
performance measures.
Supplier satisfaction measures:
What do our suppliers want and need from
us?
 Supplier satisfaction level
 Average spend per supplier trend
 Average supplier retention (length of
service)
 Percentage of value purchased through
single- source supplier arrangements
 Percentage of suppliers to whom demand
visibility provided
 Level of demand forecast accuracy
 Level of specification changes
 Level of supplier payments overdue
 Level of supplier billing errors
ZIKRUL MCIPS, PMP
Supplier contribution measures:
What do we want and need from our
suppliers?
 Contribution to revenues/cost savings
 Complaints about supplier performance
 Level of product quality non conformance
 Level of late deliveries (to
promise/request)
 Level of after-sales product/service
problems
 Level of customer warranty/liability claims
attributed to supplier failure
 Level of supplier-generated improvement
suggestions contributed/implemented
 Perceived value for money of supplier
contribution
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Q4. Define the Typical Key Performance Indicators in SC.

Total Delivered Cost

Customer Service. 
Supply Variability. 
Demand Variability.
Operating Costs. 
Performance to Plan. 
Inventory. 

ZIKRUL MCIPS, PMP

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 Q5. Define the CPFR and CPFR Activities.

Collaborative Planning, Forecasting and Replenishment

(CPFR)

Strategy & Planning: Establish the ground rules for the

collaborative relationship. Determine product mix and placement,
and develop event plans for the period.
Demand & Supply Management: Project consumer (point-of-
sale) demand, as well as order and shipment requirements over
the planning horizon.
Execution: Place orders, prepare and deliver shipments, receive
and stock products on retail shelves, record sales transactions
and make payments.
Analysis: Monitor planning and execution activities for exception
conditions. Aggregate results, and calculate key performance
metrics. Share insights and adjust plans for continuously
improved results
ZIKRUL MCIPS, PMP

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 Q6. Discuss the KPI in SC Network

 Central purchasing
 Decentralized purchasing
 Centre led action network (CLAN): A combination of centrally
led management with agreed delegation of category or common
needs being undertaken within divisions
 Category Buying- Specialist buyers for specific categories of
goods and services
 Consortium Buying- Mainly public service for operations with
similar non-competing services, e.g. university or local government
consortium
 Cooperative Buying between groups with similar needs

ZIKRUL MCIPS, PMP

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 Q7. Purchasing can add value. Explain with example.

 By selecting appropriate suppliers they can improve the quality of inputs, with
consequent improvement in the quality of outputs.
 By effective negotiation and/or tendering they can reduce the cost of inputs.
 By effective functional management they can reduce the cost of processing
purchase transactions.
 By effective dialogue with user departments they can improve specifications
so that purchasing needs are fulfilled more efficiently and at lower cost. CFT
 By effective liaison with user departments and suppliers they can ensure that
inputs surplus to requirements are eliminated.
 By effective inventory management they can minimise the costs of acquiring
and holding stock.

Framework for Value adding Effective Purchasing

tool.

ZIKRUL MCIPS, PMP

8
 Q8. Define the Costs of acquiring (Purchasing/producing) stock and
holding stock. How to reduce inventory costs.

Costs of acquiring (producing) stock Costs of holding stock

Setting up and maintaining an information system
for processing orders Opportunity costs of funds tied
up in purchase of large orders
Preparing an order requisition
Evaluating & Selecting a supplier Owning or renting warehouse or
Preparing and processing a purchase order stores space
Preparing and processing a goods received note Employing warehouse or stores
staff
Clerical time, stationery, postage or fax charges Insuring stock
Preparing and processing payment
Deterioration of stock
Loss of bulk purchase discounts
Production set-up costs
Obsolescence of stock
Opportunity costs of stockouts

ZIKRUL MCIPS, PMP

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Q8. Define the Costs of acquiring (Purchasing/producing) stock and
holding stock. How to reduce inventory costs.

 JIT: Just-in-time philosophy

 Lean: Reduce waste
 WIP: Work in process
 Financial costs: Bank interests
 Opportunity costs: Best opportunity?
 Process costs: Buying the goods, handling the stock, assembling
and moving the stock, and finally issuing and dispatching the finished
stock produced

ZIKRUL MCIPS, PMP

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Q9. Discuss the Generation and Capture of Value in Supply Chains.

Only by understanding the limitations around existing measures of

performance, and the nature of value for organisations and customers,
can purchasers hope to demonstrate the effectiveness and efficiency of
its output. Failure to use the concept of value risks procurement being
constrained, and ultimately threatened, by not being assessed or
appreciated for its broader contribution.
For creation of value to SC, we will consider five common procurement
strategies, namely, Aggregation, Standardisation, Category
management, Outsourcing, and Relationship management and three
major tools - Specification, Tenders, and Contracts.
Cost
Price
Risk
Time
Innovation
Market knowledge

ZIKRUL MCIPS, PMP

11
Q10. Discuss the Basic model of Porter’s value chain with example.

 Basic model of Porter’s value chain

 Limitation of Porter’s value chain

ZIKRUL MCIPS, PMP

12
Q11. Define A. T. Kearney’s Seven Steps for Strategic Sourcing
network with example.

ZIKRUL MCIPS, PMP

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ZIKRUL MCIPS, PMP

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Q12. Define the Inventory Management KPIs.

