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WHAT ABOUT MEASURING SUPPLY CHAIN PERFORMANCE

Ingredients for measuring on going performance


Continuous improvement in an organization relies on measuring, measuring and measuring again Organization should choose a limited number of metrics and align executive to management- level measures

Historical background
Using measurements to support manufacturing operations has its root back to late 19th and 20th century espoused by Frederick W. Taylor Running the business by stop watch Over the time exaggerated types of monitor and control methods were replaced by a focus on a measuring business performance rather than that of individual

Following Questions are addressed


Why is performance measurement important? What general approaches are available to measure supply chains? What advice can be followed when selecting performance measures? What methods are available for setting performance targets? What are application vendors doing to support supply chain performance measurement? How should a company get started

Why is performance measurement important?


Measurement is important as it affects the behavior that impacts supply chain performance The importance of using measures to help ensure that a supply chain is performing well can be illustrated by anecdotal story Driving a supply chain based on after the fact measures, like loosing an important customer or having poor financial performance is not very effective

What general approaches are available to measure supply chains


Traditionally, companies have tracked performance based largely on financial accounting principles These measures tend to be historically oriented and not focused on providing a forward looking perspective These measures do not directly tie to operational effectiveness and efficiency Balanced score card Supply chain councils score model Logistics score board Activity based costing Economic value analysis

Balanced score Card


Recommends the use of executive information systems. That track a limited number of balanced metrics that are closely aligned to strategic objectives Financial perspective ( Cost of manufacturing and cost of warehousing) Customer perspective( On time delivery and order fill rate) Internal business perspective( manufacturing adherence to plan and forecasting errors) Innovative and learning perspective( APICSCertified employees and new product development cycle time)

Supply chain Councils SCOR Model


Cycle time metrics( Production cycle time and cash to cash cycle) Cost metrics( Cost per shipment and Cost per ware house pick) Service/ Quality metrics( On time shipment and defective products) Asset metrics( Inventories)

Logistics Score Board


Logistics Productivity measures(Orders shipped per hour and transport container utilization) Logistics Financial Performance( Expenses and Return on assets) Logistics quality measures( inventory accuracy and shipment damage) Logistics cycle time( in-transit time and order entry time) Applications TCS and DHL etc

Others
Activity Based Costing
Method involves breaking down activities into individual tasks or cost drivers, while estimating the resources ( time and cost) for each one. Costs are allocated based on these cost drivers.

Economic value added


Financial analysts advocate estimating a companys return on capital or economic value added. These are based on premise that share holder value is increased when company earns more than its cost of capital

What advice can be followed when selecting measures?


Approaches described above, Provide less help in assessing specific metrics to be used Measures should be aligned to strategic objectives Functional excellence Enterprise wide integration Extended enterprise integration Do not focus only on Function based measures Align Executive to Management level measures

What methods are available for setting Performance targets


Historically Based targets External Benchmarks Internal Benchmarks Theoretical targets

What are application vendors doing to support Supply chain Performance measurement
APS ( Advanced planning and scheduling) applications focus on the future rarely concerned with what went on in the past Traditionally SCM application vendors have focused their development efforts on enabling planning, scheduling and execution, targeted towards supporting decision making, not tracking historical performance VIT, which offers the See Chain software application suite that consists of 5 modules: Demand accuracy, Raw materials, Production Performance, Finished goods and Fulfillment

Contd
Some ERP vendors also offering SCM functionality have put more focus on historical performance measurement SAP( Walldorf , Germany) has been offering a logistics-related performance reporting product Oracle a data base vendor that has always provided some performance measurement functionality, has plan to expand it. Similar to SAP, it will offer ABC Costing functionality, having recently purchased Price Water house-Coopers LLPS

How Should A Company Get Started


Have Executive articulate the strategic Supply Chain vision and Company Objectives Define Executive level measures for each objective for their scorecard Establish Managerial level objectives and measures that align to the executive level ones Identify Supply Chain initiatives that specifically address the executive and managerial performance improvement objectives

Contd
Establish targets for all metrics defined, using a combination of historical performance, external/internal benchmarks and theoretical estimates Implement new initiatives in concert with a formal measurement system to keep track of performance improvement over time