SUPPLY CHAIN PERFORMANCE

MEASUREMENT

(FOR PRIVATE CIRCULATION ONLY)

2021
PROGRAMME COORDINATOR
Prof. Shashank Bhandakkar

COURSE DESIGN AND REVIEW COMMITTEE

Mr. Ashok Soman Dr. Satish Chinchorkar
Prof. Shashank Bhandakkar

COURSE WRITERS
Prof. Raghavan Santhanam Prof. Shashank Bhandakkar

EDITOR
Mr. Yogesh Bhosle

Published by Symbiosis Centre for Distance Learning (SCDL),

Pune, January 2022

Copyright © 2021 Symbiosis Open Education Society

All rights reserved. No part of this book may be reproduced, transmitted or utilised in any form or by any
means, electronic or mechanical, including photocopying, recording or by any information storage or retrieval
system without written permission from the publisher.

Acknowledgement
Every attempt has been made to trace the copyright holders of materials reproduced in this book. Should any
infringement have occurred, SCDL apologises for the same and will be pleased to make necessary corrections
in future editions of this book.
 PREFACE
With ever increasing demand on logistics service providers and companies to deliver services of
even higher quality, it is becoming mandatory for businesses to adopt new strategies for performance
measurement of their supply chains.
Supply chain management is all about managing the flow of products, services and information
across the supply chain process. It is more than just the logistics. SCM must encompass the primary
and secondary value added functions of sourcing procurement, manufacturing, distribution, sales and
service of a product. Measurement of performance is critical for managing supply chains efficiently
and effectively.
In the last few years, there has been an increase in recognition of the fact that traditional metrics and
reporting techniques, used by a majority of the companies, are not adequate to provide the desired
visibility of the performance of supply chain processes.
For instance, a company may have a low return rate in its product range, but if it is not able to deliver
the product in time, then in the long run, the company is going to lose the business opportunity in
that sector.
Most of the measures in supply chain management are based on financial metrics such as on time
delivery, inventory turns, cost reduction and so on. In this student learning material, we talk about
various other aspects of Supply Chain Performance Measurement.

Prof. Shashank Bhandakkar

iii
 ABOUT THE AUTHORS

Raghavan Santhanam is a Ph.D. Scholar (A study on impact of artificial intelligence in aiding

supply chain towards a circular economy) National Institute of Fashion Technology, Delhi, India
MBA, Goizueta Business School at Emory University, Atlanta, USA
GMT, National Institute of Fashion Technology, Delhi, India
B.E. (IPE), MSRIT, Bengaluru, India
Work Experience: Supply chain strategist, business operations and consulting professional with 29+
years of experience in multiple industries across US, Europe and Asia Pacific. Proven track record of
leading operations and managing third party spend USD 15 billion. Featured in primary US industry
publications for his role as an instrumental change agent, invited to panels & committees; effectively
trained students, consultants and industry professionals. Winner of “Transformational leader (2019)”
in the banking industry at the 5th Asian thought leadership summit for his achievements in digitizing
sourcing and third-party risk management at Standard Chartered Bank as their head of Procurement
& SCM. He is currently the Head – Logistics and SCM at the Symbiosis Skills and Professional
University at Pune. https://www.linkedin.com/in/businessoperations/
Shashank Bhandakkar completed his B.E. Mechanical Engineering from MITS, Gwalior, a
Government Engineering College under Jiwaji University. He has also successfully completed
his Post B.E. MBA in Materials from Symbiosis Institute of Business Management, Pune. He has
more than 25 years’ experience of working with MNCs in India as well as abroad, in Supply Chain
Management, Operations Management, Export Import functions. He has rich industrial experience
in Engineering, Consumer Electronics, Automotives, Electrical & Electronics Equipments and
Machinery Manufacturing, Projects execution companies with projects such as food, dairy, pharma
plants, Project cum manufacturing companies. His responsibilities have been in end-to-end supply
chain covering Purchasing, Materials Planning, Sourcing, Logistics, Warehousing, Distribution,
Imports, Vendor Development, Sourcing and Cost reduction. Formulating Sourcing and Supply Chain
strategies as well as product development has been his common deliverables in diverse industry
experience.

iv
 CONTENTS
Unit
TITLE Page No.
No.
1. Performance Measurement of Integrated Supply Chain 1 - 14
1.1 Introduction
1.2 Why Supply Chain Performance Measures?
1.3 Definition and Objectives of SC Performance Measurement
1.4 Concepts and Functions of Supply Chain Performance Evaluation
1.5 Performance Evaluation: Theory and Method
1.6 Controlling and Monitoring of Supply Chain
1.7 Internal and External Supply Chain Performance Measurement
1.8 SCOR Model
1.9 Gunasekaran’s Framework
1.10 Improvements in Supply Chain Management
1.11 Problems and Challenges of Supply Chain Performance Measurement
1.12 Methods for setting Performance Targets
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
References

v
 Unit
TITLE Page No.
No.
2. Traditional Approaches to Supply Chain Performance Measurement 15 - 26
2.1 Introduction
2.2 Conceptual Approaches to Supply Chain
2.3 Traditional Supply Performance Measures
2.4 Delivery Performance Measures
2.5 Total Distribution Cost
2.6 Costs of Assets and Return on Investment (RoI)
2.7 Information Processing Cost
2.8 Supply Link Evaluation Metric
2.9 Traditional Approaches to Supply Chain Performance Monitoring
2.10 Disadvantage of Traditional Measures
2.10.1 Traditional Value Measures
2.10.2 Return on Investment (ROI)
2.10.3 Return on Equity (ROE)
2.10.4 Earnings per Share (EPS)
2.10.5 Return on Net Worth (RONW)
2.10.6 Return on Capital Employed (ROCE)
2.11 The Supply Chain Performance Management (SCPM)
2.12 Classification of Different Supply Chain Performance Evaluation
Models
2.12.1 Activity-Based Costing (ABC)
2.12.2 Framework for Logistic Research (FLR)
2.12.3 Balance Score Card (BSC)
2.12.4 Supply Chain Operation Reference Model (SCOR)
2.12.5 GSCF Framework
2.12.6 ASLOG Audit
2.12.7 Strategic Audit Supply Chain (SASC)
2.12.8 World Class Logistic Model (WCL)
2.12.9 EFQM: Excellence Model
2.12.10 Efficient Customer Response (ECR)
2.12.11 Association of Operations Management (APICS)
2.12.12 SCM/SME
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
References

vi
Unit
TITLE Page No.
No.
3. World Class Performance Measures for Supply Chains 27 - 40
3.1 Introduction
3.2 Supply Chain Strategy and performance measurement
3.3 World Class Performance in Supply Chain
3.4 Generating Measures for World Class Performance
3.5 World Class Supply Chain Performance Measures
3.6 Few examples
3.7 World Class Performance Cost and Service Dimension
Summary
Keywords
Self Assessment Questions
Answers to Check your Progress
References
4. Process Driven Metrics 41 - 52
4.1 Introduction
4.2 Business Processes
4.2.1 Knowledge Based Processes
4.2.2 Operational Processes
4.2.3 What does being process driven mean?
4.2.4 Process approach
4.2.5 Why is process Drive Important?
4.3 Why Process Driven Performance Metrics
4.4 Supply Chain Performance Metrics
4.5 Requisites of a Good Performance Metrics
4.6 Types of Metrics
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress
References

vii
 Unit
TITLE Page No.
No.
5. Balanced Score Card - Supply Chain 53 - 66
5.1 Introduction
5.2 Transition to new business environment
5.3 New business needs and environment
5.4 The Business Balanced Card
5.5 Major Steps for Balanced Score Card
5.6 Examples of Supply Chain Measures in Balanced Score Card
Summary
Keywords
Self Assessment Questions
Answers to Check your Progress
References
6. SCOR Model 67 - 80
6.1 Introduction
6.2 SCOR Process span
6.3 How is SCOR model implemented?
6.4 Benefits of using the SCOR model
6.5 Drawbacks of SCOR
Summary
Keywords
Answers to check your progress
Activities
References
7. Case Studies in Supply Chain Management 81 - 92
7.1 Introduction
7.2 Few Case Studies
7.3 A Case Study in a Small to Medium Enterprise (SME)
Suggested Reading

8. Case Study on Logistics Performance Measurement 93 - 100

8.1 Introduction
8.2 A Case Study on Logistics Performance Measurement
Keywords
Suggested Reading

viii
Performance Measurement of Integrated Supply Chain
UNIT

1
Structure:

1.1 Introduction
1.2 Why Supply Chain Performance Measures
1.3 Definition and Objectives of SC Performance Measurement
1.4 Concepts and Functions of Supply Chain Performance Evaluation
1.5 Performance Evaluation: Theory and Method
1.6 Controlling and Monitoring of Supply Chain
1.7 Internal and External Supply Chain Performance Measurement
1.8 SCOR Model
1.9 Gunasekaran’s Framework
1.10 Improvements in Supply Chain Management
1.11 Problems and Challenges of Supply Chain Performance Measurement
1.12 Methods for setting Performance Targets
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
References

Performance Measurement of Integrated Supply Chain 1

 Notes
Objectives
----------------------
After going through this unit, you will be able to:
----------------------
●● Understand the role of performance measurement in Supply Chain
----------------------
●● Understand the need of supply chain performance measurement
---------------------- ●● ave knowledge about supply chain performance measurement
H
systems
----------------------
●● Use the SCOR model
---------------------- ●● Get acquainted with goals of supply chain management
---------------------- ●● o acknowledge the problems and challenges of supply chain
T
performance measurement
----------------------

---------------------- 1.1 INTRODUCTION

---------------------- In current competitive scenario, Supply Chain Management (SCM) has
---------------------- a significant strategic role in improvising effectiveness of organisation and
achieving targets; for instance increased competitiveness, better customer
---------------------- service and higher profitability. Supply chains are becoming increasingly
complicated from linear arrangements to the multi-facet and outward-facing
---------------------- networks of distributed servers. The demand for a lot of information is sought
---------------------- today than it was a few years ago. Those days had gone when a manager was
concentrating on the company’s performance as a unit. Today he has to focus
---------------------- on the widely spread supply chain performance or network of the supply chain
of which the company is a partner. This extended supply chain does not involve
---------------------- multi-tier suppliers. The fierce competition is observed at a chain or network
---------------------- level while implementing continuous improvement covering the entire extended
supply chain.
----------------------
Intra-organisational (within the focal company) performance as well
---------------------- as inter-Organizational (between various partners) integrated supply chain
performance. All across, companies have now felt an increased importance of
---------------------- SCM, but some of them still struggle to choose the appropriate performance
measures for a supply chain in an integrated manner. The general performance
----------------------
of the supply chain remarkably affects the financial health of all member
---------------------- companies. Consequently, it became necessary to have an effective process
of performance measurement of the supply chain, which will improve the
---------------------- performance areas to provide sustainable profitability and financial robustness.
----------------------
1.2 NECESSITY OF SUPPLY CHAIN PERFORMANCE
---------------------- MEASURES
---------------------- Economy is market oriented and, hence, the supply chain needs an
approach of continuous improvements. To achieve this target, function-specific
----------------------

2 Supply Chain Performance Measurement

or company-specific measures will not be useful. To work in a competitive Notes
environment, performance measures should be in alignment with the
worldwide recognised supply chain performance measurements. The suitable ----------------------
improvements should be introduced occasionally as per the needs. Some useful
factors in managing new types of measures for running the supply chain are as ----------------------
follows: ----------------------
●● o establish the connection between corporate objectives and supply chain
T
----------------------
performance. The complexity of supply chain management processes.
●● he need to share joint performance management information to align
T ----------------------
various activities and to evolve an appropriate strategy that achieves the
objectives of the supply chain. ----------------------

●● he need to differentiate the supply chain approach to achieve a benefit

T ----------------------
which aligns with competitive strategy.
----------------------
1.3 DEFINITION AND OBJECTIVES OF SUPPLY CHAIN ----------------------
PERFORMANCE MEASUREMENT SYSTEM
----------------------
Performance Measurement System (PMS) is a levelled and active system
that makes the decision-making process possible by collecting, detailing, ----------------------
and analysing information. The system acts as a reporting process that gives ----------------------
feedback to concerned participants on the result of actions. Performance
measurement can be defined as a metric of quantifying the efficiency and ----------------------
effectiveness of action. Effective supply chain management (SCM) has been
related to several features like enhanced customer value, better profitability, ----------------------
minimised cycle times, and regular inventory levels. The objective of supply ----------------------
chain performance measurement, therefore, is to speed up and increase the
efficiency and effectiveness of SCM. The leading goal of the supply chain ----------------------
performance measurement template is to support management to measure
business performance, examine and incorporate suitable changes. This will ----------------------
facilitate the management in its decision-making processes to improve the ----------------------
efficiency of the business operations. A constructive, integrated and levelled
supply chain performance measurement can attract the organisation’s ----------------------
performance measurement system as a channel for organisational change.
SCPM can facilitate inter-unit understanding and blend among the supply chain ----------------------
members. It makes a vital contribution to decision making in SCM, especially ----------------------
in re-designing business goals and strategies and re-engineering processes.
----------------------
1.4 CONCEPTS AND FUNCTION OF SUPPLY CHAIN ----------------------
PERFORMANCE EVALUATION
----------------------
The operation performance of the total supply chain and its members
can be disclosed by a proper SC performance evaluation system: If logistics ----------------------
processes among the enterprises are reasonable, whether the quality and costs
----------------------
of the SC products are ideal or not. For example, if one supplier on SC is
evaluated individually, it is better to have a lower price. However, such a low- ----------------------

Performance Measurement of Integrated Supply Chain 3

 Notes priced raw material will endanger final product quality, escalate production
costs, and the overall profit of the entire SC will be harmed. Choosing such a
---------------------- supplier will not be a correct decision.
---------------------- In order to evaluate the operating performance of the logistics system objectively
and accurately, the following points should be considered.
---------------------- 1. The primary point of performance evaluation should highlight the key
---------------------- performance indicators. For analysing these indicators, mathematical
tools should be introduced.
---------------------- 2. Indicators that can review SC business processes should be utilised.
---------------------- 3. Indicators should not only reflect the performance of an individual
enterprise but also the subsystem and the whole SC. This is important to
---------------------- achieve the sustainable SC management (SSCM).
---------------------- 4. Evaluation should be done instantly. Analysing afterwards will be
meaningless.
----------------------
5. Indicators that reinforce the strategic goals should be chosen.
---------------------- 6. Ensure that the goals of SC performance evaluation are in tune with
SC strategy. This is important because, otherwise, it will not make any
----------------------
considerable contribution to the strategic goal.
---------------------- 7. Managers should understand clearly the demands of the customers since
customers’ satisfaction should be the prime target of any business house.
----------------------

---------------------- 1.5 PERFORMANCE EVALUATION: THEORY AND

METHOD
----------------------
Since SC combines suppliers, manufacturers, distributors, dealers, and
---------------------- customers with information flow feed forward and the material flow feed
in the reverse direction, it is largely different from the current enterprise
---------------------- management model as from enterprise operation performance evaluation and
---------------------- analysis. Based on the basic characteristics and goals of SC management, SC
performance evaluation has the ability of properly reflecting the overall SC
---------------------- performance as well as of each member enterprise on the supply chain rather
than a single supplier. During the evaluation process, not only the performance
---------------------- of a certain member enterprise of SC should be evaluated but also the impacts
---------------------- that the certain member enterprise has on the upper (next) or lower (previous)
SC member enterprises should also be evaluated. SC performance evaluation
---------------------- normally consists of the following features: the overall SC performance, each
member enterprise performance, partnership among member enterprises of the
---------------------- SC, and incentive level toward member enterprises.
----------------------
1.6 CONTROLLING AND MONITORING OF SUPPLY
---------------------- CHAIN
---------------------- 1.6.1 Supply Chain Controlling
The supply chain controlling means building and navigating of the
---------------------- interactions between functions within the entire supply chain by using adequate

4 Supply Chain Performance Measurement

controlling approaches. Objectives of supply chain control are as under: Notes
Direct objective and Indirect objective. The direct objective has to do with the
measuring performance of the adapted business processes and the resources ----------------------
such as man, materials and machines while the indirect objective focuses on
more strategic objectives, such as improving efficiency or competitiveness or ----------------------
gaining market share. Considering this, it should be ensured that supply chain ----------------------
controlling includes the objectives of a company as per company strategy,
while supply chain performance measurement aims at effective and efficient ----------------------
operations so as to improvise on efficiency and responsiveness. Supply chain
performance measurement supports the supply chain controlling objective. ----------------------
Supply chain controlling helps define the strategic objective of a supply chain ----------------------
performance measurement system. The concept covers all features that try to
control, measure or evaluate the performance in the complete supply chain on a ----------------------
strategic, tactical or operational level.
----------------------
1.6.2 Supply Chain Monitoring
----------------------
Supply chain monitoring is the effort of members in a supply chain to
manage and control the availability of information regarding the flow of products ----------------------
and services on different levels and the various directions in supply chains. The
key of a supply chain monitoring system is the sharing of information in the ----------------------
form of standardised data between all the entities within the supply chain.
----------------------
Hence supply chain monitoring focuses on sharing of information and data
amongst the supply chain, while the supply chain performance measurement is ----------------------
connected with a specific goal, such as achieving effectiveness and efficiency.
It can be observed that the three approaches of supply chain controlling, supply ----------------------
chain performance measurement, and supply chain monitoring build upon each
----------------------
other.
----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------
Fig.1.1 Supply chain monitoring ----------------------
Figure 1.1 shows how these approaches can be connected to the different
----------------------
strategic, tactical and operational levels in supply chain management. On the
strategic level, supply chain controlling focuses on the complete supply chain ----------------------
and the controlling of the objectives of the total supply chain. The tactical level
is covered by the measurement of supply chain performance, which measures ----------------------

Performance Measurement of Integrated Supply Chain 5

 Notes the effectiveness and efficiency of the resources like man, machine, materials,
energy and processes which include manufacturing & other business processes
---------------------- based on the supply chain strategy objectives. At operational level, the supply
chain monitoring has to be based on the exchange of information and data which
---------------------- can be transactional etc. In short, supply chain controlling is the main phase for
---------------------- measuring the performance, including or using the other two approaches.

---------------------- 1.7 INTERNAL AND EXTERNAL SUPPLY CHAIN

MEASUREMENT
----------------------
It is important to separate internal and external performance measurements.
----------------------
The internal performance measurement predominantly focuses on the value
---------------------- chain within a company with operational functions sourcing, inbound storage
or transportation, operations, outbound storage/transportation and consumer
---------------------- distribution. The external performance measurement refers to emphasis on
measuring the performance of the efficient and effective flows of material/
----------------------
products, services, information and financials from the supplier’s supplier
---------------------- through various organisations/companies out to the customer’s customer.
1.7.1 Internal Supply Chain Performance Measurement
----------------------
Internal supply chain performance measurement basically concentrates
---------------------- on such measures as lead time; on-time performance. These measures are
generated within a company and do not measure the whole supply chain. Taking
----------------------
only one single company into account can lead to situations where seemingly
---------------------- good measures lead to inappropriate results for the entire supply chain. For
example, if a company implements a parameter of completing and shipping
---------------------- orders and thereby checks order fulfilment or customer service, it might happen
that the company still finds delayed orders since some components of the final
----------------------
product produced by other companies are not available on time. This could
---------------------- cause unacceptable lead or replenishment times, even though completely
shipped orders of one company might be 100%. Knowing these roles of internal
---------------------- performance measurement, it becomes natural that these internal performance
measurement systems cannot be used to external performance measurement
----------------------
systems since the processes may not be entirely the same, measuring the entire
---------------------- supply chain. Therefore in the modern environment, it has become necessary to
develop external supply chain performance measurement systems which extend
---------------------- the limited scope of single companies and their individual functions.
---------------------- 1.7.2 External Supply Chain Performance Measurement

---------------------- Even though it might seem simple to modify an old design or design an
entirely new performance measurement system that measures the performance
---------------------- of an entire supply chain, this task has created many problems for researchers
and practitioners. Performance measurement systems are rarely connected with
---------------------- overall supply chain strategies, the lack of balanced approaches to integrate
---------------------- financial and non-financial measures, lack of system thinking and often
encourages local optimisation. Due to the increasing requirement of supply
---------------------- chain management, it has become important to explore suitable performance

6 Supply Chain Performance Measurement

measures and understand how accurate performance measurement systems can Notes
meet the need for supporting the decision-making and continuous improvement
required in the supply chains. Considering these challenges and the fact that ----------------------
more and more firms recognise the potential of supply chain management,
it becomes obvious that there is much request for supply chain performance ----------------------
measurement systems for the supply chain as a whole. The existing performance ----------------------
measurement systems in the supply chain environment often fail to fulfil the
need due to the different verticals and horizontal influences in supply chains. ----------------------
1.7.3 Levels of SC Performance Measurement ----------------------
A performance measurement system is a set of parameters used to
----------------------
quantify the efficiency and effectiveness of actions. Supply chain performance
measurement systems put more impact on the two distinct elements, customers ----------------------
and competitors, than internal measurement systems do. Truly balanced
performance measurement systems provide managers with information about ----------------------
both of these elements. The system consist of three levels:
----------------------
1. Individual performance measure;
----------------------
2. Sets of individual performance measures – the performance measurement
system as entities; and ----------------------
3. Relationship between the performance measurement system and that of ----------------------
the environment within which it operates.
----------------------
1.8 SCOR MODEL
----------------------
The Supply Chain Operation Reference Model (SCOR) is a tool that
provides the opportunity to describe a total supply chain. This model is a ----------------------
reference model that has been developed by the Supply Chain Council (SCC),
----------------------
a non-profit organisation, to implement a standard with both the templates
of internal and external supply chains. Every new version includes the latest ----------------------
organisational processes, figures for performance measurement or best practice
examples. The main objective of the model is to express, analyse and evaluate ----------------------
supply chains. The idea behind the model is that every company or supply
----------------------
chain can be described with some basic processes. The SCOR model offers a
complete description, analysis, and evaluation of a supply chain for the physical ----------------------
information and financial flows. A prime emphasis of the model lies in the
information flow. We will study the framework in detail in subsequent chapters. ----------------------
The basic process types are separated in planning, executing and enabling ----------------------
processes and is used to ensure the overall relationship towards the SCOR-
processes. The reason is that this way more transparent documentation of the ----------------------
physical information and financial flows becomes possible. ----------------------
1.9 GUNASEKARAN’S FRAMEWORK: ----------------------
This framework is based in part on a theoretical framework by ----------------------
Gunasekaran et.al. (2001) and on the empirical analysis. It is based largely on
----------------------

Performance Measurement of Integrated Supply Chain 7

 Notes metrics. Individual firms will certainly have to develop its own measures to
reflect their unique needs. This framework should be regarded as a starting
---------------------- point for an assessment of supply chain performance measurement.
---------------------- A framework for performance measures and metrics is presented in
table 1.1. Considering the four major supply chain activities (plan, source,
---------------------- make/assemble, and deliver) metrics were classified at Strategic, Tactical and
Operational level to clarify the appropriate level of management authority and
----------------------
responsibility for performance.
---------------------- Measures are grouped in cells at the intersection of the supply chain activity
and planning level. For example, Supplier delivery performance can be found
----------------------
at the intersection of the Source activity and Tactical planning level indicating
---------------------- that it pertains to sourcing activities (source) and the tactical planning level.
Supplier delivery performance would thus be a measure useful in analyzing
---------------------- the performance of mid-level managers as they undertake sourcing activities.
The items in each cell are listed in the order of importance based on percentage
----------------------
importance ratings. Some measures appear in more than one cell, indicating
---------------------- that measures may be appropriate at more than one management level.

