Supply chain performance metrics pdf

The balanced score card over the years have been considered the most successful model to measure the performance of organizations because it constitutes both financial and non-financial measures. Beamon , went on also to present a framework stating most of the models used persistently utilized cost and combination of cost and customer responsiveness.

He stated other performance measures were identified but could not be incorporated into most of the existing quantitative models due to their qualitative nature. Examples were customer satisfaction, information flow and risk management.

He went on to conclude that to achieve strategic goals of an organization one has to consider resources output and flexibility. According to the Supply Chain Operations Reference SCOR , model employs the concept of process re-engineering, benchmarking and process measurement. SCOR consists of four distinct processes source, make, deliver and plan. According to Neely et al. The performance prism consists of five connected bridges facets that helped to answer questions that were not considered by notably the first generation framework proposed in the Balanced Scored Card.

Some of them Jungman et al, believed that these models are applicable while others Hvolby and Thorstensun, , said that performance measurement in SMEs has its special characteristics than that of large enterprises. Most SMEs have found it difficult to use most of the existing performance measurement system models and frameworks or if they attempt to use one, implementation becomes a problem due to lack of suitable methodologies to guide implementation.

Methodology A mixed or concurrent design approach was used in this research work. Mixed approach is a methodology that uses both qualitative and quantitative methods to carry out a research. A survey questionnaire, interview and documentation were used to get the qualitative data and some quantitative data from the case study company.

The survey included three types of scales but a five point Likert scale was used to help the respondents express the importance of each performance measurement variable. The performance measurement variables of the case study company were identified through interviews with senior management and managers and thorough review of literature from books and journal papers.

Table 1. Definition of performance measurement variables Variables Types Meanings References Handfield , New product Result Ability to reduce product development time Christopher and Towill development time New product Ability to reduce time to introduce new Handfield , Result introduction time product or new features on existing products Ward et al Time between receiving customer order to Lead time Result Towill product delivery Information Software and hardware to empower lead time Yu, Yan and Edwin Enabler technology reduction chen Roth et al.

System dynamics was developed by Jay W. Forrester in It is a form of computer aided approach for analyzing and solving complex interactions with focus on policy analysis and design. It uses a technique based on information feedback to understand the dynamic behavior of complex, physical and biological systems Forrester, There are two sides to system dynamics analysis; causal loop diagram and stock and flow diagram.

The causal loop shows the relationship among the various variables of the system through feedback analyses. A positive feedback shows that both the dependent and independent variables move in the same direction while a negative feedback signifies opposite direction. From the analysis of the survey questionnaire, a causal loop diagram was developed to show the interrelationships and interdependence among the variables.

Respondents identified lead-time reduction, quality products and product availability as the main order winning strategies of the case study company. As one of the objectives of this work, these variables were later model to know their effect on the performance of the case study company.

The table below gives the various variables for lead-time reduction as the main variable of the performance system. Table 2. System Modeling Causal loop diagram are a very simple but powerful ways of visualizing the important part of a system and how they interrelate.

The parts of the system are visualized using identifiers. The connection between the parts are shown using arrows pointing in the direction of influence. Causal loop diagrams help the modeler to conceptualize the real world problem in terms of feedback loop. From literature review and initial interview conducted, the performance measurements variables have been divided into enablers, results and inhibitors of which the total sum of the three divisions give the supply chain performance.

In the first loop, to have product always available at the company where the study conducted, the company has to be effective in terms of market sensitivity as it helps to know what the customer wants that could be always made available. Good market sensitivity helps in keeping the company informed about changing demands of customers which could lead to new product development or developing new features on existing product to stay competitive. Increase market sensitivity increases delivery speed.

This increase in delivery speed leads to good process integration between the company and its suppliers so as to meet the needs of the customer. Causal loop diagram for supply chain variables In the second loop, we see that increase in market sensitivity increases delivery speed which in turn improves process integration.

