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13 Measuring Sc Performance


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13 Measuring Sc Performance

  1. 1. Measuring Supply Chain Performance
  2. 2. Supply Network and Value Chain for a Manufacturing Company
  3. 3. POPULAR SAYING <ul><li>“ Anything measured improves.” </li></ul><ul><li>“ What you measure is what you get.” </li></ul><ul><li>“ Anything measured gets done.” </li></ul><ul><li>“ You can’t manage what you do not measure.” </li></ul>
  4. 4. Importance of performance measurement <ul><li>Measurements are important for directly controlling behaviour and indirectly performance of system. </li></ul><ul><li>Tracks company’s progress towards achieving its supply chain improvement objectives </li></ul><ul><li>Be careful : </li></ul><ul><li>Seemingly relevant, but cumbersome , measurements are of little use, and are possibly a hindrance, in helping to improve supply chain performance </li></ul><ul><li>Picking the wrong measures and leaving out important ones could lead to supply chain performance degradation </li></ul><ul><li>Driving a supply chain based only on after the-fact measures e.g. losing an important customer or having poor financial performance is not very effective </li></ul>
  5. 5. Why Financial accounting measure not sufficient????? <ul><li>The measures do not relate to important strategic, non-financial performance, like customer service/ loyalty and product quality. </li></ul><ul><li>The measures do not directly tie to operational effectiveness and efficiency. </li></ul>
  6. 6. Supply Chain Performance Measurement Approaches <ul><li>The Balanced Scorecard </li></ul><ul><li>The Supply Chain Council’s SCOR Model </li></ul><ul><li>The Logistics Scoreboard </li></ul><ul><li>Activity-Based Costing (ABC) </li></ul><ul><li>Economic Value Analysis (EVA) </li></ul>
  7. 7. Balanced Scorecard & Its Applications
  8. 8. BSC Hall of Frame: Success Story One <ul><li>Bob McCool became head of Mobil NAM&R in 1992 when the past performance was not acceptable. Mobil launched its Balanced Scorecard project in 1994. </li></ul><ul><li>From 1994 to 1998. The productivity strategy created a 20-percent reduction in the cost of refining, marketing, and delivering a gallon of gasoline. </li></ul><ul><li>The growth strategy , with its new value proposition for targeted segments, produced increased customer satisfaction led to increased revenue that exceeded industry averages by more than 2 percent per year. </li></ul>Kaplan and Norton, 2001
  9. 9. BSC Hall of Frame: Success Story Two <ul><li>Chrysler Group , the US automobile division of DaimlerChrysler, which faced a forecast loss of $5.1 billion in 2001. </li></ul><ul><li>The division brought in a new CEO, who used the BSC to communicate a turnaround strategy. </li></ul><ul><li>Despite continued weakness in the US automobile market, Chrysler generated $1.9 billion in profits in 2004. </li></ul>Kaplan and Norton, 2006
  10. 10. BSC: Strategic Measuring for Performance ( Robert S. Kaplan & David P. Norton) <ul><li>Four Management Functions : </li></ul><ul><ul><li>Planning, Organizing, Staffing, Controlling </li></ul></ul><ul><li>If you can’t measure, you can’t managed </li></ul><ul><li>If you can’t measure, you can’t improved </li></ul><ul><li>What gets measure, gets done </li></ul><ul><li> Measurement is core of the Balanced Scorecard </li></ul>
  11. 11. Balanced Scorecard (BSC) <ul><li>The Balanced Scorecard expands the set of business unit objective beyond summary financial measures. </li></ul><ul><li>Balanced Scorecard is a set of measures that give top managers a fast but comprehensive view of the business. </li></ul><ul><li>A set of cause-and-effect performance measures linkage among four distinct perspectives— finance, customer, internal business process, and learning & growth —used to translate strategy into desired results . </li></ul><ul><li>The main focus of initial Balanced Scorecard is as an innovative strategic measurement tool, delivering strategy by emphasising control and communication . </li></ul>
