1. CLICK TO ADD TITLE [DATE][SPEAKERS NAMES] The 5th Global Health Supply Chain Summit November 14 -16, 2012 Kigali, Rwanda Supply Chain Performance Measurement in the Private Sector: Theory and Practice Noel Watson PhD

2. Purpose Provide an introduction to theory and use of Performance Measurement (PM) systems for general business administration and Supply Chain Performance Measurement (SCPM) systems designed primarily for the private sector. Relate open research questions on general PM and SCPM that could be relevant for global health. 2

3. General Business Performance Measurement (PM) –Role of PM systems and traditional limitations –Popular PM system example: Balanced Scorecard –Other efforts in developing PM frameworks –Open Research Question on PM systems Supply Chain Performance Measurement (SCPM) –SCPM vs general PM –SCPM in practice: survey –Supply Chain Operations Reference (SCOR) model –Academic Review –Open Questions on SCPM systems Agenda 3

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5. Definition and Role of General Performance Measurement Performance Measurement collecting, computing and presenting Organizational Control following up, monitoring and improving Organization Strategy consistency of action deliberation 5

6. Improper Focus –Encourage short termism, e.g., delay capital investment –Encourage local optimization, i.e., patches, in response to performance breakdowns rather than fundamental continual improvement –Focus on cost to detriment of non-cost indicators Insufficient Information –on what customers want –On what competitors are doing Fit with organization –Can lack alignment to strategic goals, organization culture or reward systems Limitations of Traditional Performance Measurement Approaches 6

7. Popular Performance Measurement System: Balanced Scorecard How do we look to shareholders? Profit, return on assets, return on equity What must we excel at? Quality, time-based, flexibility, costs Can we continue to improve and create value? Future capabilities; include human resource management measures How do Customers see us? Product quality, response time, flexibility, or cost Customer Innovation and Learning Financial Internal Business 7

8. Other Performance System Frameworks –Performance measurement matrix by Keegan, et. al. Measure categories: internal, external, cost, non-cost –Results & Determinants Framework by Fitzgerald et al. –Business Excellence Model – enablers & results - by European Foundation for Quality Management' –The SMART performance pyramid by Lynch and Cross. Performance System design Process –The Cambridge performance measurement design process by Neely et al. 2000. –Focus on criteria/principles for system design, Globerson, e.g., Criteria chosen from company’s objectives and through discussion with people involved Measures can vary between locations and should stimulate continuous improvement Other Efforts in General Performance Measurement Systems Research 8

9. Should measures focus on processes, outputs of processes or both? Which performance measures are of greatest value to SME? Individual Measures Do “generic” performance measurement system actually exist? What techniques can managers use to reduce their list of possible metrics to a meaningful set? Can a practicable performance measurement system design process be specified? Measurement System How to ensure performance measurement systems match firm strategy & culture? To which dimensions of the internal and external environment does the system have to be matched? Is performance measurement a luxury for SME? Relationship to Environment Open Research Questions 9

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11. General Performance Measurement vs Supply Chain Performance Measurement Similarities –Supply chain control is part of organizational control –Limitations of traditional approaches improper focus e.g., too inwardly focused insufficient information, e.g., limited cost information fit to organization’s strategy, e.g., focus on cost when flexibility needed Differences –Academic attention SCPM - Topic has only within the last 10-15 years received attention within academia PM – Topic has received significant attention over past 50 years 11

12. Sample of over 250 different organizations across a wide sector base (Harrison and New, 2002) –92% thought that supply chain strategy important, significant (31.3%) or highly significant (36.3%) –50% had at best limited formal means of SCPM –Metrics Customer delivery performance (86%), inventory turns (76%), supplier delivery performance (66%), perfect order fulfillment (54%), delivery cost per unit (41%) No overall cost measures in the top 50% Supply Chain Metrics in Practice 12

13. Integrates process reengineering, process measurement and benchmarking History –First introduced in 1996 –Continually evolving based on need and use –Latest version is 10.0 Components –Hierarchy of standard definitions of supply chain processes Levels I-III defined by SCOR Model Level IV (tasks & interactions) defined by organization –Set of measures for each level of process hierarchy –Best practice definitions –Enabling software functionality Cross-Industry Standard - Supply Chain Operations Reference (SCOR) model 13

14. Performance Attributes –Group of dimensions used to express a strategy –Cannot be itself measured –Five core SC performance attributes SC Metrics –3 Levels Level I: overall SC health - strategic - related to performance attribute Level II: diagnostic for level I Level III: diagnostic for level II SCOR approach to measurement Strategic Diagnostic I Diagnostic II AttributeLevel 1 Metrics reliabilityPerfect order fulfillment responsive- ness Order fulfillment cycle time agilityFlexibility, adaptability, VaR costSC mgmt cost, COGS asset mgmtCash-cash cycle time, return on SC fixed assets, return on working capital 14