A very sensitive market will help to reduce greater uncertainties and therefore the company will be able to better forecast to avoid stock out. The feedback loop between market sensitivity and uncertainty is -. In the third loop, increased in delivery speed reduces the lead time for replenishment. This reduced lead time will result to lower cost and hence more orders will be received from customers because respondents identified reduced lead-time as one of the order winning strategies which will increase the supply chain performance.

On the other hand, poor market sensitivity leads to high uncertainties about customer demands. In the fourth loop, Uncertainty in customer demand results to decrease in process integration and collaboration as suppliers may not know the actual situation of what is required which increases the lead time for product availability. Long lead time leads to decrease in customer orders which will seriously affect the supply chain performance.

The best solution to oversee uncertainties in supply chain operations is to have a good IT tool or tools that can be used for better forecasting. The feedback loops between uncertainty, new product introduction, process integration, collaborative planning and IT is -ve. In the fifth loop, Collaborative planning helps to improve the quality of the products and also reduce cost that could improve the supply chain performance.

Reduce lead time will help to increase delivery reliability, reduce cost and will lead to winning more customer orders as the main competitive strategy of the case study company is product availability. This will then increase supply chain performance or surplus.

The feedback loop between reduced lead time, delivery reliability, cost and supply chain performance is positive. Figure 2. Causal loop diagram of lead-time reduction There are several connecting loops in the diagram.

It starts by explaining that the when there is growth in domestic production, there will be an increase in the capacity of production which will increase the domestic stock available. When there is growth in demand of malt drink, demand may tend to accumulate as customers make their orders to the case study company.

This however increases the total demand of malt drink leading to increase in importation. When there is increase domestic production of cocoa there will be a decrease in the import requirements as the company tends to purchase raw materials locally instead of importing while increase in total malt demand increases importation.

Three factors are said to reduce total leadtime of the company; Quality, domestic cocoa production and time reduction factor. Quality products reduces rework by saving time, domestic production allows increase in domestic availability of raw materials and time reduction factor reduces the effect of import leadtime and total malt demand on the total leaddtime. As the total leadtime reduces to purchase cocoa powder for production so does the future leadtime reduces.

Results and Discussion The result of the various simulations that were investigated using a what-if-analysis in order to study the behavior of the selected variables on the model over a period of five years look ahead.

Fifteen 15 scenarios were investigated with five scenarios each of the three parts. Three variables were investigated for part one domestic cocoa production, future lead-time and import requirements , three for part two total malt demand, future lead-time and import requirements and one variable for part three future lead-time. Figure 3 shows the current operating conditions of the case study company.

From results shown in Figures 4, Figure 5, and Figure 6, it is evident that as the growth in domestic production of cocoa increases, the stock value of domestic production increases followed by a decrease in the import requirements and future lead-time.

From the respondents of the questionnaire survey, it takes about 30 days to import and about 7 days to deliver the cocoa powder domestically. Therefore increasing domestic growth increases domestic availability of cocoa powder which will reduce import requirements and hence reduce lead time. Part two of the analyses was based on varying the growth in demand for total malt drink by the customers of the company.

From results shown in Figure 7, Figure 8 and Figure 9, it is also evident that as the company tends to receive more orders from the customers, demand continues to accumulate which could prompt more import requirements because the total demand of malt drink of the company increases. If however the growth in domestic production remains constant, then we will observe an increase in import requirements and hence there will be increases in the future lead- time. Scenario results for future lead-time of domestic cocoa production Future leadtime: 1 - 2 - 3 - 4 - 5 - 1: 45 1 2 3 1 4 2 1 1 5 3 2 4 2 3 5 4 3 1: 45 5 4 5 1: 45 0.

Scenarios results for future lead-time of malt import requirements: 1 - 2 - 3 - 4 - 5 - 1: 5 4 1: 5 4 3 5 3 2 4 5 3 2 2 1 3 4 1 1 1 2 1: 0 0. Scenarios Results for Import Requirements of malt 5. Conclusion This study has investigated that domestic purchase of the principal raw material cocoa powder and producing quality products will help to reduce the lead-time by making products available at all times meeting customer demand, which is the main focus of a responsive supply chain and hence will improve the performance of the company.