 Demand Forecast Accuracy

 Customer Satisfaction Levels
 Perfect Order Performance
 Fill Rate Effectiveness as a Percentage of All Orders
 Gross Contribution Margins by Product, Production Facility and
Business Unit
 Order Cycle Time
 Order Pick, Pack and Ship Accuracy
 Inventory Turnover
 Supplier Quality Index

ZIKRUL MCIPS, PMP

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Q13. Discuss the Price improvement strategy/Approach.

 Assess the value placed on the service or product by a potential

customer. For example, is the product or service viewed as better
than similar products on the market? If not, should the price be
reduced?

 Are there any variations in the way customers value the service or
product? Rather than sticking to a single product/price policy, should
consideration be given to customising both for a particular segment
of the customer base? (In the software industry, for example,
discounts on new products are often offered to customers who
already have a previous version.) Similarly, is there a variation in
intensity of use by segments of the customer base? Heavy users will
often value a product more than light users.

 What is the customers’ price sensitivity? If an increase or decrease

of, say, 2% is made, what will be the effect on customer behaviour.

ZIKRUL MCIPS, PMP

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Q13. Discuss the Price improvement strategy/Approach.

ZIKRUL MCIPS, PMP

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Q13. Discuss the Price improvement strategy/Approach.

 Is there an optimal pricing structure? For example, Disney charges

admission to its theme parks, after which all rides are free. Is this
better, and does it attract more custom than charging for each
individual ride? Two other issues to consider are: should bundled
pricing be offered and would quantity discounts be advantageous? An
example of bundling is the camera retailer who supplies film with the
camera the customer is interested in, at a reduced price to what it
would cost to buy them separately. The strategy here is to forego
some of the initial profit potential on the hardware with a view to
increasing sales volume, and also to increase the potential demand
for the software i.e. the film if the customer likes it. The quantity
discount strategy involves offering discounts on subsequent
purchases of the item or service at the same time, to increase
turnover. For example, if a seller will not budge from a particular
price, then buyers will probably restrict their purchases to the
absolute minimum.

ZIKRUL MCIPS, PMP

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Q13. Discuss the Price improvement strategy/Approach.

 On large contracts, it is often the case that a prime supplier will

undertake to supply a complete package of peripherals as well as its
prime product. The customer might go elsewhere if this service is not
offered, and the supplier will lose out on sales of its equipment to
those who are prepared to accept the responsibility of sourcing the
complete package.
 On the other hand, a seller offering discounts will - human nature
being what it is – sell more. In the case where one costs £100, a
second costs £80, a third £60 and so on, turnover is likely to be higher
than if every item purchased costs £100.
 What will the reaction of the competition be? Is a price war a
possibility? Is your pricing policy flexible enough to deal with such a
situation? Consider what you would do if a competitor suddenly
entered “your” market with a similar product at a competitive price.
Could you respond?

ZIKRUL MCIPS, PMP

19
Q13. Discuss the Price improvement strategy/Approach.

ZIKRUL MCIPS, PMP

20
Q13. Discuss the Price improvement strategy/Approach.

 On large contracts, it is often the case that a prime supplier will

undertake to supply a complete package of peripherals as well as its
prime product. The customer might go elsewhere if this service is not
offered, and the supplier will lose out on sales of its equipment to
those who are prepared to accept the responsibility of sourcing the
complete package.
 On the other hand, a seller offering discounts will - human nature
being what it is – sell more. In the case where one costs £100, a
second costs £80, a third £60 and so on, turnover is likely to be higher
than if every item purchased costs £100.
 What will the reaction of the competition be? Is a price war a
possibility? Is your pricing policy flexible enough to deal with such a
situation? Consider what you would do if a competitor suddenly
entered “your” market with a similar product at a competitive price.
Could you respond?

ZIKRUL MCIPS, PMP

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Q14. Discuss the Category management and different spend
categories with example.

 Goods and services that are critical to the

manufacture/delivery of the final product or
service
 Specific to the organization/industry;
examples of direct materials include iron ore
for a steel manufacturer, rubber for a tire
manufacturer, or memory chips and screens
for a mobile device manufacturer

 Goods and services that are commonly

required to manufacture/deliver the final
product/service
 Industry commodities; examples of non-core
direction materials include lubricants,
packaging, and Maintenance, Repair, &
Overhaul (MRO) for an electronics
manufacturer

ZIKRUL MCIPS, PMP

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Q14. Discuss the Category management and different spend
categories with example.

 Non-production goods and services

that are not directly required to
manufacture/deliver the final
product/service but are needed for
efficient business operations

 For example: spend categories

such as facilities, office supplies,
travel & logistics, and
marketing/sales for a Fast-Moving
Consumer Goods (FMCG) company

ZIKRUL MCIPS, PMP

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