Supply chain strategy - Performance measurement System
1. SUPPLY CHAIN
STRATEGY
Assignment – 1
Next generation performance measurement
Submitted to – Prof. Arindam Burman
- Submitted By
Lokesh Kalwar
Roll No – 42419
PRN - 19020148019
MBA Exe – 2019-22
2. Performance Measurement
• It is defined as the process of quantifying effectiveness
and efficiency of action.
• It can provide important feedback information to enable
managers to monitor performance, reveal progress,
enhance motivation and communication, and diagnose
problems.
• It is an approach to judge the performance of supply chain
system
3. Classification of performance
measurement
• Qualitative measures − For example, customer
satisfaction and product quality.
• Quantitative measures − For example, order-to-
delivery lead time, supply chain response time,
flexibility, resource utilization, delivery performance.
The performance of a supply chain can be improvised
by using a multi-dimensional strategy, which
addresses how the company needs to provide
services to diverse customer demands.
4. Quantitative Measures
Quantitative measures is the assessments used to
measure the performance, and compare or track the
performance or products.
Its further breakup –
• Non-financial measures
• Financial measures
5. Non - Financials Measures
The metrics of non-financial measures comprise cycle
time, customer service level, inventory levels, resource
utilization ability to perform, flexibility, and quality.
6. Cycle Time
Cycle time is often called the lead time. It can be simply
defined as the end-to-end delay in a business process. For
supply chains, cycle time can be defined as the business
processes of interest, supply chain process and the order-
to-delivery process.
• Supply chain lead time - the time taken by the supply
chain to transform the raw materials into final products
along with the time required to reach the products to the
customer’s destination address.
• Order-to-delivery lead time - the time of delay in the
middle of the placement of order by a customer and the
delivery of products to the customer.
7. Customer Service Level
The customer service level in a supply chain is marked as an
operation of multiple unique performance indices.
• Order fill rate − The order fill rate is the portion of customer
demands that can be easily satisfied from the stock available.
For this portion of customer demands, there is no need to
consider the supplier lead time and the manufacturing lead
time. The order fill rate could be with respect to a central
warehouse or a field warehouse or stock at any level in the
system.
• Stockout rate − It is the reverse of order fill rate and marks the
portion of orders lost because of a stockout.
• Backorder level − This is yet another measure, which is the
gauge of total number of orders waiting to be filled.
• Probability of on-time delivery − It is the portion of customer
orders that are completed on-time, i.e., within the agreed-upon
due date.
8. Inventory Levels
As the inventory-carrying costs increase the total costs
significantly, it is essential to carry sufficient inventory to
meet the customer demands. In a supply chain system,
inventories can be further divided into four categories.
• Raw materials
• Work-in-process, i.e., unfinished and semi-finished
sections
• Finished goods inventory
• Spare parts
9. Resource Utilization
In a supply chain network, huge variety of resources is
used. These different types of resources available for
different applications are mentioned below.
• Manufacturing resources − Include the machines,
material handlers, tools, etc.
• Storage resources − Comprise warehouses, automated
storage and retrieval systems.
• Logistics resources − Engage trucks, rail transport, air-
cargo carriers, etc.
• Human resources − Consist of labor, scientific and
technical personnel.
• Financial resources − Include working capital, stocks,
etc.
10. Financial Measures
The measures taken for gauging different fixed and operational costs
related to a supply chain are considered the financial measures. Finally,
the key objective to be achieved is to maximize the revenue by
maintaining low supply chain costs.
The financial performance of a supply chain is assessed by considering
the following items −
• Cost of raw materials.
• Revenue from goods sold.
• Activity-based costs like the material handling, manufacturing,
assembling rates etc.
• Inventory holding costs.
• Transportation costs.
• Cost of expired perishable goods.
• Penalties for incorrectly filled or late orders delivered to customers.
• Credits for incorrectly filled or late deliveries from suppliers.
• Cost of goods returned by customers.
• Credits for goods returned to suppliers.
