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environment
A. Gunasekaran 71
University of Massachusetts, North Dartmouth, Massachusetts, USA
C. Patel
Brunel University, Uxbridge, Middlesex, UK, and
E. Tirtiroglu
University of Massachusetts, North Dartmouth, Massachusetts, USA
Keywords Supply chain management, Performance measurement, Customer satisfaction
Abstract In today’s world, supply chain management (SCM) is a key strategic factor for
increasing organizational effectiveness and for better realization of organizational goals such as
enhanced competitiveness, better customer care and increased profitability. The era of both
globalization of markets and outsourcing has begun, and many companies select supply chain and
logistics to manage their operations. Most of these companies realize that, in order to evolve an
efficient and effective supply chain, SCM needs to be assessed for its performance. Based on a
literature survey, an attempt has been made in this paper to develop a framework for measuring
the strategic, tactical and operational level performance in a supply chain. In addition, a list of key
performance metrics is presented. The emphasis is on performance measures dealing with
suppliers, delivery performance, customer-service, and inventory and logistics costs in a SCM. In
developing the metrics, an effort has been made to align and relate them to customer satisfaction.
1. Introduction
In today’s markets, technological and competitive forces are changing at an ever-
increasing rate. To respond to these forces, radical changes in organizations
have become necessary. The viability of a firm now depends largely on how well
it is capable of responding to customer requirements while becoming lean. It is
becoming increasingly more difficult and less economical for companies to
produce their needs on their own. Instead, outsourcing is becoming one of their
main strategies. Also, the ever-increasing trend in globalization and customer
orientation requires a logistics-sensitive organization. Supply chain
management (SCM) is an approach that has evolved out of the integration of
these considerations. A definition of supply chain (Stevens, 1989) is:
A system whose constituent parts include material suppliers, production facilities,
distribution services and customers linked together via the feed forward flow of materials and
the feedback flow of information.
From the beginning of this decade, this subject has been studied and practiced,
and has been reported in the literature. While there are many ongoing research
efforts on various aspects and areas of SCM, so far little attention has been International Journal of Operations &
given to the performance evaluation, and hence, to the measures and metrics of Production Management,
Vol. 21 No. 1/2, 2001, pp. 71-87.
supply chains. A notable work in this area is by Stewart (1995). New (1996) has # MCB University Press, 0144-3577
IJOPM used a taxonomy to discuss a framework for improving supply chain
21,1/2 performance. As a pitfall in managing supply chain inventories, Lee and
Billington (1992) also draw attention to the lack of supply chain metrics.
The organization of the paper is as follows: Section 2 analyzes the need for
performance measures and metrics in a supply chain. Section 3 deals with the
identification of measures and metrics in the areas of planning, sourcing, make/
72 assembly decisions, delivery, and customer service level. In Section 4, a
framework has been developed to measure the performance in a supply chain
environment. Finally, conclusions are presented in Section 5.
74
Figure 1.
The path of a customer
order
Total order cycle time = Order entry time (through forecasts/direct order
from the customer)
+ Order planning time (Design + Communication
+ Scheduling time)
+ Order sourcing, assembly and follow up time
+ Finished goods delivery time.
A reduction in the order cycle time leads to a reduction in the supply chain
response time. This is an important measure as well as a major source of
competitive advantage (Bower and Hout, 1988; Christopher, 1992). According
to Towill (1997), it directly influences the customer satisfaction level. Equally
important is the reliability and consistency of lead-time. Because of bottlenecks,
inefficient processes and fluctuations in the volume of orders handled, there
will be variations in activity completion times. The overall effect of this may
lead to a substantial reduction in delivery reliability and customer service level.
To deal with these, for example, the concept of ``manufacturing cell’’ can be
applied, in which well-integrated actions are performed in parallel by cross-
functional teams to effectively decrease the order lead-time and reduce the
redundancies (Schonberger, 1990). In fact, Schonberger notes that, in one case
study, Ahlstrom, a Finnish company, was able to reduce the order lead-time
from one week to one day. It is safe to say that measurement of total cycle time
is relevant both in the context of customer service, and to serve as a feedback to
control the day-to-day operations.
The customer order path. The path that orders traverse is another important Performance
measure whereby the time spent in different routes and non-value adding measures and
activities can be identified, and suitable steps can be taken to eliminate them. metrics
For example, by tracing through the order path, the delays in paperwork, time
consumed while the product sits in the warehouse, time spent in checking and
rechecking can be identified and eliminated using methods such as JIT,
reengineering, and information technology (e.g. e-commerce, electronic data 75
interchange (EDI) and the Internet).
85
Figure 2.
Measures and metrics at
four basic links in a
supply chain: plan,
source, make/assemble,
and deliver
Such a classification signifies which metric should be used where, and which
can together act as a fair indication of the problems persistent in respective
links.
Taken together, these three representations of metrics can give a clear
picture of which metric should be used for the performance assessment study,
where it can be used, and who will be responsible for that. Such a
representation is a step closer to bridging the gap between the need for a model
with which performance of a supply chain can be assessed, and the potential
areas of improvement that can be identified.
5. Conclusions
According to Lee and Billington (1992):
There were no performance measures for the complete supply chain. Many companies have
this problem. Those that do have such metrics often do not monitor them regularly. Or their
metrics are not directly related to customer satisfaction.
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