Performance Measurement System for Managing the

Supply Chain
 Performance Management
 Competitive environment calls for speedy, cost efficient
and reliable supply chain
 Supply Chains have a huge leverage on creation of
customer value
 Today’s competition is ‘supply chain versus supply
chain’
 What gets measured, gets improved
If you cannot measure something, you cannot control it
If you cannot control something, you cannot manage it
If you cannot manage something, you cannot improve it
 Characteristics of a good measure

Is quantitative •Can be expressed as objective value

Is easy to understand •Measure conveys at a glance what it is measuring

Encourages appropriate behavior •Measure is balanced to reward productive behavior

Is visible •Effects of the measure are readily apparent to all

Is defined and mutually understood •Defined and agreed upon by all participants

Encompasses both output and input •Integrates factors from all aspects of the process

Measures only what is important •Focus on those which add value

Uses economies of effort •Benefits of the measure outweigh the costs of collection and analysis
SCM Performance Benefits
-to Customers

• Quicker response to demands

• Better products/services
• Competitive pricing of products/services
• Faster supplies reducing inventories

• ALL LEADING TO CUSTOMER DELIGHT

SCM Performance Benefits
- to Suppliers
• More business growth
• Reduced operational costs
• Faster communication for timely decisions
• Improved business –partner relationships
• Organizational effectiveness and efficiency

•ALL LEADING TO BOTTOM LINE GROWTH

 Performance measures in Manufacturing

Financial • Return on investment

Productivity •
•
Total factor productivity
Labour productivity

Production Lead time • Time from order release to finished product

Production Reliability • Ability to deliver as promised

Production flexibility • Ability to respond efficiently to demand variation

Production Quality • No. of units within tolerance

Social criteria
• Employee turnover
• Work injuries
• Absenteeism
Performance indicators for Customer service

Product fill rate

• Indicates total qty delivered against the demand

Order Fill rate

• No. of line items in the order that are fulfilled

No. of backorder

• Indicates tardiness

% of orders with special requests fulfilled

• Indicates flexibility of supply chain

% of returns
Performance indicators for Logistics
Total no. of trucks loaded / unloaded per worked time unit

Utilization of space capacity

No. of claims / damages

Labour cost as a % of sales

Cost per Ton

Truck utilization

Dispatch compliance
Developing Supply Chain Performance Metrics
Development of a
metrics program
should be the result
of a team effort
establish top involve customers and
management support for suppliers, where
the development of a appropriate, in the
supply chain metrics metrics development
program process

Establish a procedure to
mitigate conflicts arising
Develop a
from metric tiered structure
development and
implementation Identify metric “owners” for the metrics
and tie metric goal
achievement to an
individual’s or division’s
performance evaluation
Balanced Scorecard

• It is a concept for measuring whether the company is meeting its objectives in terms of
its vision and strategy
• This is done using 4 perspectives-
• financial,
• customer,
• internal business processes and
• learning and growth
• Why implement BSC?
• To increase focus on strategy and results
• To improve organizational performance by measuring performance that matters
• To align organizational strategy with day to day work of its employees
• To focus on drivers of future performance
• To communicate the vision and strategy to all its key stakeholders
• To prioritize projects/initiatives with maximum impact
Balance Score Card
-Performance Indicators
 Financial- ROI, cash flow, financial result, return on capital employed and return
on equity
 Customer- delivery performance by date and quantity, customer satisfaction and
customer retention
 Internal processes- number of activities, opportunity success rate, accident ratios
and defect rates
 Learning and growth- investment rate, illness rate, internal promotions %,
employee turnover and gender/racial ratios

 Since these above measures can be many and will vary from to firm,
the key is to strike a ‘balance’ amongst all of them to truly reflect and
measure what are the particular firm’s Key Success Factors or Key
Performance Indicators
BSC as a measurement system
Financial
To succeed financially
how should we appear
to our shareholders ?

Customer Internal Service

Relations VISION AND Process
To achieve our vision To satisfy our shareholders
how should we appear STRATEGY and our customers that
to our customers? what business processes
we must excel

Learning,
Innovation and
Growth
To achieve our vision
how will we sustain our
ability to change and improve ?
Financial Perspective

 What financial steps are necessary to ensure the

execution of our strategy/goals?
 Are the program’s/ department’s goals,
implementation, and execution contributing to the
bottom line?
 Are we meeting operational and financial targets?
 Dimensions of Quality:
 Efficiency
Customer Relations Perspective

 Who are our target customers?