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------
Table 1.1 Gunasekaran’s framework
----------------------
1.9.1 Goals of Supply Chain Management
----------------------
Therefore companies must encourage high coordination and integration
---------------------- of internal functions and the external members of the supply chain. The goals
of supply chain management include waste reduction, time reduction, supple
---------------------- response and unit cost reduction.
----------------------

8 Supply Chain Performance Measurement

 Waste reduction is achieved, for example, through eliminating duplication, Notes
coordinating operations and systems, and boosting quality. Time reduction
focuses on reducing order-to-cycle time through achieving production and ----------------------
logistics in shorter times to save costs. The next objective, supple response,
stresses the point of flexible actions towards order handling or variation in ----------------------
demand. The final objective, unit cost reductions main aim is reducing the cost ----------------------
per unit for the customers, for example, by reducing the logistics costs of a
product. ----------------------
1.9.2 Financial Benefits ----------------------
Financial success is certain if supply chain goals are achieved and the
----------------------
benefits are shared with the customer. The best known financial benefits are
lower costs, leading to enhanced profit margins, improved cash flow, revenue ----------------------
growth, and a higher rate of return on assets.
----------------------
1.10 IMPROVEMENTS IN SUPPLY CHAIN ----------------------
MANAGEMENT
----------------------
There should be a dynamic element to the framework that is known and
is in concurrence with the fact that companies need to continuously learn and ----------------------
innovate. Companies, therefore, need to continuously improve their processes. ----------------------
They may have to re-design the product and processes by sharing knowledge
between the supply chain partners. They need to improve the information ----------------------
flows and by exposing new threats that affect the value passed on to customers.
Following areas can be considered for the improvements. ----------------------
1.10.1 Business Processes ----------------------
There are many examples of business performance measures. The ----------------------
measures for this modified approach tend to differ depending on the organisation.
Alternatives to this could be supply chain cost of ownership measuring ----------------------
purchasing costs, inventory costs, poor quality, or failure in on-time delivery.
Other suggested measures are supply chain efficiency, the number of choices, ----------------------
average response time. It is important to recognise that all these measures intend ----------------------
to measure the performance of the entire supply chain.
----------------------
Once the system is in progress, to and fro communication takes place
amongst the members of the supply chain to further develop new measures. The ----------------------
supply chain performance measurement system gets enriched. Applying this
model can thereby achieve the measurement of the objectives of supply chain ----------------------
management from a comprehensive point of view. This allows the supply chain
----------------------
to acquire a competitive advantage through better control and with constant
improvements. ----------------------
1.10.2 Customers
----------------------
Here, the measures for customers may be the number of contact points,
comparative customers order response time, customers perception of flexible ----------------------
response, and customers value ratio. The purpose of these measures is to
----------------------

Performance Measurement of Integrated Supply Chain 9

 Notes measure and monitor the improvement of service to customers by a supply
chain over a certain period.
----------------------
1.10.3 Financial
---------------------- The financial measures, for example, could be the profit margin of supply
chain nmembers, cash-to-cash cycle, customer growth, profitability, and return
----------------------
on assets of the supply chain.
---------------------- 1.10.4 Learning and Innovation
---------------------- These measures focus on inter-organisational learning and innovation.
The measures could be product designing, process development, enhancing
---------------------- efficiency and effectiveness in supply chain movements.
---------------------- Information and knowledge are not shared among the supply chain
participants. Information sharing is the foundation for every functional
---------------------- performance measurement system.
---------------------- In sum, it can be said that the barriers of information sharing must be
controlled in order to have a successful supply chain performance measurement
---------------------- system, as it can be seen as an advancement in the development of information
---------------------- sharing in the supply chain.

---------------------- 1.11 PROBLEMS AND CHALLENGES OF SUPPLY

---------------------- CHAIN PERFORMANCE MEASUREMENT
---------------------- 1.11.1 Supply Chain Information Sharing
It is difficult to get proper information about the entire supply chain due to
----------------------
uncertainty. Most of the members have perfect information about themselves, but
---------------------- uncertainty occurs due to a lack of information about others. The uncertainties
can be reduced if member participants collect information about others. The
---------------------- foundation for information sharing is that others are ready to share information,
guiding to a situation wherein members have more information about each other.
----------------------
Information sharing would visibly improve the entire system’s performance as
---------------------- each supply chain participant will have the chance to improve its performance.
To enable to quickly share this process information throughout the supply chain,
---------------------- the member companies have invested a good amount of money in information
technology. It is observed that managers are seeking to improve operational and
----------------------
competitive performance by adopting more efficient and effective information
---------------------- sharing capabilities. But still, many companies are not satisfied with the returns
on their investments. A possible reason for this might be that the implemented
---------------------- technologies have not been supported by investment in the organisational culture
of promoting open sharing of information. Therefore, it can be concluded that
----------------------
connectivity in the form of technologies and the desire to share information are
---------------------- two primary elements of information sharing. Further, it was identified four
different barriers to information sharing. The first barrier is about the costs and
---------------------- complexity when implementing such an information-sharing system. In many
cases, budgets are over, and the systems do not perform as planned. The second
----------------------

10 Supply Chain Performance Measurement

barrier is to be found in system incompatibility. Sometimes different IT systems Notes
do not amalgamate with each other, or the companies have not been able to
invest in systems like these and still work manually. The third barrier is the costs ----------------------
that have been created by systems that are incompatible, and the investment and ----------------------
the implementation cost for such systems are high. It is crucial to reach the
expected cost-saving through more effective and efficient processes. The last ----------------------
barrier states that managers do not understand the reluctance of individuals to
share information. ----------------------

----------------------
1.12 METHODS FOR SETTING PERFORMANCE TARGETS
----------------------
How a company can use measures to scale its supply chain’s performance
is of utmost importance. To complete this effectively, it is important that a target ----------------------
for each measure needs to be arrived at, which would help give a framework for ----------------------
addressing the following that come to the surface when there is evaluation of
a performance metric: ----------------------
Whether there is improvement in metrics compared to last time it was ----------------------
under review?
●● What is the extent of improvement? ----------------------

●● Is the metric close to the desired state? ----------------------

To make this evaluation more purpose oriented, the direction of ----------------------
improvement needs to be finalised. Also, it is important that performance
targets need to be jointly developed and not individually. To achieve objectives, ----------------------
some metrics may have to be increased, while some others may have to be
----------------------
decreased. Each metric in these sets has to be relatively viewed with respect to
the others to determine its right target. Hence, while there are variety of ways ----------------------
in which performance targets can be set, they should at all times be jointly &
cohesively set to ensure fulfillment of strategic objectives. Generally, there are ----------------------
four methods that can be used to set performance targets:
----------------------
(1) Historically based targets,
----------------------
(2) External benchmarks,
(3) Internal benchmarks, ----------------------

(4) Theoretical targets. ----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

Performance Measurement of Integrated Supply Chain 11

 Notes
Check your Progress 1
----------------------
Fill in the Blanks:
----------------------
1. The general performance of the supply chain remarkably affects
---------------------- _______ of all member companies

---------------------- a. the financial health

b. the research
----------------------
c. the employees
----------------------
d. management
----------------------

---------------------- Multiple choice single response

---------------------- 1. Prime emphasis of the SCOR model lies in

a. information flow
----------------------
b. supply
----------------------
c. demand
---------------------- d. employees
---------------------- Multiple choice multiple response

---------------------- 1. Which of the following are methods that can be used to set performance
targets
---------------------- (a) Historically based targets
---------------------- (b) External benchmarks
---------------------- (c) Internal benchmarks
(d) Practical targets
----------------------

----------------------
Summary
----------------------
●● In this unit, the importance of supply chain performance measurement
---------------------- has been stressed and it is discussed why it is necessary in today’s world.
The discussion brings out the need for SC performance measurement and
---------------------- shows that managers need to have in depth understanding of the SCM
---------------------- in order to choose and adapt to a particular system and the performance
metrics. The extended supply chain involves suppliers’ suppliers to
---------------------- buyers’ buyers. The whole network becomes complicated and hence the
performance of any individual company and at the same time, performance
---------------------- of entire supply chain need to be measured. There should be proper
---------------------- exchange of information and knowledge between different members of
the supply chain. Basically, the success of supply chain depends mainly
---------------------- on the coordination of all participants of the supply chain. SCOR model

12 Supply Chain Performance Measurement

 can be studied and implemented, which will help to achieve the desired Notes
tarets of supply chain. Any system has some problems which need to be
addressed at the appropriate times. ----------------------

----------------------
Keywords
----------------------
●● Supply Chain Management (SCM), Supply Chain Performance
Measurement, Performance Evaluation, Supply Chain Controlling, ----------------------
Supply Chain Monitoring, SCOR model
----------------------

Self-Assessment Questions ----------------------

1) What is the necessity to measure supply chain performance? ----------------------

2) “Businesses today cannot limit itself to individual company’s performance; ----------------------
there is compelling need to appropriately focus on the performance of
the extended supply chain on a network in which company is an entity.” ----------------------
Discuss ----------------------
3) What can be the adverse impact on a company, if External Supply Chain
performance Measurement is not focused. ----------------------

----------------------
Answers to Check your Progress ----------------------
Fill in the blanks ----------------------
1. The general performance of the supply chain remarkably affects the
financial health of all member companies ----------------------

Multiple choice single response ----------------------

1. a ----------------------
Multiple choice multiple response
----------------------
1. a, b, c
----------------------

Suggested Reading ----------------------

1. Dominique Estampe: Supply Chain Performance and Evaluation Models, ----------------------

2014
----------------------
2. Shraddha Gavankar and Sachin Kamble: Supply Chain Performance
Management, 2017 ----------------------
References: ----------------------
1. Gunasekaran’s Framework et al (2001) ----------------------
2. Rajat Bhagwat et al. SC Evaluation Model (2007)
----------------------

----------------------

Performance Measurement of Integrated Supply Chain 13

 Notes

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

14 Supply Chain Performance Measurement

Traditional Approaches to Supply Chain Performance
Measurement UNIT

Structure: 2
2.1 Introduction
2.2 Conceptual Approaches to Supply Chain
2.3 Traditional Supply Performance Measures
2.4 Delivery Performance Measures
2.5 Total Distribution Cost
2.6 Costs of Assets and Return on Investment (ROI)
2.7 Information Processing Cost
2.8 Supply Link Evaluation Metric
2.9 Traditional Approaches to Supply Chain Performance Monitoring
2.10 Disadvantage of Traditional Measures
2.10.1 Traditional Value Measures
2.10.2 Return on Investment (ROI)
2.10.3 Return on Equity (ROE)
2.10.4 Earnings per Share (EPS)
2.10.5 Return on Net Worth (RONW)
2.10.6 Return on Capital Employed (ROCE)
2.11 The Supply Chain Performance Management (SCPM)
2.12 Classification of Different Supply Chain Performance Evaluation Models
2.12.1 Activity-Based Costing (ABC)
2.12.2 Framework for Logistic Research (FLR)
2.12.3 Balance Score Card (BSC)
2.12.4 Supply Chain Operation Reference Model (SCOR)
2.12.5 GSCF Framework
2.12.6 ASLOG Audit
2.12.7 Strategic Audit Supply Chain (SASC)
2.12.8 World Class Logistic Model (WCL)
2.12.9 EFQM: Excellence Model
2.12.10 Efficient Customer Response (ECR)
2.12.11 Association of Operations Management (APICS)
2.12.12 SCM/SME
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
References

Performance Traditional Approaches to Supply Chain Performance Measurement 15

 Notes
Objectives
----------------------
After going through this unit, you will be able to:
----------------------
●● Understand the role of different participants of Supply Chain
---------------------- ●● Understand the impact of each activity in the supply chain
---------------------- ●● Know how the supply chain performance was measured traditionally

---------------------- ●● nderstand different models that were used to measure the performance
U
of the supply chain
---------------------- ●● et to know the difference between the traditional approach and the
G
present approach of measurement of supply chain
----------------------

----------------------
2.1 INTRODUCTION
----------------------
In a supply chain, different participants with different products and
---------------------- processes are involved, making the whole process very cumbersome and
complex. Performance measures are selected based on supply chain processes
---------------------- and their performance dimensions. In addition, every company has a different
supply chain model and its goals also differ from other participating companies
----------------------
or members of the supply chain. It is a need to identify the supply chain processes
---------------------- and their performance dimensions to plan specific performance measurements
which will support operational decisions.
----------------------
As seen, the customer is asking for high-quality products at low cost and
---------------------- in less time. This has to be achieved keeping customer satisfaction in mind.
For this, the key process of a firm, starting from suppliers’ suppliers to buyers’
---------------------- buyers need to be integrated carefully. Many companies have recognized the
---------------------- importance of supply chain management in achieving their objectives such as
customer satisfaction, on-time delivery, superb quality, and value addition, etc.
---------------------- To excel and win in today’s competitive environment, continuous improvement
---------------------- is necessary for supply chain activities. To achieve this, a suitable performance
measurement system (PMS) has to be developed. A performance measurement
---------------------- system consists of laying down achievable goals, expecting periodic feedback
communication, showing the progress against those goals. Performance
---------------------- measurement is a vital aspect of successful supply chain activities. This applies
---------------------- to both financial and non-financial indicators.
Traditionally, performance measurement concentrates on operations
---------------------- within the organizational limits of a company. However, in the case of supply
---------------------- chain management, the evaluation consists not only of the in-house operations
but spreads its wings to other member firms who are participating in the said
---------------------- supply chain. The firms may be on the backward path toward suppliers or the
forward path to customers. The intention of supply chain management is to
---------------------- integrate the demands or needs of the customers and succeed in balancing
---------------------- between the overwhelming targets of high customer service and the lowest

16 Supply Chain Performance Measurement

possible supply chain cost. These overwhelming targets cannot be met together Notes
at any given time and hence it becomes necessary to have a balance between
them. ----------------------

----------------------
2.2 CONCEPTUAL APPROACHES TO SUPPLY CHAIN
PERFORMANCE MEASUREMENT ----------------------

The traditional supply chain involves the following steps: ----------------------

●● ollection of raw materials from the suppliers: The first step includes a
C ----------------------
collection of raw materials for producing the finished product. The raw
material may be of only one type or may involve many other materials ----------------------
and parts from different sources.
----------------------
●● anufacturing: The manufacturers then start processing these materials,
M
collected from suppliers. There may be different processes and for that ----------------------
different machines and types of equipment are used for each operation.
----------------------
●● istribution to the customers: Then marketing team of the firm distributes
D
these finished products to retailers. ----------------------
●● onsumption by the end customers: This is the last step, wherein
C ----------------------
customers purchase the finished product.
The traditional supply chain performs in this fashion. ----------------------

In comparison to the traditional supply chain, today’s supply chain may ----------------------
not be called a supply chain, but a flexible, vibrant, agile value-added network
----------------------
designed to hand over instantly the desired item with very personalized service
by fulfilling various channels. The traditional template of producing a large ----------------------
volume of any single product and supplying it to retailers through distributors
has gone in the past. ----------------------

----------------------
2.3 TRADITIONAL SUPPLIER PERFORMANCE
MEASURES ----------------------

----------------------
Traditionally, supplier performance measures were developed on price
disparity and on-time delivery. The selection of suppliers and product choice ----------------------
were usually preferred mainly upon price factor. Most of the time the aspects
of quality and reliability were overlooked. In recent years, this has changed ----------------------
considerably. The whole approach of evaluating the suppliers has undergone a
----------------------
major change.
The evaluation of suppliers about the supply chain (competence, traffic, ----------------------
blending, responsiveness, and customer satisfaction) involves important
----------------------
measures at the strategic, operational, and tactical levels:
Strategic level measures include lead time in comparison with the industry ----------------------
norm, level of quality, cost-saving concepts, and supplier pricing against the
----------------------
market.
----------------------

Performance Traditional Approaches to Supply Chain Performance Measurement 17

 Notes Tactical level measures include the competency of purchase order cycle
time, streamlining of procedures, even cash flow, quality assurance strategy and
---------------------- capacity to accept the challenges and flexibility.
---------------------- Operational level measures include the ability to deal with day-to-day
technical problems, compliance to an agreed schedule, the ability to avoid
---------------------- complaints from the next customer, and succeeding in consistent defect-free
deliveries.
----------------------
Purchasing and supply management examine regularly their supplier’s
---------------------- capacity to meet the company’s long-term requirements. The areas that need
specific attention include the supplier’s general growth plans, design capability
----------------------
in the future, the role of purchasing and supply management in the supplier’s
---------------------- strategic planning, prospects for future production capacity and financial strength
to support such growth. A supply chain association is a collective relationship
---------------------- between a buyer and a seller. Such an association emphasizes direct, long-
term partnership, fostering mutual planning and problem-solving attempts.
----------------------
Partnership formation is vital in supply chain operations for smooth running
---------------------- and as such for methodical and effective sourcing. To maintain a partnership
has supreme importance. Performance evaluation of buyers and suppliers is not
---------------------- sufficient; their relationships must be examined thoroughly. The criteria that
need to be considered in the evaluation of partnerships have utmost importance
----------------------
in promoting and strengthening them. For example, the level of co-operation in
---------------------- solving problems mutually is a mirror of the strengths of supplier partnerships.
Partnership evaluation based on such criteria will result in a win-win situation
---------------------- leading to more competent and thoroughly integrated supply chains.
----------------------
2.4 DELIVERY PERFORMANCE MEASURES
----------------------
It is observed that an increase in delivery performance is possible through
---------------------- a reduction in lead-time features. Another important characteristic of delivery
performance is on-time delivery (OTD). On-time delivery shows whether
----------------------
perfect delivery has taken place or not and it is also a measure of customer
---------------------- service level. Another feature of delivery is the percentage of finished goods in
transit. If they are with high value will lead to an unnecessary increase in tied-
---------------------- up capital. Various factors that can affect delivery speed include vehicle speed,
reliability of a driver, frequency of delivery, and location of storing depots.
----------------------
Increase incompetency in these fields can lead to a reduction in inventory
---------------------- levels. The number of faultless invoices boosts efficiency. An invoice displays
the delivery date, time, and condition under which the goods were received.
---------------------- By comparing these with the agreement or contract, it can be decided whether
perfect delivery has taken place or not, and areas of disparity can be identified
----------------------
so that improvements can be made. The flexibility of delivery systems plays
---------------------- a vital role. This means that flexibility in meeting a delivery requirement of a
particular customer at an agreed place, pre-fixed mode of delivery, and with
---------------------- specified customized packaging. This type of flexibility can affect the decision
of customers to place further orders, and thus can be regarded as important in
----------------------
impressing and retaining customers

18 Supply Chain Performance Measurement

2.5 TOTAL DISTRIBUTION COST Notes

A manager should have a fair knowledge of total distribution cost so that ----------------------
trade-offs can be brought into operation as a basis for planning and reassessment
----------------------
of distribution systems. It is experienced that transportation cost accounts
for more than half of the total logistics cost. While dealing with distribution ----------------------
costs, one has to calculate individual cost elements together with their impact
on customer service. This ensures trade offs that lead to a more effective and ----------------------
efficient distribution system.
----------------------

2.6 COSTS OF ASSETS AND RETURN ON INVESTMENT ----------------------

Supply chain assets cover accounts receivable, plant, property and ----------------------
equipment, and inventories. With increasing inflation and decreased liquidity,
----------------------
the constraint is on firms to improve the productivity of capital. It is necessary
to decide how the cost connected with each asset, combined with its turnover, ----------------------
affects total cash-flow time. One way to resolve this is by expressing it as
an average day required to turn cash invested in assets employed into cash ----------------------
collected from a customer. Thus, total cash-flow time can be called as a unit
----------------------
to decide the productivity of assets in a supply chain. Once the total cash flow
time is determined, this can be readily linked with profit to provide awareness ----------------------
of the rate of return on investment. This helps the top management to work out
the performance in terms of earnings on the total capital invested in a business. ----------------------
With the requirements of customer service constantly increasing, effective
----------------------
management of inventory in the supply chain becomes crucial and carries a lot
of importance. In a supply chain, the total cost associated with inventory can be ----------------------
broken down into the following.
----------------------
Opportunity cost, including warehousing, capital, and storage; Cost
associated with the inventory at the incoming stock level and work in progress; ----------------------
Service costs, consisting of the cost of carrying stock and insurance; Cost
of finished goods (ready to dispatch) including those in transit; Risk costs, ----------------------
consisting of the cost associated with pilferage, deterioration, and damage;
----------------------
The cost associated with rejection, rework, and scrap; The cost associated with
less inventory (below the agreed level) accounting for lost production and ----------------------
consequently lost sales.
----------------------
2.7 INFORMATION PROCESSING COST ----------------------
Information processing costs include costs associated with order entry, ----------------------
order follow-up, updating, discounts, and invoicing. Information processing
costs are the largest contributor to total logistics costs. Modern information ----------------------
technology, through its strength to provide timely, accurate, and reliable
----------------------
information, has helped to greater consolidation of modern supply chains.
----------------------

----------------------

Performance Traditional Approaches to Supply Chain Performance Measurement 19

 Notes 2.8 SUPPLY LINK EVALUATION METRIC
---------------------- Companies outsource many components and sub-assemblies. In such a
---------------------- case, supply link performance plays an important role, since competitiveness
and effectiveness directly relate to its success. They are measured as under.
---------------------- ●● Supplier delivery performance
---------------------- ●● Lead time in comparison with industry norms
●● Supplier pricing in comparison with the market
----------------------
●● The efficiency of purchase order cycle time
----------------------
●● Effective cash flow
---------------------- ●● Supply booking procedure
---------------------- The main purpose is to identify the KPI in supply link performance
evaluation. The KPI can be defined as the key performance indicators which
---------------------- have a considerable impact on the overall performance of a supply chain
organization in the areas of strategic, tactical, and operational planning and
----------------------
control.
---------------------- The supplier delivery performance is the most important measure to the
evaluation of supplier performance. It was the only highly important measure.
----------------------
The moderately important measures in descending order are supplier lead-
---------------------- time against industry norm, supplier pricing against the market, and efficiency
of purchase order cycle time. The less important supplier measures were the
---------------------- efficiency of the cash flow method and supplier booking procedures. Most
notable about the supplier metrics is that firms regard the supplier’s capability
----------------------
to reliably deliver goods in a timely fashion as more important than price.
----------------------
2.9 TRADITIONAL APPROACHES TO SUPPLY CHAIN
---------------------- PERFORMANCE MONITORING
---------------------- To meet the critical business obligations, the supply chain has seen
continuous changes over the last 20-25 years. The legacy of the complicated
---------------------- system has been replaced by commercially available, packaged software
applications.
----------------------
The prime business obligation was to improve transaction processing and
---------------------- storage of data. By installing transactional applications, companies were able
to quickly reduce excessive data and errors. For example, product and quantity
----------------------
details from orders could be reproduced and reconciled with inventory level
---------------------- and customer billing information. The next task was to accommodate the data
in the system and rationalize the operational processes such as procurement,
---------------------- shop floor control, warehouse management, and logistics. This was achieved by
simple software. The planning applications were introduced to boost the output
----------------------
of the products as per the expected demand and calculate the required materials
---------------------- and availability of production capacity. Manufacturing companies around the
world were better equipped to schedule production and maximize capacity
---------------------- utilization, and at a similar time reduce the lead times.