  12. 12. Balance Scorecard Perspectives Kaplan and Norton, 1996 <ul><li>Financial </li></ul><ul><li>Perspective </li></ul><ul><li>Objectives </li></ul><ul><li>Key Performance Indicators </li></ul><ul><li>Targets </li></ul><ul><li>Initiatives </li></ul>STRAEGY <ul><li>Innovative Learning & Growth Perspective </li></ul><ul><li>Objectives </li></ul><ul><li>Key Performance Indicators </li></ul><ul><li>Targets </li></ul><ul><li>Initiatives </li></ul><ul><li>Customer </li></ul><ul><li>Perspective </li></ul><ul><li>Objectives </li></ul><ul><li>Key Performance Indicators </li></ul><ul><li>Targets </li></ul><ul><li>Initiatives </li></ul><ul><li>Internal business/ Process Perspective </li></ul><ul><li>Objectives </li></ul><ul><li>Key Performance Indicators </li></ul><ul><li>Targets </li></ul><ul><li>Initiatives </li></ul>
  13. 13. Four Perspectives of BSC <ul><li>Financial: What are our shareholders expectations for financial performance? </li></ul><ul><li>Customer: To each our financial objective, how create value for our customers? </li></ul><ul><li>Internal Process: What processes must we excel at to satisfy our customers and shareholders? </li></ul><ul><li>Innovative Learning & Growth: How do we align out intangible assets—people, systems, and culture—to improve the critical processes? </li></ul>Kaplan and Norton, 2006
  14. 14. <ul><li>What is Financial Strategy? [to satisfy shareholders] </li></ul><ul><ul><li>Productivity strategy </li></ul></ul><ul><ul><ul><li>Improve cost structure/yields </li></ul></ul></ul><ul><ul><ul><li>Increase asset utilization </li></ul></ul></ul><ul><ul><li>Growth strategy </li></ul></ul><ul><ul><ul><li>Expand revenue opportunities </li></ul></ul></ul><ul><ul><ul><li>Enhance customer Value </li></ul></ul></ul><ul><li>How to reach the financial goals? </li></ul>Financial Perspective
  15. 15. Financial Perspective
  16. 16. Performance Measures in Financial Perspective <ul><li>Return on investment </li></ul><ul><li>Sales growth rate by segment </li></ul><ul><li>Percentage revenue from new product, service, or customer </li></ul><ul><li>Share targeted customer an account </li></ul><ul><li>Customer and product line profitability </li></ul><ul><li>Revenue/employee </li></ul><ul><li>Cost reduction rate </li></ul><ul><li>Unit cost </li></ul><ul><li>Payback </li></ul><ul><li>Return on Capital Employed </li></ul><ul><li>Working capital ratios (cash-to-cash cycle) </li></ul>
  17. 17. <ul><li>Information about market & customer </li></ul><ul><li>Customer selection, acquisition, retention & growth </li></ul><ul><li>Who are profitable customers? </li></ul><ul><li>— Target Segmentations </li></ul><ul><li>What do they need? [ same as the thing we serve them ] </li></ul><ul><li>— Customer Values Propositions </li></ul><ul><ul><ul><ul><li>Lead Time </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Quality – defect level of incoming product as perceived and measured by customer, accuracy of company delivery forecast </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Performance and service </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Cost </li></ul></ul></ul></ul>Customer Perspective
  18. 18. Performance Measures in Customer Perspective
  19. 19. Performance Measures in Customer Perspective <ul><li>Market Share: Reflects the proportion of business in a given market (in term of number of customer, dollar spent, or unit volume sold) that a business unit sells. </li></ul><ul><li>Customer Acquisition: Measures, in absolute or relative, the rate at which a business unit attracts wins new customers or business. </li></ul><ul><li>Customer Retention: Measures, in absolute or relative, the rate at which a business unit retains or maintains ongoing relationships with its customers. </li></ul><ul><li>Customer Satisfaction: Assesses the satisfaction level of customers along specific performance criteria within the value proposition. </li></ul><ul><li>Customer Profitability: Measures the net profit of a customer, after allowing for the unique expenses required to support customer. </li></ul>
  20. 20. Internal Process Perspective <ul><li>In order to serve customers’ need and satisfy other stakeholders, what process the organization need to be excellent . </li></ul><ul><ul><li>The nature of the customer value proposition determines the kind of internal processes </li></ul></ul><ul><li>How to build excellent process to serve customer and other stakeholders. </li></ul><ul><li>Managers need to focus on those critical operations that enable them to satisfy customers need </li></ul>
  21. 21. Internal Process Perspective <ul><li>Production Management Processes </li></ul><ul><li>Customer Management Processes </li></ul><ul><li>Regulatory & Social processes </li></ul>
  22. 22. Production management processes <ul><li>Developing and sustaining supplier relationships </li></ul><ul><li>Producing products and services </li></ul><ul><li>Distributing and delivering products and services to customers </li></ul><ul><li>Managing risks </li></ul>
