1. PERFORMANCE MEASUREMENT ALONG THE SUPPLY CHAIN
Chapter 14
PERFORMANCE MEASUREMENT ALONG THE SUPPLY CHAIN

2. Disclaimer
These slides do not replace the prescribed material. All prescribed material need to be studied for assignment and examination purposes
Some of the slide content is based on the 2015 Cengage Learning Instructor resources.

3. Chapter Outline 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

4. Introduction “You can’t improve what you don’t measure”
Designing standards and monitoring them can provide much better information for decision-making purposes.
Adding several tiers of suppliers & customers complicates performance measurement.
Achieving adequate performance and then continually improving on those measures are what firms aim toward.
Performance measures must be visible & communicated to all members of the SC.

5. Viewing the SC as a Competitive Force
Understanding End Customers
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
Sustainability level desired
Product quality desired
Price of the products

6. Viewing the SC as a Competitive Weapon (Continued)
Understanding SC Partner Requirements
Supply chain strategies must consider the potential trade-offs existing between:
Cost
Quality
Sustainability
Service

7. Viewing the SC as a Competitive Weapon (Continued)
Adjusting SC Member Capabilities
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

8. Traditional Performance Measures
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

9. Traditional Performance Measures (Continued)
Use of Organization Costs, Revenue, & Profitability Measures
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

10. Traditional Performance Measures (Continued)
Use of Performance Standards & Variances
Establishing standards for comparison purposes can be troublesome
Employees & managers do whatever it takes to reach the goal
Shoddy work & “Cooking” the books

11. Traditional Performance Measures (Continued)
Use of Performance Standards & Variances (Continued)
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
Standards can reinforce the idea of functional silos (departments only concerned with what is going on in their department)
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12. Traditional Performance Measures (Continued)
Productivity & Utilization Measures
Examples
Overall total productivity measure
output
costs of (labor + capital + energy + material)
Single-factor productivity measure
cost of labor

13. Traditional Performance Measures (Continued)
Productivity & Utilization Measures
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

14. World-Class Performance Measurement Systems
Developing World Class Performance Measures
Identify the firm’s strategic objectives.
Develop an understanding of each functional area’s set of requirements for achieving the strategic objectives.
Design and document performance measures for each functional area that adequately track each required capability.
Assure the compatibility and strategic focus of the performance measures to be used.

15. World-Class Performance Measurement Systems (Continued)
Developing World Class Performance Measures (continued)
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

16. SC Performance Measurement Systems
Performance measurement systems must –
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

17. SC Performance Meas. Systems (Continued)
Environmental sustainability
Addressing the need for protecting the environment & reducing greenhouse gas emissions as well business & consumer needs
Green supply chain management (GSCM)
Sharing of environmental responsibility along the SC such that sound environmental practices predominate, & adverse global environmental effects are minimized.
Carbon footprint
Supply chains evaluate design configurations and various options for reducing total carbon emissions

18. SC Performance Meas. Systems (Continued)
Supply Chain Performance Measures
Total SCM costs are the costs to process orders; purchase & manage inventories; & information systems
SC cash to cash cycle time is the avg. # of days between paying for materials & getting paid by SC partners
SC production flexibility is the avg. time required to provide an unplanned 20% increase in production
SC delivery performance is the avg. % of orders filled by requested delivery date

19. SC Performance Meas. Systems (Continued)
Supply Chain Performance Measures (continued)
SC perfect order fulfillment performance is the average % of orders that arrive on time, complete, & undamaged.
Supply chain e-business performance is the avg. % of electronic orders received for all SC members.
Supply Chain Environmental Performance is the % of SC w/ISO partners, avg. % env. goals met, avg. # of policies adopted to reduce greenhouse gas emissions, or avg. % of carbon footprints offset

20. The Balanced Scorecard
Kaplan & Norton created BSC 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

21. The Balanced Scorecard (Continued)

22. The Balanced Scorecard (Continued)
Web-Based Scorecards & Dashboards
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.

23. Supply Chain Operations Reference (SCOR) Model
The SCOR model was developed by the Supply Chain Council.
The SCOR model is a diagnostic, benchmarking and process improvement tool for supply chain management.
The SCOR model separates supply chain operations into 6 process categories –
Plan
Source
Make
Deliver
Return
Enable

24. SCOR Model (Continued)

25. SCOR Model (Continued)
Table SCOR Performance Categories and Attributes
Performance Category
Performance Attribute
Reliability
1. On-time delivery performance
2. Order fill rates
3. Order accuracy rates
Responsiveness
1. Order lead times or speed
Agility
1. Response times for unforeseen events
2. Production flexibility
Cost
1. Supply chain management and logistics costs
2. Cost of goods sold
3. Warranty and returns processing costs
Asset Management
1. Cash-to-cash cycle time
2. Inventory days of supply
3. Asset turns

26. SCOR Model (Continued)
Companies generally use SCOR-based benchmarking to:
Set reasonable performance goals based on the SCOR model
Calculate performance gaps against a global database
Develop company-specific roadmaps for supply chain competitive success