20 Supply Chain Performance Measurement

 The two traditional approaches for monitoring supply chain performance Notes
had been metrics projects and scorecards. In metric projects, operational
companies and other workgroups set up and tracked metrics. It was considered ----------------------
as most appropriate for measuring supply chain performance. It was revealed
that there were limitations with metric projects. A few of them are listed ----------------------
below. While concentrating on functional metrics, they landed up with locally ----------------------
developed ‘silo’ behaviour at the expense of the parent company.
----------------------
It became time-consuming to put together the whole information and
examine it. Hence the clarity came very late to make a difference. To add to ----------------------
this, they could furnish information on the limited history, and no predictions
on the future were put forth. ----------------------
Metric tracking was manual. There used to be human errors during ----------------------
calculating the numbers and there was no consistency.
----------------------
At times, workers did not know what to do with the accumulated data.
The quality of the performance was not defined clearly. They were ignorant ----------------------
about taking timely actions for poor performance.
----------------------
Though few metrics were listed as key performance indicators
(KPIs), the feedback wasn’t available whether the companies were really ----------------------
measuring the performance of the relevant important drivers. Seasoned
managers knew how to “play” with the metrics to make themselves look good. ----------------------

To control some of these limitations, many companies started ----------------------

a balanced scorecard system. They developed a balanced set of metrics
constituting financials, customers, internal processes, and innovation. Their ----------------------
motto was to enable better decision-making by providing managers with a ----------------------
broader outlook of both visible and abstract assets. While theoretically driving,
balanced scorecards were incorporated as static management tools, unable to ----------------------
drive actions on performance improvement.
----------------------
These tools are usually dropped by finance companies since they are
typically highly weighted by financial information. Most of the salient non- ----------------------
financial data and qualitative information are not mentioned there.
----------------------
Mostly the information is manually collected from the operational data
sources and is sensitive to errors. Many times the information is delayed ----------------------
significantly.
----------------------
The unusual availability of information permits people to play tricks
operationally to show the improvements in numbers. Many times managers ----------------------
try to ship the orders early than expected or even partly to show a reduction in
----------------------
inventory level.
There is hardly any support for collective processes across companies, up ----------------------
and down the chain of command, since exceptional performance is rarely seen. ----------------------
They expect a collective human response for problem solving and trade-offs.
----------------------

----------------------

Performance Traditional Approaches to Supply Chain Performance Measurement 21

 Notes 2.10 DISADVANTAGE OF TRADITIONAL MEASURES
---------------------- The traditional measures like EPS, ROA, ROE, ROCE, and RONW are
---------------------- easy to calculate for determining the performance of managers. But they have
some drawbacks as under:
---------------------- Since income and investment are not constant, there are possibilities of
---------------------- income manipulation.
Manipulation of income may take place if different managers of different
---------------------- locations have a different way of accounting.
---------------------- Managers may be inspired to keep old assets and refuse to replace them in
order to show performance. This style of working may damage the performance
----------------------
in the future.
---------------------- Cash flow and value of time-based measures are not considered by
income-based accounting.
----------------------
These measures pay attention to the performance of managers of individual
---------------------- units but they do not measure performance in relation to the objectives of the
parent company.
----------------------
They do not take into account all the cost of capital by these measures.
---------------------- They consider only the cost of debts.
---------------------- Thus to surpass these flaws there is a need to develop Economic Value
Added measures that are a simple concept of residual income and provide
---------------------- the investors to earn an adequate rate of returns which will be sufficient to
---------------------- compensate the risk taken by them.
2.10.1 TRADITIONAL VALUE MEASURES
----------------------
Traditional measures are based on earnings. These traditional measures
---------------------- were being used by managers for many years to work out financial performance.
Some of these traditional measures used in performance measurement are:
----------------------
●● Return on Investment (ROI)
----------------------
●● Return on Equity (ROE)
---------------------- ●● Earnings per Share (EPS)
---------------------- ●● Return on Net Worth (RONW)
●● Return on Capital Employed (ROCE)
----------------------
2.10.2 Return on Investment (ROI)
---------------------- ROI is considered to be a primary measure. ROI is calculated as net
---------------------- income after tax of a given year divided by total investment.
The formula for calculating ROI is as under.
----------------------
Net income ROI= (Net Income/Total Investment)*100
----------------------

----------------------

22 Supply Chain Performance Measurement

2.10.3 Return on Equity (ROE) Notes
ROE is supposed to be the best performance tool by the investors. ROE ----------------------
is calculated by taking net income after tax in any year and divided it by the
book value of equity at the beginning of the year. Equity consists of the issued ----------------------
ordinary share capital plus the share premium and reserves.
----------------------
The formula for calculating ROE are as follows:
----------------------
ROE = Net income/Shareholders’ equity + Reserves
ROE is dynamic to change in financial gearing. ----------------------
2.10.4 Earnings per Share (EPS) ----------------------
EPS is considered a very powerful performance measurement tool. But ----------------------
it becomes unreliable due to its weaknesses and other features. Companies that
do not pay all of their earnings as dividends but keep some amount aside are ----------------------
expected to have high EPS every year. This extra portion of earnings makes
its capital structure stronger without any borrowings. This shows the increase ----------------------
in assets with higher earnings and higher EPS. The portion of profit earned by ----------------------
the company is allocated to each share. Earnings per share which indicates the
profitability of a company is worked out as: ----------------------
EPS = Net Income after tax and preference dividend/Average Outstanding ----------------------
Shares
2.10.5 Return on Net Worth (RONW) ----------------------

RONW is the net income divided by the owner’s equity. RONW is used to ----------------------
measure performance from the viewpoint of shareholders. RONW is calculated
----------------------
as:
RONW = Net income / Net worth ----------------------
According to RONW was found to be positively related to shareholders’ ----------------------
value.
----------------------
2.10.6 Return on Capital Employed (ROCE)
Capital employed is stated as gross capital employed. The success of any ----------------------
business is defined as satisfactory returns on its capital invested. Return on ----------------------
capital employed provides the relationship between the net income and the net
asset invested. It shows the percentage of return on the net asset invested in the ----------------------
business. It can also able to indicate the overall profitability and efficiency of
the business. ----------------------

Earnings before interest and taxes (EBIT)/Capital employed ----------------------

----------------------
2.11 THE SUPPLY CHAIN PERFORMANCE
MANAGEMENT CYCLE ----------------------

There are some common bases for Supply Chain Performance ----------------------
Management (SCPM) that could avoid the hazards of traditional approaches.
----------------------

Performance Traditional Approaches to Supply Chain Performance Measurement 23

 Notes Primarily, it should be understood that supply chain performance is not just
a measurement process. Cross-functional, balanced metrics are necessary, but
---------------------- they are not enough. Basically, supply chain performance measurement is a
cycle that includes identification of the problems, deep study of root causes,
---------------------- and timely response to the problems with corrective actions, recording the
---------------------- improvement ideas, validating the data, processes, and appropriate actions.
Similar to statistical process control, the most demanding task is the
----------------------
identification of root causes in the worst situations. In supply chain performance
---------------------- measurement, this is also necessary. But apart from this, when exceptions are
noticed, management needs to be able to recognize what constitutes the root
---------------------- causes of these exceptions. We may compare this with a medical doctor whose
diagnosis is crucial. And once the diagnosis is confirmed, and then immediate
----------------------
treatment follows. To perform this task efficiently, supply chain performance
---------------------- measurement should have a support system in practice. This will ease the job of
management for retrieving necessary data for dissection and for further actions.
---------------------- All the members of the supply chain should be trained to understand an issue,
evaluate alternatives, and take appropriate actions. This will save the time of
----------------------
everybody and will give job satisfaction to the lowest cadre of employees.
---------------------- Traditional Operational Supply Chain Performance Measures:
---------------------- These Measures can be categorised as below

---------------------- 1. Functional Measures

●● Quality
----------------------
●● Cost
---------------------- 2. Internal Supply Chain Measures
---------------------- ●● Delivery

---------------------- ●● Cost
3. Supplier Measures
----------------------
●● Quality
---------------------- ●● Delivery
---------------------- ●● Price
●● Responsiveness
----------------------
●● Cost Reduction participation
----------------------
4. Customer Measures
---------------------- ●● Delivery
---------------------- ●● Quality
●● Service after delivery
----------------------
5. Total chain measures
----------------------
●● Total Cost
---------------------- ●● Total Lead time

24 Supply Chain Performance Measurement

 The following table gives comparison between traditional vs. innovative Notes
performance management systems.
----------------------
Comparison of traditional Vs. Innovative PMS
Traditional PMS Innovative PMS ----------------------
Based on cost/efficiency Based on value
----------------------
Trade-off between performances Compatibility of Performances
Profit oriented Client oriented ----------------------
Short term orientation Long term orientation
----------------------
Individual metrics prevail Team metrics prevail
Functional metrics prevail Transversal metrics prevail ----------------------
Comparison with the standard Monitoring of improvement ----------------------
Aimed at evaluation Aimed at evaluation and involvement
----------------------

Check your Progress 1 ----------------------

----------------------
Fill in the blanks
1. _______ is a vital aspect of successful supply chain activities. ----------------------

a. Performance measurement ----------------------

b. EPS ----------------------
c. ROI
----------------------
d. Number of employees
----------------------
Multiple choice multiple answers
1. Which of the following are the steps involved in the traditional ----------------------
supply chain? ----------------------
a. Collecting raw material from suppliers
----------------------
b. Manufacturing
----------------------
c. Distribution to end customer
d. research ----------------------

----------------------
Summary
----------------------
●● The traditional supply chain involved very few members. It dealt with ----------------------
the raw materials manufacturers, producers of finished products, and
suppliers of these products to customers through distributors. A present ----------------------
supply chain is a well- knitted but complicated network, having a good
number of participants. ----------------------

----------------------

----------------------

Performance Traditional Approaches to Supply Chain Performance Measurement 25

 Notes ●● Traditionally, supply chain performance measures were mainly
considering price factors. The next supply chain started involving on-time
---------------------- delivery (OTD). To check and correct the supply chain performance, there
were many models, introduced from time to time as per the requirement.
---------------------- Different metrics were worked out. Most of them were manual. The scope
---------------------- of feeding incorrect data in numbers was very high. Though few metrics
were defined as key performance indicators (KPIs), the feedback wasn’t
---------------------- available whether companies were really measuring the performance of
the relevant important members. Many times the measures were altered
---------------------- or not fed accurately by “seasoned” managers.
---------------------- ●● his manual or semi-manual system of measurement of the supply chain
T
was replaced by commercially available, user-friendly software packages.
----------------------

---------------------- Keywords
---------------------- ●● Performance measurement systems, supply chain management,
performance dimensions, supply chain processes, supply chain
---------------------- performance measures.
----------------------
Self-Assessment Questions
----------------------
Q.1: What were the important factors of traditional supply chain performance
----------------------
measurement?
----------------------
Answers to Check your Progress
----------------------
Fill in the blanks
----------------------
1. Performance measurement is a vital aspect of successful supply chain
---------------------- activities.

---------------------- Multiple choice multiple answers

1. a, b, c
----------------------

---------------------- Suggested Reading

---------------------- 1. Lora M. Cecere - Supply Chain Metrics that Matter
---------------------- 2. Ezutah Udoney Olugu and Kuan Yen Wong – Supply Chain Performance
Evaluation: Trends and Challenges (2009)
----------------------

----------------------

----------------------

----------------------

----------------------

26 Supply Chain Performance Measurement

World Class Performance Measures for Supply Chains
UNIT

3
Structure:

3.1 Introduction
3.2 Supply Chain Strategy and performance measurement
3.3 World Class Performance in Supply Chain
3.4 Generating Measures for World Class Performance
3.5 World Class Supply Chain Performance Measures
3.6 Few examples
3.7 World Class Performance Cost and Service Dimension
Summary
Keywords
Self Assessment Questions
Answers to Check your Progress
References

World Class Performance Measures for Supply Chains 27

 Notes
Objectives
----------------------
After going through this unit, you will be able to:
----------------------
●● Understand what is Supply Chain Strategy and performance
---------------------- measurement
●● Understand what is World Class Performance in Supply Chain
----------------------
●● Understand how to generate Measures for World Class Performance
----------------------

---------------------- 3.1 INTRODUCTION

---------------------- The competitive strategy of a company can be defined as the products
and services that are offered by the company in order to satisfy the needs of its
---------------------- customers.
---------------------- For example, the online retailers such as Jio Mart, Big Basket, Big Bazaar
boast of its competitive strategy to be the country’s cheapest, large variety,
---------------------- diverse products, and quickest delivery of grocery products, etc.
---------------------- It should be noted that the company’s strategy is based on how the customer
prioritizes his wants, like the product cost, the delivery time, the variety and
---------------------- quality of the product demanded. It also targets the various segments of people
who will purchase their product. Thus, it is very important for the company to
---------------------- prioritize its customer needs and place the product in the market so that most
---------------------- of its customers are satisfied with the product and services offered. A person
buying an assembled computer may prioritize his wants based on the product
---------------------- cost and the variety of hardware involved in his purchase; for him the delivery
time may not mean a lot. However, a person purchasing a branded computer
---------------------- would be quality conscious and would look for the variety offered and also
---------------------- the delivery time involved in his purchase. Thus a company, in order to gain a
competitive edge over its competitors, has to prepare its competitive strategy
---------------------- with the help of the following: a) Developing the product to be launched. b)
Marketing the product launched, involving research for new specifications for
---------------------- product development. c) Operations and production of the product or service
offered. d) Distribution of the product to the customer and information from the
----------------------
customer to the firm. e) Providing after sales service.
---------------------- Accounting, Finance, Information Technology and Human Resources are
the other functions that a company performs to support this value chain.
----------------------
Thus, the supply chain strategy of a firm would include the procurement
---------------------- of raw material, manufacturing, transportation of the material to and from the
---------------------- company, the distribution and the after-sales service, etc.

---------------------- 3.2 SUPPLY CHAIN STRATEGY AND PERFORMANCE

MEASUREMENT
----------------------
As we have seen in the past, the supply chain strategy has to align itself
---------------------- with the competitive strategy of a business which means that a company has to

28 Supply Chain Performance Measurement

develop a competitive advantage for a business. Company also has to maintain Notes
the competitive advantage for the business by initiating, implementing and
sustaining various activities. Such an approach needs that the processes and ----------------------
activities are so developed that they are aligned to the operational decisions as
well as the strategic decisions of the organisation with customer expectations in ----------------------
focus. It is important to measure performance of all such business processes and ----------------------
activities in supply chain and making the performance criterion understandable,
implementable and logical. It should be clearly seen as aligning to the operational ----------------------
and strategic objectives of the focal company.
----------------------
An efficient supply chain management system is essential for businesses
whose success depends on the swift and timely movement of goods. It exerts ----------------------
better control over the flow of goods from point-of-origin to point-of-sale.
----------------------
According to a Deloitte study, 79% of companies with high performing supply
chains earn more revenues than the average within their sector. However, ----------------------
supply chain stakeholders need continuous improvement measures to compete
in the marketplace. It underscores the importance of measuring supply chain ----------------------
and logistics performance.
----------------------
A Key Performance Indicator (KPI) is a practical and objective
measurement of progress towards a predetermined goal. Mapping supply chain ----------------------
and logistic KPIs against the industry benchmarks enhance SCM performance
----------------------
visibility and leads to necessary improvements. SCM performance measurement
includes production, inventory, procurement, warehousing, transportation, ----------------------
packaging and customer service metrics.
----------------------
3.3 WORLD CLASS PERFORMANCE IN SUPPLY CHAIN ----------------------
The term ‘world–class’ means among the best in the world, being of the ----------------------
highest calibre in the world.
----------------------
What does the phrase “world-class” really mean? This question has been
asked since the term first became popular in the 1950s. Companies that are ----------------------
considered to be world-class consistently exceed customer expectations. This
type of performance requires systems that adapt to dynamic environments. ----------------------
World Class performance is never accidental.
----------------------
The term “world-class” is popularly used to denote a standard of
excellence. For simplicity’s sake, a world class manufacturer can be described ----------------------
as a company that is able to compete effectively in a global market. A firm
----------------------
achieves world-class status when it has successfully developed manufacturing
capabilities to support the entire company in gaining a sustained competitive ----------------------
advantage over its competitors in such areas as cost, quality, delivery, flexibility
and innovation. ----------------------
Being a world class supply chain means the company focusses on ----------------------
operational excellence and institute measures so as to:
----------------------
●● Ensure improved control and decisions making
●● Increased transparency and visibility in supply chain ----------------------

World Class Performance Measures for Supply Chains 29

 Notes ●● Increased product availability
●● Reduced lead times
----------------------
●● Improved customer service and consequentially service levels
---------------------- ●● Increased Supply Chain efficiency
---------------------- ●● Increased Supply Chain Responsiveness
●● Improved Asset Utilisation
----------------------
●● Reduction in TCO
----------------------

----------------------
3.4 GENERATING MEASURES FOR WORLD CLASS
PERFORMANCE
----------------------
Following step-by-step approach should be followed for evolving measures for
---------------------- world class performance:
---------------------- ●● Competitive strategy and Supply Chain Strategy of the company
●● Arrive at Strategic Objectives of the company
----------------------
●● eeping the value chain as guiding reference ,zero on the functional areas
K
---------------------- in the company which are to be focussed to achieve strategic objectives
---------------------- ●● Identify capabilities required in each functional area.
●● reate and agree upon various performance measures which can be used
C
---------------------- to monitor and control capability performance in each functional area
---------------------- zeroed upon in previous steps.
●● epending on frequency implement performance monitoring system on
D
---------------------- quarterly, half yearly, annual basis.
---------------------- ●● etermine factors/trends outside firm’s control that may affect
D
performance over a period; e.g environmental, raw materials’ prices,
---------------------- economical situation, etc.
---------------------- ●● ecide on evaluation frequency. Once these steps are followed, world-
D
class firms can establish strategically oriented performance criteria among
---------------------- each of the functional areas of the firm within the categories of quality,
---------------------- cost and customer service, and then revisit these measures as problems
are solved, competition and customer requirements change, and as supply
---------------------- chain and firm strategies change.

