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Principles of Supply Chain Management:


A Balanced Approach

Prepared by Daniel A. Glaser-Segura, PhD





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± Describe why firms need to measure &
assess performance
± Discuss the merits of financial & non-
financial performance measures
± List a number of traditional & world-
class performance measures
± Describe how the Balanced Scorecard
& the SCOR models work
± Describe how to design a supply chain
performance measurement system
( 2009 South-Western, a division of Cengage Learning 2
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±Introduction
±Viewing the Supply Chain as a
Competitive Force
±Traditional Performance Measures
±World-Class Performance Measurement
Systems
±Supply Chain Performance Measurement
Systems
±The Balanced Scorecard
±The SCOR Model

( 2009 South-Western, a division of Cengage Learning 3


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± 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.

( 2009 South-Western, a division of Cengage Learning 4


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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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Supply chain strategies must consider the
potential trade-offs existing between:
± Cost
± Quality
± Quantity
± Service

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± 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 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.

( 2009 South-Western, a division of Cengage Learning 8


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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

( 2009 South-Western, a division of Cengage Learning 9


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Establishing standards for comparison purposes
can be troublesome.
± Employees & managers do whatever it takes to
reach the goal
± Shoddy work & ³Cooking´ 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.

( 2009 South-Western, a division of Cengage Learning 10


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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.

( 2009 South-Western, a division of Cengage Learning 11


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‡ 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.
( 2009 South-Western, a division of Cengage Learning 12
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± 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

( 2009 South-Western, a division of Cengage Learning 13


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± Addressing the need for protecting the environment &
reducing greenhouse gas emissions as well business
& consumer needs
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± Sharing of environmental responsibility along the SC
such that sound environmental practices predominate,
& adverse global environmental effects are minimized.
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± Supply chains evaluate design configurations and
various options for reducing total carbon emissions

( 2009 South-Western, a division of Cengage Learning 14


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à : cost to process orders; purchase &
manage inventories; & information systems.
 
: Avg. # of days between
paying for materials & getting paid by SC partners.
      : avg. time required to provide
an unplanned 20% increase in production.
     
: avg. % of orders filled by
requested delivery date.
     
  
: average % of
orders that arrive on time, complete, & undamaged.
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: avg. % of
electronic orders received for all SC members.
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% % of SC
w/ISO 14000 partners; avg. % env. goals met.
( 2009 South-Western, a division of Cengage Learning 15
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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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± 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.

( 2009 South-Western, a division of Cengage Learning 18


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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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± Original SCOR model did not address sales &
marketing processes, some aspects of service, &
support processes (i.e., HR & technology
development).
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± Defines the customer part of the SC as the
integration of Plan, Relate, Sell, Contract, Service,
& Enable processes.
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± Defines the design portion of the SC as the
integration of Plan, Research, Design, Integrate,
Amend, & Enable processes.

( 2009 South-Western, a division of Cengage Learning 24