15. Topic has only within the last 10-15 years received attention within academia –Limited number of articles deal with performance metrics in a supply chain environment –Few attempts to systematically collate measures & lack of consensus over the way to categorize them No minimum set of metrics recommended Fundamental performance dimensions: cost (42%), quality (28%), time (19%), flexibility (10%), and innovativeness (1%); Supply Chain process: plan (30%), source (16%), make (26%), deliver (20%), customer satisfaction (5%); Measurement Base: Quantitative (82%), qualitative (18%) Supply Chain Performance Measurement in Academia 15

16. Some Academic Approaches Beamon (1999) Resources (costs, e.g., inventory, ROI) Output (sales, fill rate, on-time del, customer response time, stockouts, mfg leadtimes) Flexibility (volume, delivery, mix, new product) Heiber (2002) Complements SCOR Level 1 metrics Collaboration (strategic alignment, planning collaboration, execution collaboration) Coordination (IT support, information availability, organization communication) Transformability (configuration flexibility, skill sharing, know-how) 16

17. Individual Measures –Develop measures of supply chain relationships and the supply chain as a whole, rather than measures of intra- organizational performance –Identify qualitative metrics and non-financial measures of innovativeness and customer satisfaction Measurement Systems –Examine systematic methods for prioritizing measures Research Recommendations I 17

18. Relationship to Environment –Design performance measurement systems that complement human resource management and modern manufacturing and supply chain practices, e.g., JIT, TQM, VMI, Operations –What factors influence success or failure of implementation of SCPM systems? –What factors influence the evolution of SCPM systems. –How should SCPM systems be maintained? Re-evaluated? –What is the true cost-benefit analysis of SCPM systems for small enterprises, e.g., supply partners Research Recommendations II 18

19. Conclusions A focus on SCPM cannot ignore experience of general performance measurement systems –Common purpose of organizational control –Common criticisms of traditional SCPM & general PM Improper focus Insufficient information Fit with organizational strategy Applications to Health –Open questions on SCPM and general PM could probably be applied to health. –SCOR model is a well-tested approach used in practice that could have success within public health. 19

21. References I ANGAPPA GUNASEKARAN* and BULENT KOBU, Performance measures and metrics in logistics and supply chain management: a review of recent literature (1995–2004) for research and applications, International Journal of Production Research, Vol. 45, No. 12, 15 June 2007, 2819–2840 Beamon, Benita M, Measuring supply chain performance, Publication info: International Journal of Operations & Production Management 19. 3 (1999): 275-292. Craig Shepherd and Hannes Gunter, Measuring Supply Chain Performance: Current Research and Future Directions European Foundation for Quality Management, Business Excellence Model, http://www.efqm.org/en/ Fitzgerald, L., Johnston, R., Brignall, S., Silvestro, R. and Voss, C. (1991), Performance Measurement in Service Business, CIMA, London. Globerson, S., "Issues in developing a performance criteria system for an organisation", International Journal of Production Research, Vol. 23 No. 4, 1985, pp. 639-46. Gunasekaran, A; Patel, C; Tirtiroglu, E, Performance measures and metrics in a supply chain environment, International Journal of Operations & Production Management 21. 1/2 (2001): 71-87. 21

22. References II Harrison A. and C. New, “The role of coherent supply chain strategy and performance management in achieving competitive advantage: an international survey,” Journal of Operational Research Society, 2002, 53, 263-271. Hieber, R. (2002). Supply Chain Management: A Collaborative Performance Measurement Approach. Zurich: VDF. Keegan, D. P., Eiler, R. G., & Jones, C. R. (1989). Are your performance measures obsolete? Management Accounting, June, 134–147. Lynch, R.L. and Cross, K.F., Measure Up -- The Essential Guide to Measuring Business Performance. Mandarin, London, 1991. Neely, A., Gregory, M., & Platts, K. (1995). Performance measurement systems design: a literature review and research agenda. International Journal of Operations & Production Management, 15(4), 80–116. Neely, A., Mills, J., Platts, K., Richards, H., Gregory, M., Bourne, M., et al. (2000). Performance measurement system design: developing and testing a process-based approach. International Journal of Operations & Production Management, 20(9–10), 1119– 1145. 22

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24. Hierarchical Process Framework Level I – process types –Plan, source, make, deliver and return Level II –26 process categories, e.g., MTO, MTS Level III –Detail process definitions (185), performance metrics and best practices Level IV –Detailed tasks within each of Level III activities SCOR defines some general aspects of supply chain processes in Levels 1-3, while leaving the tasks and interaction unique to each business captured in (Level 4 and below) to be created by users. SCOR Implementation Implementation Principle 24

25. Other Performance Measurement Frameworks (Neely et. al. 2000) 25 Performance Pyramid Results and Determinants Framework Business Excellence Model