  23. 23. Customer management processes <ul><li>Customer selection </li></ul><ul><li>Customer acquisition </li></ul><ul><li>Customer retention </li></ul><ul><li>Customer growth </li></ul>
  24. 24. Regulatory & social processes <ul><li>Environment: Issues such as energy and resource consumption, and emissions into the air, water and soil </li></ul><ul><li>Safety and health: Safety hazards to employees </li></ul><ul><li>Employment practices: Diversity of employees </li></ul><ul><li>Community investment: Community-based organizations </li></ul>
  25. 25. Performance Measures in Internal Process Perspective
  26. 26. Performance Measures in Internal Process Perspective <ul><li>Quality </li></ul><ul><li>Response time </li></ul><ul><li>Cost </li></ul><ul><li>Yields </li></ul><ul><li>Waste </li></ul><ul><li>Scrap </li></ul><ul><li>Productivity </li></ul><ul><li>Rework </li></ul><ul><li>New product introduction </li></ul><ul><li>Service error rate </li></ul><ul><li>Product development cycle </li></ul><ul><li>Hours with customer </li></ul><ul><li>Time to market </li></ul><ul><li>Employee skill </li></ul>
  27. 27. Innovative Learning & Growth Perspective <ul><li>What competencies the organization need in order to obtain or sustain competitiveness? </li></ul><ul><ul><li>Competencies’ Gap Analysis </li></ul></ul><ul><li>How to fill the gap between ‘what organization what to be’ and ‘its current position’ </li></ul><ul><ul><li>Competencies, Employee Satisfaction and Retention </li></ul></ul><ul><ul><li>Management Information System </li></ul></ul><ul><ul><li>Corporate Culture and Motivations </li></ul></ul>
  28. 28. Innovation processes <ul><li>Identifying opportunities for new products and services </li></ul><ul><li>Managing the research and development portfolio </li></ul><ul><li>Design and developing the new products and services </li></ul><ul><li>Delivering the new products and services into the market </li></ul>
  29. 29. Learning & Growth Perspective <ul><li>Human Capital — E mployees' skills, talent, and knowledge. </li></ul><ul><li>Organization Capital —C ulture, leadership, employee alignment, teamwork, and knowledge management </li></ul><ul><li>Information Capital — Databases, information systems, network, and technology infrastructure </li></ul>
  30. 30. Performance Measures in Learning & Growth Perspective <ul><li>Employee satisfaction </li></ul><ul><li>Employee retention/turnover rate </li></ul><ul><li>Employee productivity </li></ul><ul><li>Information system availability </li></ul><ul><li>Personal Goals Alignment Index </li></ul><ul><li>Staff development </li></ul>
  31. 31. Innovation and Learning Perspective
  32. 32. Key Performance Indicators <ul><li>Derived from strategy </li></ul><ul><li>Clearly defined/explicit purpose </li></ul><ul><li>Mixed performance driver and outcome measures </li></ul><ul><li>Optimum number of measures (from 15 to 25 measures) </li></ul><ul><li>Construct Strategy Map ( causal model —cause-and-effect relationships) </li></ul>
  33. 33. Characteristics of good performance indicators <ul><li>Relevant </li></ul><ul><li>Accurate </li></ul><ul><li>Understandable </li></ul><ul><li>To measure things that can be measured within certain time. </li></ul><ul><li>Comprehensive Vs The main things </li></ul>
  34. 34. How to set targets <ul><li>Stretch Target </li></ul><ul><ul><li>Benchmarking – External or Internal </li></ul></ul><ul><ul><li>Stakeholders requirement </li></ul></ul><ul><ul><li>Capacity </li></ul></ul><ul><li>Incremental Target </li></ul><ul><ul><li>Comparing with baseline/last year </li></ul></ul><ul><li>Baseline Target </li></ul><ul><ul><li>Natural number/Normal rate </li></ul></ul><ul><li>Theoretical targets </li></ul>
  35. 35. Balance Scorecard: How is it “ balanced ” ? <ul><li>Financial VS Non-financial measures </li></ul><ul><li>Tangible VS Intangible assets </li></ul><ul><li>Long-term VS Short-term Goals </li></ul><ul><li>Internal VS External Perspective </li></ul><ul><li>Performance Drivers VS Outcomes </li></ul><ul><li>Cause-and-effect relationships </li></ul>
  36. 36. Contribution of BSC <ul><li>Provide information to management and create accountability </li></ul><ul><li>Influence behaviors </li></ul><ul><li>Facilitate development (learn and adapt) </li></ul><ul><li>Achieve goal congruence and make a system self-correcting </li></ul><ul><li>Encourage continuous improvement </li></ul>