This study did not focus on cost involved in making the supply chain of the company responsive. From the analysis of the questionnaire, it is gathered that the lead-time, quality and product availability are the three main order winning strategies of the customers of the company.

Most Small and medium sized companies do not have an effective or a performance measurement system due to the fact that most cannot identify their internal strength and weaknesses but more focus on external opportunities and threat.

There are lots of competitors in the beverage market in Malaysia who are also trying to gain greater market share by producing quality products to the customers and also trying to make products always available.

Therefore since the case study company has identified the various strategies they can use in winning customer orders, they must strive to be efficient and effective in their activities. In trying to purchase a raw material locally which is the best decision, the case study company needs to have good collaboration with its supply chain partners so as to integrate well to enhance on-time delivery.

The use of IT in planning the operations of suppliers and customers in terms of deliveries is very important in a responsive supply chain. From survey, it is evident that the current operating system of the case study company is not effective in terms of using IT systems. The company does not have a specialized type of software that can improve the ordering system of the supply chain and in most cases orders are done manually and in person.

Two causal loop diagrams were developed from the questionnaire analyses. The first causal loop explained the inter- relationship between each of the selected performance measurement variable helping to achieve the first objective of this research. To learn more, view our Privacy Policy. To browse Academia. Log in with Facebook Log in with Google. Remember me on this computer. Enter the email address you signed up with and we'll email you a reset link.

Need an account? Click here to sign up. Download Free PDF. Supply chain performance metrics The practice of supply chain management: Where …, Amit Marwah. A short summary of this paper. Download Download PDF. Translate PDF.

Reprinted with permission. Abstract Every CEO must always be concerned with the competition. Supply Chain Performance crosses company boundaries since it includes basic materials, components, subassemblies and finished products, and distribution through various channels to the end customer.

To win in the new environment, supply chains need continuous improvement. We describe a number of supply chain performance measures that are expressly designed to support and monitor Supply Chain Performance improvements across the supply chain and illustrate the shortcomings of several common metrics.

As operations manager for a major aluminum processing facility, he was proud of the fact that he had in past months achieved significantly high production figures for high margin specialty milled orders. But his boss had just berated him for producing fewer tons of low margin aluminum than budgeted. Raw tonnage is an inappropriate measure of supply chain performance for a diverse product line where gross margin per ton varies considerably. Introduction - Why a Top Management Concern?

The battleground will be Supply Chain vs. Supply Chain, with emphasis on continuous improvement across the extended supply chain. To maintain and encourage supply chain improvement we need to go beyond traditional functional and business performance measures and develop new metrics with enough detail and richness to handle Supply Chain performance rather than individual business performance.

Modern supply chains are highly complex and dynamic. Furthermore, the emergence of the Internet as a new technology enabler has increased the number of customer interactions and product configurations, thereby presenting greater demands on supply chain management and performance.

The ultimate goal and measure is customer satisfaction: the ability to fulfill customer orders for personalized products and services faster and more efficiently than the competition. It is critical therefore to focus management attention on the performance of the supply chain as an integrated whole, rather than as a collection of separate processes or companies. Companies must focus on two dimensions of performance to ensure supply chain integration - multi-functional and multi-company.

Supply chains span many functions in an organization, therefore, it is critical that performance measures are not narrowly defined. One-dimensional metrics such as capacity utilization, inventory turns or material costs will lead to a distorted picture of the performance of a firm. The supply chain is only as strong as its weakest link. Surface mount factories provide an example of how one-dimensional performance measures can be dangerous and misleading.

To minimize this measure, managers of such factories would create large production runs of the same batch to minimize changeovers and setups. The result of these longer runs would be both a lowered cost per insertion and an increased inventory of finished goods. The overall performance of the surface mount factories could actually decrease despite the positive results of their cost-related performance measure.

