Supply chain performance metrics operation

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. 

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. 

If you have a conversation with the finance department or on Wall Street, you will hear different views of what value means. The definition of value from a finance person would include, of course, money. Within this book, we will begin to understand different perspectives on what value means and show how supply chain management and operations affect an organization s financial performance. In the next chapter, we will discuss the monetary value of a firm in greater depth, but for now, taken together, firm value includes ROIC, growth rate, and cost of capital. It is incredibly beneficial for supply chain professionals to understand how these factors are affected by supply chain activities. In the end, you will not only know how operational metrics are affected by your decisions but you will also grasp how financial metrics are influenced by your decisions. 

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. 

Gunasekaran and Kobu (2007) The key performance measures and metrics to manage logistics and supply chain operations. 

In a next step, the table checks to detect performance metrics especially relevant to the operations of the company which are not covered by the supply chain strategy and the corresponding competitive priorities filters. If there are additional performance metrics which need to be taken into account, they should be added to the existing list. 

The majority of supply chain professionals perform well in their functional roles. At the same time, many of these professionals find it difficult to see the company s larger goals or to see how their actions affect other functional areas. Furthermore, supply chain professionals fail to see how their decisions or actions connect to and affect the financial goals and objectives of the firm. Pointing this out is not to degrade supply chain professionals they are measured by operational performance metrics, which, by all accounts, are plastered on most shop walls. These metrics are what they know and live by. Because the management of supply chains is critical to the long-term prosperity and sustainability of any firm, supply chain professionals who intend... 

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