---------------------- 3.5 WORLD CLASS SUPPLY CHAIN PERFORMANCE

---------------------- MEASURES
---------------------- World Class Performance measures should be such that they are able to
integrate the performance of each member in a supply chain. It is not sufficient
---------------------- to have performance measurement just for each member in supply chain. It
---------------------- is important that the performance of each function of each member in supply
chain is tracked, measured and improved. Within a company or intercompany,
---------------------- measures such as those shown in table 3.1 below may be resorted to:

30 Supply Chain Performance Measurement

1 Cost Average asset/machine utilisation Notes
Revenue in rupees per employee
----------------------
Inventory Turnover ratio
Average safer Stock ----------------------
Bill of Materials Index for purchased Parts
----------------------
BOM cost reduction
BOM reduction through Value Engineering ----------------------
Uptime of Machines ----------------------
Obsolete Inventory as a % of COGS
Inventory write off value as % of sales ----------------------
2 Quality PPM of defectives produced ----------------------
PPM of customer returns
Number of parts supplied direct on line ----------------------
Number of machines under process capability studies ----------------------
Number of green channel vendors (Quality Certified)
----------------------
Number of warrantee claims per unit of FG sold
No of sales returns as a % of units sold. ----------------------
3 Customer focus ----------------------
Reliability Unit fill rate
----------------------
Order line fill rate
Order fill rate ----------------------
On time delivery %
----------------------
Average no of days delay per shipment
Average warrantee claim settlement time ----------------------
Novelty Process improvements
----------------------
Product features introduction
NEW Products development ----------------------
R & D investment ----------------------
Flexibility Setup time reduction
Ability to reduce LOT size ----------------------
Variety of products ----------------------
Customised products delivery times
----------------------
Table 3.1 World Class Supply Chain Performance Measures with a
company or intercompany ----------------------

----------------------
3.6 FEW EXAMPLES
----------------------
We will review an example of Apple, Inc. As we all are aware, Apple Inc.
is a world-class organization. According to a Harvard Business Review article, ----------------------
Apple Inc. uses five performance indicators:
----------------------

World Class Performance Measures for Supply Chains 31

 Notes 1. customer satisfaction;

---------------------- 2. core competencies;

3. employee commitment and alignment;
----------------------
4. market share;
----------------------
5. shareholder value.
---------------------- 3.6.1 Amazon Performance Measures
---------------------- Following table 3.2 depicts performance measures with respect to Amazon Inc.
---------------------- Activity Performance
---------------------- Inbound Logistics ●● Products bought at lowest possible price
●● Regular quality and inventory controls.
----------------------
●● No long term arrangements with suppliers and
---------------------- no dependency on suppliers

---------------------- Outbound Logistics ●● Third party Dependence

●● Amazon’s Logistics Network Plan with own
---------------------- trucks, planes
---------------------- Marketing and Sales ●● Discounts on price and shipping prior seasonal
peaks
----------------------
●● Immense use of SEO as well as collaborative
---------------------- filtering

---------------------- Service ●● 24 hours accessibility - 30 day-return policy

●● Customer-centric approach
----------------------
●● Dedicated service pre, during and post purchase
---------------------- Infrastructure ●● Highly advanced technological infrastructure
---------------------- Human Resources ●● Dedicated company culture

---------------------- ●● Provision of employee benefits

●● Desire to acquire highly skilled employees
----------------------
Technology ●● High investments into technological as well as
---------------------- Development research development
●● In possession of largest online retailing
----------------------
technology
---------------------- Procurement ●● Fast order processing due to highly advanced
---------------------- infrastructure
Table 3.2 Amazon performance measures
----------------------

----------------------

----------------------

32 Supply Chain Performance Measurement

OVERALL SUPPLY CHAIN PERFORMANCE MEASURES: Notes
In a 2008 survey of 287 companies and their supply chains conducted
----------------------
by Connecticut-based AMR Research, the most successful supply chains were
found to be more centralized, integrated, global and focused on measuring ----------------------
performance. The idea is to develop a supply chain network which is efficient
which means lower on costs, responsive in a sense that it is able to fulfil typical ----------------------
customer attribute and at the same time able to respond to dynamic market
----------------------
place. In order to achieve this, it is important that the performance of each
stage/overall combination of supply chain stages be measured in terms of being ----------------------
efficient i.e. low cost, being responsive enough in terms of lead time, etc., so
that the overall efficiency of the total supply chain is ensured and also time ----------------------
taken to fulfil demand is optimised.
----------------------
Total supply chain performance measures can be as below to name a few:
----------------------
1. Delivery Performance of Supply Chain: Delivery performance provides
an indication of how successful the supply chain is at providing products ----------------------
and services to the customer. This metric is most important in supply
chain management as it integrates the measurement of performance right ----------------------
from supplier end to the customer end. Delivery performance can be
----------------------
defined as the level up to which products and services supplied by an
organization meet the customer expectation. It provides an indication of ----------------------
the potentiality of the supply chain in providing products and services to
the customer. This metric is most important in supply chain management ----------------------
as it integrates (involves) the measurement of performance right from
----------------------
supplier end to the customer end.
This includes ----------------------
●● Delivery performance of various suppliers ----------------------
●● Delivery performance of production which include manufacturing ----------------------
performance of production entities
●● Delivery performance of logistics/transportation /distribution etc. ----------------------
2. Total Cost of Supply Chain: Today’s global supply chains are an ----------------------
interconnected network of multi-site suppliers, manufacturers, distributors,
and retailers that stretch across industries and geographies. One of the ----------------------
factors which becomes a winning element between 2 supply chains is
----------------------
total supply chain cost. It is therefore important that Total Supply Chain
costs are measured and improved. They may be at Global level or local ----------------------
level depending on the business. These costs include transportation costs,
procurement costs, inventory costs, quality costs, underutilised assets ----------------------
costs, etc. Transactional and regulatory and legal costs are also included
----------------------
in the same.
3. Cash-to-Cash Cycle in a Supply Chain: ----------------------

The cash-to-cash cycle is the time period between when a business pays ----------------------
cash to its suppliers for inventory and receives cash from its customers. The
concept is used to determine the amount of cash needed to fund ongoing ----------------------

World Class Performance Measures for Supply Chains 33

 Notes operations, and is a key factor in estimating financing requirements. It is
usually measured in days and, on the whole, provides you a clear picture
---------------------- about the time between outlay of cash and the recovery of cash.
---------------------- 4. Manufacturing Flexibility of a Supply Chain: Manufacturing flexibility
of a supply chain refers to be able to shift production form one product to
---------------------- another product quickly which means low set up time.
---------------------- Ability to manufacture to manage demand spikes at the same cost, ability
to manufacture in low quantities as well as high quantities without major
---------------------- disruptions.
---------------------- 5. Perfect Order Fulfilment Performance: The Supply Chain Council
describes perfect order fulfilment as a discrete measurement defined
---------------------- as the percentage of orders delivered to the right place, with the right
product, at the right time, in the right condition, in the right package, in
----------------------
the right quantity, with the right documentation, to the right customer,
---------------------- with the correct invoice. Failure to meet any of these conditions results in
a less than perfect order.
----------------------
A perfect order from a supplier (Focal Company say) is one that contains
---------------------- the right product or service being delivered to the right customer and right
place:
----------------------
a. At the right time (100% on-time delivery)
---------------------- b. In the right quantity (100% fill rate)
c. In the right condition and packaging (100% “quality” related to
----------------------
fulfilment)
---------------------- d. With the right documentation (increasingly electronic) Matrix will
be = ((total Orders – Erroneous Orders) /Total Orders) * 100
----------------------
6. Supply Chain e-Business Performance: The average percentage of
---------------------- electronic orders received for all supply chain members. In 1998, only
about 2 percent of all firms’ purchase orders were made over the Internet.
----------------------
By 2007, for example, office supply retailer Staples said that 90 percent
---------------------- of their orders came in electronically. Additionally, use of e-procurement
can save up to 90 percent of the administrative costs of ordering. Today,
---------------------- supply chain companies are investing heavily in e-based order-receipt
systems, marketing strategies and other forms of communication and
----------------------
research using the Internet.
---------------------- 7. Sustainability Performance: Many actions taken in a supply chain
can improve both sustainability and supply chain surplus. From an
----------------------
environmental perspective, all firms should measure and report on these
---------------------- four categories:
a. Energy consumption
----------------------
b. Water consumption
---------------------- c. Greenhouse gas emissions
---------------------- d. Waste generation

34 Supply Chain Performance Measurement

 For example, the use of modular design by IKEA allows the company Notes
to tightly pack its parts when they are shipped from the production location to
its retail stores. Modular design allows the company to simultaneously reduce ----------------------
emissions as well as its transportation costs. SC Johnson, a manufacturer of
----------------------
cleaning supplies and other consumer goods, has reported that between 1990
and 1999 the company used its eco-efficiency efforts to cut more than 420 ----------------------
million pounds of waste and save $125 million.
----------------------
3.7 WORLD CLASS PERFORMANCE COST AND ----------------------
SERVICE DIMENSION
----------------------
The total Supply chain effectiveness has to include Cost as well as
service elements. The service elements which have of late emerged are agility, ----------------------
resilience, reliability and responsiveness.
----------------------
Supply chain visibility
----------------------
Supply chain visibility is all about how organizations capture and
interconnect data to extract critical supply chain execution information. It ----------------------
provides a single view for tracking information, material and/or cost by
monitoring key dimensions in a global supply chain, such as inventory positions ----------------------
or shipment in-transit status, and real-time order movements in order to make ----------------------
informed and fact-based decisions. Delivering supply chain visibility means
measuring and controlling the effectiveness of the overall supply chain in four ----------------------
key areas
----------------------
1. Agility
----------------------
2. Resilience
3. Reliability ----------------------
4. Responsiveness ----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

World Class Performance Measures for Supply Chains 35

 Notes

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

---------------------- Fig. 3.1. World Class Performance Service Dimension

---------------------- (Source:https://www.supplychainquarterly.com/articles/1045-the-five-
dimensions-of-supply-chain-agility)
---------------------- Business environment can be characterized by constant change, shorter
---------------------- product lifecycles, and increased demand uncertainty, especially post pandemic.
Companies considering customer expectations alike have turned to the concept
---------------------- of agility in their attempt for a sustainable source of competitive advantage.
Supply chain agility therefore is seen as the dominant competitive approach
---------------------- for organizations operating in such an uncertain and ever-changing business
---------------------- environment.
Dimensions of Supply Chain Agility:
----------------------
Following are 5 dimensions of supply chain agility.
----------------------
1. ALERTNESS: The first dimension of agility is alertness, defined as
---------------------- the ability to quickly detect changes, opportunities, and threats. Agile
companies have a high level of alertness in areas such as market trends,
---------------------- listening to customers, information with suppliers, monitoring demand,
etc.
----------------------
2. ACCESSIBILITY: Working closely with alertness is the second
---------------------- dimension, accessibility. Accessibility is the ability to quickly access
relevant data.
----------------------
For example, Procter and Gamble (P&G) and Wal-Mart have found a way
---------------------- to use information technology to share data. P&G uses the GT Nexus

36 Supply Chain Performance Measurement

 platform to achieve real-time visibility into inventory flows across its Notes
global supply chain. To achieve a “single version of the truth,” all supply
chain partners are connected to the same cloud-based platform, getting ----------------------
access to a common, real-time data set, which includes status of orders,
----------------------
inventory, shipments, documents, and payments.
3. DECISIVENESS: Agility is dependent upon decisiveness, or the ----------------------
ability to make decisions resolutely using the available information. As
----------------------
companies begin to become larger, supply chain networks expand and
more functions become involved in making decisions. This ultimately ----------------------
leads to a slowed down decision making process. Speeding up your
decision making process through ridding yourself of complexity will aid ----------------------
in your supply chain becoming much more agile and efficient.
----------------------
4. SWIFTNESS: Once a decision is made about how to respond to changes,
agility is dependent on a company’s swiftness, or the ability to implement ----------------------
decisions quickly. ----------------------
Zara, the Spanish clothing retailer, is famous for its supply chain speed,
which allows it to launch around 10,000 new designs each year. It is ----------------------
claimed that Zara only needs two to four weeks to turn a new clothing ----------------------
line around, compared to the six-month industry average. The retailer has
garnered accolades for its ability to quickly deliver new clothes to stores. ----------------------
This capability of swiftly implementing decisions has allowed Zara to
develop a level of supply chain agility that is unparalleled in the clothing ----------------------
industry. ----------------------
5. FLEXIBILITY:
----------------------
A 2012 New York Times article described how Apple’s supply chain
agility allowed it to redesign the iPhone just weeks before the device ----------------------
was scheduled to be released. A little over one month before the iPhone
----------------------
was due on store shelves, Steve Jobs demanded that it include a new
screen made of unscratchable glass. The challenge became to redesign ----------------------
that element of the phone and manufacture it quickly and cost effectively
while maintaining the highest quality. To accomplish this feat, Apple ----------------------
capitalized on its suppliers’ flexible operations, in particular that of the
----------------------
contract electronics manufacturer ‘Foxconn.’ The Taiwanese multinational
has a massive, walled campus in Shenzhen, China, called ‘Foxconn City,’ ----------------------
which includes 15 factories, covers 1.16 square miles, and has 230,000
employees, one-quarter of whom live in company barracks. According to ----------------------
Jennifer Rigoni, a former worldwide supply chain manager with Apple,
----------------------
Foxconn can hire 3,000 people overnight when needed. Thus, Apple was
able to revamp the iPhone at the last minute with stunning agility because ----------------------
of its flexible Asian factories, which could quickly scale up and down as
needed. ----------------------

----------------------

----------------------

World Class Performance Measures for Supply Chains 37

 Notes How agile a company can be:
As we have seen, supply chain agility is manifested through a company’s
----------------------
ability to quickly detect changes, opportunities, and threats (alertness); quickly
---------------------- access relevant data (accessibility); make resolute decisions about how to act
(decisiveness); quickly implement those decisions (swiftness); and modify its
---------------------- range of supply chain tactics and operations to the extent needed to implement
its strategy (flexibility).
----------------------

---------------------- Check your Progress 1

----------------------
Fill in the blanks:
---------------------- 1 Companies that are considered to be world-class consistently
_______ customer expectations.
----------------------
a. exceed
----------------------
b. meet
---------------------- c. fulfil
---------------------- d. try to meet
---------------------- 2 A ______ is a practical and objective measurement of progress
towards a predetermined goal.
----------------------
a. key performance indicator
---------------------- b. flexibility
---------------------- c. alertness
---------------------- d. sales figure

---------------------- MCQ (multiple choice single answer)

---------------------- 1 An efficient supply chain management system exerts better control

over the flow of goods from
---------------------- a. point-of-origin to point-of-sale
---------------------- b. manufacturer to vendor
---------------------- c. vendor to customer
d. manufacturer to transporter
----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

38 Supply Chain Performance Measurement

 Notes
MCQ (multiple choice multiple answers)
1 Which of the following are dimensions of supply chain agility? ----------------------
a. Alertness ----------------------
b. Accessibility
----------------------
c. Swiftness
----------------------
d. Research
2 Supply chain strategy of a firm would include ----------------------

a. Procurement ----------------------
b. Manufacturing ----------------------
c. Transportation ----------------------
d. Sales
----------------------
True or False
----------------------
1 The term ‘world–class’ means among the best in the world.
a. True ----------------------
b. False ----------------------
2 Zara needs more than six months to turn a new clothing line around. ----------------------
a. True
----------------------
b. False
----------------------

Activity 1 ----------------------

----------------------
Give an example of a world class organization where flexibility dimension
of agility in supply chain played an important role. ----------------------

----------------------
Summary
----------------------
●● Supply Chain is the backbone of any organization and is an enabler for the
----------------------
business. Supply chain functions can enhance the customer experience
and help drive business performance. Supply Chain Strategy performance ----------------------
measurement is one of the key factor for the success of the supply chain.
Supply chain performance can be measured based on different factors. ----------------------
The business and supply chain strategy depends on the best possible flow
----------------------
of information and resources connected and synchronized to meet the
customer demand. ----------------------
●● A careful selection of correct performance measures and a comparison of
the current performance and the future business requirements will reveal ----------------------
the strengths and weaknesses of the supply chain. ----------------------

World Class Performance Measures for Supply Chains 39

 Notes
Keywords
----------------------
●● KPI
---------------------- ●● Agility
---------------------- ●● World class

----------------------
Self-Assessment Questions
----------------------
1. What is world class performance in supply chain?
---------------------- 2. Explain flexibility dimension of agility in supply chain.
----------------------
Answers to Check your Progress
----------------------
Fill in the blanks
----------------------
1 Companies that are considered to be world-class consistently exceed
---------------------- customer expectations.

---------------------- 2 A key performance indicator is a practical and objective measurement of

progress towards a predetermined goal.
---------------------- Multiple Choice Question. (single correct answers)
---------------------- 1 a
---------------------- Multiple Choice Question. (multiple correct answers)
1 a,b,c
----------------------
2 a,b,c
----------------------
True/False
---------------------- 1 True
---------------------- 2 False
----------------------
Suggested Reading
----------------------
1. https://www.kdnuggets.com/2016/07/ethics-principles-big-data-science.
---------------------- html
---------------------- 2. Chopra, S., & Meindl, P. (2013). Supply Chain Management: Strategy,
Planning, and Operation. (5th ed.) Pearson Education.
----------------------
3. https://www.supplychainquarterly.com/articles/1045-the-five-dimensions-
---------------------- of-supply-chain-agility
---------------------- 4. https://www.capgemini.com/wp-content/uploads/2011/06/Global_
Supply_Chain_Control_Towers.pdf
----------------------

----------------------

40 Supply Chain Performance Measurement

Process Driven Metrics
UNIT

4
Structure:

4.1 Introduction
4.2 Business Processes
4.2.1 Knowledge Based Processes:
4.2.2 Operational Processes
4.2.3 What does being process driven mean?
4.2.4 Process approach
4.2.5 Why is process Drive Important?
4.3 Why Process Driven Performance Metrics
4.4 Supply Chain Performance Metrics
4.5 Requisites of a Good Performance Metrics
4.6 Types of Metrics
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress
References

Process Driven Metrics 41

 Notes
Objectives
----------------------
After going through this unit, you will be able to:
----------------------
●● Understand what are business processes.
---------------------- ●● Understand why business processes are important.
---------------------- ●● Understand what is performance metrics

---------------------- ●● Understand what are requisites of a good performance metrics

----------------------
4.1 INTRODUCTION
----------------------
Globalisation has forced many manufacturing and service-oriented
---------------------- companies to adopt the best practices in the world. Many companies are now
realising the need to develop world class systems and methodologies as well as
----------------------
acquiring a ‘productivity tool’ that will let them be in a competitive manufacturing
---------------------- resource planning, thereby assuring customers of quality goods and services
and compliance with international quality requirements on different industry
---------------------- fields. In the competitive business environment of the 21st century, many
companies are working and using Six Sigma and lean manufacturing tools.
----------------------
Business Process Reengineering (BPR) offers an ‘answer’ to the economic and
---------------------- productivity troubles of the manufacturing and service enterprises. Recently,
BPR has become very popular as an enterprise management tool. Process
---------------------- Orientation is a new paradigm for the organisation of a business. Instead of
the traditional inward-bound functional orientation which divides the company
----------------------
into functions such as sales, production, procurement and product development,
---------------------- the process orientation organises companies around their processes. The basic
idea is to have everybody in the company on the same page in a systematic
---------------------- way and directly serve the customer, who is at the receiving end of the business
processes. Thinking in process management was introduced with the concept
----------------------
of Total Quality Management and Process Thinking.
----------------------
4.2 BUSINESS PROCESSES
----------------------
Business Processes are sequences and combinations of business
----------------------
activities. They break into the external customer facing processes; for example,
---------------------- customer order, service request, etc. that deliver products and services of
value, management and support processes. Management Processes control and
---------------------- coordinate these activities and ensure that business objectives are delivered.
Support Processes, as the name suggests, provide infrastructural and other
----------------------
assistance to business processes. Business Processes can be further differentiated
---------------------- into knowledge-based and operational processes.
4.2.1 Knowledge Based Processes: Knowledge based processes include
----------------------
product development, research activities, advertisement and management
---------------------- consulting. These processes typically are of non-standard nature; instead,

42 Supply Chain Performance Measurement

 they rely on the knowledge and creativity of the persons involved. Notes
Knowledge-based processes are not dominant in Business Process
Reengineering projects (Davenport et al., 1996). ----------------------
4.2.2 Operational Processes: Operational processes are at the heart of ----------------------
most Business Reengineering efforts. Operational processes are
classified by their relative stability, standardisation and repeatability. ----------------------
Typical operational processes are customer service, procurement, and
----------------------
manufacturing. Operational processes are further classified into key
processes and secondary processes. Key processes directly support the ----------------------
mission and the strategies of the company.
----------------------
4.2.3 What does being process driven mean?
As the word suggests, a process driven organization is focused on process. ----------------------
This means that the organization sharpens their process, working towards
----------------------
becoming extremely efficient but at the same time maintaining value. This
allows for operational growth, efficiency and organizational knowledge. ----------------------
Process driven organizations are the exact opposite of a people driven
organization. ----------------------
4.2.4 Process Approach: Since Business Process consists of interlinked/ ----------------------
sequential processes, it is useful to understand what we mean by process.
A process is primarily a series of activities that converts inputs into ----------------------
outputs by using the resources. ----------------------

Input Process Output ----------------------

----------------------
Let us take an example of Car Service at Maruti Service Station.
----------------------
It can be shown with a SIPOC diagram below.
----------------------
Supplier Input Process Output Customer
Tool kit Problem Repair ----------------------
suppliers detection suggestion
Spare parts/ Indent for Spare parts Delivery The vehicle ----------------------
components spare parts procurement schedule owner ----------------------
suppliers commitment
Maruti Car for repair Repair Repaired Car Customer rep ----------------------
Service service
----------------------
Centre activities
Work order to ----------------------
proceed
----------------------
The vehicle Approved Service inform the Customer rep
owner parts for completion customer ----------------------
repairs notification
----------------------
Table 4.1 SIPOC diagram
----------------------

Process Driven Metrics 43

 Notes These can be better defined as:
●● Suppliers: Significant internal/external suppliers to the process.
----------------------
●● Inputs: Significant inputs to the process. This would include things such
---------------------- as materials, forms, information, staff, etc.
---------------------- ●● Process: One block representing the entire process.
●● Outputs: Significant outputs to internal/external customers. This would
---------------------- be anything the business unit distributes. Frequency/timing is listed along
---------------------- with the output. Examples of outputs would be reports, ratings, products,
documents, etc.
---------------------- ●● Customers: Significant internal/external customers to the process. This
---------------------- would include anyone who receives outputs. It is important to note that
the customer must get the output directly from the business unit and does
---------------------- not necessarily have to be a user of the output. If the output is received
from a third party, they are not customers. Examples of customers could
---------------------- be managers, CEOs, boards of directors or other departments.
---------------------- 4.2.5 Why is Process Drive Important: Prior to adopting process view,
the companies were organised functionally. The traditional functional
---------------------- organisation gave top management the highest priority, whereas from
a process viewpoint, the satisfaction of customer requirements has the
----------------------
highest priority in the organization now. Thus, the execution process, i.e.
---------------------- selling, producing and delivering goods and services to the customer is
at the heart of the reengineered company. Workers who are closer to the
---------------------- customer than managers and worker development are very important
to success. The new-product-process fuels the execution process, by
----------------------
assessing mid-term and long-term customer needs and technological
---------------------- innovations. The support process provides services - not control - for
the execution and new-product processes. The management process puts
---------------------- the top management in a position wherein the process executions and
providing an environment of vision and trust are facilitated. It is also
----------------------
important to include the journey/process of supplier, customer facing
---------------------- processes/journey, etc.

