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Performance measures and Performance

measures and
metrics in a supply chain metrics

environment
A. Gunasekaran 71
University of Massachusetts, North Dartmouth, Massachusetts, USA
C. Patel
Brunel University, Uxbridge, Middlesex, UK, and
E. Tirtiroglu
University of Massachusetts, North Dartmouth, Massachusetts, USA
Keywords Supply chain management, Performance measurement, Customer satisfaction
Abstract In today’s world, supply chain management (SCM) is a key strategic factor for
increasing organizational effectiveness and for better realization of organizational goals such as
enhanced competitiveness, better customer care and increased profitability. The era of both
globalization of markets and outsourcing has begun, and many companies select supply chain and
logistics to manage their operations. Most of these companies realize that, in order to evolve an
efficient and effective supply chain, SCM needs to be assessed for its performance. Based on a
literature survey, an attempt has been made in this paper to develop a framework for measuring
the strategic, tactical and operational level performance in a supply chain. In addition, a list of key
performance metrics is presented. The emphasis is on performance measures dealing with
suppliers, delivery performance, customer-service, and inventory and logistics costs in a SCM. In
developing the metrics, an effort has been made to align and relate them to customer satisfaction.

1. Introduction
In today’s markets, technological and competitive forces are changing at an ever-
increasing rate. To respond to these forces, radical changes in organizations
have become necessary. The viability of a firm now depends largely on how well
it is capable of responding to customer requirements while becoming lean. It is
becoming increasingly more difficult and less economical for companies to
produce their needs on their own. Instead, outsourcing is becoming one of their
main strategies. Also, the ever-increasing trend in globalization and customer
orientation requires a logistics-sensitive organization. Supply chain
management (SCM) is an approach that has evolved out of the integration of
these considerations. A definition of supply chain (Stevens, 1989) is:
A system whose constituent parts include material suppliers, production facilities,
distribution services and customers linked together via the feed forward flow of materials and
the feedback flow of information.

From the beginning of this decade, this subject has been studied and practiced,
and has been reported in the literature. While there are many ongoing research
efforts on various aspects and areas of SCM, so far little attention has been International Journal of Operations &
given to the performance evaluation, and hence, to the measures and metrics of Production Management,
Vol. 21 No. 1/2, 2001, pp. 71-87.
supply chains. A notable work in this area is by Stewart (1995). New (1996) has # MCB University Press, 0144-3577
IJOPM used a taxonomy to discuss a framework for improving supply chain
21,1/2 performance. As a pitfall in managing supply chain inventories, Lee and
Billington (1992) also draw attention to the lack of supply chain metrics.
The organization of the paper is as follows: Section 2 analyzes the need for
performance measures and metrics in a supply chain. Section 3 deals with the
identification of measures and metrics in the areas of planning, sourcing, make/
72 assembly decisions, delivery, and customer service level. In Section 4, a
framework has been developed to measure the performance in a supply chain
environment. Finally, conclusions are presented in Section 5.

