Performance Measurement along Supply Chain

Performance Measure and Performance Measurement

A performance measure can be defined as a metric used to quantify the efficiency and/or
effectiveness of an action.
Performance measurement is defined as the process of quantifying effectiveness and efficiency of
actions that has been practiced across many sectors for over two centuries. Effectiveness is the
extent to which customers requirements are met, while efficiency measures how economically a
firms resources are utilized to achieve a predetermined level of customer satisfaction.
Supply Chain Measurements can cover many areas including Procurement, Production,
Distribution, Warehousing, Inventory, Transportation, Customer Service - any area of the supply
chain.

Purposes of Supply Chain Performance Measurement (SCPM)

SCM is difficult to measure, because it is such huge a concept.
The main purpose is to get information for top managements needs.
Several kinds of SCM measures are needed at every management and operational level.
SCM should be measured because of the management interest in measuring how efficient SCM is.
Usually several management levels are interested in knowing about SCM capability and performance.
Measuring is also needed when SCM is going to be developed.
Developing SCM needs a qualified measurement system for measuring SCM performance.

Relationship between Company Strategy and Supply Chain

Metrics
Supply chains cannot be measured in absolutes or designed in isolation of the corporate
strategy.
SC performance measures should be linked with strategies.
Corporate strategy defines how you are going to be different and better than your
competitors, and it needs to set specific, measurable goals.
Define what your supply chain needs to be good at, and prioritize supply chain objectives.
Align supply chain performance metrics with the corporate strategy.
Structure your supply chain to optimize the strategic goals.

Functional Classification of Decision Areas in SCM

Procurement Decisions:
Supplier selection
Direct delivery from suppliers
Vendor managed inventories
Optimal procurement policy

Manufacturing Decisions
Plant location
Product line selection
Capacity planning:
Capacity allocation
Inventory decisions
Optimal manufacturing strategy
Input control
Production scheduling
Constrained Supply

Distribution Decisions
Configuration of distribution facilities
Location
Customer allocation
Facility configuration
Optimal distribution strategy

Logistics Decisions
Logistics mode selection
Selection of ports
Direct delivery
Optimal transportation strategy

Global Decisions
Product and process selection
Planning under uncertainty
Global optimization of operations
Real-time monitoring and control

you cannot manage what you cannot measure

And,
what cant be measured cant be improved.

It is an established fact that many companies have not succeeded in

maximizing their supply chains potential because they have often failed to
develop the performance measures / metrics needed to fully integrate their
supply chain to maximize effectiveness and efficiency.
Measuring supply chain performance can result in understanding of the supply
chain and improve overall companies performance.

Traditional Approach to performance Measures

Supply-focused performance
- Logistic costs
- Productivity
Demand-focused performance
- Customer s satisfaction
- Quality

Limitations of Traditional Performance Management

Traditional performance measures had many limitations:
Related to Lagging metrics
Related to Corporate strategy
Related to Relevance to practice
Related to Inflexibility
Related to the Expensenses involved
Related to Negligent view on Continuous improvement
Related to non fulfillment of Customer requirements
Related to availability and use of management tools and techniques

Performance Measurement today along Supply Chain

Because of the nature of competition and complexities involved in business,
firms have to find out ways of improving performance on various fronts.
Firms have to focus on performance measures that are widely accepted in the
industry.
As per SCOR( Supply Chain Operation Reference) model, supply chain
performance measures fall under following four broad categories:
Cost
Assets
Reliability
Flexibility

Performance Measurement along Supply Chain

The performance measures related to cost and Assets affect the profitability of
firm.
Thus, Cost and Assets are internal facing measures
Typically a firm offers a bundle of price, delivery and flexibility to its
customers.
Price, in competitive market is dictated by the market place.
Thus, Reliability and Flexibility are termed as customer facing measures.

The performance measures developed by SCOR Model:

( Falling under four broad categories)
Delivery Performance
Order Fulfillment performance ( Fill Rate, Order Fulfillment Fill Time)
Perfect Order Fulfillment
Supply Chain Lead Time
Production Flexibility
Warranty Cost
Total Logistic Measurement Cost
Value Added Productivity
Cash-to-Cash Cycle time
Inventory days of Supply
Asset turns

The firms in various industries have significant differences in performance

across firms.
This is because these firms have significant differences in performance
measures of cost, assets, reliability and flexibility.
It also means that firms follow a wide variety of processes and systems.
To that extent, we can say that SCOR Model do not seem to be comprehensive.

Linking Supply Chain Performance with Business Performance

All Supply Chain Measures are not of equal importance
Any Supply Chain Initiative to improve a particular measure of supply chain
performance must get translated in improved business performance

The impact of various supply chain initiatives

Cost reduction by reducing inventory and logical expenses.
Revenue and profitability can be improved by Reducing backorder and lost
sales as well as decreasing supply time to market.
Operational efficiency can be improved by reducing procurement expenses and
increasing asset utilization
Working capital can be reduced by reducing inventory and reducing accounts
receivables.

Enhancing Supply Chain Performance

By Optimization of Supply Chain- It is a process of improving the forecasting, transportation
and inventory management using various optimization tool like ABC Analysis, vehicle
scheduling and Time Series Methods.
By Integration of Supply Chain- Better intra and inter-firm integration of supply chain helps
in reducing waste as well as improving overall efficiency of supply chain
By Restructuring Supply Chain It involves significant changes in the supply chain
structure in terms of the way material and information flows are managed in the supply chain.
Some of the ways restructuring can be done are: Moving from MTS Model to CTS Model,
Reducing the number of stock points in the distribution etc.

Thanks