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Measuring The Performance of Supply Chain Management

This document discusses various ways to measure supply chain performance both qualitatively and quantitatively. Qualitative measures include customer satisfaction and product quality, which can be measured through star ratings. Quantitative measures discussed include lead time/cycle time, in-house quality check rate, inventory levels, and customer service level metrics like order fill rate. The document also introduces models for measuring supply chain performance like the SCOR model and the Balanced Scorecard.

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48 views4 pages

Measuring The Performance of Supply Chain Management

This document discusses various ways to measure supply chain performance both qualitatively and quantitatively. Qualitative measures include customer satisfaction and product quality, which can be measured through star ratings. Quantitative measures discussed include lead time/cycle time, in-house quality check rate, inventory levels, and customer service level metrics like order fill rate. The document also introduces models for measuring supply chain performance like the SCOR model and the Balanced Scorecard.

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Eagle Fightwear
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Subject: Supply Chain Management

Assignment no: 03

Teacher Name: Dr. Salman Sagheer Warsi

Student Name: Muhammad Naveed


Registration No: MEM223012

Submission Date: 14 Dec 2022


MEASURING THE PERFORMANCE OF SUPPLY CHAIN
Supply chain performance measure can be defined as an approach to judge the performance of
supply chain system. Supply chain performance measures can broadly be classified into two
categories; 1) Qualitative Measures for example Customer Satisfaction, product quality and 2)
Quantitative Measures for example order to delivery lead time, supply chain response time,
flexibility resource utilization, delivery performance

Qualitative Measures:
These are characteristics which are not numerical. They are more of a features. For example;
Customer Satisfaction, product quality.
Customer Satisfaction cannot be measured in terms of a realistic numerical value. However, these
can be measured by grading like STAR RATING System which is followed by many companies
worldwide like AMAZON, EBAY, ALIEXPRESS, DARAZ etc. Star rating do not have a realistic
meaning however this can be compared with star rating of other competitors. Customers prefer to
buy from those suppliers which have good star rating.

Quantitative Measures:
There are numerous criteria to measure the performance of supply chain. One can select relevant
depending upon business type. Some are described as follows;

Lead Time/Cycle Time


Lead time is usually expressed in days. Lead time is the time taken to complete an activity.
Order fulfillment lead time is the duration when customer place an order and receive and order.
Manufacturing/Process lead time is time to manufacture/process a qualified order.
Logistics lead time is time taken by logistic/distributor to deliver an order/parcel.
For example, a typical t-shirt manufacturer (TNA) has manufactured following work orders during
last few months. His manufacturing lead time can be calculated.
Order # No. of Pieces Time taken to Lead Time
manufacture
PO-01 5000 28 days 5.6 days/1000 shirts
PO-02 20000 100 days 5.0 days/1000 shirts
PO-03 40000 188 days 4.7 days/1000 shirts
PO-04 25000 120 days 4.8 days/1000 shirts
SUM 90,000 436 days
Average Lead Time (manufacturing) = 436/90 = 4.84 days/1000 shirts.
Manufacturing lead time gives management an overall picture of production of their setup.
Furthermore, reducing lead time should be the target as customers want fast turn-around time.
In-House Quality Check (Product Qualification Rate):
This indicator gives management a clear picture about efficiency of production team. Rejections
are not desirable and cause loss of money so serious actions should be taken by management in
order to improve the process and train the manpower in order to avoid rejections.
Product qualification rate is expressed in percentage.
Qualification Rate = no. of products qualified / no. of products produced x 100
Inventory Level:
Supply chain managers make scheduling and quantity decisions that determine the assets
committed to inventory. Three specific measures can be helpful here.
Percentage invested in inventory = (Average inventory investment / Total assets) × 100
Inventory turnover = Cost of goods sold / Average inventory investment
Weeks of supply = Average inventory investment / (Annual cost of goods sold/52 weeks)

Customer Service Level:


This applies to a business model of distributor/merchant. Customer service level in a supply chain
is marked as an operation of multiple unique performance indices. Some measures are defined as;
Order Fill Rate: This is percentage of customer demands that can be easily satisfied from available
stock/inventory.
Stockout Rate: is reverse of order fill rate and marks the portion of orders lost because of stockout.
Backorder Level: total number of orders waiting to be filled.
Probability of on-time delivery: is the portion of customer orders that are completed on-time. i.e.
within agreed-upon due date.
In order to maximize the customer service level, it is important to maximize order fill rate and
minimize stockout rate and minimize backorder levels.

Resource Utilization:
In supply chain network, a variety of resources are used. The main motto is to utilize all the assets
and resources in an efficient manner in order to maximize customer service level, reduce lead times
and optimize inventory levels.
Manufacturing resources include the machines, material handlers, tools etc.
Storage resources comprise warehouses, automated storage and retrieval systems
Logistics resources engage trucks, rails transports, air-cargo carriers etc.
Financial resources include working capital, stocks etc.
SCOR Model:
SCOR (Supply Chain Operations Reference) Model helps companies to measure supply chain
performance based on five key aspects.
Reliability: through timely, nil damage and complete delivery of the product or service
Responsiveness: timely response to customer queries
Agility: contend with difficulties of varying demands without delaying the planned lead time.
Cost: cost involved in every step and phase of the supply chain.
Assets: all the key resources used to gain customer satisfaction

The Balanced Scorecard


Developed by Dr. Robert Kaplan and Dr. David Norton in 1992,
The Balanced Scorecard is a management tool that provides stakeholders with a comprehensive
measure of how the organization is progressing towards the achievement of its strategic goals
In balanced scorecard, company strategy is surrounded by four perspectives;
Financial: lower cost, improve asset utilization, grow revenue
Customer: number of customers, customer satisfaction etc.
Internal Business Process: What must we excel at? lead time, complaints, quality incidents etc.
Learning and Growth: Can we continue to improve and create value? New items, innovations.

Balanced Scorecard software is also available.

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