2. The need for performance measurement and metrics in a supply

chain
In recent years, a number of firms realized the potentials of SCM. However,
they often lack the insight for the development of effective performance
measures and metrics needed to achieve a fully integrated supply chain.
Moreover, such measures and metrics are needed to test and reveal the viability
of strategies without which a clear direction for improvement and realization of
goals would be highly difficult. Lee and Billington (1992) argue that discrete
sites in a supply chain do not lead to an improved productivity if each is to
pursue its goals independently, which has been the traditional practice. There
is, however, a greater need to study the measures and metrics in the context of
the following two reasons:
(1) Lack of a balanced approach. Many companies have realized the
importance of financial and non-financial performance measures.
However, they failed to understand them in a balanced framework.
According to Kaplan and Norton (1992), while some managers and
researchers have concentrated on financial performance measures,
others have concentrated on operational measures. Such an inequality
does not lead to metrics that can present a clear picture of the
organizational performance. As suggested by Maskell (1991), for a
balanced approach, companies should bear in mind that, while financial
performance measurements are important for strategic decisions and
external reporting, day-to-day control of manufacturing and distribution
operations is better handled with non-financial measures.
Another area where inequality persists is deciding on the number of
metrics to be used. Quite often, companies have a large number of
performance measures to which they keep on adding based on
suggestions from employees and consultants, and fail to realize that
performance measurement can be better addressed using a good few
metrics.
(2) Lack of a clear distinction between metrics at strategic, tactical, and
operational levels. Metrics that are used in performance measurement
influence the decisions to be made at strategic, tactical, and operational
levels. However, we fail to come across any such classification for
 supply chain management. Using a classification based on these three Performance
levels, each metric can be assigned to a level where it would be most measures and
appropriate. For example, in dealing with inventory, it would be most metrics
suitable to assess it from an operational point of view where day-to-day
inventory level can be measured and monitored.
Therefore, it is clear that for effective management in a supply chain, 73
measurement goals must consider the overall supply chain goals and the
metrics to be used. These should represent a balanced approach and should be
classified at strategic, tactical and operational levels, and be financial and non-
financial measures, as well.
This being the background, the measures and metrics are identified and
discussed in the next section along the four links of an integrated supply chain
(Stewart, 1995), namely:
(1) plan;
(2) source;
(3) make/assemble;
(4) delivery/customer

3. Performance metrics and measurement in a supply chain

In this section, we make an attempt to discuss some of the most appropriate
performance metrics and measures in a supply chain.

3.1 Metrics for performance evaluation of planned order procedures

For any firm, the first activity to begin with 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 determines the performance of downstream activities
and inventory levels. Hence, the first step in assessing performance is to
analyze 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 path of
order traverse ± need to be considered. The details of these are provided
hereunder.
The order entry method. The order entry method determines the way and the
extent to which the customer specifications are converted into useful
information, and are passed down along the supply chain. According to Mason-
Jones and Towill (1997), such information connects all levels of supply chain
and affects the scheduling of all activities. Proper control of the order is
possible, provided that the order entry method is capable of providing timely,
accurate and usable data at various entry levels, and hence, can be used as a
metric of performance measure.
Order lead-time. The total order cycle time, which is called ``order lead-time’’,
refers to the time which elapses between the receipt of the customer’s order and
the delivery of the goods. This includes the following time elements:
IJOPM
21,1/2

74

Figure 1.
The path of a customer
order

Total order cycle time = Order entry time (through forecasts/direct order
from the customer)
+ Order planning time (Design + Communication
+ Scheduling time)
+ Order sourcing, assembly and follow up time
+ Finished goods delivery time.

A reduction in the order cycle time leads to a reduction in the supply chain
response time. This is an important measure as well as a major source of
competitive advantage (Bower and Hout, 1988; Christopher, 1992). According
to Towill (1997), it directly influences the customer satisfaction level. Equally
important is the reliability and consistency of lead-time. Because of bottlenecks,
inefficient processes and fluctuations in the volume of orders handled, there
will be variations in activity completion times. The overall effect of this may
lead to a substantial reduction in delivery reliability and customer service level.
To deal with these, for example, the concept of ``manufacturing cell’’ can be
applied, in which well-integrated actions are performed in parallel by cross-
functional teams to effectively decrease the order lead-time and reduce the
redundancies (Schonberger, 1990). In fact, Schonberger notes that, in one case
study, Ahlstrom, a Finnish company, was able to reduce the order lead-time
from one week to one day. It is safe to say that measurement of total cycle time
is relevant both in the context of customer service, and to serve as a feedback to
control the day-to-day operations.
 The customer order path. The path that orders traverse is another important Performance
measure whereby the time spent in different routes and non-value adding measures and
activities can be identified, and suitable steps can be taken to eliminate them. metrics
For example, by tracing through the order path, the delays in paperwork, time
consumed while the product sits in the warehouse, time spent in checking and
rechecking can be identified and eliminated using methods such as JIT,
reengineering, and information technology (e.g. e-commerce, electronic data 75
interchange (EDI) and the Internet).