---------------------- 4.3 WHY PROCESS DRIVEN PERFORMANCE METRICS

----------------------
Measuring process performance allows an understanding of cross-
---------------------- functional performance, and the contribution of each department or unit to
the end result. Organisations execute their strategic intent via their business
---------------------- processes. It is the connection between the two—strategy and operations—
where performance metrics are vitally important. Proper metrics can help
----------------------
ensure that processes at all levels of the organization are aligned with, and
---------------------- consistently meet or exceed, the strategic goals and objectives (Okes, 2013).
Having processes in place is a start, but members of the organization also need
---------------------- to know how well the processes are achieving objectives (imagine if your car
didn’t have a speedometer or fuel gauge). This is the role of metrics. They can
----------------------

44 Supply Chain Performance Measurement

tell us whether targets for strategic objectives (e.g., sales and/or profit growth, Notes
market share growth, and new product success rate) are being hit, as well as
more tactical objectives (e.g., on-time delivery, employee turnover, cycle time, ----------------------
and productivity) While the term “customers” is used in the SIPOC diagram, it
is often useful to think more broadly about other parties that also care how well ----------------------
the organization operates. We’ll call these parties “stakeholders.” ----------------------

4.4 SUPPLY CHAIN PERFORMANCE METRICS ----------------------

There is tremendous competition in the globalised world. The head of ----------------------

business needs to be concerned about the threat from competition and take ----------------------
appropriate measures to insulate the company from the same. As discussed
earlier the war is not between the two companies. It is a war between two supply ----------------------
chains. How they perform in terms of efficiency? How they perform in terms of
responsiveness and ultimately how they align themselves with the company’s ----------------------
competitive strategy. Supply Chain Performance relates to sub processes and ----------------------
extended supply chain’s activities in order to meet end-customer requirements,
covering product availability, on-time delivery, and all the appropriateness in ----------------------
inventory and capacity utilisation and being optimal in the supply chain to
deliver that performance. Supply Chain Performance is not just internal but ----------------------
also external to focal company boundaries since it includes basic materials, ----------------------
components, subassemblies and finished products, and distribution through
various channels to the end customer. It also crosses traditional functional ----------------------
organization silos such as procurement, manufacturing, distribution, marketing
& sales, and research & development. ----------------------

To address this new challenge, the supply chains need continuous ----------------------
improvement. To achieve this, we need performance measures, or ‘metrics,’
which support global Supply Chain Performance improvements rather than ----------------------
narrow company-specific or function-specific (silo) metrics which limit ----------------------
improvements across supply chain. 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. Metrics keeping end customer in ----------------------
mind is critical. Each dept should have metrics keeping end customer in mind. ----------------------
When one wants to asses the performance of its supply chain, there can
----------------------
be many metrics that can be used. Each supply chain performance metric can be
used for different contribution of supply chain. Importance should be given to ----------------------
determine which supply chain metrics are important and how they will be used.
Usage of supply chain performance metrics is based on ease to calculate but may ----------------------
not necessarily give a true indication of how the supply chain is performing.
----------------------
Some companies use a range of metrics that they require their logistics
department to adhere to, but may not realize that in doing so some other parts of ----------------------
the supply chain may get negatively impacted. It is important to have a proper
----------------------
integration or trade off between the two.
----------------------

Process Driven Metrics 45

 Notes The fundamental objectives of performance measurement systems (Akyuz and
Erkan, 2010; Parker, 2000) include:
----------------------
– identification of success;
----------------------
– monitoring of the degree of meeting customer expectations;
---------------------- – better understanding of the processes taking place in the company and
its environment;
----------------------
– identification of bottlenecks, wastage, problems and opportunities for
---------------------- development;
---------------------- – making decisions based on facts, not on assumptions or emotions;

---------------------- – creating conditions for development;

– tracking the progress of the introduction of improvements;
----------------------
– facilitation of open communication and cooperation.
----------------------

---------------------- 4.5 REQUISITES OF A GOOD PERFORMANCE METRICS

---------------------- Businesses should look for following characteristics when choosing

metrics that will help with their business decisions.
----------------------
●● larity and Simplicity - A good metric is one that can easily be understood
C
---------------------- by anyone that looks at it and is related functionally. It should be clear as
to what the metric is actually measuring and how it is actually measured.
----------------------
●● Quantitative - An important characteristic for a supply chain performance
---------------------- metric is one which is expressed by a value that is objective and measurable,
i.e. derived from real data.
---------------------- ●● easures what is Important - Some metrics can appear to be important, but
M
---------------------- when the data is analyzed the relevance of the metric can be insignificant.
It will be meaningful if a performance metric on which business decisions
---------------------- are made should measure important data.
---------------------- ●● ncourages correct action - A good performance metric should be one
E
that makes the user take the correct action. For example, if a metric shows
---------------------- a number of orders processed per day, then the correct action increases the
number processed. However, sometimes the metric by itself can cause the
---------------------- user to take action but at the determent of other areas. For example, if the
---------------------- metric is to measure the warehouse staff by the number of movements per
day, they can increase the number of movements within the warehouse by
---------------------- using inappropriate path.
---------------------- ●● etrics should have collectible data – Data should not be complex to
M
collect, should not be time-consuming or requiring time to be taken away
---------------------- from line staff to prepare. This is counterproductive and these types of
metrics should be avoided.
----------------------
●● etrics should be aligned with Strategy – Since the processes should
M
---------------------- be long term in nature, they have to be aligned to the strategy of the

46 Supply Chain Performance Measurement

 organisation. Consequentially, the metrics too should be aligned to the Notes
strategy.
----------------------
4.6 TYPES OF METRICS
----------------------
As demonstrated by the SIPOC model, metrics can be used for different
----------------------
purposes at different places in the process. One use is to know how well the
outputs of a process/organization/system are performing, another is to monitor ----------------------
the inputs to ensure they are suitable for use, and still another is to control various
factors within the process to improve the likelihood that the outcomes will be ----------------------
acceptable. Another way to look at metrics is related to the particular objective
----------------------
for which the metric was derived. In some cases, it is so that performance can be
increased (e.g., growing sales or market share). In other cases, it is to maintain ----------------------
a certain level of performance (e.g., temperature in a laboratory) and in still
others it is a defensive posture (e.g., minimize the number of accidents). ----------------------
Various Categories: Typically, a Supply Chain Metrics is of following types: ----------------------
Cost Related: Cost related performance indicators are those which have direct ----------------------
impact on reducing Supply Chain costs. Typically, the total supply chain costs
are based on process costing, cost of inventory, and overhead costs. ----------------------
Quality Related: Quality related performance indicators are those which shows ----------------------
the performance and future direction of Product Quality and Service Quality
approach of a business. This is seen by the delivery of the product at the right ----------------------
time at the right location.
----------------------
Customer Service related: This relates to the expectations of customers on
various fronts including delivery on time or better than expectations and other ----------------------
attributes of the customer.
----------------------
Flexibility related: This relates to those parameters which indicate as to how
business is flexible to customer needs. ----------------------
Productivity: This refers to the measure which indicates as to how the resources ----------------------
are efficiently utilised. This relates to capacity utilisation and resources
utilisation. ----------------------
Typical Approaches: Carvalho and Azevedo (2012) describe agile and resilient ----------------------
approaches to supply chain management. They differentiate two dimensions
of supply chain performance: economic and operational. The following table ----------------------
provides an overview of operational and economic measures that can be used ----------------------
to evaluate the influence of the agile and resilient approaches on supply chain
performance. ----------------------

----------------------

----------------------

----------------------

----------------------

Process Driven Metrics 47

 Notes OPERATIONAL ECONOMIC PERFORMANCE
PERFORMANCE
----------------------
Quality Cash-to-cash cycle
----------------------
Delivery Economic value added
---------------------- Time Flexibility Cost
---------------------- Cycle efficiency Return On Assets

---------------------- Inventory levels Efficiency

Table 4.2 Influence of the agile and resilient approaches on
----------------------
supply chain performance
---------------------- Therefore, these approaches are two-fold:
---------------------- 1. Operational Performance

---------------------- 2. Economic Performance

1. Operational Performance: Includes the following
----------------------
Quality: This will include percentage of defectives, rework, rejection of
---------------------- lots supplied, service quality defects, etc.
---------------------- Delivery: Percentage of delivery on time and improvements over time
Time: Actual lead time committed to customer and improvement month-
----------------------
on-month. Benchmark with competition.
---------------------- Flexibility: Ability to accept low quantity levels, large varieties,
---------------------- Customised delivery to customer
Cycle Efficiency: Reduction in cycle times
----------------------
Levels of Inventory: Measures inventory turnover, ageing of inventory,
---------------------- etc.
---------------------- 2. Economic Performance: Includes
Cash to cash cycle: The Cash-to-Cash cycle is the time lapsed paying to
----------------------
suppliers and when the business gets payment credited from its customers.
---------------------- It is usually measured in number of days.

---------------------- Costs: Various costs such as material cost, logistics cost, etc.
Return on Assets: Return on assets (ROA) measures the return earned on
---------------------- each dollar invested by the firm in assets.
---------------------- Efficiency: Defines how well the resources which incur cost are utilised
example material, man, machines, etc.
----------------------

----------------------

----------------------

----------------------

48 Supply Chain Performance Measurement

 Notes
Check your Progress 1
----------------------
Fill in the blanks:
----------------------
1 The head of business needs to be concerned about the threat from
____________. ----------------------
2 Business Process Reengineering (BPR) offers ____________ to the ----------------------
economic and productivity troubles of the manufacturing and service
enterprises ----------------------

Multiple Choice Question. (multiple correct answers) ----------------------

1 Typically what is the nature of knowledge-based processes? ----------------------

a. Non-standard ----------------------
b. Standard
----------------------
2 Which processes are at the heart of Business Reengineering efforts?
----------------------
a. Operational Processes
----------------------
b. Knowledge-based Processes
c. Support Processes ----------------------
d. Interlinked Processes ----------------------

Multiple Choice Question. (multiple correct answers) ----------------------

1 Typically, the Supply Chain Metrics is of following types ----------------------
a. Cost related
----------------------
b. Quality related
----------------------
c. Productivity related
d. Product Design related ----------------------

2 What are the requisites of a good performance metrics? ----------------------

a. Clarity and Simplicity ----------------------
b. Quantitative
----------------------
c. Encourages corrective action
----------------------
d. Subjective
----------------------
True or False
----------------------
1 The support process provides control over the execution and
new-product processes. ----------------------
2 Support Processes provide infrastructural and other assistance to
----------------------
business processes.
----------------------

Process Driven Metrics 49

 Notes Summary
---------------------- ●● Performance Metrics is a resource which helps the enterprise to achieve
the optimum performance over the period of time.
----------------------
●● The pace of competition is changing rapidly. One has to be very vigilant
---------------------- about the changing demands of the company. One of the most important
tools for any manager is the performance metrics. The metrics has the
----------------------
potential to improve the performance of an organization significantly. The
---------------------- metrics is used in many organizations to manage different processes. It is
a very important tool that is used by the HR department of the company.
----------------------

---------------------- Keywords

---------------------- ●● usiness Processes: Business Processes are sequences and combinations

B
of business activities
---------------------- ●● ash to cash cycle: The Cash-to-Cash cycle is the time lapsed paying to
C
---------------------- suppliers and when the business gets payment credited from its customers.
It is usually measured in number of days.
---------------------- ●● eturn on Assets: Return on assets (ROA) measures the return earned on
R
---------------------- each dollar invested by the firm in assets

---------------------- Self-Assessment Questions

----------------------
1. Explain why is process drive important?
---------------------- 2. Explain what is cash to cash cycle?
----------------------
Answers to Check your Progress
----------------------
Check your Progress 1
----------------------
Fill in the blanks
---------------------- 1 The head of business needs to be concerned about the threat from
---------------------- competition.
2 Business Process Reengineering (BPR) offers answer to the economic
---------------------- and productivity troubles of the manufacturing and service enterprises
---------------------- Multiple Choice Question. (single correct answers)
---------------------- 1 a
2 a
----------------------
Multiple Choice Question. (multiple correct answers)
----------------------
1 a, b, c
---------------------- 2 a, b, c
----------------------

50 Supply Chain Performance Measurement

True/False Notes
1 False
----------------------
2 True
----------------------
References:
1. Davenport, T. H. et al. (1996). Improving knowledge work processes. ----------------------
Sloan Management Review, 37(4, summer), p. 53. Gale Academic ----------------------
OneFile. http://link.gale.com/apps/doc/A18608372/AONE?u=anon~793
1ec72&sid=googleScholar&xid=afdac7e6. Retrieved November 17 2021 ----------------------
2. Okes, D. (2013) Performance metrics: The. Levers for process ----------------------
management. Milwaukee, WI: ASQ Quality Press.
----------------------
3. Arzu Akyuz, G., & Erman Erkan, T. (2010). Supply chain
performance measurement: A literature review. International ----------------------
Journal of Production Research, 48(17), 5137–5155. https://doi.
org/10.1080/00207540903089536 ----------------------
4. Parker, C. (2000). Performance management. Work Study, 49(2), 63–66. ----------------------
http://doi.org/10.1108/00438020010311197
----------------------
5. Carvalho, H., Azevedo, S G, Cruz-Machado, V. (2012) Agile and resilient
approaches to supply chain management: influence on performance and ----------------------
competitiveness. Logistics research 4(1), 49–62.
----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

Process Driven Metrics 51

 Notes

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

52 Supply Chain Performance Measurement

Balanced Score Card - Supply Chain
UNIT

5
Structure:

5.1 Introduction
5.2 Transition to new business environment
5.3 New business needs and environment
5.4 The Business Balanced Card
5.5 Major Steps for Balanced Score Card
5.6 Examples of Supply Chain Measures in Balanced Score Card
Summary
Keywords
Self Assessment Questions
Answers to Check your Progress
References

Balanced Score Card - Supply Chain 53

 Notes
Objectives
----------------------
After going through this unit, you will be able to:
----------------------
●● Understand what is business balanced card
---------------------- ●● Understand what are major steps for balanced score card
---------------------- ●● Know Examples of Supply Chain Measures in Balanced Score Card

----------------------
5.1 INTRODUCTION
----------------------
Can a car be run with only the steering working to its optimal performance
---------------------- but the engine is not working to its expected performance. Let us consider an
---------------------- example of a Hyper Market. If only there is the sales department with sales
figure and no other department like stores personnel or the billing personnel
---------------------- etc being monitored for their performance in doing their task and fulfilling
their responsibilities, will the Hypermarket work? Will the owners of the
---------------------- Hypermarket make profits if the cost at which materials are purchased and sold
---------------------- are monitored to the decided level of performance? Will the customers get all
the materials which the Mall is supposed to sell if performance of material
---------------------- planning is not monitored and performance not measured? If no, will they come
again to buy? Will you have satisfied customers? Again the answer is NO.
----------------------
Will the customers who constantly look for newer products, innovative
---------------------- products, large variety of products visit the mall if they go empty handed since
product were out of stock since there are no stores personnel performance
----------------------
monitoring or product design performance is monitored? Answer is again a big
---------------------- NO.
This means any organisation can operate only if all required functions
----------------------
are fulfilling their responsibilities appropriately up to their performance
---------------------- expectations. Robert S. Kaplan and David P. Norton developed the balanced
scorecard. They added strategic nonfinancial performance measures to the
---------------------- traditional financial metrics to give managers and executives a clear, holistic
view of organizational performance. This performance measurement framework
----------------------
has evolved from a simple framework to a complete strategic planning and
---------------------- management system.

---------------------- All the performances are to be measured and put together in such a manner
that the final performance of the organisation in terms of financial outputs
---------------------- and operational outputs are in line with Business Objectives of the company.
Business Balanced Score Card is such a Dashboard which gives an idea of
---------------------- where the company is and where is it headed.
----------------------
5.2 TRANSITION TO NEW BUSINESS ENVIORNMENT
----------------------
Typically in supply chain, there are many members and many activities.
---------------------- Traditionally, these members have been working in Silos. This results in lack of

54 Supply Chain Performance Measurement

coordination and improper flows. If we want the supply chain to work properly, Notes
the chain should work in an integrated manner. This is shown in the following
figure. Successful SCM requires a change from managing individual functions ----------------------
to integrating activities into key supply chain processes. The purchasing
----------------------
department placed orders as requirements became appropriate and marketing,
responding to customer demand, interfaced with several distributors and retailers ----------------------
and attempted to satisfy this demand. Shared information between supply chain
partners can only be fully leveraged through process integration (Christopher, ----------------------
2000). Process integration means collaborative working between buyers and
----------------------
suppliers, joint product development, common systems and shared information:
One could suggest other key critical supply business processes combining these ----------------------
processes stated by Lambert and Cooper (2000), such as:
----------------------
●● Customer Service Management Process
●● Procurement Process ----------------------
●● Product Development and Commercialisation ----------------------
●● Manufacturing Flow Management Process
----------------------
●● Physical Distribution
●● Outsourcing/Partnerships ----------------------
Performance Measurement of all these is critical for success of the ----------------------
company. Business environment has however evolved as below:
----------------------
a) From 1850 to 1975 Industrial Age, companies were successful by
exploiting Economies of Scale. ----------------------
b) During this Industrial Age, Financial Control systems were developed to ----------------------
help and optimise financial and physical assets. ROCE was deployed for
this. ----------------------
c) With IT emerging in last decade of 20th century, this started becoming ----------------------
obsolete for measurement in isolation.
----------------------
d) With emergence of IT, the capabilities required by organisations are newer
and need Information Technology, product innovations, customisations, ----------------------
ever improving quality, compressing lead times, etc.
----------------------
5.3 NEW BUSINESS NEEDS AND ENVIRONMENT ----------------------
Successful organisations have to be based on: ----------------------
●● Integrated Functional Areas
----------------------
●● I ntegration between Supply Chain Partners: CPFR (collaborative
planning, forecasting and replenishment) implementation ----------------------
●● ustomised offerings: To large customer segments without premium
C ----------------------
pricing for large varieties and low costs
●● Large scale covering Global Enterprises ----------------------

----------------------

Balanced Score Card - Supply Chain 55

 Notes ●● Innovative Products: due to shrinking product life cycles
●● Workers as problem solvers
----------------------
●● Routines taken care by machines.
----------------------
5.4 THE BUSINESS BALANCED CARD
----------------------
Companies generally integrate financial and non-financial performance as
----------------------
a part of their Performance Measurement System. A Business Balanced Score
---------------------- Card includes both.
A balanced scorecard asks you to think of your company’s mission and
----------------------
strategy from four key perspectives:
---------------------- ●● How do customers see us?
---------------------- ●● What internal processes must we excel at?
●● How can we continue to improve and create value?
----------------------
●● How do we look to shareholders?
----------------------
The balanced scorecard includes financial measures (these reveal the
---------------------- results of actions already taken) and non-financial measures (these are drivers
of future financial performance). It includes external as well as internal
---------------------- information.
---------------------- The balanced scorecard allows managers to look at the business from four
important perspectives:
----------------------
Financial
perspective
---------------------- ‘How dowe look to
our shareholders?’
----------------------

----------------------
Customer Internal business
---------------------- perspective Vison and process
‘How do Customers strategy “What must we
see us?’ excel at?”
----------------------

----------------------
Innovation and
---------------------- learning
‘Can we continue to
---------------------- improve and create
value?’
----------------------
Fig. 5.1
----------------------
Within each of these perspectives, a business should seek to identify a
---------------------- series of goals (CSFs) and measures (KPIs). These should be in line with the
overall strategic objectives and vision of the organisation.
----------------------
In following table 5.1, it is shown how the goals and measures for A
---------------------- Consumer Durable company may look like:

56 Supply Chain Performance Measurement

 Critical Success Factors Measures Notes
Profitability EBITDA
----------------------
Financial Top Line QOQ increase
Perspective Survival/working capital Cash Flow ----------------------
Innovation Number of products launched
----------------------
On time delivery % improvement
Lead time Reduction by number of days ----------------------
Customer
% defectives (ppm) PPM reduction %
Perspective ----------------------
Warrantee Claims Number of days reduction
settlement days ----------------------
Production cost
Internal ----------------------
Capacity Utilisation
Perspective
Plant uptime ----------------------
Innovation New Manufacturing
----------------------
Techniques reducing costs
Innovation Job Satisfaction Employee turnover ----------------------
and Learning Value Engineering BOM cost reduction
----------------------
Product Design Increased productivity
Low Material content ----------------------
Table 5.1 The goals and measures for A Consumer Durable company ----------------------
Balanced Score card emphasises that financial and non-financial measures ----------------------
must be part of information systems for all employees in an organisation at
all levels. Frontline employees must understand the financial consequences of ----------------------
their decisions and senior management must understand the drivers to use for
financial success. ----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

Fig. 5.2 ----------------------

Balanced Score Card - Supply Chain 57

 Notes It has four main metrics - Financial, Customer, Internal Process and
Learning and Growth.
----------------------
These metrics again contain four different aspects - Objectives, Measures,
---------------------- Initiatives and Targets. The measurement of all these helps the managers to
measure all the aspects in a supply chain collectively in a systematic manner.
----------------------
5.5 MAJOR STEPS FOR BALANCED SCORE CARD
----------------------
a) Make a clear strategy: This will emerge from current situation to desired
---------------------- situation. This may be product-related, such as introducing new products,
etc., or market-related, such as exploring new markets or increasing
----------------------
share, or growing to increase revenues for same product etc. All functions
---------------------- including supply chain will have to play a role for the same.
b) Select appropriate measures: To align with the strategy. These measures
----------------------
will be for all functional areas including supply chain. It is very critical
---------------------- that appropriate parameters are selected for measurement. The selected
measures form the goals that management communicates to staff as being
---------------------- important. Those goals are what staff will strive to achieve.
---------------------- c) Clearly define and continually refine: Management reporting systems
and procedures need to be set up to track and report the measures
---------------------- regularly. This involves all the issues related to the processing of data and
the reporting of information discussed earlier in this text.
----------------------
d) Agreement with people: The balanced scorecard is an exercise in
---------------------- modifying human behaviour. It is its interaction with people that determines
---------------------- whether or not it will work. To be effective, the measures contained in the
scorecard should be limited in number, reasonably consistent and ranked
---------------------- in some order of priority. Further, performance measures should be aligned
with the management structure. Career progression and remuneration
---------------------- should be appropriately linked to scorecard measure linked performance.
---------------------- 5.6 EXAMPLES OF SUPPLY CHAIN MEASURES IN
---------------------- BALANCED SCORE CARD:
---------------------- In the above example of Consumer Durable company (Table 5.1), the
supply chain measures directly related will be as under:
----------------------
Critical Success Measures Supply Chain
---------------------- Factors Measure
Profitability EBITDA Material Cost
---------------------- reduction
---------------------- Top line QOQ increase Input R/M supply
Financial Survival/working Cash Flow Inventory
---------------------- Perspective capital
Innovation Number of New component
----------------------
products development
---------------------- launched

58 Supply Chain Performance Measurement

 Critical Success Measures Supply Chain Notes
Factors Measure
On time delivery % improvement Purchased part ----------------------
delivery ----------------------
Lead time Reduction by Supplier Lead Time
Customer number of days ----------------------
Perspective % defectives Ppm reduction % Direct on line ----------------------
(ppm) implementation
Warrantee Claims Number of days Spare parts availability ----------------------
settlement days reduction
----------------------
Production cost Productivity Material availability
Internal Resource Capacity Material availability ----------------------
Perspective Utilisation Utilisation
Plant uptime MTBT Spare parts availability ----------------------
Value Engineering Number of ideas Supplier participation ----------------------
Component
Development ----------------------
Innovation Product Design BOM cost Alternate raw material/
and Learning ----------------------
reduction part
Increased KIT SUPPLY ----------------------
productivity
----------------------
Table 5.2
----------------------
TYPICAL PERFORMANCE MEASURES WHICH CAN BE INCLUDED
IN BALANCED SCORE CARD IN SUPPLY CHAIN ----------------------
The purpose of a performance measurement system is to ensure that standards ----------------------
and objectives are set clearly, performance is regularly and objectively assessed
for accomplishments, and that actions are taken to improve and enhance ----------------------
performance potential in the future. The basis of competition for winning ----------------------
companies in today’s economy is supply chain superiority. With organizations
seeking benefits of shorter lead times, responsiveness, flexibility and shorter ----------------------
product development cycles, excellence in supply chain performance is
inevitable. ----------------------
1. Warehousing : ----------------------
Cost /Financials: Total Cost of receiving/Total Cost of materials Received ----------------------
Quantity: No of GRNs with quantity discrepancy/total no. of GRNs
----------------------
Quality: Inventory Positioned Correctly / Total Inventory Received
----------------------
Resource Utilisation: Warehouse space utilisation
Financial: Inventory Turnover ratio ----------------------

Quality: Inventory Shrinkage [(Recorded Inventory Cost – Physical ----------------------

