This file aims at supporting practitioners and academics in Supply Chain domain to define appropriate supply chain strategies.

1. How to measure
Supply Chain
performance?
Module 3:

2.  Supply Chain Managers:
 To develop customized supply chain
performance measurements systems for their
supply chains
 Logistics Service Providers:
 To understand the expectation of companies
based on the type of Supply Chain
 MBA Students/Researchers:
 To get an overview of the main principles in
design of supply chain performance
measurement systems
This module is useful for:

3.  Measurement creates understanding:
 “If you cannot measure it, you cannot understand
it”
 Measurement drives behaviour:
 “What gets measured gets attention.”
 Measurement help communicate strategy
 Measurement is a prerequisite for high level
execution and attainment of world-class results.
 Measurement leads to results:
 “What you measure is what you get”
Why SC performance measurement?

4. SC Performance measurement
Defining SC
Performance
Measures
Implementing/
Monitoring of
Measures
Strategic Use of
Measurement
Systems

5. Traditional performance measurement
Areas that are essential to measure in order to
accomplish customer service and profitability goals:
Traditional
Measurement
Asset
Management
Customer
Service
QualityProductivity
Cost

6. Traditional performance measurement
Examples for different functional levels
Sourcing Operations Distribution & Logistics
Cost
• Unit price of raw material
• Acquisition cost
• Cost as a percent of sales
• Direct labor costs
• Production costs per unit
• Inventory carrying cost
• Inventory carrying cost
• Warehousing labor costs
Asset
Management
• Raw material inventory turns
• Return on Assets
• Work in process inventory
Inventory obsolescence
Return on Assets
• Inventory turns
Inventory obsolescence
Return on Assets
Customer
Service
• On-time delivery
Order to delivery cycle
• Production to due date
Manufacturing cycle time
Number of backorders
Customer complaints
• Fill Rate
On-time delivery
Order cycle time
Customer complaints
Quality
• Shipments rejected
• Defect rate—parts per million
• Percent suppliers certified
• Defect rate—parts per million
Percent rework or scrap
• Damage frequency
Picking/shipping accuracy
Number of customer
returns
Productivity
• Purchase orders per employee
• Percent transactions automated
• Labor productivity
• Equipment downtime
• Changeover time
• Units shipped per
employee
• Equipment downtime
• Fleet utilization
Adapted from: Fawcett, S. E., Ellram, L. M., & Ogden, J. A. (2007). Supply chain management:
from vision to implementation. Pearson Prentice Hall.

7.  Traditional measurement systems are not holistic, they
are designed to capture and communicate primarily
functional information (silo approach).
 Traditional measures are primarily oriented to short-
term financial results and cost-cutting.
 Traditional customer service measurements often do
not provide a clear understanding of customer
expectation or satisfaction levels.
Traditional measurement – main issues

8.  Alignment:
 With SC strategy
 Intra-organizational alignment
 Inter-organizational alignment
 Customer satisfaction:
 For whole chain
 Contribution of each process
 Systemic/holistic view:
 Moving beyond simple functional excellence
What must be emphasized in SC measures

9. Examples of SC performance measures
Total Supply Chain
Cost
The sum of all the costs incurred in planning, designing, sourcing, making, and
delivering a product broken down for each member of the supply chain
Source/Make Cycle
Time
The cumulative time to build a shippable product from scratch —if you start with no
inventory on hand or on order. Consists of total sourcing lead time, release-to-start
build, total build cycle time, and complete build-to-ship time
Supply Chain
Response Time
The theoretical number of days required to recognize a major shift in market
demand and increase production by 20 percent
SC Inventory Days
of Supply
Total number of days of inventory required to support the supply chain—from raw
materials to the final customer acquisition. Expressed as calendar days of supply
based on recent actual daily cost of sales
Perfect Order
Fulfilment
A perfect order is an order that is delivered complete, on time, in perfect condition,
and with accurate and complete documentation. Fulfillment is the percent of orders
that are perfect (Perfect orders/Total orders).
Adapted from: Fawcett, S. E., Ellram, L. M., & Ogden, J. A. (2007). Supply chain management: from
vision to implementation. Pearson Prentice Hall.

10.  Performance measures should be derived from strategy
 Performance measures should be simple to understand
 Performance measures should provide timely and accurate
feedback
 Performance measures should be based on quantities that can
be influenced, or controlled, by the user alone or in co-
operation with others
 Performance measures should focus on improvement
 Performance measures should be objective – not based on
opinion
 Performance measures should be based on trends rather than
snapshots
 Performance measures should employ ratios rather than
absolute numbers
Recommendations in designing
performance measures
Source: Neely, A., et al. (1997). Designing performance measures: a structured approach.
International journal of operations & Production management, 17(11), 1131-1152.

11. Performance measurement “system”
Defining SC
Performance
Measures
Implementing/
Monitoring of
Measures
Strategic Use of
Measurement
Systems
Performance
measurement
system

12.  Scorecard gives a graphical summary of performance over
a specific period of time.
 It also provides a mechanism for evaluation and
communication of performance along critical dimensions.
 It also gives insight into the importance of each
performance dimension
 In supply chain domain, especially the supplier scorecards
are very common
SC Measurement implementation -
Scorecards
Metric Weight Score
Weighted
Score
On time delivery 50% 84% 42
Invoice accuracy 10% 95% 9.5
Quality 30% 90% 27
Environmental impact 10% 100% 10
Total Score = 88.5

13. Different types of performance systems
Source : Eckerson, W.W. (2009). Performance Management Strategies. Business Intelligence
Journal, 14(1), 24-27.

14.  Beside monitoring performance of the processes and
whole chain, a supply chain performance
measurement system can be used for:
 Benchmarking the processes
 Decision on the performance improvement areas
 Justifying different improvement projects
Strategic use of measurement systems

15.  Competitive Benchmarking – evaluating best practices of
leading competitors within industry.
 Noncompetitive Benchmarking – evaluating best practices
regardless of industry.
 Internal Benchmarking - large global firms may find
opportunities to disseminate best practices within the
organization (e.g., different branches of one retail chain)
 For benchmarking we need:
Different types of Benchmarking
processes
A reference model
A set of metrics

16.  The best available tool for SC benchmarking is SCOR model.
It provides both “a reference model” (so, two units in the
benchmarking process become comparable) and the reference
“set of metrics”.
 It is developed by Supply Chain Council to present a standard
supply-chain process reference model enabling effective
communication among the SC partners
 Three elements of SCOR model:
 Standard processes: Plan, Source, Make, Deliver, Return,
Enable
 Standard metrics: Perfect Order Fulfillment, Cash-to-Cash
Cycle Time, Cost of Goods Sold, etc.
 Standard practices: EDI, CPFR, Cross-Training, Sales &
Operations Planning, etc.
Supply Chain Operations Reference
Model (SCOR)
Please see Module 6 for detailed description of SCOR model

17. Five principles of Supply chain
Management
 Principle 1: a clear supply chain strategy is the foundation to align the
decisions of different actors and business units and avoid ad-hoc firefighting
or sub-optimal decisions.
 Principle 2: defining supply chain strategy calls for understanding the
customers’ needs and formulating a clear customer value proposition.
 Principle 3: in order to communicate supply chain
strategy, drive actors to align with that strategy and
monitor the success of processes to deliver value, a
well-defined supply chain performance measurement
system is a must.
 Principle 4: supply chain management aims at developing capabilities that
help achieving the supply chain strategy.
 Principle 5: the pillars for manging every supply chain are integration and
collaboration.

18. info@Logitex-co.nl
www. Logitex-co.nl