3.2 Supply chain partnership and related metrics

Fisher (1997) reports that a recent study in US food industry estimated that poor
co-ordination among supply chain partners is wasting $30 billion annually.
This clearly indicates the importance of partnership in a supply chain. It is
not uncommon for outsourcing to contribute nearly 50 per cent of the goods
produced (Thomas and Griffin, 1996). Hence, faster introduction of a product
now considerably depends on the reliability and quick responsiveness of
suppliers. This helps to evaluate the level of competitiveness.
A strong partnership emphasizes direct, long-term association, encouraging
mutual planning and problem solving efforts. Recently, buyer-supplier
partnership has gained a tremendous amount of attention from industries and
researches, resulting in a steady stream of literature promoting it (e.g. Ellram,
1991; Toni et al., 1994; MacBeth and Ferguson, 1994; Graham et al., 1994;
Landeros et al., 1995; New, 1996; Towill, 1997; Maloni and Benton, 1997). Most
of these studies stress the partnership for better supply chain operations.
Accordingly, an efficient and effective performance evaluation of buyer and/or
suppliers is not just enough; the extent of partnership that exists between them
needs to be evaluated and improved, as well. An effort is needed to draw a clear
picture of the partnership in the supply network with the objective of preparing
steps to increase efficiency and speed.
A set of criteria/parameters needs to be considered in evaluating
partnership. For example, the level of assistance in mutual problem solving
supports the buyer-supplier partnership development. This also shows the
extent of partnership that exists between them. The parameters that measure
the level of partnership are summarized in Table I.

Partnership evaluation criteria References

Level and degree of information sharing Toni et al. (1994),

Mason-Jones and Towill (1997)
Buyer-vendor cost saving initiatives Thomas and Griffin (1996)
Extent of mutual co-operation leading to improved
quality Graham et al. (1994) Table I.
Partnership evaluation
The entity and stage at which supplier is involved Toni et al. (1994) parameters in a
Extent of mutual assistance in problem solving efforts Maloni and Benton (1997) supply chain
IJOPM An evaluation based on the above criteria will result in a win-win partnership,
21,1/2 leading to a more efficient and integrated supply chain.

3.3 Production level measures and metrics

Once orders are planned and the goods sourced, the next step is to make/
assemble them. The performance of this ``make/assemble’’ has a major impact
76 on product cost, quality, speed of delivery, and on delivery reliability and
flexibility (Mapes et al., 1997; Slack et al., 1995). As an important part of SCM,
the performance of the production process also needs to be measured, managed,
improved, and suitable metrics for it should be established.
Range of product and services. According to Mapes et al. (1997), a company
that manufactures a wide range of products is likely to introduce new products
at a slower rate than companies with a narrow product range. Based on a
statistical analysis of ``UK Best Factory Awards Database,’’ these authors show
that plants that manufacture a wide range of products are likely to perform
poorly on added-value per employee, speed and delivery reliability.
Furthermore, a company with an extensive product portfolio less frequently
breeds new products of innovation. This indicates the impact of ``product
range’’ on supply chain performance, and so, it needs to be measured. The same
analysis can be applicable for services, as well.
According to Fisher (1997), the selection of a right supply chain strategy
depends upon the nature of product variety and innovation. This also implies
that the range of products and services acts as an important strategic metric,
and hence, it should be considered in performance evaluation.
Capacity utilization. According to Wild (1995): ``All the operations planning
takes place within the framework set by capacity decisions.’’
From the above statement, the role of ``capacity’’ in determining the level of
all supply chain activities is clear. This highlights the importance of measuring
and controlling the capacity utilization. According to Slack et al. (1995),
capacity utilization directly affects the speed of response to customers’ demand.
Hence, by measuring capacity, gains in flexibility, lead-time and deliverability
will be achieved.
Effectiveness of scheduling techniques. Scheduling refers to the time or date
at which activities are to be undertaken. Such fixing determines the manner in
which the resources flow through an operating system. The effectiveness of
this has a significant impact on the performance of a supply chain. For
example, scheduling based on JIT has tremendous influence on inventory
levels. Similarly, computer generated schedules based on systems like MRP,
and more recently ERP, provide a detailed and accurate bill of materials. These
impact the effectiveness of purchasing, throughput time and batch size.
However, the application of such systems should not be limited to scheduling of
shopfloor activities and comparing their performance with others. In the case of
supply chains, since scheduling depends heavily on customer demand and
supplier performance, the scheduling tools/methods should also be viewed
from that context. Based on these, it can be concluded that measuring and
improving effectiveness of scheduling techniques will improve the Performance
performance of a supply chain. measures and
Besides those mentioned above, there are other performance measures metrics
including: the productivity of human resources, comparison of actual versus
planned throughput time to determine the process efficiency, inventory levels,
and manufacturing cost. Of these performance measures, inventory spans the
entirety of the supply chain, and hence, is not just confined to production. 77