  37. 37. Implement Plan for Performance measurement System
  38. 38. How to use the Balanced Scorecard Strategic Measurement Systems Framework for Implementing Strategy Strategic Management System
  39. 39. BSC Strategic Measurement Systems Strategy Key Performance Indicators Targets
  40. 40. BSC Framework for Implementing Strategy Strategy KPIs & Targets Initiatives & Resources
  41. 41. BSC Strategic Management System BSC & KPIs Implementation Strategic Learning Performance Report Quarterly Yearly Strategic Initiatives & Resources Strategy
  42. 42. Supply Chain Operations Reference Model (SCOR)
  43. 43. Supply Chain Operations Reference Model (SCOR) <ul><li>SCOR: </li></ul><ul><ul><li>Integrates Business Process Reengineering, Benchmarking, and Process Measurement into a cross-functional framework. </li></ul></ul>Benchmarking Best Practices Analysis Process Reference Model Business Process Reengineering Quantify the operational performance of similar companies and establish internal targets based on “best-in-class” results Characterize the management practices and software solutions that result in “best-in-class” performance Capture the “as-is” state of a process and derive the desired “to-be” future state Capture the “as-is” state of a process and derive the desired “to-be” future state Quantify the operational performance of similar companies and establish internal targets based on “best-in-class” results Characterize the management practices and software solutions that result in “best-in-class” performance
  44. 44. Supply Chain Operations Reference Model (SCOR) <ul><li>The Primary Use of SCOR: </li></ul><ul><ul><li>To describe, measure and evaluate supply chain configurations . </li></ul></ul><ul><li>SCOR contains: </li></ul><ul><ul><li>Standard descriptions of management processes </li></ul></ul><ul><ul><li>A framework of relationships among the standard processes </li></ul></ul><ul><ul><li>Standard metrics to measure process performance </li></ul></ul><ul><ul><li>Management practices that produce best-in-class performance </li></ul></ul><ul><li>Enables the companies to: </li></ul><ul><ul><li>Evaluate and compare their performances with other companies effectively </li></ul></ul><ul><ul><li>Identify and pursue specific competitive advantages </li></ul></ul><ul><ul><li>Identify software tools best suited to their specific process requirements </li></ul></ul>
  45. 45. Supply Chain Operations Reference Model (SCOR) <ul><li>The SCOR Model approach advocates a set of supply chain performance measures comprised of a combination of: </li></ul><ul><li>Cycle time metrics (e.g., production cycle time and cash-to-cash cycle) </li></ul><ul><li>Cost metrics (e.g., cost per shipment and cost per warehouse pick) </li></ul><ul><li>Service/quality metrics (on-time shipments and defective products) </li></ul><ul><li>Asset metrics (e.g., inventories ) </li></ul>
  46. 46. Supply Chain Operations Reference Model (SCOR): Boundaries <ul><li>SCOR spans: </li></ul><ul><li>• All customer interactions, from order entry through paid invoice. </li></ul><ul><li>• All product (physical material and service) transactions, from supplier’s supplier to customer’s customer, including equipment, supplies, spare parts, bulk product, software, etc. </li></ul><ul><li>• All market interactions, from the understanding of aggregate demand to the fulfillment of each order </li></ul>Supplier’s Supplier Make Deliver Source Make Deliver Make Source Deliver Source Deliver Source Customer’s Customer Plan Supplier (Internal or External) Your Company Customer (Internal or External) Return Return Return Return Return Return
  47. 47. Supply Chain Operations Reference Model (SCOR): Boundaries
  48. 48. Operation domain KPI’s Source 1) Inward Material Quality   2) Quantity and Timely Delivery   3) Procurement Unit Cost   4) Material Inventory Level   5) Vendor Development Capability Plan 1) Adherence to Production Target   2) Sample Conversion Rate   3) Material Utilization   4) Cost Adherence Make 1) Capacity Utilization   2) Production Cost Efficiency   3) Quality Capability   4) Change Over Time   5) Operator Training Effectiveness Deliver 1) On Time Shipment   2) Order Fulfillment   3) Claims and Discounts   4) Quality at Delivery   5) Transit time
  49. 49. The Logistics Scorecard successfully implemented in a variety of industries and organizations including: Coca-Cola, Honda, Pepsi-Cola, and Walt Disney World.
