Performance Measures

1
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 companys
  mission and strategy
• Over-reliance of a single measure might be
  detrimental to companys long-term survivability

2
Challenges to Performance Measurements

• Measure only the right things
• Avoid meaningless efforts
• Use the results proactively and productively

3
Key Reasons for SC Metrics

• Meeting customer expectations
• Improving supply chain capability
• Enhancing asset performance
• Instilling workforce cooperation
• Enriching the stakeholders

4
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)

5
The Balanced Scorecard Framework
Financial Perspective
Internal Business Perspective
How do we look to shareholders?
GOALS MEASURES
GOALS MEASURES
What must we excel at?
Customer Perspective
Innovation Learning Perspective
How do customers see us?
GOALS MEASURES
GOALS MEASURES
Can we continue to improve and create value?
6
Framework for Supply Chain Performance Metrics
Business Strategy
Supply Chain Strategy
Supply Chain Objectives
Financial metrics
Customer Service Metrics
Operational Metrics
7
Customer Service Metrics

• Customer service metrics are indications of a
  companys ability to satisfy the needs of
  customers by meeting customers needs on a timely
  basis and creating exceptional values to the
  customers

8
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

9
Financial Metrics

• Financial metrics indicate whether the companys
  strategy, implementation, and execution are
  creating value for the shareholders by
  contributing to bottom-line improvements.

10
Supply Chain Performance Framework
Customer Service Metrics
Goals Measures
Operational Metrics
Financial Metrics
Goals Measures
Goals Measures
11
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

12
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

13
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

14
Assessing Customer Satisfaction
Lots
Inventory
A
B
Desired Operating Region
Little
C
D
Poor
Good
Service
15
Assessing Performance of Product Lines
Too many
Product line 5
Product line 2
Weeks of Supply
Product line 6
Product line 3
Product line 4
Product line 1
Too few
Too low
Too high
Fill Rate
16
Efficiency Frontier of a Single Product Line
10
Efficiency Frontier
Weeks of Supply
0
80
100
Fill Rate
17
Efficiency Frontier of a Single Product Line
10
Weeks of Supply
Product 2
0
Product 1
80
100
Fill Rate
18
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

19
Critical Factors in SC Performance Metrics
(contd)

• 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