3.4 Performance evaluation of delivery link

The link in a supply chain that directly deals with customers is the delivery of
goods or services, and therefore, it is called ``driver of customer satisfaction’’
(Stewart, 1995). However, by its very nature, delivery operates in a dynamic
and ever-changing environment, making the analysis and subsequent
improvement plan of a distribution system difficult. Consistent with this, it is
not an easy task to appreciate how a change in one of the major elements of a
distribution structure will affect the system as a whole (Rushton and Oxley,
1991). One of the ways to overcome this problem is to adopt a total systems
view with the objective of understanding and measuring the system
performance as a whole, as well as in relation to the constituent parts of the
system.
3.4.1 Measures for delivery performance evaluation. In any typical delivery
distribution mode, the delivery channel, vehicle scheduling, and warehouse
location play an important role in delivery performance. An increase in delivery
performance is possible by selecting suitable channel, scheduling and location
policies. A survey conducted by Gelders et al. (1994) in Belgium shows that
tremendous opportunities exist to improve the supply chain performance based
on lead-time reduction in the delivery process. What is needed, according to
Gelders et al. (1994), is an understanding of the link between delivery channels
and organizational operating schedules.
Another important aspect of delivery performance is on-time delivery. This
determines whether a perfect delivery has taken place or not, and it acts as a
measure of customer service level. Stewart (1995) identifies the following as the
measures of delivery performance:
.
delivery-to-request date;
. delivery-to-commit date; and
. order fill lead-time.
His study reveals a trend in the reduction of lead-time as an operational
strategy for improving delivery performance.
Another aspect of delivery performance evaluation is the percentage of
goods in transit. A higher percentage signifies low inventory turns, leading to
unnecessary increase in tied-up capital. Various factors that can be attributed
to this are vehicle speed, driver reliability, frequency of delivery, and the
IJOPM location of depots. An increased effectiveness in these areas may well lead to a
21,1/2 decrease in inventory levels under consideration.
Like other activities, delivery heavily relies on the quality of information
exchanged. For example, once the activities are scheduled, continuous
monitoring is possible based both on information derived and information
supplied across the channels of distribution. Thus, the quality and the
78 way the information is presented determine the delivery performance to a
large extent, which, therefore, can be used to measure and improve
performance.
Moreover, the following aspects of delivery reflect customer satisfaction:
. the number of faultless notes invoiced; and
. the flexibility of delivery systems to meet particular customer needs.
The details of these are presented as follows:
. Number of faultless notes invoiced. An invoice shows the delivery date,
time and the condition under which goods were received. By comparing
these with the previous agreement, it can be determined whether a
perfect delivery has taken place or not. Also, the areas of discrepancy
can be identified so that improvements in delivery performance can be
made.
. Flexibility of delivery systems to meet particular customer needs.
Nowadays, the delivery systems are becoming more flexible towards
customer needs. By being flexible, a delivery system can positively
influence the decision of customers to place orders, and hence, this can
be regarded as a metric for winning and retaining customers. According
to Novich (1990), customers can be grouped into different segments
based on their needs. Thus, they can be grouped critically based on their
economic profitability and flexibility.
3.4.2 Total distribution cost. Perhaps the most important research concerning
logistics that is going on is in the area of designing efficient and cost-effective
distribution systems. Therefore, a thorough understanding and a good
performance evaluation of total distribution costs are essential. A profile
consisting of various distribution cost elements should be developed so that
appropriate trade-offs can be applied as a basis for planning and reassessment
