Supply chain performance metrics

Supply Chain Performance, Metrics, Goals and Objectives... 

In this chapter, we have defined the term "supply chain engineering" and discussed the types of decisions that are made in managing supply chains. We also demonstrated the close relationship between certain supply chain performance metrics and a company s financial performance. Finally, the importance of supply chain management was illustrated in our discussion of the Supply Chain Top 25 (Hofman et al., 2011) and their essential characteristics. An overview of the topics covered in Chapters 2 through 8 was also presented. 

The network should be evaluated using multiple supply chain performance metrics that include supply chain profit, risk, and responsiveness. 

This chapter showed how the choice of metric of competition and the existence of competitors affects the performance of a supply chain. The first part of the chapter examined the many alternate metrics that can determine performance, including costs, profitability, service, variety, and lead time. Each of these alternate metrics implies different choices for supply chain architecture as well as for the details of operation. In addition, in the presence of competitors, agreements that are good for the supply chain in a monopolistic setting may be bad for the supply chain in a competitive environment. Thus one may find an industry supply chain stuck in a bad equilibrium with frequent harmful promotions or advance order discounts, unable to pull itself out of this state due to competitive pressures. This chapter thus su ests that competitiveness can be a significant driver of supply chain performance. 

The selection of performance metrics is seen as a very critical step in the evaluation of any system. A large number of performance metrics are available in order to characterize systems such as production, distribution, and inventory which increasingly make the selection of measurements more difficult (Beamon 1999). However, as Gunasekaran et al. (2001) state in the context of supply chain management [...] metrics are needed to test and reveal the viability of strategies... 

SCOR model provides a set of five metrics for process level, called SCORCard, for evaluating supply chain performance. The five metrics are rehability, responsiveness, flexibility, cost and assets. 

Metrics for supply chain performance were lacking. 

The second reconunendation was to use SCOR metrics to measure and manage global supply chain performance. In addition to those shown in Table 23.2, MJN tracked returns as a percentage of sales, product quality, and product cost. Another structure was established to report progress to the PAC. 

In the past it was usually deemed to be sufficient simply to measure internal performance. In other words, the focus was on things such as productivity, utilisation, cost per activity and so on. Whilst it is clearly important that such things continue to be measured and controlled it also has to be recognised that such measures only have meaning when they are compared against a relevant metric or benchmark. What should be the metric that is used in assessing logistics and supply chain performance ... 

In this chapter, our goal is to link key financial measures of firm performance to supply chain performance. We introduce the three logistical drivers—facilities, inventory, and transportation—and the three cross-functional drivers—information, sourcing, and pricing—that determine the performance of any supply chain. We discuss how these drivers are used in the design, planning, and operation of the supply chain. We define several metrics that can be used to gauge the performance of each driver and its impact on financial performance. 

In Chapter 1, we discussed how growing the supply chain surplus is the ultimate goal of a supply chain. Our premise was that increasing the surplus allows for a growth of supply chain profitability, which facilitates an improvement in the financial performance of each member of the supply chain. In this section, we define important financial measures that are reported by a firm and affected by supply chain performance. In later sections, we link supply chain drivers and associated metrics to the various financial measures. The definitions of financial measures in this section are taken from Dyckman, Magee, and Pfeiffer (2011). To illustrate the various financial measures, we use the financial results reported in 2013 by Amazon.com and Nordstrom Inc. and assume a tax rate of 0.35. 

INVENTORY-RELATED METRICS Inventory-related decisions affect the cost of goods sold, the C2C cycle, the assets held by the supply chain, and its responsiveness to customers. A manager should track the following inventory-related metrics that influence supply chain performance ... 

INFORMATION-RELATED METRICS A manager should track the following information-related metrics that influence supply chain performance ... 

A literature analysis marks the starting point of the research process. Relevant research fields are, for instance, supply chain performance measurement or customer service literature rooted in marketing. The theory-based analysis helps to keep track of initial theoretical or practical indications and crystallize them Avithin a first conceptual model explaining the relation between the value drivers of SCM and the EVA as relevant business metric. This part expresses deductive research. The conceptual model is subsequently tested in practice to disclose inconsistencies and customize the degree of specification. Remarks and suggestions made by practice, reflecting the inductive research, inspire fiuther descriptions and improvement. The knowledge acquisition... 

In essence, 35% of the published articles addressing instruments and methods of supply chain control deal with business metrics, 20% with the balanced scorecard and 16% with supply chain costing. Further methods are supply chain target costing and process mapping (Bacher, 2004 106). Publications by Neely et al. (1995) and Neely (2005) focusing on supply chain performance management and measurement confiim this statement... 

This comprehensive approach allows for efficient integration between processes, different phases of product life cycle, and integration between different sites in the supply chain. This integration provides opportunity for efficiency in that process owners are integrated with each other s needs and expectations. Duplication of effort is avoided and efficiencies gained. Quality outputs from one process become reliable inputs into the next process. Management and leadership will have access and insight into compliance, infrastructure, and performance metrics of all processes on a comparable basis. This provides leadership the opportunity for risk-based resource allocation to appropriate areas of the enterprise. 

Of course, performance metrics must be changed to reflect process performance across the supply chain, and rewards and incentives must be aligned to these metrics in order to effect change. Each of the eight processes wUl now be described. 

Gunasekaran, A., Patel, C., and Tirtiroglu, E. Performance measures and metrics in a supply chain environment. International Journal of Operations Production Management, 21(l/2) 71-87, 2001. 

Kleijnen, J. P. C. and Smits, M. T. Performance metrics in supply chain management. The Journal of the Operational Research Society, 54(5) 507-514, 2003. 

What is the basis of competition for the supply chain For purposes of illustration, we will use cost as a metric of performance, but many other possible choices (e.g., time, days of inventory) could also be the relevant metric. Consider the cost impact on the product as it moves through the supply chain. Examine how costs are added as each of the entities in the supply chain impact the product. 

The focus of a company is to be competitive in the marketplace and thus be profitable. A competitive supply chain has to provide customers with the expected or superior performance. But what does it mean to be competitive The competitiveness of a supply chain refers to two aspects of the supply chain (1) the link between a supply chain s choice of its competitive metric and the corresponding choice of its architecture and (2) the impact of competitors on a supply chain s performance. While successful firms in every industry often have unique capabilities, an important question for every firm is to adjust its supply chain architecture to remain competitive in the presence of a changing environment. 

To understand how choosing different performance metrics will impact a supply chain, consider a supply chain with a single manufacturer that supplies a retailer. The manufacturer produces and sells the product at a per-unit price of c and a production lead time of L. It costs 4 to transport the product to the retailer with a lead time of. The result is total lead time of (manufacturing time and transport time) and a cost of... 

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