Performance Measures
• What you measure is what you get
• Performance measures strongly affect the
behavior of managers and employees
• Tailor your performance measures to fit
company’s mission and strategy
• Over-reliance of a single measure might
be detrimental to company’s long-term
survivability
Challenges to Performance
Measurements
• Measure only the right things
• Avoid meaningless efforts
• Use the results proactively and
productively
Key Reasons for SC Metrics
•
•
•
•
•
Meeting customer expectations
Improving supply chain capability
Enhancing asset performance
Instilling workforce cooperation
Enriching the stakeholders
Four Perspectives of the Balanced
Scorecard
• How do customers see us? (customer
perspective)
• What must we excel at? (internal business
perspective)
• Can we continue to improve and create
value? (innovation and learning
perspective)
• How do we look to shareholders?
(financial perspective)
The Balanced Scorecard Framework
Financial Perspective
GOALS
MEASURES
How do we
look to
shareholders
?
Internal Business
Perspective
GOALS MEASURES
What
must we
excel at?
Customer Perspective
GOALS MEASURES
How do
customers
see us?
Innovation & Learning
Perspective
GOALS MEASURES
Can we
continue to
improve
and create
value?
Framework for Supply Chain
Performance Metrics
Business Strategy
Supply Chain Strategy
Supply Chain Objectives
Operational Metrics
Customer Service Metrics
Financial metrics
Customer Service Metrics
Customer service metrics are indications
of a company’s ability to satisfy the needs
of customers by meeting customers
needs on a timely basis and creating
exceptional values to the customers
Operational Metrics
Operational metrics are derived from
processes, decisions, and actions taken
internally to meet and/or exceed
customer expectations. These are
drivers of future financial performance
Financial Metrics
Financial metrics indicate whether the
company’s strategy, implementation,
and execution are creating value for the
shareholders by contributing to bottomline improvements.
Supply Chain Performance Framework
Customer Service
Metrics
Goals Measures
Operational Metrics
Goals Measures
Financial Metrics
Goals
Measures
Operational Metrics
• Goals
– Waste Reduction
– Time Compression
– Unit Cost Reduction
– Product/process innovation
– Inventory Management
– Supplier performance
• Measures
– Supply chain cost of
ownership
– Supply chain cycle
efficiency
– % of supply chain target
cost achieved
– Product finalization point
– Inventory turns & days of
inventory
– Supplier evaluations
Financial Metrics
• Goals
– Profit margins
– Cash flows
– Revenue growth
– Return on assets
– Return on equity
• Measures
– Profit margin by supply
chain partners
– Cash-to-cash cycle on
receivables & payables
– Customer growth &
profitability
– Return on supply chain
asset
– Return on supply chain
equity
Customer Service Metrics
• Goals
– Flexible response
– Product/service
innovation
– Customer satisfaction
– Customer value
– Delivery performance
• Measures
– Number of choices &
average response time
– Customer contact
points and product
finalization points
– Order fulfillment rate
– Customer profitability
– Delivery speed &
reliability
Assessing Customer Satisfaction
Lots
Inventory
A
B
Desired
Operating
Region
Little
C
D
Poor
Good
Service
Assessing Performance of Product
Lines
Too many
Product line 5
Product line 2
Weeks of
Supply
Product line 3
Product line 6
Product line 4
Product line 1
Too few
Too low
Too high
Fill Rate
Efficiency Frontier of a Single
Product Line
10
Weeks of
Supply
Efficiency
Frontier
0
80%
100%
Fill Rate
Efficiency Frontier of a Single
Product Line
10
Weeks of
Supply
Product 2
0
Product 1
80%
100%
Fill Rate
Critical Factors in SC Performance
Metrics
• Establish performance objectives with customers
in mind
• Consider using order windows as the basis for
order fulfillment metrics
• Reflect reliability issues in the metrics they
choose
• Implement metrics consistently throughout the
supply chain
• Aggregate results as they move up the chain
Critical Factors in SC Performance
Metrics (cont’d)
• Apply process control techniques to the
business process
• Avoid pitting players in the systems
against one another
• Collect only data you really intend to use
• Communicate the actions and rational to
everyone