 How do our customers see us?
 How do customers rate our performance?
 Dimension of Quality:
 Accessibility
 Acceptability
 Continuity
Internal Service Process Perspective

 What critical processes must we excel at to satisfy

our customers/stakeholders?
 What must be done internally to meet customer
expectations?
 Dimension of Quality:
 Effectiveness
 Consistency
 Reliability
Learning, Innovation and Growth
Perspective

 How can we continue to improve?

 What capabilities and tools do our employees need to execute
our strategy/goals?
 Dimension of Quality:
 Competence
 Participation
 Involvement and commitment
When does BSC fail?
 Ill defined strategy
 Lack of integration of all the 4 perspectives
 Conceptual confusion and lack of clarity on metrics chosen and their performance
mechanisms
 Not involving all stakeholders
 Top-down management style which excludes employees being an essential part of the
implementation
 Centralized measures which will not be accepted by people down the line
 Data collection/analysis of performance a difficult and painful process
 Not aligning the BSC with other operational processes and systems
 Failure to evolve and change the BSC as and when strategies change over time
 SCOR Model
 Supply Chain Operations Reference (SCOR) model is a process reference model developed
and endorsed by the Supply Chain Council as the cross-industry, standard diagnostic tool for
supply chain management.
 This reference model enables users to address, improve, and communicate supply chain
management practices within and between all interested parties in the extended enterprise.
SCOR Model
- 5 Core Management Processes

 Plan- processes that balance aggregate demand and supply to develop a course of
action which best meets sourcing, production and delivery requirements
 Source – processes that procure goods and services to meet planned or actual
demand
 Make – processes that transform product to a finished state to meet planned and
actual demand
 Deliver – processes that provide finished goods and services to meet actual and
planned demand, typically including order management, transportation
management and distribution management
 Return – processes associated with returning or receiving returned products for
any reasons, which extends to post delivery customer support
SCOR Model Measures
-internal facing(1)
 Cost
 Total logistics cost
 Warranty cost
 Assets
 Cash to cash cycle time
 Inventory days of supply
 Asset turns
SCOR Model Measures
-internal facing(2)
 Total logistics cost- contribution of logistics cost to total revenue as
% age
 Warranty cost- as a % age of total revenue
 Cash-to-cash cycle time- time taken from cash spent on materials to
cash generated as revenue
SCOR Model Measures
-internal facing(3)
 Inventory days - how fast inventory is produced and then
sold to customers. Inventory turns is the ratio of total
annual sales to average inventory
 Asset Turns - division of revenue by total assets
SCOR Model Measures
-external facing(1)
 Reliability
 Delivery performance
 Order fulfillment performance-fill rate, fulfillment lead
time
 Flexibility
 Supply chain responsiveness
 Production flexibility
SCOR Model Measures
-external facing(2)
 Delivery performance- On time delivery is defined as the proportion
of orders delivered on or before the date requested by customer
 Order fulfillment- Lead times measure the meantime from the date
of order is placed to the date the customer receives the shipment
SCOR Model Measures
-external facing(3)

 Supply chain responsiveness- as the ability of the

complete supply chain to react according to the changes in
the marketplace
 Production flexibility- number of days needed to absorb
an unplanned lasting 20% growth in demand
Typical SCOR Model Results(1)

SCOR Unit of Median Best in

Measures Measurement Class Class
Delivery Percentage 81% 96%
performance

Upside Number of 42.0 8.3

performance days
flexibility
Cash to cash Number of 66.6 24.7
cycle days
Typical SCOR Model Results(2)

Supply Chain Unit of Median Best in

Cost/Industry measurement Class Class
Consumer SCM cost % to 11.2 5.3
packaged goods Revenue
Chemical and SCM cost % to 9.8 4.0
Pharmaceuticals Revenue
Telecom SCM cost % to 8.5 3.3
Equipment Revenue
Defense and SCM cost % to 10.2 4.5
industrial Revenue
Computers and SCM cost % to 9.1 4.0
Electronics Revenue
 All the best!!

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