of distribution systems, and thus, the overall cost effectiveness can be achieved.
For example, an increase in the number of depots and its effects on other
distribution costs can be estimated. Using economies of scale, the optimal
number of depots that corresponds to minimum total distribution cost can be
obtained.
According to Thomas and Griffin (1996), the single largest cost component
of logistics is transportation cost, often comprising half of the total logistics
cost. Rushton and Oxley (1991) show that trucking cost is always the highest
among all costs of total distribution cost. In a physical distribution channel, the
total transportation cost can be treated as trucking cost plus local delivery cost.
To reduce the delivery cost, this total should be treated as a metric of high Performance
priority. measures and
metrics
3.5 Measuring customer service and satisfaction
Since customers are from as far as other corners of the globe, without a
satisfied customer, the whole exercise of applying the supply chain strategy
could be costly and futile. For effective performance measurement, supply 79
chain metrics must be linked to customer satisfaction (Lee and Billington,
1992). This measurement is needed to integrate the customer specification in
design, to set the dimensions of quality, for cost control, and as a feedback for
the control of process. The following sub-sections discuss the related
performance metrics.
3.5.1 Flexibility. Being flexible refers to making available the products/
services to meet the individual demand of customers. This has become possible
as a result of the development of such technologies as flexible manufacturing
systems (FMS), group technology (GT), and computer-integrated
manufacturing (CIM). In addition, other methods such as single minute
exchange of die (SMED), as well as information technology (IT) and
communication systems (CS), which provide online information, further
facilitate quick response of the control system. The flexibility that these
systems impart has a high impact on winning customers. For example, Toyota
is using FMS and logistic principles to provide a high level of responsiveness to
customer needs (Bower and Hout, 1988). Stewart (1995) presents a list of
practices that world-class companies employ to improve flexibility. His
analysis reveals a strong correlation of supply chain response time and
flexibility.
Hence, by defining flexibility as a metric and by evaluating it, companies
can achieve what was previously impossible: rapid response to meet individual
customer requirements.
3.5.2 The customer query time. The customer query time refers to the time it
takes for a firm to respond to a customer inquiry with the required information.
On several occasions, a customer enquires or needs to be informed about the
status of an order, and the potential problems on stock availability or delivery.
Providing such information genuinely helps the customers to schedule their
activities, and helps the firm to retain them as customers. Thus, providing
online information is an important element of customer service, and it can be
evaluated for improving the same. To measure customer service, questions
``what are the response times’’, and ``what procedures exist to inform customers’’
should be considered.
3.5.3 Post transaction measures of customer service. The function of a supply
chain simply does not end by providing the goods to the customer. The post
transaction activities play an important role both as part of customer service,
and for valuable feedback for further improvements in the supply chain. For
example, timely availability of spares helps companies to provide better
customer service, and to trace the problems arising from warranty claims; then
IJOPM making improvements on them. Apart from these, there are other
21,1/2 post-transaction elements that need to be evaluated as discussed hereunder:
. Service level compared to competitors. To be competitive, an organisation
must measure how well its service performance compares against the
competitors’.
80 . Measuring customer perception of service. This is done primarily
through direct interviews with customers. What are their needs? What is
the service level they receive versus what are their expectations? These
are the questions firms should ask the customers to improve on
products/services, and for an increased confidence in the firm’s supply
chain.