  50. 50. The Logistics Scoreboard <ul><li>The Logistics Scoreboard is an integrated set of performance measures falling into the following general categories: </li></ul><ul><li>Logistics financial performance measures (e.g., expenses and return on assets ) </li></ul><ul><li>Logistics productivity measures (e.g. orders shipped per hour and transport container utilization) </li></ul><ul><li>Logistics quality measures (e.g., inventory accuracy and shipment damage ) </li></ul><ul><li>Logistics cycle time measures (e.g., in transit time and order entry time) </li></ul>
  51. 51. <ul><li>The Logistics Scoreboard is prescriptive and actually recommends the use of a specific set of supply chain performance measures. These measures, however, are </li></ul><ul><li>skewed toward logistics , having limited focus on measuring the production and procurement activities within a supply chain. </li></ul>The Logistics Scoreboard
  52. 52. Activity Based Costing
  53. 53. Activity Based Costing <ul><li>The method involves: </li></ul><ul><li>breaking down activities into individual tasks or cost drivers, </li></ul><ul><li>while estimating the resources (i.e., time and costs) needed for each one. </li></ul><ul><li>Costs are then allocated based on these cost drivers rather than on traditional cost-accounting methods, such as allocating overhead either equally or based on less-relevant cost drivers. </li></ul><ul><li>This approach allows one to better assess the true productivity and costs of a supply chain process. </li></ul>
  54. 54. <ul><li>Identify and classify each activity. Estimate the cost of resources for each activity. </li></ul><ul><li>Identify a cost driver for each activity and estimate the quantity of each cost driver. </li></ul><ul><li>Calculate an activity cost rate. </li></ul><ul><li>Assign costs to cost objects based on the level of activity required to make the product or provide the service. </li></ul>To implement ABC, managers:
  55. 55. Cost Hierarchy <ul><li>Many companies use a cost hierarchy to manage the assignment of activity-based costs to the level at which costs are incurred. </li></ul><ul><li>A cost hierarchy for a manufacturer typically has four levels: </li></ul><ul><ul><ul><li>Unit level. </li></ul></ul></ul><ul><ul><ul><li>Batch level. </li></ul></ul></ul><ul><ul><ul><li>Product level. </li></ul></ul></ul><ul><ul><ul><li>Facility level. </li></ul></ul></ul>
  56. 56. Unit-Level Activities <ul><li>Unit-level activities are performed each time a unit is produced. </li></ul><ul><li>These activities vary with the number of units produced. </li></ul><ul><ul><ul><li>Insertion of a component during assembly. </li></ul></ul></ul><ul><ul><ul><li>Examples: assembling engine subassemblies, connecting engines to car frames </li></ul></ul></ul>
  57. 57. Batch-Level Activities <ul><li>Batch-level activities are performed each time a batch of goods is produced. </li></ul><ul><ul><ul><li>These activities vary with the number of batches prepared. </li></ul></ul></ul><ul><ul><ul><li>Examples: setup, scheduling, and materials handling. </li></ul></ul></ul>
  58. 58. Product-Level Activities <ul><li>Product-level activities are performed to support the diversity of products in a manufacturing plant. </li></ul><ul><ul><li>Examples: implementing engineering change notices, </li></ul></ul><ul><ul><li>redesigning the installation process. </li></ul></ul>
  59. 59. Facility-Level Activities <ul><li>Facility-level activities are performed to support a facility’s general manufacturing process. </li></ul><ul><ul><li>Examples: lighting the manufacturing plant, </li></ul></ul><ul><ul><li>Security of the manufacturing plant, </li></ul></ul><ul><ul><li>insuring the manufacturing plant. </li></ul></ul>
