Performance

Measurement Along
The
Supply Chain

A Lecture-Presentation by Prof. Deepak

Jakate
Introduction
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.
Introduction
Adding several tiers of suppliers &
customers complicates
performance measurement.
Performance measures must be
visible & communicated to all
members of the SC.
 Viewing the SC as a Competitive
Weapon
Understanding End Customers- SCs
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
 Viewing the SC as a Competitive
Weapon
Understanding SC Partner Requirements - SC
strategies must consider the potential trade - offs
existing between the:
Cost
Quality
Quantity
Service
Adjusting SC Member Capabilities - SC
members audit their capabilities & those of their
supply partners to determine if what they do is
consistent with the needs of the end customers &
the SC.
Matching SC capabilities to end -customer
requirements means that firms & their partners must
continually reassess their performance with respect
to requirements.
 The best SC performers are more responsive to
customer needs, quicker to anticipate changes in
the markets, & much better at controlling costs.
Traditional Performance Measures
Traditional Performance
Measures
Financial statements &
traditional cost - based
information do not reflect the
underlying performance of the
productive systems of an
organization; cost & profit
information can be hidden or
manipulated.
Traditional Performance Measures
Decisions made solely to
maximize current stock prices do
not necessarily reflect that the
firm is performing well.
Financial performance
measures, while important,
cannot adequately capture a
firms ability to excel in these
areas.
Use of Organization Costs,
Revenue, & Profitability
Measures- Several problems are
associated with using these
measures to gauge performance,
for example:
windfall profits that occur when
prices suddenly rise due to
supply interruptions, caused for
the most part by uncontrollable
environmental conditions.
Another problem is the difficulty, to
attribute cost, revenue, or profit
contributions to the various
functional units or business units
Allocating costs based on a
departments percentage of direct
labor hours causes managers to
waste time trying to reduce direct
labor.
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.
Performance variance- the
difference between the standard
& actual performance.
Managers can be pressured to
find ways to make up these
variances, resulting in decisions
that may not be in the long - term
best interests of the firm.
Use of Firm-Wide Productivity &
Utilization Measures- useful but
have the same problems as
revenues, costs, & profits.
Decisions made to increase
productivity may prove to
actually increase a firms 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 performance
measures also tend to be short-
term oriented.
 World-Class Performance
Measurement Systems
Developing World-Class Performance
Measures
Identify the firms strategic objectives.
Develop an understanding of each functional areas
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 areas capabilities.
Document current performance
measures & identify changes that must
be implemented.
Enure the compatibility & strategic
focus of the performance measures to
be used.
Implement the new performance
system.
Periodically reevaluate the firms
performance measurement system.
SC Performance Measurement Systems
Performance measurement
systems must:
Link SC trading partners to
achieve breakthrough
performance in satisfying the
end users.
Overlay the entire SC to assure
that all contribute to SC strategy.
In a successful chain, members
jointly agree on a SC performance
measurement system.
Specific Supply Chain Performance
Measures
Total SCM costs: cost to process
orders; purchase & manage
inventories; & information systems.
SC cash to - cash cycle time:
Average # of days between paying
for materials and getting paid by
SC partners.
SC production flexibility: average
time required to provide an
unplanned 20 % increase in
production..
 SC delivery performance:
average % of orders filled by
requested delivery date.
SC perfect order fulfillment
performance: average % of
orders that arrive on time,
complete, and damage free.
Supply chain e-business
performance: average % of
electronic orders received for all
supply chain members.
The Balanced Scorecard
Balanced scorecard (BSC)
developed by Kaplan and Norton to
align an organizations performance
measures with its strategic plan and
goals. The BSC framework consists
of four perspectives:
Financial perspective
Internal business process
perspective
Customer perspective
Learning and growth perspective
Supply Chain Operations Reference
(SCOR) Model
Developed by the Supply Chain
Council for supply chain management
diagnostic, benchmarking, and
process improvement tool. The
SCOR model separates supply chain
operations into 5 process categories:
Plan
Source
Make
Deliver
Return
Questions?
Thank You !
 Deepak Jakate
Managing Partner
Envision Management Services
Supply Chain Excellence
Six Sigma
Training & Education
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email : deepak.jakate@rediffmail.com
mobile : 09892700607