3.6 Supply chain finance and logistics cost

The financial performance of a supply chain can be assessed by determining
the total logistics cost. 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 a supply chain environment. Since logistics cut across functional
boundaries, care must be taken during decision making as the cost in one area
affects the cost in other areas (Cavinato, 1992).
For example, a change in capacity has a major impact on costs associated
with inventory and order processing. What is needed is a trade-off based on
a logistics-oriented cost accounting system that will uniquely identify the
cost associated with each activity as well as its impact on others. This can
readily be combined with customer profitability to make the approach a
powerful one.
Cost associated with assets and return on investment. Supply chain assets
include accounts receivable, plant, property and equipment and inventories
(Stewart, 1995). With increasing inflation and decreased liquidity, pressure is
on firms to make the assets sweat, i.e. improve the productivity of their capital.
In this regard, it is essential to determine how the costs associated with each
asset, combined with its turnover, affects the ``total cash flow time.’’ According
to Stewart (1995), this can be measured as the average number of days required
to transform the cash invested in assets into the cash collected from a customer.
Once the total cash flow time is determined, it can readily be combined with
profit with the objective of providing an insight into the rate of return on
investment (ROI). This determines the performance that the top management
can achieve on the total capital invested in business. As a corollary to this, the
logistics management policies have a significant impact on ROI.
For example, superior customer service leads to improved sales and an
increased profit, and subsequently, a higher ROI. Likewise, other areas of
organization can be explored. By measuring ROI and the impact of the logistics
policies on it, significant insights can be gained about the financial health of the
supply chain.
 Total inventory cost. Larry Mulky, President, Ryder Integrated Logistics, Performance
Inc. (Harrington, 1996) notes, ``Inventory is where the biggest cost is hidden in measures and
most businesses today.’’ metrics
The need to address inventory can be judged from the fact that, until
recently, nearly 50 per cent of a company’s current assets were tied up in
inventories in most industries (Pyke and Cohen, 1994). In a supply chain,
inventories range from raw materials, subassemblies and assemblies to 81
finished products, as well as inventories held up in transit. What was
traditionally perceived as a buffer in production to cope with uncertainties
actually emerged to be one of the reasons for the increase in lead-time (Slack et
al., 1995). As customer service requirements constantly increase, effective
management of inventory in a supply chain becomes increasingly critical and
important. In support of these facts, it is essential that costs associated with
inventory should be evaluated, and proper trade-offs, with suitable
performance measures, should be implemented.
In a supply chain, the total cost associated with inventory (Stewart, 1995;
Christopher, 1992; Slack et al., 1995; Lee and Billington, 1992; Dobler and Burt,
1996; Levy, 1997) consists of the following:
. opportunity cost consisting of warehousing, capital and storage;
. cost associated with inventory as incoming stock level, work in
progress;
. service costs, consisting of cost associated with stock management and
insurance;
. cost held up as finished goods in transit;
. risk costs, consisting of cost associated with pilferage, deterioration,
damage;
. cost associated with scrap and rework;
. cost associated with shortage of inventory accounting for lost sales/lost
production.
In dealing with these costs, consideration should also be given to part/material
size. A low cost part may have large size, and consequently, a large space
requirement. Also, in deciding which cost should be tackled first, Pareto
analysis can be used to prioritize the options.
In addition, proper trade-offs should be considered in dealing with inventory
at various levels in a supply chain. An excellent discussion on this, based on
pitfalls and opportunities, is provided by Lee and Billington (1992). In
particular, they point out that the cost of reworking stored components due to
engineering changes and the risk of obsolescence could inflate the inventory
holding costs by 40 per cent. Clearly, not considering such factors may lead to
inappropriate choices.
In dealing with inventory in transit, a trade-off is needed because changing
the mode of transportation can significantly affect inventory investment and
IJOPM service performance. A faster and more expensive shipping mode may save
21,1/2 enough in inventory investment to justify increase in shipping cost, but only if
inventory cost rates are appropriately chosen. According to Levy (1997), care
must also be taken for longer lead-time due to longer distance as it increases the
``volatility’’ of inventories, resulting in either too high or too low inventory
levels. This, in turn, can lead to higher administrative costs being incurred, and
82 can be the cause of costs due to lost sales.
Another factor that needs to be measured and dealt with regarding
inventory is the accuracy of forecasting techniques. According to Fisher (1997),
supply chain in many industries suffers from inventory, owing to their inability
to predict demand. A new demand forecasting system that takes sales data
from distributor’s computers and combines with on-hand inventory could serve
as a technique to deal with this problem. Harrington (1996) shows that using
such techniques, Microsoft has been able to keep production schedules open
until one week, and make what the market will accept.
Therefore, measuring inventory at supply, production, distribution and
scrap levels as well as accuracy of forecasting techniques, can provide an
insight into the cost performance and reduce the lead-time in a supply chain.