As a second example, many companies focus their attention on minimizing freight costs, which are tangible, while ignoring the cost of inventory, which is often measured indirectly or sometimes not even tracked. As a result, we have seen companies using strict transportation policies like always shipping by full-truckloads or full container- loads, or always shipping by ocean or surface.

Although the cost of transportation is minimized, the negative impact on inventory and customer service may be so great that the overall supply chain performance suffers. Likewise, we have also seen companies that boasted great improvements in their own operational performance, but that did not impact the end-consumers due to the overall poor performance of the supply chain. Integrated performance measures must therefore be cross-enterprise in nature. Adaptec, a fabless semiconductor company, has made great strides in supply chain improvement by integrating information flow between itself, its foundry supplier TSMC in Taiwan , and its packaging partners in Hong Kong and Korea.

Adaptec not only shares production forecasts and communicates purchase orders with its partners; it also shares prototype specifications and test results. This daily Internet-based collaboration has drastically reduced cycle times and inventory levels throughout the supply chain.

Adaptec improved its competitiveness as its observed supply chain cycle times dropped from days to 60 days. It enabled the two parties to build trust, and provided the basis for the justification of the investment in IT enabling this tight sharing of information. Evolution of Performance Measures for Supply Chains Figure 1 illustrates the two-directional evolution of integrated supply chain measures.

Businesses need to migrate from single-dimensional measures to multi-dimensional ones, and from a single-enterprise focus to a cross-enterprise focus. Businesses that use multi-dimensional performance measures should recognize that not all dimensions are equally important, and some tradeoffs are necessary.

Understanding tradeoffs and as a result, knowing how to set priorities and targets is crucial. An example of an important tradeoff is the balance between inventory level and customer service as two distinct performance measures.

Figure 2 illustrates such a tradeoff. Instead of measuring these quantities separately and having their management occur on separate desks, the curve shows that for any given supply chain, there is a clear tradeoff between inventory and customer service. For a given supply chain structure and operating policy, customer service will improve as more inventory is available, and vice-versa.

Focusing on only one of these twin goals is therefore counter-productive; businesses need to consider both goals simultaneously.

Tradeoff Curve for Inventory and Service. Initially, all printers were localized at the factory. However, given the long shipping times to Europe, this early commitment of printers to a specific regional market made it very difficult to match supply and demand across the various country markets in Europe. Frequently HP would find they had excess inventory of one type of printer while they had stockouts of another, due to difficulties in forecasting regional demand coupled with long shipping lead times from the USA.

The solution was to redesign the printer so that the plant produced a generic printer; this was shipped to Europe and the localization was performed at the European DC, after ocean shipping had taken place.

This made the supply chain much more responsive to variations in regional demand. This strategy, called postponement, is important for improving supply chains. The improvement in the supply chain is clearly demonstrated by the dotted tradeoff curve in Figure 2. The Effect of the Internet The Internet will have a major effect on supply chains. It will enable much richer, faster and easier collaboration across different partners in the supply chain; it will enhance the role of the customer in product development and drastically increase the potential for customer interaction; and it will simplify the task of implementing various supply chain improvements such as vendor-managed inventory VMI.

With the Internet, the information sharing across the supply chain occurs much more seamlessly and efficiently. We need to ensure that the metrics used for supply chains include factors that capture the costs and benefits of the Internet as well as the investments and benefits of other supply chain improvement techniques. Every supply chain should have at least one performance measure on each of these three critical dimensions.

Note that Quality is absent here; in modern Supply Chain Management thinking, Quality is taken as a given. The diagnosis and improvement of Quality involves factors which are quite separate from factors used to improve Supply Chain Management. We will explore each of these dimensions to show how a variety of specific metrics may be deployed, tailored to the industry involved.

Service Metrics The basic premise for service metrics is to measure how well we are serving or not serving our customers. Generally it is difficult to quantify the cost of stockouts or late deliveries, so we normally set targets on customer service metrics.