Inventory Cost) / Recorded Inventory Cost].
----------------------

Balanced Score Card - Supply Chain 59

 Notes Inventory Accuracy ((Inventory According to Records / Physical
Inventory) * 100).
----------------------
●● Financial: Pick and Pack Cost.
---------------------- ●● Financial: Cost of returns.
---------------------- 2. Procurement
P-card spend% Discount Spend % SUM Spend w/Line Item
---------------------- Avg - 1.1% Avg - .002% Avg - 57%
Visibility
Avg - 38%
BIC - 5.2% BIC - .11% 2% BIC - 91% BIC – 73%
----------------------
Cost per invoice Cost per PO Spend Soured Sourcing Savings
---------------------- Avg - $4.80
BIC - $2.27
Avg - $17.37
BIC - $4.58
Avg. - 47%
BIC - 67%
Avg. - 6.8%
BIC - 7.7%

---------------------- Invoice Approval Maverick Spend On-contract Sourcing Cycle

cycle spend
Avg - 16 days Savings Avg – 54% Avg. - 75 Days
---------------------- BIC – 3 days 8% BIC - 69% BIC - 45 Days

Suppliers w/falling Supplier per $ 1B Contracting Cycle SM Productivity

---------------------- scores Avg – 10,838 Avg – 49 days Savings
BIC – 3.8% BIC – 2,403 BIC – 40 days 20%
----------------------
Fig. 5.3 Benchmarking best–in class procure-to-pay performance:
----------------------
Financial Perspective;
---------------------- ●● aterial cost savings
M
---------------------- ●● Cost avoidance
●● Total cost incurred for procurement
---------------------- ●● Increased credit with suppliers
---------------------- Customer Perspective:
---------------------- ●● mergency Purchases managed
E
●● Internal customer satisfaction
----------------------
●● % increase in number of items brought in contract
---------------------- Internal Business Processes:
---------------------- ●● Defective reduction
%
●● Direct on line supplies suppliers
----------------------
●● Price Variation contracts
---------------------- ●● YOY process cost reduction suppliers
---------------------- ●● Early supplier participation in Product design
●● Participation in Value Engineering
---------------------- ●● % Returns to suppliers
---------------------- Learning and Innovation

---------------------- ●● raining in manufacturing processes

T
●● Strategic Sourcing training
----------------------
●● Training in Supplier Relationship Management
----------------------

60 Supply Chain Performance Measurement

TYPICAL SUPPLY CHAIN BALANCED SCORE CARD Notes

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------
Fig. 5.4 Supply Chain Balanced Scorecard
----------------------
Another Example:
----------------------
Balanced Scorecard example: Strategic map for an E-Commerce Business
(Source: heflo.com) ----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

Table 5.3 Balanced Scorecard example: Strategic map for an ----------------------

E-Commerce Business ----------------------

----------------------

----------------------

Balanced Score Card - Supply Chain 61

 Notes Benefits of Balanced Score Card in Supply Chain:
A balanced Scorecard will help you and the firms to gain different types
----------------------
of feedback related to their supply chain operations including (https://www.
---------------------- superheuristics.com/)
●● 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, and
---------------------- ●● Data which will be used for forecasting future business activities.
---------------------- Strategic Supply Chain Management with the Balanced Scorecard:
The strategic management of the supply chain includes the formulation
---------------------- and implementation of a supply chain strategy as well as the assessment of the
results. Undoubtedly, the formulation of a supply chain strategy is part of each
----------------------
of the three levels of strategic planning: corporate, business unit, and functional.
---------------------- For successful strategic management of the supply chain, an integrated approach
is needed to link the supply chain strategy with the overall strategic management
---------------------- of the company. It is the Balanced Scorecard which seems to be a suitable and
effective tool for this purpose. The Balanced Scorecard focuses on formulating
----------------------
a supply chain strategy, linking it to the corporate vision and turning it into
---------------------- particular actions to achieve the strategic objectives.
The twelve steps are identified on the basis of the traditional strategic
---------------------- management process steps, the hierarchical structure of the Balanced Scorecard
---------------------- and the top-down approach which expresses the basic idea of the Balanced
Scorecard (i.e. to translate the strategy into action, according to Kaplan &
---------------------- Norton, 1996) and ensures the vertical consistency of the model (Mollov, 2007)
----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

62 Supply Chain Performance Measurement

 Notes

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------
Fig 5.5 Structure of Supply Chain Balanced Scorecard Model
----------------------
Structure of Supply Chain Balanced Scorecard Model
----------------------
1. Analyzing the external and internal environment
----------------------
2. Formulating the vision of the company
3. Formulating the supply chain strategy ----------------------
4. Defining perspectives ----------------------
a. Business processes perspective ----------------------
b. Suppliers perspective
----------------------
c. Customers perspective
----------------------
d. Financial perspective
5. Formulating strategic objectives and cause-and-effect relationships ----------------------
between them ----------------------
a. Learning and growth perspective
----------------------
b. Business processes perspective
----------------------
c. Suppliers perspective
d. Customers perspective ----------------------

Balanced Score Card - Supply Chain 63

 Notes e. Financial perspective
f. Identifying critical success factors and cause-and-effect relationships
----------------------
between them
---------------------- g. Horizontal and vertical alignment
---------------------- h. Defining key performance indicators (KPIs)

---------------------- Perspective Strategic objectives Critical success factors Key performance indicators
- Improvement of the information
- Quantity and quality of collected
exchange and communication
---------------------- across the supply chain
knowledge
- Improvement of the - Percentage of employees which
- Integration of information systems of
common knowledge in use different channels for
---------------------- the supply chain
the company with its supply chain
information exchange
partners
- Number of supply chain training
- Development of transactional culture
---------------------- across the supply chain
programs
Learning and growth
- Best practices implementation - Number of new products
---------------------- - New technologies successfully introduced
- Innovations
- Innovative ideas and their sharing - Number of new technologies
---------------------- - Joint creation of innovative products implemented
- Improvement of the
- Resources and capabilities that
---------------------- core competencies of
the supply chain
correspond to the VRIO framework
- Market share

---------------------- - Business processes

integration across the - Intra-firm integration - Number of process breaks
supply chain
---------------------- - Reduction of costs - Process costs
- Business processes
Business processes - Time compression - Lead time
optimization
---------------------- - Increasing the quality - Process quality
- Number of detected and resolved
- Business processes
---------------------- visibility
- Kanban system problems related to business
processes execution
---------------------- - Building strategic - Reliable suppliers
- Number of strategic alliances with
alliances with chosen - Mutual trust
suppliers
suppliers - Aptitude for cooperation
---------------------- - TCO
Suppliers
- Willingness for improvement - Number of programs for
---------------------- - Improvement of the
suppliers
- Programs for improvement improvement implemented
- Codes of conduct for the suppliers - Evaluation of the results of the
---------------------- suppliers
- Increasing the value for - Increasing the benefits for the - Customer value
the final customer customers - Degree of customer satisfaction
----------------------
Customers - Number (or percentage) of new
- Building long-term
customers
---------------------- relationships with - Improving customer loyalty
- Frequency of repeated purchases
customers
- Coefficient of customers retention
---------------------- Financial - Increasing the profits - Reducing the costs - ROI and other financial metrics

---------------------- Fig. 5.6 Formulating strategic objectives and cause-and-effect

relationships between them
----------------------

----------------------

----------------------

----------------------

----------------------

64 Supply Chain Performance Measurement

 Notes
Check your Progress 1
----------------------
MCQ (multiple choice multiple answers) ----------------------
1 A balanced scorecard includes which of the following
----------------------
a. financial measures
----------------------
b. non-financial measures
c. external as well as internal information ----------------------
d. research data ----------------------
2 The main metrics of balanced scorecard includes ----------------------
a. Financial
----------------------
b. Customer
----------------------
c. Internal Process
d. Recruitment ----------------------
True or False ----------------------
1 Frontline employees must understand the financial consequences of ----------------------
their decisions.
----------------------
2 A Business Balanced Score Card does not include financial aspect.
----------------------
Summary ----------------------
●● The Balanced Scorecard was developed by Robert S. Kaplan and David ----------------------
P. Norton in 1990. It is a management tool used to measure and drive
the performance of an organization, as well as support strategic decision- ----------------------
making, based on a measurable set of key performance indicators (KPIs)
----------------------
that align with an organization’s vision and strategy. The Balanced
Scorecard is a strategic planning, management and measurement tool ----------------------
designed to improve organizational performance. A Balanced Scorecard
helps leaders evaluate their organization’s performance at each stage of ----------------------
the company lifecycle, which is crucial to monitor and identify strategic
----------------------
issues, taking corrective actions as needed. The Balanced Scorecard also
allows managers to focus resources on key activities that generate the ----------------------
most value to their company.
----------------------
Keywords ----------------------
●● Performance measurement: ----------------------
●● Business balanced score card:
----------------------
●● CPFR (collaborative planning, forecasting and replenishment)
----------------------

Balanced Score Card - Supply Chain 65

 Notes
Self-Assessment Questions
----------------------
1. How the business environment evolved in 19th and 20th centuries?
----------------------
Answers to Check your Progress
----------------------
Check your Progress 1
----------------------
MCQ (multiple choice multiple answers)
----------------------
1 a,b,c
---------------------- 2 a,b,c
---------------------- True/False
---------------------- 1 True
2 False
----------------------

---------------------- Suggested Reading

---------------------- 1. https://www.kdnuggets.com/2016/07/ethics-principles-big-data-science.
---------------------- html
2. Lambert, Douglas & Cooper, Martha. (2000). Issues in Supply Chain
---------------------- Management. Industrial Marketing Management. 29. 65-83. 10.1016/
---------------------- S0019-8501(99)00113-3.
3. Kaplan, Robert S.; Norton, D. P. (1 October 2000). The Strategy-Focused
----------------------
Organization: How Balanced Scorecard Companies Thrive in the New
---------------------- Business Environment. Boston, MA: Harvard Business School Press.
ISBN 978-1-57851-250-8.
----------------------
4. https://www.unwe.bg/doi/eajournal/2020.2/EA.2020.2.06.pdf
----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

66 Supply Chain Performance Measurement

SCOR Model
UNIT

6
Structure:

6.1 Introduction
6.2 SCOR Process span
6.3 How is SCOR model implemented?
6.4 Benefits of using the SCOR model
6.5 Drawbacks of SCOR
Summary
Keywords
Answers to check your progress
Activities
References

SCOR Model 67
 Notes
Objectives
----------------------

---------------------- After going through this unit, you will be able to:
●● nderstand what benchmarks to be set for evaluating supply chain
U
----------------------
effectiveness
---------------------- ●● Understand how to increase the supply chain performance
---------------------- ●● Understand techniques for tackling strategic supply chain issues
●● Understand how to evaluate and manage a global supply chain
----------------------

----------------------
6.1 INTRODUCTION
----------------------
The Supply Chain Operations Reference Model (SCOR) is a process
---------------------- that is used to evaluate an organization’s supply chain. A primary objective of
any supply chain is to fulfil customer orders. A supply chain need to execute
----------------------
SCOR processes to achieve this primary objective. SCOR is an analysis tool
---------------------- established by the Supply Chain Council (SCC) which plans and processes
practices in the Supply Chain Management.
----------------------
The Model, primarily a tool for implementation, is being used successfully
---------------------- (as measured in Return on Investment) in North America, Europe, Latin
America, Asia, and Australia/New Zealand. The supply chain council (SCC)
---------------------- developed the SCOR model. In year 1996, the SCC was organized by AMR
---------------------- Research and Pittiglio Rabin Todd & McGrath (PRTM). 70 voluntary member
companies were involved at the beginning. According to SCC statements,
---------------------- SCOR Model is the “most promising model for supply chain strategic decision
makin
----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

68 Supply Chain Performance Measurement

 Notes

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------
Fig. 6.1 Supply Chain Operations Reference (SCOR) model ----------------------
In this model, key figures are defined. According to relevance, these key ----------------------
figures are also known as key performance indicators (KPIs). Using KPIs, the
supply chain time schedules can be measured. ----------------------
This process reference model comprises of supply chain procedures as ----------------------
well as all phases of demand fulfilment from vendor to customer. The processes
are subdivided into six process categories (see figure 6.1): ----------------------
1. Planning. ----------------------
2. Procurement. ----------------------
3. Manufacturing.
----------------------
4. Delivery.
----------------------
5. Return.
6. Enable ----------------------

Each basic process is then sub-divided by individual processing unit. ----------------------

----------------------

SCOR Model 69
 Notes Planning: This process category is divided into ‘planning for the entire Supply
Chain’ (P1) and ‘planning for the remaining areas’ (P2 to P5). Key figures can
---------------------- be assigned individually to these sections. Planning includes sales management
and sales planning. The reconciliation of resources and requirements happens in
---------------------- this phase. The complete structure is planned here. This includes Procurement
---------------------- (P2), Manufacturing (P3), Delivery (P4), and Return (P5). Supply planning is
adjusted to the finance planning.
----------------------
Procurement: This process category is divided into procurement make-to-stock
---------------------- (S1), sales-order-related production (S2) and engineer-to-order production (S3).
In this process phase, the system coordinates business regulations, evaluates
---------------------- vendor activity, and maintains the corresponding data. This step describes
sourcing infrastructure and material acquisition. It describes how to manage
----------------------
inventory, the supplier network, supplier agreements, and supplier performance.
---------------------- It discusses how to handle supplier payments and when to receive, verify, and
transfer product.
----------------------
Manufacturing: In manufacturing (also known as production), checking,
---------------------- packaging, retrieval, and release takes place for delivery. This process category
includes production activities, packaging, staging product, and releasing.
---------------------- It also includes managing the production network, equipment and facilities,
and transportation. An important part of this process category includes time
----------------------
scheduling for the manufacturing process.
---------------------- Delivery: This process category comprises of order, warehouse, transport, and
installation management for products from sales-order-related and engineer-
----------------------
to-order production. It also includes receiving orders from customers and
---------------------- invoicing them once a product is received. This step involves management of
finished inventories, assets, transportation, product life cycles, and importing
---------------------- and exporting requirements.
---------------------- Return: In this process category, customer services are processed in connection
with the product return. A defective product, package, or entire container might
---------------------- be returned by a customer. Companies must be prepared to handle such return.
---------------------- The return involves the management of business rules, return inventory, assets,
transportation, and regulatory requirements.
---------------------- Enable: This process category includes managing supply chain network,
---------------------- enabling supply chain procurement, as well as enabling supply chain technology.

---------------------- 6.2 SCOR PROCESS SPAN

---------------------- The model integrates business concepts of process re-engineering,
---------------------- benchmarking, and measurement into its framework. The supply chain
council says this process spans from “the supplier’s supplier to the customer’s
---------------------- customer.” See Fig. 1.2. The SCOR-model has been developed to describe
the business activities associated with all phases of satisfying a customer’s
---------------------- demand. The model itself contains several sections and is organized around
---------------------- the six primary management processes of Plan, Source, Make, Deliver, Return

70 Supply Chain Performance Measurement

and Enable (shown in Figure 1.2). By describing supply chains using these Notes
process building blocks, the model can be used to describe supply chains that
are very simple or very complex using a common set of definitions. As a result, ----------------------
disparate industries can be linked to describe the depth and breadth of virtually
any supply chain. ----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------
Fig. 6.2 SCOR Process span “from the supplier’s supplier to the
customer’s customer” ----------------------
SPAN OF SCOR: ----------------------
●● ll customer interactions (CRM related), all physical material transactions
A
(supplier’s supplier to customer’s customer, including covering ISCM ----------------------
and SRM and CRM) and all market interactions (from the understanding ----------------------
of aggregate demand to the fulfilment of each order typically ISM and
CRM). ----------------------
●● I t does not attempt to describe every business process or activity. ----------------------
Specifically, the model does not address: sales and marketing (demand
generation), product development, research and development, and some ----------------------
elements of post-delivery customer support.
----------------------
SCOR LEVELS:
As shown in Figure 1.2, the model is designed to support supply chain ----------------------
analysis at multiple levels. ----------------------
SCC has focused on the top three process levels, which are industry
----------------------
neutral. SCOR does not attempt to prescribe how a particular organization should
conduct its business or tailor its systems/information flow. Every organization ----------------------
that implements supply chain improvements using the SCOR model will need
to extend the model, at least to Level-4, using industry-, organization- and/or ----------------------
location-specific processes, systems, and practices
----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

SCOR Model 71
 Notes

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------
Fig. 6.3 Levels of SCOR (Source: www.supply-chain.org. Supply Chain
---------------------- Council, Inc. SCOR: The Supply Chain Reference)
SCOR Structure
----------------------
SCOR is a reference model. The purpose of a process reference model,
---------------------- or business process framework, is to describe your process architecture in a
---------------------- way that makes sense to key business partners. Architecture here means the
way processes interact, how they perform, how they are configured and the
---------------------- requirements (skills) on staff operating the process.

---------------------- Performance
The performance section of SCOR consists of two types of elements:
---------------------- Performance Attributes (SCOR performance attributes, see Table 1.1) and
---------------------- Metrics. A performance attribute is a grouping of metrics used to express
a strategy. An attribute itself cannot be measured; it is used to set strategic
---------------------- direction. Examples of business strategies applied to supply chain are: ‘Superior
performance for Supply Chain Reliability’ or ‘Advanced performance for
---------------------- Agility’. Metrics measure the ability of a supply chain to achieve these strategic
---------------------- attributes.
Superior performance for Reliability can thus be expressed in a
----------------------
performance objective:
---------------------- Perfect Order Fulfilment: X%. Reliability is the performance attribute, Perfect
Order Fulfilment is the metric. Benchmarking is a commonly used method to
----------------------
calculate the value of X in the Reliability example.
----------------------

----------------------

----------------------

72 Supply Chain Performance Measurement

 Notes

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------
Table 6. 1 SCOR performance attributes
----------------------
Reliability, Responsiveness and Agility are considered customer-focused.
Cost and Asset Management Efficiency are considered internal-focused. All ----------------------
SCOR metrics are grouped within one of the performance attributes.
----------------------
The SCOR model defines the five key performance attributes of a supply chain:
----------------------
●● Reliability: Whether the supply chain can fill customer orders.
●● Responsiveness: How long it takes to fill orders. ----------------------
●● Agility: How well the supply chain responds to changes. ----------------------
●● Costs: How much it costs to operate the supply chain.
----------------------
●● Asset management efficiency: How well the supply chain uses the assets
it has. ----------------------
Processes: ----------------------
The Process section in SCOR provides a set of pre-defined descriptions
for activities most companies perform to effectively execute their supply chains. ----------------------
The six macro-level SCOR processes Plan, Source, Make, Deliver, Return and ----------------------
Enable are well-known and widely adopted. SCOR identifies 2 more levels
of process. Level here indicates the span of the process: A level-3 process is ----------------------
focused on a more detailed activity. A level-1 process spans multiple level-3
processes. ----------------------

Figure 1.2 shows the levels within the SCOR model processes ----------------------
Level-2 process categories determine the capabilities within the level-1 ----------------------
processes. The key level-2 processes are Make-to-Stock vs. Make-to-Order vs.
Engineer-to-Order for Source, Make and Deliver processes and Defective vs. ----------------------
MRO vs. Excess for the Return process. Level-3 processes are process steps
----------------------
that are performed in a certain sequence in order to plan supply chain activities,
source materials, make products, deliver goods and services and handle product ----------------------
returns.
----------------------

SCOR Model 73
 Notes Practices

---------------------- The practices section, formerly known as ‘best practices’, provides a

collection of industry-neutral practices companies have recognized for their
---------------------- value. A practice is a unique way to configure a process or a set of processes.
The uniqueness can be related to the automation of the process, a technology
---------------------- applied in the process, special skills applied to the process, a unique sequence
---------------------- for performing the process, or a unique method for distributing and connecting
processes between organizations.
----------------------
SCOR recognizes that several different qualifications of practices exist
---------------------- within any organization
(SCOR ID):
----------------------
●● Emerging practices (BP.E)
----------------------
●● Best practices (BP.B)
---------------------- ●● Standard practices (BP.S)
---------------------- ●● Declining practices. (BP.D)
People
----------------------
The People section of SCOR was introduced in SCOR 10 and provides a
---------------------- standard for describing skills required to perform tasks and manage processes.
Generally, these skills are supply chain specific. Some skills identified may
----------------------
be applicable outside the supply chain process domain. Skills are described
---------------------- by a standard definition and association to other ‘People’ aspects: Aptitudes,
Experiences, Trainings and Competency level. Competency level is not included
---------------------- in the framework descriptions. SCOR recognizes 5 commonly accepted
competency levels:
----------------------
●● Novice: a person new to and inexperienced in a job or situation, untrained
---------------------- beginner, requires and follows detailed documentation
---------------------- ●● Beginner: a person just starting to learn a skill or take part in an activity.
Performs the work, with limited situational perception.
----------------------
●● Competent: having the necessary ability, knowledge, or skill to do
---------------------- something successfully. Understands the work and can determine
priorities to reach goals.
---------------------- ●● Proficient: Oversees all aspects of the work and can prioritize based on
---------------------- situational aspects.
●● Expert: a person who is very knowledgeable about or with intuitive
---------------------- understanding. Experts can apply experience patterns to new situations.
----------------------
6.3 HOW IS SCOR MODEL IMPLEMENTED?
----------------------
Bolstorff and Rosenbaum (2011) in their “A Handbook for Dramatic
---------------------- Improvement Using the SCOR Model, Second Edition” explained the
implementation of SCOR model.
----------------------

74 Supply Chain Performance Measurement

1. Understand Basic of the SCOR Model. Notes
The focus in this initial phase is to build effective organizational support.
----------------------
This phase explores four important roles: the “evangelist,” the person in
the company who has the passion, experience, and talent to lead a supply ----------------------
chain project; the “active executive,” the individual who is accountable
as sponsor of a supply chain project through modelling, influence, and ----------------------
leadership; the “core steering team,” which has the champion role to review
----------------------
and approve recommendations and ultimately lead the implementation
efforts; and the “design team,” which analyzes the supply chain from end ----------------------
to end and assembles recommendations for change.
----------------------
2. Analyse Your Competition with Metrics from SCOR Model.
This phase involves defining and prioritizing the organization’s supply ----------------------
chains using a combination of data and strategic assessment. One
----------------------
of the primary outcomes from the discovery step is a Project Charter,
which helps define a project’s scope, approach, objectives, schedule, ----------------------
milestones, deliverables, budget, organization, measures of successes,
and communication plan. ----------------------
This analysis stage is where the metrics are defined, data are collected, ----------------------
benchmarks are tallied, and gross opportunity is calculated. Frequently
used SCOR metrics include cash-to-cash cycle time, inventory days of ----------------------
supply, perfect order fulfilment, order fulfilment cycle time, total supply ----------------------
chain management cost, and upside supply chain flexibility. This phase
also helps the team to prioritize and balance customer metrics with ----------------------
internal-facing metrics: delivery, reliability, flexibility/responsiveness,
cost, and assets. ----------------------

3. Improve Material Flow With Level 2 of SCOR Model. ----------------------

In this step, a detailed description about the material analysis steps to ----------------------
identify a company’s preliminary project list is given. AS IS analytic
techniques include analysing metric defect; assembling geographic maps ----------------------
and process thread diagrams; conducting a gap assessment using simple
brainstorming techniques; using problem-solving tools such as fishbone ----------------------
diagrams, run charts, and affinity grouping; and working with finance to ----------------------
identify both financial and customer service opportunities.
----------------------
4. Streamline Information Flow with Level 3 of SCOR Model.
This stage involves description of the work and information flow analysis ----------------------
aimed at the effectiveness and efficiency of transactions (purchase
----------------------
orders, work orders, sales orders, forecasts, replenishment orders, and
return authorizations). Analytic techniques for this phase include process ----------------------
mapping, transactional data analysis, leading practice assessment, and
“staple yourself to an order” interviews. The resulting analysis is additive ----------------------
to material flow and together comprise the final project list.
----------------------

----------------------

SCOR Model 75
 Notes 5. Implement Best Practices Provided by SCOR Model.