4. A framework for measuring the performance of a supply chain

In the previous sections, a review of various issues of competitiveness that are
currently in focus for improving the efficiency and effectiveness of a supply
chain was presented. An effort was made to align those measures with
customer satisfaction. How these issues can be measured and what metrics
would be suitable for them were also discussed. Along with this set of metrics
and measures, additional metrics were also mentioned, but not discussed as
they are either derivatives or have low impact. The measures and metrics that
were discussed, in fact, have a broader perspective, and therefore, it is
necessary to discuss them within a framework. The performance measures and
metrics can now be illustrated with help of a framework so that a cohesive
picture can easily be obtained to address what needs to be measured, and how
it can be dealt with. The framework developed is shown in Table II.
The metrics discussed in this framework are classified into strategic, tactical
and operational levels of management. This has been done so as to assign them
where they can be best dealt with by the appropriate management level, and for
fair decisions to be made. For example, the total cycle time, assigned at the
strategic level based on an overall system decision in a supply chain, can be
used and managed by the top management. A similar explanation can be given
for the rest of the metrics. The metrics are also distinguished as financial and
non-financial so that a suitable costing method based on activity analysis can
be applied. In some cases, a metric is classified as both financial and non-
financial. For example, the buyer-supplier relationship can be quantified both
in terms of financial performance achieved, such as cost savings, and in terms
of tangible and intangible benefits, like improved quality, flexibility and
Level Performance metrics Financial Non-financial Performance
measures and
Strategic Total supply chain cycle time ^ metrics
Total cash flow time ^ ^
Customer query time ^ ^
Level of customer perceived value of product ^
Net profit vs. productivity ratio ^ 83
Rate of return on investment ^
Range of product and services ^
Variations against budget ^
Order lead time ^
Flexibility of service systems to meet particular ^
customer needs
Buyer-supplier partnership level ^ ^
Supplier lead time against industry norm ^
Level of supplier’s defect free deliverires ^
Delivery lead time ^
Delivery performance ^ ^
Tactical Accuracy of forecasting techniques ^
Product development cycle time ^
Order entry methods ^
Effectiveness of delivery invoice methods ^
Purchase order cycle time ^
Planned process cycle time ^
Effectiveness of master production schedule ^
Supplier assistance in solving technical problems ^
Supplier ability to respond to quality problems ^
Supplier cost saving initiatives ^
Supplier’s booking in procedures ^
Delivery reliability ^ ^
Responsiveness to urgent deliveries ^
Effectiveness of distribution planning schedule ^
Operational Cost per operation hour ^
Information carrying cost ^ ^
Capacity utilisation ^
Total inventory as: ^
± Incoming stock level
± Work-in-progress
± Scrap level
± Finished goods in transit
Supplier rejection rate ^ ^
Quality of delivery documentation ^
Efficiency of purchase order cycle time ^
Table II.
Frequency of delivery ^ A framework on
Driver reliability for performance ^ metrics for the
Quality of delivered goods ^ performance evaluation
Achievement of defect free deliveries ^ of a supply chain
IJOPM deliverability. Table III shows some metrics either as the focal point or as
21,1/2 forming a major part of the studies that we have come across.
These are the high performance metrics that target broader functional areas
of supply chain as well as its total attributes such as supply chain response
time. For instance, a firm that is interested in benchmarking and performance
evaluation must first analyze its performance using the metrics discussed.
84 Once strong and weak areas are identified, then other metrics can be employed
to gain greater insights into achieving the objectives as underlined in the study.
In Figure 2, these metrics are aligned to the four basic links that constitute
the supply chain:
(1) plan;
(2) source;
(3) make; and
(4) deliver.