11. Performance Management System
Two advance and widely used models to measure
performance of Supply chain are –
• SCOR Model
• Balanced Scorecard
12. SCOR Model
Supply chain operations reference model (SCOR) is a
management tool used to address, improve, and
communicate supply chain management decisions within a
company and with suppliers and customers of a company.
The model integrates business concepts of process re-
engineering, benchmarking, and measurement into its
framework
This framework focuses on five areas of the supply chain:
plan, source, make, deliver, and return.
13. SCOR Model
Plan - Demand and supply planning and management are included in
this first step. Elements include balancing resources with requirements
and determining communication along the entire chain.
Source - This step describes sourcing infrastructure and material
acquisition. It describes how to manage inventory, the supplier network,
supplier agreements, and supplier performance.
Make- Manufacturing and production are the emphasis of this step. The
make step includes, production activities, packaging, staging product,
and releasing.
Deliver - Delivery includes order management, warehousing, and
transportation. It also includes receiving orders from customers and
invoicing them once product has been received.
Return - Companies must be prepared to handle the return of
containers, packaging, or defective product. The return involves the
management of business rules, return inventory, assets, transportation,
and regulatory requirements
14. Benefits of Using the SCOR Model
• The SCOR process can go into many levels of process
detail to help a company analyze its supply chain.
• It gives companies an idea of how advanced its supply
chain is.
• The process helps companies understand how the 5
steps repeat over and over again between suppliers, the
company, and customers.
• he model enables full leverage of capital investment,
creation of a supply chain road map, alignment of
business functions, and an average of two to six times
return on investment.
15. Balanced Scorecard
• The balanced scorecard is a holistic framework used by
business management strategists to measure
performance, set goals, and prioritize projects.
• It helps us to measure performance at all eight levels in
a supply chain and measures the performance
using metrics.
16. Balanced Scorecard
The balanced scorecard approach contains four different metrics
or perspectives which are used to measure performance at all
the levels in the supply chain. These four metrics combines the
strategy and vision for every aspect of the supply chain.
• Financial: To succeed financially, how should firms appear to
their shareholders.
• Customer: To achieve our vision, how should firms appear to
their customers.
• Internal Business Processes: To satisfy their shareholders
and customers, what business processes firms must excel at.
• Learning and Growing: To achieve their vision, how will firms
sustain their ability to change and improve.
18. Balanced Scorecard
Example of how to measure these 4 metrics using- Objectives,
Measures, Initiatives and Targets.
Perspectives Goals Objectives Measurements
Customer
Continuously improve
customer satisfaction
Decrease lead time Average lead time
Increase on-time delivery
Percentage of deliveries on
time
Reduce customer complaints
Number of customer
complaints
Internal Business
Continuously improve
business processes
Decrease cycle time Average cycle time
Increase quality
Number of defects and the
number of items reworked.
Increase productivity Average output per employee
Innovation & Learning
Continuously develop
and deliver new
innovative products &
services
Increase sales of new products
and services
Percentage of sales obtained
from new products & services
Reduce development time
Average time from initial design
to production
Financial
Continuously improve
financial performance
Decrease costs Average unit costs
Increase sales growth The growth rate in sales
Increase market share Company’s market share
Increase return on investment Return on investment
19. Benefits of Using Balanced Scorecard
A balanced scorecard will help you and the firms to gain
different types of feedback related to their supply chain
operations including –
• Strategic data for high-level decision-makers,
• Diagnostic feedback to guide process improvement,
• Knowledge of trends in metrics over time,
• Feedback on the effectiveness of the performance
measurements themselves,
• Data which will be used for forecasting future business
activities.
20. Conclusion
The supply chain performance measurement system will
produce output in the form of total performance value and level
of the company’s supply chain performance indicator category.
The main cause of the supply chain performance is less efficient
lies in the low performance of the material management process
(source). The low performance of the source process is caused
by several things, including inaccurate forecast, unintegrated
supply planning, weak coordination between parts of the
company, inadequate supplier performance, poor inventory
management, and no inventory checking in the warehouse.
In implementing these Models, it is expected that real
participation from all components of the company, especially at
the top management level.