---------------------- 6. Consider Implementation Issues of SCOR Model.

This last stage during implementation involves discussion of the
---------------------- final assembly and sign-off of the project portfolio and introduces an
---------------------- organization and process for effective program management. It also
discusses the steps for putting together the implementation plan, including
---------------------- project definition, implementation approach, and Return on Investment.
---------------------- See Fig. 6.4 to understand the steps for SCOR Process implementation
Level-1 Source (plan-to
---------------------- return- to -enable)
----------------------

---------------------- Level-2 S1 -
---------------------- Source-&-stock-
product processes-
---------------------- like-make- to
---------------------- stock, make-to-
order etc,
----------------------

----------------------
Level-3 S1 -1 S1 -2 S1 -3 S1 -4
---------------------- Scheduling
Receiving Verifying Transferring
stocked
---------------------- stocked stocked stocked
products
product product product
deliveries
----------------------

---------------------- Fig. 6.4 SCOR Process implementation

---------------------- 6.4 BENEFITS OF USING THE SCOR MODEL

---------------------- The SCOR process can go into many levels of process detail to help a
---------------------- company analyse 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. Each
step is a link in the supply chain that is critical in getting a product successfully
---------------------- along each level. The SCOR model has proven to benefit companies that
---------------------- use it to identify supply chain problems. The 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. Typically,
following benefits are expected:
----------------------
●● perating income improvement, from cost reduction and service
O
---------------------- improvements

---------------------- ●● Return on investment improvement

76 Supply Chain Performance Measurement

●● Improving return on assets for fixed-asset technology investments Notes
●● ngoing profit improvement year-on-year, using continuous supply chain
O
improvement. ----------------------

----------------------
6.5 DRAWBACKS OF SCOR
----------------------
The major supply chain framework SCOR (Supply Chain Operations
Reference Model by Supply Chain Council) provides a strong structural ----------------------
foundation for supply chain standardization, communication and collaboration.
----------------------
However, SCOR has its drawbacks too. Although it integrates BPR (business
process re-engineering), performance measurement and logistics, it has been ----------------------
criticized due to the following aspects, as pointed out by Akyuz & Gürsoy
(2010) and Wang et al., (2010): ----------------------
●● it does not address the areas of human resources, training, and quality ----------------------
assurance
----------------------
●● it is impractical as a benchmarking tool and in handling the intangible
problems such as cultural conflicts ----------------------
●● it is limited to the representation of one single supply chain, and as such
----------------------
cannot handle multiple channels
●● order modification, activities of the collaborative design and CRM are not ----------------------
addressed.
----------------------
It is possible to communicate with other companies using the SCOR
standard. However, if the vocabulary of that other company is different from ----------------------
that of the supply chain, this communication is no longer workable. In such
----------------------
cases, it is also not possible to use a certain benchmarking.
----------------------
Check your Progress 1
----------------------
Fill in the blanks: ----------------------
1. SCOR is ___________ tool which plans and processes practices in
----------------------
the Supply Chain Management.
a. Analysis ----------------------
b. Reference ----------------------
c. Progressive ----------------------
d. Scientific
----------------------

----------------------

----------------------

----------------------

----------------------

SCOR Model 77
 Notes 2. SCOR is a ___________ model.
---------------------- a. Reference

---------------------- b. Analysis
c. Progressive
----------------------
d. scientific
----------------------
MCQ (multiple choice single answer)
---------------------- 1. The supply chain time schedules can be measured using
---------------------- a. Key performance indicators

---------------------- b. Human resources

c. Job description
----------------------
d. Inventory turnover ratio
----------------------
MCQ (multiple choice multiple answers)
---------------------- 1. SCOR model comprises of
---------------------- a. Planning.

---------------------- b. Procurement.
c. Manufacturing.
----------------------
d. Research
----------------------

---------------------- Summary
---------------------- ●● A Supply Chain Operations Reference Model is a process used to evaluate
an organization’s supply chain. This reference model has four components:
----------------------
an organization, customers/suppliers, processes, and information flows.
---------------------- The chosen model should highlight the sequence of events that are critical
to fulfilling customer orders. It also should show how companies are
---------------------- organized, how information flows, how operations are coordinated, and
how activities are performed.
----------------------
●● A supply chain is the network that connects the makers of a product with
---------------------- the sellers of that product. It is an invisible but essential element of any
business. This network can be complicated with multiple parties, numerous
----------------------
suppliers, customers, and multiple locations. A Supply Chain Operations
---------------------- Reference Model is a process used to evaluate an organization’s supply
chain. A good model will consider standard business practices, operational
---------------------- execution, order fulfilment, customer service, and cost analysis. It also
should show how companies are organized, how information flows,
----------------------
how operations are coordinated, and how activities are performed. It
---------------------- is essentially a holistic approach for evaluating the supply chain. This
unit looks at the main elements of this reference model and how they
---------------------- can affect the company’s supply chain operations and a reference list of

78 Supply Chain Performance Measurement

 areas in which improvement can be made. This is a quick overview of the Notes
supply chain operations reference model.
----------------------
Keywords
----------------------
●● Supply Chain Council (SCC)
----------------------
●● Supply Chain Operations Reference (SCOR)
●● Key performance indicators (KPIs) ----------------------

----------------------
Activity 1
----------------------
Student should carry out a SCOR Model Supply Chain simulation ----------------------
experiential learning activity to develop a holistic understanding of the
processes and challenges of supply chain management. ----------------------

----------------------
Answers to Check your Progress
----------------------
Check your Progress 1
----------------------
Fill in the blanks:
1. a ----------------------
2. a ----------------------
Multiple Choice Question. (single correct answers)
----------------------
1. a
Multiple Choice Question. (multiple correct answers) ----------------------
1. a, b, c ----------------------

----------------------
Suggested Reading
----------------------
1. https://scm.ncsu.edu/scm-articles/article/the-scor-model-for-supply-
chain-strategic-decisions ----------------------
2. Huan, S., Sheoran, S., Wang, G. (2004). A research and analysis of supply
----------------------
chain operations reference (SCOR) model. Supply Chain Management:
An International Journal, Vol. 9, Num. 1. ----------------------
3. Supply Chain Operations Reference Model. Supply Chain Council. www.
supply-chain.org. Supply Chain Council, Inc. SCOR: The Supply Chain ----------------------
Reference. ISBN 0-615-20259-4. Accessed November 30, 2021.
----------------------
4. Bauhof, N. (2004). SCOR Model: Supply Chain Operations Reference
Model. Beverage Industry. ----------------------
5. Stephens, S. (2000). Supply Chain Council and the Supply Chain
----------------------
Operations Reference (SCOR) model: integrating processes, performance
measurements, technology and best practice. ----------------------
6. Bolstorff, P., Rosenbaum, R. (2011). A handbook for dramatic improvement
using the SCOR model (2nd ed). ----------------------

SCOR Model 79
 Notes

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

80 Supply Chain Performance Measurement

Case Studies in Supply Chain Management
UNIT
Structure:

7.1 Introduction
7.2 Few Case Studies
7
7.3 A Case Study in a Small to Medium Enterprise (SME)
Suggested Reading

Case Studies in Supply Chain Management 81

 Notes
Objectives
----------------------
After going through this unit, you will be able to:
----------------------
• Understand actual logistics situation
----------------------
• Understanding of best practices
----------------------

----------------------
7.1 INTRODUCTION
----------------------
A case study helps in bringing the understanding of a complex issue
---------------------- or object. It can extend experience or add strength to the existing knowledge
---------------------- through previous research. Their contextual analysis revolves around a limited
number of events or conditions and how they relate. An industrial case study
---------------------- is when you take your solutions or your processes, apply it to some situation in
industry, and then report on the results. Case studies are laboratories where you
---------------------- apply what you learn in lectures and readings to solve supply chain problems
---------------------- in highly realistic simulations. Case studies cover a multitude of supply chain
disciplines , Provide insight into effective operational, tactical, and strategic
---------------------- solutions to processes of leading SCM organizations , Present examples of best
practices , An effective learning tool for practitioners to gain insight about the
---------------------- industry and apply concepts to real-world situations ,Allow for evaluation of a
---------------------- situation, identification of challenges, evaluation of solutions, and developing
an implementation plan
---------------------- In order to meet this need and give practical insight to a reasonable extent
---------------------- to student, few of the case studies are listed below:

---------------------- 7.2 FEW CASE STUDIES

---------------------- 1. John Deere
---------------------- John Deere is famous for manufacture and supply of machinery used
in agriculture, construction, and forestry, as well as diesel engines and
---------------------- lawn-care equipments. In 2014, Deere & Company was listed 80th in the
---------------------- Fortune 500 America’s ranking and was 307th in the 2013 Fortune Global
500 ranking.
----------------------
Supply Chain Cost Reduction Challenges: Company has a diverse
---------------------- product range, which includes a mix of heavy machinery for the consumer
market, and industrial equipment, which is made to order. Retail activity
---------------------- is extremely seasonal, with the majority of sales occurring between March
and July.
----------------------

----------------------

----------------------

82 Supply Chain Performance Measurement

 The company was replenishing dealers’ inventory weekly, using direct Notes
shipment and cross-docking operations from source warehouses located
near Deere & Company’s manufacturing facilities. This operation was ----------------------
proving too costly and too slow, so the company launched an initiative to
achieve a 10% supply chain cost reduction within four years. ----------------------

Cost Reduction Approach: The company undertook a supply chain ----------------------

network-redesign program, resulting in the commissioning of intermediate
----------------------
“merge centers” and optimization of cross-dock terminal locations.
Deere & Company also began consolidating shipments and using break- ----------------------
bulk terminals during the seasonal peak. The company also increased its
----------------------
use of third-party logistics providers and effectively created a network
that could be optimized tactically at any given point in time. ----------------------
Networks can be modeled from factory to the consumer, taking into
----------------------
account all the key cost and service drivers such as:
1. Customer location ----------------------

2. Order size and frequency ----------------------

3. Transport costs ----------------------
4. Transport vehicle types
----------------------
5. Transport modes
----------------------
6. Warehouse (Distribution Centre) size, location, resources, costs…
7. Service level requirements ----------------------

8. Factory and supplier locations ----------------------

9. Ports of entry for imported products ----------------------
10. and many more key variables
----------------------
Supply Chain Cost Management Results: Deere & Company’s supply
chain cost-management achievements included an inventory decrease of ----------------------
$1 billion, a significant reduction in customer delivery lead times (from
----------------------
ten days to five or less) and annual transportation cost savings of around
5%. ----------------------
2. INTEL ----------------------
One of the world’s largest manufacturers of computer chips, Intel needs
little introduction. However, the company needed to reduce supply chain ----------------------
expenditure significantly after bringing its low-cost “Atom” chip to ----------------------
market. Supply chain costs of around $5.50 per chip were bearable for
units selling for $100, but the price of the new chip was a fraction of that, ----------------------
at about $20.
----------------------
The Supply Chain Cost Reduction Challenge: Somehow, Intel had to
reduce the supply chain costs for the Atom chip, but had only one area of ----------------------
leverage—inventory.
----------------------

Case Studies in Supply Chain Management 83

 Notes The chip had to work, so Intel could make no service trade-offs. With
each Atom product being a single component, there was also no way to
---------------------- reduce duty payments. Intel had already trimmed packaging down to a
minimum, and with a high value-to-weight ratio, the chips’ distribution
---------------------- costs could not be brought down any further.
---------------------- The only option was to try to reduce levels of inventory, which, up to that
point, had been kept very high to support a nine-week order cycle. The
----------------------
only way Intel could find to make supply chain cost reductions was to
---------------------- bring this cycle time down and therefore reduce inventory.
Cost Reduction Approach: Intel decided to try what was considered an
----------------------
unlikely supply chain strategy for the semiconductor industry: make to
---------------------- order. The company began with a pilot operation using a manufacturer
in Malaysia. Through a process of iteration, they gradually sought out
---------------------- and eliminated supply chain inefficiencies to reduce order cycle time
incrementally. Further improvement initiatives included:
----------------------
●● Cutting the chip assembly test window from a five-day schedule, to
---------------------- a bi-weekly, 2-day-long process
---------------------- ●● Introducing a formal S&OP planning process
●● Moving to a vendor-managed inventory model wherever it was
----------------------
possible to do so
---------------------- Supply Chain Cost Management Results: Through its incremental
approach to cycle time improvement, Intel eventually drove the order
----------------------
cycle time for the Atom chip down from nine weeks to just two. As a
---------------------- result, the company achieved a supply chain cost reduction of more than
$4 per unit for the $20 Atom chip—a far more palatable rate than the
---------------------- original figure of $5.50.
---------------------- 3. Starbucks
Like Intel, Starbucks is pretty much a household name, but like many of
----------------------
the most successful worldwide brands, the coffee-shop giant has been
---------------------- through its periods of supply chain pain. In first decade of 2021 Starbucks
began to have severe doubts about the company’s ability to supply its
---------------------- 16,700 outlets. As in most commercial sectors at that time, sales were
falling. At the same time, though, supply chain costs rose by more than
----------------------
$75 million.
---------------------- Supply Chain Cost Reduction Challenges: When the supply chain
---------------------- executive team began investigating the rising costs and supply chain
performance issues, they found that service was indeed falling short of
---------------------- expectations. Findings included the following problems

---------------------- ●● Fewer than 50% of outlet deliveries were arriving on time

●● Several poor outsourcing decisions had led to excessive 3PL
---------------------- expenses
----------------------

84 Supply Chain Performance Measurement

 ●● The supply chain had, (like those of many global organisations) Notes
evolved, rather than grown by design, and had hence become
unnecessarily complex ----------------------
Cost Reduction Approach: Starbucks’ leadership had three main ----------------------
objectives in mind to achieve improved performance and supply chain
cost reduction. These were to: ----------------------
1. Reorganize the supply chain ----------------------
2. Reduce cost to serve
----------------------
3. Lay the groundwork for future capability in the supply chain
----------------------
To meet these objectives, Starbucks divided all its supply chain functions
into three main groups, known as “plan” “make” and “deliver”. It also ----------------------
opened a new production facility, bringing the total number of U.S. plants
to four. ----------------------
Next, the company set about terminating partnerships with all but its most ----------------------
effective 3PLs. It then began managing the remaining partners via a
weekly scorecard system, aligned with renewed service level agreements. ----------------------

Results: By the time Starbucks had completed its transformation program, ----------------------
it had saved more than $500 million over the course of 2 years, of which a
large proportion came out of the supply chain, according to Peter Gibbons, ----------------------
then Executive Vice President of Global Supply Chain Operations. ----------------------
4. AGCO
----------------------
AGCO is a leading global force in the manufacture and supply of
agricultural machinery. The company grew substantially over the course ----------------------
of two decades, achieving a considerable portion of that growth by way
----------------------
of acquisitions.
As commonly happens when enterprises grow in this way, AGCO ----------------------
experienced increasing degrees of supply chain complexity, along with
----------------------
associated increases in cost, but for many years, did little to address the
issue directly, primarily due to the decentralized and fragmented nature of ----------------------
its global network.
----------------------
In 2012, AGCO’s leaders recognised that this state of affairs could
not continue and decided to establish a long-term program of strategic ----------------------
optimisation.
----------------------
Supply Chain Cost Reduction Challenges: With five separate brands
under its umbrella, AGCO’s product portfolio is vast. At the point when ----------------------
optimisation planning began, sourcing and inbound logistics were
managed by teams in various countries, each with different levels of SCM ----------------------
maturity, and using different tools and systems. ----------------------
As a result of the decentralised environment, in which inbound logistics
and transport management were separate operational fields, there was ----------------------
insufficient transparency in the supply chain. The enterprise as a whole ----------------------

Case Studies in Supply Chain Management 85

 Notes was not taking advantage of synergies and economies of scale (and the
benefits of the same). These issues existed against a backdrop of a volatile,
---------------------- seasonal market.
---------------------- Cost Reduction Approach: Following a SCOR supply chain
benchmarking exercise, AGCO decided to approach its cost reduction and
---------------------- efficiency goals by blending new technology—in the form of a globally
integrated transport management system (TMS)—with a commitment to
----------------------
form a partnership with a suitably capable 3PL provider.
---------------------- As North and South American divisions of the company were already
working with a recently implemented TMS, leaders decided to introduce
----------------------
the blended approach in Europe, with commitments to replicate the model,
---------------------- if successful, in its other operating regions.
With the technology and partnership in place, a logistics control tower
----------------------
was developed, which integrates and coordinates all daily inbound supply
---------------------- activities within Europe, from the negotiation of carrier freight rates,
through inbound shipment scheduling and transport plan optimisation to
---------------------- self-billing for carrier payment.
---------------------- SC Cost Management Results: Within a year and a half of their European
logistics solution’s go-live, AGCO achieved freight cost reductions of
---------------------- some 18%, and has continued to save between three and five percent on
---------------------- freight expenditure, year-on-year, ever since. Having since rolled the
new operating model out in China and North America, the company has
---------------------- reduced inbound logistics costs by 28%, increased network performance
by 25% and cut inventory levels by a quarter.
----------------------
5. Avaya
---------------------- Avaya is a global force in business collaboration and communications
---------------------- technology, and not so many years ago, was operating what, by its own
executives’ admission, was a worst-in-class supply chain. That situation
---------------------- arose as the result of multiple corporate acquisitions over a short space of
time. The company was suffering from a range of supply chain maladies,
---------------------- including a long cash-to-cash cycle, an imbalance in supplier terms
---------------------- and conditions, excess inventory, and supply chain processes that were
inefficient and wholly manual.
----------------------
Cost Reduction Challenge: After Avaya purchased Nortel Enterprise
---------------------- Solutions in 2009, the freshly merged company found itself but loosely
in control of an unstable and ineffective supply chain operation. Aside
---------------------- from having too many disparate and redundant processes, the company
had multiple IT solutions, none of which provided a holistic view of the
----------------------
supply chain or supported focused analysis.
---------------------- Approach to Cost Reduction: Avaya’s senior management team realized
that its technology solutions, which varied from being inadequate to
----------------------
inappropriate, were causing many of its problems. The various acquisitions
---------------------- and mergers had transformed Avaya into a different kind of enterprise,

86 Supply Chain Performance Measurement

 and what it needed, rather than a replacement for all the discrete systems, Notes
was one solution to tie them all together.
----------------------
To that end, the company put its trust in cloud technology, which was
relatively immature at the time, and migrated all processes onto one ----------------------
platform, which was designed to automate non-value-added activities and
integrate those critical to proactive supply chain management, namely: ----------------------
●● Point of sale analysis ----------------------
●● Procurement analysis
----------------------
●● Supplier communication
----------------------
●● Supply and demand planning
●● Inventory planning ----------------------

●● Inbound and outbound logistics planning ----------------------

Of course, the technology was merely an enabler, and to transform its ----------------------
supply chain operation, Avaya embarked on a long-term, phased program
to standardize processes, initiate a culture change, invest in top talent, and ----------------------
implement a system of rigorous benchmarking and KPI tracking.
----------------------
Supply Chain Cost Management Results: Avaya’s program of
transformation took place over a period of three to four years, between ----------------------
2010 and 2014. The path to cost reduction was a long one, but ultimately
----------------------
successful.
By making a conscious effort to lead the enterprise into a new way of ----------------------
thinking, change business culture, and unify technology under a single
----------------------
platform, Avaya has improved inventory turns by more than 200%,
reduced cash tied-up in stock by 94%, and cut its overall supply chain ----------------------
expenditure in half.
----------------------
This dramatic turnaround also required the company to switch from
a preoccupation with improving what it was doing, to a process ----------------------
of questioning what it was doing and why.
----------------------
6. Dry fruits Company
It highlights how sometimes, excess supply chain costs are not about ----------------------
warehousing and transportation, but can be attributable to inefficiencies in ----------------------
manufacturing or production and—often at the root of it all—forecasting
and planning. ----------------------
Sunsweet Growers, a dry fruits company is the world’s biggest producer ----------------------
of dried fruits and, a little over a decade ago, found that while it was
managing distribution operations well, high production costs were ----------------------
inflating end-to-end supply chain expenditure.
----------------------
The Supply Chain Cost Reduction Challenge: When the leadership at
Sunsweet looked into the company’s production cost issues, recognition ----------------------
soon dawned that the distribution network was at least partly behind the
----------------------

Case Studies in Supply Chain Management 87

 Notes problems. As a result, the company looked at how it could redesign the
network to take out some of the production costs.
----------------------
Later, it became apparent that although a redesign would yield some
---------------------- benefits, one of the most significant issues was in the approach to demand
forecasting. Sunsweet was using a manual forecasting approach, with
---------------------- spreadsheets being the only technology involved.
---------------------- The inefficiencies of this approach proved not only to hamper effective
forecasting and production planning, but the knock-effect was an excess
---------------------- of warehouses in the network—so forecasting proved to be both a driver
of production cost, and a key to improving the distribution network.
----------------------
Cost Reduction Approach: As in a number of the studies we’ve explored
---------------------- here, technology played a large part in solving Sunsweet’s problems. After
evaluating some 30 different software solutions, the company finally
----------------------
settled on a supply chain planning suite, and planned its improvement
---------------------- program to make use of each of the solution’s modules in sequence,
allowing ROI to be realized in phases as each module was implemented
---------------------- and leveraged.
---------------------- At the same time, Sunsweet implemented a sales and operations
planning program (S&OP) that once established, enabled plant resource
---------------------- requirements to be anticipated months—rather than weeks—in advance.
---------------------- As the overall improvement plan passed through its five phases, positive
results accumulated and as hoped, software ROI reached 100% even
---------------------- before the company completed its full implementation.