Level Performance metric Financial Non-financial References

Strategic Total cash flow time 3 Stewart (1995)

Rate of return on
investment
Flexibility to meet
particular customer needs
Delivery lead time
Total cycle time
Level and degree of buyer-
supplier partnership
Customer query time
Tactical Extent of co-operation to
improve quality
Total transportation cost
Truthfulness of demand
predictability/forecasting
methods
Product development cycle
time
3 Christopher (1992);
Dobler and Burt (1990)
3 Bower and Hout (1988);
Christopher (1992)
3 Rushton and Oxley (1989)
3 Christopher (1992);
Stewart (1995)
3 3 Toni et al. (1994);
Mason-Jones and Towill
(1997)
3
3 Graham et al. (1994)
3 Rushton and Oxley (1991)
3 Fisher (1997); Harrington
(1996)
3 Bower and Hout (1988)

Operational Manufacturing cost 3

Capacity utilization 3 Wild (1995)
Information carrying cost 3 Stewart (1995)
Inventory carrying cost 3 Levy (1997); Lee and
Billington (1992); Stewart
Table III. (1995); Dobler and Burt
A list of key (1990); Slack et al. (1998);
performance metrics Pyke and Cohen (1994)
 Performance
measures and
metrics

85

Figure 2.
Measures and metrics at
four basic links in a
supply chain: plan,
source, make/assemble,
and deliver

Such a classification signifies which metric should be used where, and which
can together act as a fair indication of the problems persistent in respective
links.
Taken together, these three representations of metrics can give a clear
picture of which metric should be used for the performance assessment study,
where it can be used, and who will be responsible for that. Such a
representation is a step closer to bridging the gap between the need for a model
with which performance of a supply chain can be assessed, and the potential
areas of improvement that can be identified.

5. Conclusions
According to Lee and Billington (1992):
There were no performance measures for the complete supply chain. Many companies have
this problem. Those that do have such metrics often do not monitor them regularly. Or their
metrics are not directly related to customer satisfaction.

In this paper, based on a literature review, best universal practices of

performance measurement of supply chain are discussed, and a framework is
offered that will reflect a maturing logistics profession as far as monitoring and
the control of performance tasks are concerned.
The literature review also leads to a conclusion that such a study is needed
to streamline the flow of material, information and cash, simplify the decision-
making procedures, and eliminate non-value adding activities. Emphasis has
been placed on establishing and maintaining strong supply chain partnerships.
A supplier is no longer required to conform rigidly to the specifications, but
rather has the ability to incorporate a greater value into the products/goods
supplied, and to relate proactively with the buyer.
IJOPM The review also shows that the performance measurement is growing in its
21,1/2 scope and importance. For example:
. There is a shift in focus from the traditional cost accounting method to a
technique which takes into account the cost of activities and its impact
on other functions such as customer service, asset utilization,
productivity and quality in order to encompass and emphasize the
86 overall supply chain performance.
.
The focus is also on measures that take the supply chain perspectives.
People in an organization should be held accountable for the overall
performance, and not only to the entity to which they are responsible.
The role of information technology is shifting from a passive management
enabler through databases to a highly advanced process controller that can
monitor each activity, and decide upon its own course. As the international
trade barriers continue to erode, emphasis is on the supply chain to get
standardized and simplified through various benchmarking and performance
studies.
Finally, each organization needs to capitalize on supply chain capabilities
and resources to bring products and services to the market faster, at the lowest
possible cost, with the appropriate product/service features, and the best
overall value. The future holds out for a lean international supply chain.

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