  60. 60. Sample Activities in Cost Hierarchies Activity Level Car Manufacturer: Engine Installation Direct Mail Service: Preparing Bank Customer Mailing Unit level Install engine Test engine Print and fold letter Insert letter and other information into envelope Seal and meter envelope Batch level Set up installation process Move engines Retool machines Verify correct postage Bill client Product or service level Redesign installation process Train employees Develop and maintain computer systems and databases Facility or operations level Provide facility management, maintenance, lighting, security, and space Provide facility management, maintenance, lighting, security, and space Inspect engines
  61. 61. Activity-Based Costing for Selling and Administrative (S&A) Activities <ul><li>ABC can be used to group S&A activities and assign the costs of those activities to cost objects such as sales territories or customer groups. </li></ul><ul><li>S&A cost pools include salaries, depreciation, sales commissions and utilities. </li></ul><ul><li>Cost drivers may include number of sales calls, sales orders, invoices or billings. </li></ul>
  62. 62. Economic Value Added
  63. 63. Economic Value Added <ul><li>Criticisms of traditional accounting is that it focuses on short-term financial results like profits and revenues, providing little insight into the success of an enterprise towards generating long term value to its shareholders – thus, relatively unrelated to the long-term prosperity of a company. </li></ul><ul><li>EVA estimates the increase in value of shareholder when a company earns more than its cost of capital </li></ul>
  64. 64. Possible Supply Chain Performance Measures Customer Service Measures Process, Cross-Functional Measures Purchasing Related Measures Order Fill Rate Line Item Fill Rate Quantity Fill Rate Backorders/stockouts Customer satisfaction % Resolution on first customer call Customer returns Order track and trace performance Customer disputes Order entry accuracy Order entry times Forecast accuracy Percent perfect orders New product time-to-market New product time-to-first make Planning process cycle time Schedule changes Material inventories Supplier delivery performance Material/component quality Material stockouts Unit purchase costs Material acquisition costs Expediting activities
  65. 65. Extended Enterprise Measures Manufacturing Related Measures Logistic Related Measures Total landed cost Point of consumption product availability Total supply chain inventory Retail shelf display Channel inventories EDI transactions Percent of demand/supply on VMI/CRP Percent of customers sharing forecasts Percent of suppliers getting shared forecast Supplier inventories Internet activity to suppliers/customers Percent automated tendering   Product quality WIP inventories Adherence-to-schedule Yields Cost per unit produced Setups/Changeovers Setup/Changeover costs Unplanned stockroom issues Bill-of-materials accuracy Routing accuracy Plant space utilization Line breakdowns Plant utilization Warranty costs Source-to-make cycle time Percent scrap/rework Material usage variance Overtime usage Production cycle time Manufacturing productivity Master schedule stability Finished goods inventory turns Finished goods inventory days of supply On-time delivery Lines picked/hour Damaged shipments Inventory accuracy Pick accuracy Logistics cost Shipment accuracy On-time shipment Delivery times Warehouse space utilization End-of-life inventory Obsolete inventory Inventory shrinkage Cost of carrying inventory Documentation accuracy Transportation costs Warehousing costs Container utilization Truck cube utilization In-transit inventories Premium freight charges Warehouse receipts
  66. 66. Possible Supply Chain Performance Measures Administration/Financial Measures Marketing Related Measures Other Measures Cash flow Income Revenues Return on capital employed Cash-to-cash cycle time Return on investment Revenue per employee Invoice errors Return on assets Market share Percent of sales from new products Time-to-market Percent of products representing 80% of sales Repeat versus new customer sales APICS trained personnel Patents awarded Employee turnover Number of employee suggestions
  67. 67.