PERFORMANCE

MEASUREMENT ALONG THE

SUPPLY CHAIN
PERFORMANCE MEASUREMENT
ALONG THE
SUPPLY CHAIN

Discuss why managers need to measure and

assess the performance of their firms as well as
their supply chains.
VIEWING THE SUPPLY CHAIN
AS A COMPETITIVE FORCE
Understanding End Customers
Companies must look at customer segment needs such as: • The
variety of products required • The quantity and delivery
frequency needed • The product quality desired • The level of
sustainability sought, and • The pricing of products.

Understanding Supply Chain cost, quality, sustainability and service requirements mentioned
Partner Requirements above

Adjusting Supply Chain Member Capabilities

TRADITIONAL PERFORMANCE
MEASURES
Use of Organization Costs, Revenue and Profitability Measures

Use of Performance Standards and Variances

Use of Firm-Wide Productivity and Utilization Measures

 WORLD-CLASS
PERFORMANCE
MEASUREMENT SYSTEMS
Developing World-Class Performance Measures

Businesses respond to increased competitive and marketplace pressures by developing and maintaining a distinctive
competitive advantage, which creates the need to develop effective performance measurement systems linking firm strategies
and operating decisions to customer requirements. Performance criteria that guide a firm’s decision making to achieve
strategic objectives must be easy to implement, understand and measure; they must be flexible and consistent with the firm’s
objectives; and they must be implemented in areas that are viewed as critical to the creation of value for customers.

Creating an effective performance measurement system involves the following steps:13 • Identify the firm’s strategic objectives. •
Develop an understanding of each functional area’s set of requirements for achieving the strategic objectives. • Design and documen
performance measures for each functional area that adequately track each required capability. • Assure the compatibility and strategi
focus of the performance measures to be used
• Implement the new performance monitoring system. • Identify internal and external trends likely to affect firm and functional area
performance over time. • Periodically re-evaluate the firm’s performance measurement system as these trends and other
environmental changes occur.
WORLD-CLASS PERFORMANCE
MEASURES
 SPECIFIC SUPPLY CHAIN
PERFORMANCE MEASURES
Total Supply Chain Management Costs
the costs to process orders, purchase materials, purchase energy,
comply with environmental regulations, manage inventories and
returns and manage supply chain finance, planning and
information systems
Supply Chain Cash-to-Cash Cycle Time:
the average number of days between paying for raw materials
and getting paid for product, for the supply chain trading partners
(calculated by inventory days of supply plus days of sales
outstanding minus average payment period for material)
Supply Chain Production Flexibility:
the average time required for supply chain members to provide
an unplanned, sustainable 20 percent increase in production.
Supply Chain Delivery Performance:
the average percentage of orders for the supply chain members
that are filled on or before the requested delivery date
Supply Chain e-Business Performance:
the average percentage of electronic orders received for all supply chain members. In
1998, only about 2 percent of all firms’ purchase orders were made over the Internet. By
2007, for example, office supply retailer Staples said that 90 percent of their orders came
in electronically
Supply Chain Environmental Performance
the percentage of supply chain trading partners that have become ISO 14000 certified; the
percentage of supply chain trading partners that have created a director of environmental
sustainability; the average percentage of environmental goals met; the average number of
policies adopted to reduce greenhouse gas emissions; and the average percentage of carbon
footprints that have been offset by sound environmental practices
Supply Chain Perfect Order Fulfillment Performance
the average percentage of orders among supply chain members that arrive on time, complete
and damage free
THE BALANCED SCORECARD
The Balanced Scorecard is a management tool that provides stakeholders with a
comprehensive measure of how the organization is progressing towards the
achievement of its strategic goals
THE STRATEGY FOCUSED
ORGANIZATION

Mission – What we do

Vision – What we aspire to be

Strategies – How we accomplish our goals

Measures – Indicators of our progress

MANAGEMENT
PROCESS
LINKAGES Business
Strategy

Performance
Measurement
System
A management process that
is used to monitor business
activities and thereby
facilitate achievement of the
firm’s objectives
Business
Processes
A business process is a
collection of linked business
activities that enable or
deliver goods, services,
information or money
Stakeholder
Value
Propositions
Descriptions of the “give
and get” relationships
between the firm and each
of its stakeholders, relative
to alternatives
 THE BALANCED SCORECARD LINKS
PERFORMANCE MEASURES
Financial Perspective How do we look to shareholders?

Goals Measures

Financial Perspective—measures that address How do customers see us?

What must we excel at?
revenue and profitability growth, product mix, cost
Internal Business
reduction, productivity, asset utilization and Customer Perspective Perspective
investment strategies. Traditional financial measures
are typically used. • Internal Business Process Goals Measures Goals Measures
Perspective—focuses on performance of the most
critical internal business processes of the
organization including quality, new product
development, flexibility, innovative elements of
processes and time based measures. • Customer
Perspective—measures that focus on customer
Learning and Innovation
requirements and satisfaction including customer Perspective
satisfaction ratings, reliability and responsiveness,
customer retention, new customer acquisition, Goals Measures
customer valued attributes and customer profitability.
• Learning and Growth Perspective—measures Can we continue to improve
concentrating on the organization’s people, systems, and create value?
external environment, and including retaining and
training employees, enhancing information
technology and systems, employee safety and health
and environmental sustainability issues
THE SCOR MODEL
One of the more recognized methods for integrating supply chains and measuring
trading partner performance is use of the Supply Chain Operations Reference
(SCOR) model

The SCOR model separates supply chain operations into five process categories—
plan, source, make, deliver and return
THE SCOR MODEL
PLAN—Demand and supply planning including balancing resources with requirements; establishing/communicating
plans for the supply chain; management of business rules, supply chain performance, data collection, inventory, capital
assets, transportation and regulatory requirements.
SOURCE—Sourcing stocked, make-to-order and engineer-to-order products including scheduling deliveries,
receiving, verifying, and transferring product, authorizing supplier payments, identifying and selecting suppliers,
assessing supplier performance, managing incoming inventory and supplier agreements.
MAKE—Make-to-stock, make-to-order and engineer-to-order production execution including scheduling production
activities, producing, testing, packaging, staging, and releasing product for delivery, finalizing engineering for
engineer to-order products, managing work-in-process, equipment, facilities and the production network
DELIVER—Order, warehouse, transportation and installation management for stocked, make-to-order and engineer-
to-order product including all order management steps from order inquiries and quotes to routing shipments and
selecting carriers, warehouse management from receiving and picking to loading and shipping product, invoicing
customer, managing finished product inventories and import/export requirements.
RETURN—Returns of purchased materials to suppliers and receipt of finished goods returns from customers
including authorizing and scheduling returns, receiving, verifying, and disposition of defective or excess products,
return replacement or credit, and managing return inventories.
THE SCOR MODEL LINKAGES

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