---------------------- Supply Chain Cost Management Results: Of course, the objective of

Sunsweet’s improvement program was not merely to achieve a 100%
---------------------- return on investment in its supply chain planning platform. The aim was to
reduce production costs, and although the company hasn’t published hard
---------------------- figures to quantify the total financial gain, it has claimed the following
---------------------- wins:
●● A 15 to 20% increase in forecasting accuracy
----------------------
●● A reduction in overtime from 25% to 8% in production facilities
----------------------
●● A 30% reduction in finished-goods spoilage
---------------------- ●● Number of warehouses in the United States cut from 28 to just eight
---------------------- ●● A transportation cost-per-unit that remained static for two years
despite increased utilization of costly refrigerated transport and
---------------------- rising fuel costs
----------------------
7.3 A CASE STUDY IN A SMALL TO MEDIUM
---------------------- ENTERPRISE (SME)
----------------------
This case study aims to measure the supply chain performance in a small
---------------------- and medium enterprise (SME) producing sports clothes.

88 Supply Chain Performance Measurement

 It utilizes the performance attributes from the Supply Chain Operation Notes
Reference Model (SCOR). The business process is identified as the baseline to
determine performance metrics on each process (plan, source, make, deliver, ----------------------
return and enable) and performance attributes, i.e. reliability, responsiveness,
agility, cost, and asset management efficiency. According to the experts within ----------------------
the company, there are only 27 of 40 performance metrics obtained valid. The ----------------------
overall performance score is at a good level with a value of 77.89. Among the
metrics, it is found 9 metrics in marginal and average level while the remaining ----------------------
metrics gained the value of more than 70. This supply chain performance
analysis can support the company decision making in order to improve its ----------------------
performance at an excellent level. ----------------------
The business process is shown in Figure 7.1 below. When orders come
----------------------
from customers both online and offline, the fabric inventory in the warehouse is
checked . If the inventory is sufficient, the order will be continued to the design. ----------------------
Yet, if it is less than the safety stock (SS), then company will order a certain
amount to the fabric supplier. Then the fabric supplier will send fabric orders ----------------------
to the warehouse. The company design a logo for the clothes ordered in the
----------------------
design section to be sent to the third party called the printing section together
with the fabric (material). The fabric that has been printed will be delivered to ----------------------
the manufacturing for sewing. After completion, all order is delivered to the
company’s warehouse for the pressing process of name and number requested ----------------------
on Jersey, then the orders are packed. Finally, they are ready for shipping to the
----------------------
customers. Fabrics are sent from suppliers to administration, continue sending
them to the printing process ----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------
Fig. 7.1
----------------------
There are 40 performance metrics identified through literature reviews.
These metrics were validated by distributing a questionnaire to 3 experts ----------------------
who have been working for more than 3 years in the company. The validation
example of the reliability performance attribute is presented in the following ----------------------
Table 7.1. ----------------------

Case Studies in Supply Chain Management 89

OFFLINE SHOP
 Notes Supplier
Table 7.1 Performance indicator
----------------------

----------------------

----------------------

----------------------

---------------------- Performance metric scores more than 4 are necessary and will be
quantified. There are only 27 performance metrics selected by the experts while
---------------------- the rest eliminated. The definition and formula of 27 performance metrics are
taken from SCOR. According to the perceived scores provided in Table 7.1,
---------------------- inventory accuracy, the defect rate of raw material, meeting with a customer,
---------------------- and packaging error were not quantified due to the score of less than 4. Before
scoring each metric, the experts have been explained the definition of the
---------------------- metrics in order to ensure the validity of those scores given
---------------------- Table 7.2 The example of reliability perceived importance scores

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

---------------------- Discussion
---------------------- Identified 27 selected metrics through the interview with production
and supply chain manager. Each process comprises different performance
---------------------- metrics related to the business process. The performance score of supply
---------------------- chain management reached 77.89. The value shows that it is at a good level of
performance. According to the performance metric indicator in Table 7.1, there
---------------------- are 9 performance metrics which reached marginal and poor levels while the
remaining metrics are at a good level with the minimum value of 70 presented
---------------------- in Table 7.3. Delivery item accuracy, for instance, means that supplier always
---------------------- delivers with the right quantity and never runs out of stock. It is also supported by

90 Supply Chain Performance Measurement

good communication. Other good level metrics are Additional Order to Supplier, Notes
Fill Rate/ Fulfilment customer order, and Manage Capital Asset Cycle Time.
On the other hand, some lower-level performances require further investigation ----------------------
and improvement. Metric time identified that new product specification got a
low score because the design operator has more than one job simultaneously. ----------------------
Thus, it needs to be improved by proposing better scheduling. The cost for the ----------------------
plan metric is the lowest score because there is no cost control for overhead
cost when the process plan takes place. Source flexibility can be improved by ----------------------
doing research in sourcing to find more vendors. Current manufacturing cycle
time took a long route for distribution to the company’s warehouse which can ----------------------
be optimized. Since customers tend to choose the cheaper price, it has affected ----------------------
the calculation of cost for finish product metrics. The company must persuade
the customer when meeting them for the first time to choose the best offering. ----------------------
Table 7.3 Supply chain performance ----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------
Long shipment product cycle time is caused by consolidating all orders
before the delivery process. To improve the warranty cycle time, the company ----------------------
should increase communication with the customer regarding the warranty of
----------------------
the product. It takes on average of 14 days to do payment for Days Payable/
Customer payment because the customers are required to pay the Down ----------------------
Payment when ordering a product then they are allowed to finish it later before
delivering the orders. Manpower capability happened due to the lack of focus ----------------------
by the operators that they must complete more than one job in time. These
----------------------
metrics require a depth investigation in order to identify the root cause which
can lead an improvement strategy. This analysis can assist the company to ----------------------

Case Studies in Supply Chain Management 91

 Notes determine proper action for each process. The source process has 7 metrics
followed by delivery, make, return, delivery, plan, and enable. Of 7 processes,
---------------------- only 1 process obtained the marginal level while the others were good. This
process performance is at a good level with an average value of 83.25.
----------------------
Responsiveness, reliability, and agility refer to customer-focused.
---------------------- Responsiveness comprises 7 metrics to be measured and it was at a good level.
Responsiveness is the speed at which tasks are performed regarding providing
----------------------
products to the customer by the supply chain. The speed is the cycle time.
---------------------- The smaller the cycle time the better performance achieved. The company’s
responsiveness performance have been conducted properly that it must be
---------------------- maintained for company sustainability. Reliability is the ability to perform tasks
as expected focusing on the predictability of the outcome of a process. It relates
----------------------
3 main points considered in reliability: to be on-time, the right quantity, the right
---------------------- quality. It was at an excellent performance that aligned with the customer-focused
target. Meanwhile, there were only 2 metrics identified in agility attributes and
---------------------- they are also at a good level. It can be concluded that these performances were
able to follow the roles of keeping customer satisfaction. The company must
----------------------
continue its performance in order to win the business competition
----------------------

----------------------
Suggested Reading

---------------------- 1. https://www.logisticsbureau.com/blog/
2. https://iopscience.iop.org/article/10.1088/1757-899X/697/1/012014/pdf
----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

92 Supply Chain Performance Measurement

Case Study on Logistics Performance Measurement
UNIT

8
Structure:

8.1 Introduction
8.2 A Case Study on Logistics Performance Measurement
Keywords
Suggested Reading

Case Study on Logistics Performance Measurement 93

 Notes
Objectives
----------------------
After going through this unit, you will be able to:
----------------------
• Understand actual logistics situation
----------------------
• Understanding of best practices
----------------------

---------------------- 8.1 INTRODUCTION

---------------------- A case study helps in bringing an understanding of a complex issue or
object. It can extend experience or add strength to the existing knowledge
---------------------- through previous research. Their contextual analysis revolves around a limited
---------------------- number of events or conditions and how they relate. An industrial case study
is when you take your solutions or your processes, apply it to some situation in
---------------------- industry, and then report on the results. Case studies are laboratories where you
apply what you learn in lectures and readings to solve supply chain problems
---------------------- in highly realistic simulations. Case studies cover a multitude of supply chain
---------------------- disciplines; Provide insight into effective operational, tactical, and strategic
solutions to processes of leading SCM organizations; Present examples of best
---------------------- practices, An effective learning tool for practitioners to gain insight about the
industry and apply concepts to real-world situations; Allow for evaluation of a
---------------------- situation, identification of challenges, evaluation of solutions, and developing
---------------------- an implementation plan.

---------------------- 8.2 A CASE STUDY ON LOGISTICS PERFORMANCE

MEASUREMENT
----------------------
1. Conceptual Brief
----------------------
Study was carried out at a medium-size manufacturing organization in
---------------------- East Asia. The study tries to highlight the importance of supply chain
management; specifically, our aim for this study is to understand logistics
----------------------
and performance measurement in the logistics and supply chain, and
---------------------- we include a theoretical discussion of online data collected and a case
study of the logistic performance of a real organization. The study
---------------------- also examines the performance of the selected company, identifies the
problems and provides recommendations for improvements. This study
----------------------
can be a guide for business advisers and those interested in analysing
---------------------- company performance, especially from a logistics viewpoint. We also
suggest the methodology of this case study for those who want to have
---------------------- a better understanding of a business environment before starting their
own business, or for benchmarking practice during strategic planning
----------------------
as well as coordination of logistics, location, production, and inventory,
---------------------- in the supply chain. The systematic and strategic coordination of these
functions achieves the best combination of efficiency and response to
---------------------- fulfil customers’ demands. Moreover, the coordination of these business

94 Supply Chain Performance Measurement

 functions improves the company and its supply chain as a whole. ‘A supply Notes
chain is a network of facilities and distribution options that performs the
functions of procurement of materials, transformation of these materials ----------------------
into intermediate and finished products, and the distribution of these
finished products to customers.’ ----------------------

The Council of Supply Chain Management Professionals (CSCMP) ----------------------

states that logistics is a part of the supply chain that plans, controls and
implements the movement of the inventory, i.e., the goods and services, ----------------------
from the point of production to the end consumer. In the corporate world, ----------------------
logistics’ scope includes transportation, shipping, warehousing and
import and export operations. In addition to these functions, logistics ----------------------
also handles inventory management, production planning and customer
services. ----------------------
The importance of performance in the supply chain is immense. An ----------------------
effective supply chain performance system can provide the basis to
understand a company’s supply chain system. It influences the supply ----------------------
chain’s behaviour and, more importantly, it shows information regarding ----------------------
the outcomes of the supply chain to the company and its stakeholders.
Basically, supply chain performance plays a major role in the strategy of a ----------------------
company. It has been proved that well-executed supply chain performance
system measures lead to improvements in the overall performance of a ----------------------
company.
----------------------
Prior to 1990, logistics and supply chain performance was measured on
a cost reduction basis. Measurements included the Tachograph, which ----------------------
measured a truck driver’s speed, distance travelled and breaks taken.
----------------------
The lack of an appropriate performance measurement system has been
a major obstacle to forming an effective supply chain. Companies in a ----------------------
supply chain have to decide to be either cost-efficient or time-driven. One
contemporary way to measure the supply chain performance is in the ----------------------
form of metrics or Key Performance Indicators (KPI). The development
----------------------
of these KPIs should take place through the SMART goals (Specific,
Measurable, Action-Oriented, Relevant & Timely), forming a balanced ----------------------
set, aligned with strategies and incentives, comprehensive and consistent.
However, these indicators are more difficult to measure and compare. ----------------------
Considering a full set of indicators could result in a huge amount of data,
which would require a lot of effort and high costs both in acquiring and ----------------------
analysing. A solution to this would be to select the set of the most important ----------------------
indicators, keeping in mind the goals of the company. The analysis should
be performed with caution so that the resulting set of indicators covers ----------------------
every the most important indicators, keeping in mind the goals of the
company. ----------------------

2. Data Capturing: ----------------------

In this study, we collected data from online resources, and based on these ----------------------
data we qualitatively analyse and discuss the performance of the supply
chain in the selected company. ----------------------

Case Study on Logistics Performance Measurement 95

 Notes 2.1 Selected Company
As a class activity, we searched online to find a company and study on
----------------------
available online data. The company selected for this research paper is Kian
---------------------- Joo Can Factory Berhad (KJCF), a company listed in 1984 that primarily
deals with the manufacturing and distribution of general cans, aluminum
---------------------- cans, corrugated cartons, and PET products. It offers contract packing
services (namely for milk powder and beverages), and also metal can
----------------------
printing. KJCF has close to 20 subsidiaries registered under the group and
---------------------- these companies are either manufacturers or distributors that complement
each other’s businesses by supplying materials amongst the companies
---------------------- under the group.
---------------------- 3. Results and discussion
3.1 Supply Chain Relevance to Company’s Operations
----------------------
The company’s supply chain is vast, due to the fact that it caters to the local
---------------------- market and also exports to countries such as Japan, Myanmar, Indonesia,
---------------------- Thailand, Singapore, Taiwan, Australia, Philippines and the Middle East.
In the Malaysian market, the group makes the largest share of revenue
---------------------- from its aluminum can manufacturing division, which would have a
supply chain beginning with the sourcing of aluminum for the purpose
---------------------- of manufacturing cans, continue with transportation from suppliers
---------------------- to manufacturing plants and later to warehouses, and conclude with
distribution to customer. Said states that getting and keeping supply chain
---------------------- information is an essential task in any organization. In any manufacturing
organization, the process flow involved, from acquiring raw materials
---------------------- right up to producing the finished goods, planning, monitoring and
---------------------- control are the main tasks, and the supply chain of their operations should
include sharing of information throughout the chain, planning, resource
---------------------- synchronization and performance measurements.

---------------------- KJCF has about eight manufacturing plants scattered around the states
of Selangor, Negeri Sembilan, Johor, and even in Vietnam, which means
---------------------- the company would need to pay a great deal of attention to its supply
chain and logistics as it needs to move around materials from one state
---------------------- to another and even to another country. The company would need a
---------------------- competent supply chain manager to oversee the smooth flow of materials
from point of sourcing to the point of delivery to customer. KJCF would
---------------------- begin its supply chain by receiving orders from companies manufacturing
goods that require packaging in the form of aluminum cans. They would
---------------------- then finalize other aspects such as can dimensions and quantity required,
---------------------- and then work on the design to be printed on the cans. The order would
then be passed as an order form over to the manufacturing plant, which
---------------------- needs to ensure that inventory of raw material is sufficient to meet the
orders (in the event of raw materials being insufficient, the factory would
---------------------- need to order the materials required and have them transported from
---------------------- the warehouse to the plant), then manufacture the cans in the quantity

96 Supply Chain Performance Measurement

 ordered. Upon completion of the manufacturing process, the cans would Notes
then be transported by road to another plant belonging to a subsidiary
in another district for the purpose of printing designs according to ----------------------
the client’s specifications onto the aluminum cans. Cans which have
been manufactured and printed with descriptions based on a client’s ----------------------
requirements would then be transported to the client’s plant either by road ----------------------
for local clients or by sea freight for international clients, where they
will have their respective products filled into and sealed within the cans ----------------------
supplied by KJCF.
----------------------
KJCF’s supply chain is therefore very long and stretches from procurement
of raw materials, to processing of the raw materials into semi-finished ----------------------
goods, to transporting semi-finished goods to clients, who then turn them
----------------------
into finished goods and market these to retailers or end consumers. It is
therefore vital for KJCF’s supply chain manager to look into any form of ----------------------
shortage or disruption within the transformation process or logistics that
could cause a stall in the process, which could translate into unnecessary ----------------------
losses.
----------------------
3.2 Current Supply Chain Performance Anaysis of KJCF
----------------------
In order to analyse the supply chain performance of Kian Joo Can
Factory, team separated the measures into two broad categories, namely, ----------------------
Qualitative and Quantitative measures.
----------------------
Qualitative measures are based on quality and certificates gained by the
company. ----------------------
Quantitative measures are based on numerical data management and ----------------------
financial systems.
Quantitative Measures: ----------------------

WMS: One quantitative method used to measure the supply chain ----------------------
performance of KJCF is the Warehouse Management System (WMS).
----------------------
The WMS is used to record all movements within the warehouse. All
of the data is entered via the computer to the WMS database. The WMS ----------------------
database is available to all the employees. Data such as stock taking,
container arrival and departure times, and employee check-in and check- ----------------------
out times are keyed into the database. The flow of this information through
----------------------
the company’s database makes it easily accessible
Inventory Turnover Rate: Another way to measure the supply chain ----------------------
performance is by maintaining the inventory turnover rate. An inventory
----------------------
turnover ratio measures the number of units dispensed in relation to the
average unit inventory. A higher turnover ratio, together with desired ----------------------
inventory availability, demonstrates the effective use of resources for
distribution of products throughout the supply chain. For Kian Joo Can ----------------------
Factory, the inventory turnover is lower between the years. The company’s
----------------------
efficiency ratio shows that KJCF had an inventory turnover 2.97 times
lower in 2011. This indicates the company holds a high inventory; the ----------------------

Case Study on Logistics Performance Measurement 97

 Notes fund that could be invested elsewhere would be held by the inventory.
Maintaining quantitative supply chain performance measures like this
---------------------- help KJCF reduce end production costs.
---------------------- Qualitative Performance Measures:
Quality Systems: In terms of qualitative performance measures, KJCF
----------------------
boasts that nine of its main manufacturing subsidiaries are MS ISO
---------------------- 9001:2000 certified. MS ISO 9001:2000 specifies the requirements
for a quality management system whereby the organization has been
---------------------- demonstrating the ability to continuously come up with product/s that
consistently meets the requirements of customers together with applicable
----------------------
regulations. Besides meeting the requirements of customers and
---------------------- regulations, the organization needs to aim at enhancing the satisfaction of
customers by effective application of the system, which includes processes
---------------------- to ensure continuous improvement of the system and the assurance of
conformity to customer and applicable regulatory requirements. With such
----------------------
a certification, KJCF is deemed to be meeting all requirements, which are
---------------------- related to customer satisfaction and regulations within the industry. In
other words, KJCF strive to conform with any regulations and customer
---------------------- requirements, which are related to their nature of business, and they also
continuously work on improving the particular system which earned them
----------------------
the certification in the first place.
---------------------- Packaging Services:
---------------------- Secondly, two of KJCF’s main subsidiaries, one of which deals in contract
packing services (outsource packaging) has been awarded the certificate
---------------------- Hazard Analysis and Critical Control Points (HACCP) system, which
---------------------- is a scientific, rational and systematic approach for the identification,
assessment and control of hazards in order to ensure that food is safe at
---------------------- the time of human consumption. What this simply means is that KJCF
places importance by its qualitative measurements for performance,
---------------------- as it sees the importance of achieving quality standards which aid in
---------------------- winning preference of clients, whether for aluminum can manufacturing
or contract packing services (KJCF is the sole contract packing service
---------------------- provider for Dutch Lady milk powder in Malaysia). With the certification
of HACCP system, customers and prospect customers may rest assured
---------------------- that KJCF practices high standards when dealing with the packaging of
---------------------- consumables.
3.3 Recommendation to Improve the Supply Chain Performance of the
---------------------- Firm
---------------------- As analysed above, KJCF continuously strives to maintain their supply
chain performance in the qualitative aspect, as was displayed when
---------------------- they received certifications for quality management such as the HACCP
---------------------- and ISO 9001:2000. In this aspect, KJCF could probably do better by
obtaining other certifications available, for instance the ISO 28000, which
---------------------- is a standard which would require a firm to study the particular security

98 Supply Chain Performance Measurement

 environment in which it operates in order to establish whether sufficient Notes
security measures are taken in order to identify and comply with the
relevant regulatory requirements. With the certification of such a standard, ----------------------
KJCF would be able to assess the need for security in its processes and
come up with mechanisms and processes to meet these needs. ISO 28000 ----------------------
is based on the methodology of plan-do-check-act, which basically ----------------------
documents how a firm should identify objectives to deliver results in
accordance with the firm’s security policy, implement such a process, ----------------------
monitor and measure the processes against security policies, targets, and
other requirements, and finally continually improve the performance of ----------------------
the security management system. ----------------------
Secondly, KJCF could implement the concept of sharing data amongst
----------------------
trading partners, which would aid in management of data such as product
data, sales data, inventory data and promotion data. With the sharing of ----------------------
data among trading partners, KJCF would be able to transfer data across
the supply chain, which would then enable processes such as Global Data ----------------------
Synchronization (GDS), Continuous Replenishment Process (CRP) and
----------------------
Collaborative Planning, Forecasting and Replenishment (CPFR). As most
of the subsidiaries under the KJCF trade among companies within the ----------------------
group, it would be far easier for the group to implement the sharing of
data, which could help in improved time management through increased ----------------------
efficiency, being able to properly forecast demand and supply, which
----------------------
would lead to better planning, and most importantly cost reduction in the
form of communication costs, administrative costs, and an improved flow ----------------------
of information between trading partners.
----------------------
Third recommendation the firm could consider would be to start
implementing lean manufacturing techniques such as Just-In-Time (JIT), ----------------------
which is basically having the right amount of raw materials delivered
for manufacturing at the right place at the right time with no surplus to ----------------------
be turned into inventory. If KJCF were to implement JIT manufacturing
----------------------
across its manufacturing plants, KJCF would be able to dramatically
lower costs associated with the holding inventory of raw materials. KJCF ----------------------
would need to establish with their suppliers that they would want just
the right amount of raw materials to arrive as and when they are needed ----------------------
in order to ensure the smooth flow of production with the reduced cost
----------------------
of holding inventory. In order to ensure such a method is successfully
implemented, the firm would need collaboration from every supplier ----------------------
involved in the supply chain and have every party working towards this
lean mode of manufacturing. This could help turn the production process ----------------------
into one which is more efficient, helping to lower costs, which in turn
----------------------
would translate to higher profits.
4. Conclusion ----------------------
Logistics and supply chain performance is a vital aspect in the supply chain ----------------------
management of any organization today and with the age of globalization,
competition has taken the world stage. It has become a state of survival of ----------------------

Case Study on Logistics Performance Measurement 99

 Notes the fittest. Firms which hope to continuously be in the game and compete
with others need to consistently evaluate their logistics and supply chain
---------------------- performance to ensure that it is at its optimum level, and should always
make improvements where necessary.
----------------------
Certainly, this study has many limitations, as our data collection was
---------------------- online only, and the company has many other activities regarding to its
supply chain management which have not been published online. The
----------------------
recommendations were based on our knowledge gained from our class.
---------------------- The recommendations should be discussed at management level in a
company to decide whether they can be applied or whether the company
---------------------- already practises them.
----------------------
Keywords
----------------------
●● Supply Chain, Logistics, Performance, Case Study
----------------------

---------------------- Suggested Reading

---------------------- 1. Shahryar Sorooshian, Manimekalai Jambulingam and Javad Dodangeh.
(2013). Case Study on Logistics Performance. International Journal of
---------------------- Engineering Business Management.
----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

----------------------

100 Supply Chain Performance Measurement