IPROMS Collaborative Manufacturing Session

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IPROMS Collaborative Manufacturing Session
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The alignment of collaboration and the importance
of integrated performance measurement

• Mandip Sarana Robert Mason

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Presentation Outline

• Introduction
• Benefits of collaboration
• Importance of performance measurement
• Case example
• Issues and further questions

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Introduction

• Collaboration can be defined as two or more
  independent companies, who work jointly to plan
  and execute supply chain operations success than
  when acting in isolation (Simatupang
  Sridharan, 2002)
• Importance to IPROMS whilst technologies
  provide benefit to companies we need to focus on
  relationships within the supply chain to enable
  co-ordination
• Need to be able to measure the benefits of
  collaboration
• Need for a integrate measures

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Benefits of collaboration

• Collaborative forecasting ? better customer
  service levels or reduction in inventory
• Reduce gaming by giving the supplier
  responsibility of replenishment
• Elimination of the bullwhip effect
• Better utilization of transport resources because
  information sharing allows load consolidation

Holweg et al. (2005)
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Importance of performance measurement

• Collaboration may not occur naturally within the
  supply chain therefore it is important to
  understand the true benefits
• Effective performance measurement system should
• Provide insight for understanding the system
• Influence the behaviour of the system
• Provide information regarding the results of the
  system

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Time effect on performance
Simatupang Sridharan (2002)
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Reasons for misalignment

• Inappropriate measures of performance
• Majority focus on internal logistics performance
• Outdated policies
• Asymmetric information
• Incentive misalignment
• Only considering local rewards and penalties

Simatupang Sridharan (2002) Lambert Pohlen
(2001)
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Why are collaborative performance measures
important?

• Sharing performance metrics with customers and
  suppliers we can identify bottlenecks in the
  supply chain (inventory, stockpiles, process
  gaps)
• Improve overall performance (Lummus Vokurka,
  1999)
• well-crafted system of supply chain metrics can
  increase the chances for success by aligning
  processes across multiple firms, targeting the
  most profitable market segments, and obtaining a
  competitive advantage through differentiated
  services and lower costs (Lambert pohlen,
  2001)
• Without the right metrics and incentives in
  place, theres almost no chance collaboration
  will work (Cooke, 2002)

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Alignment through measurement

• An effective performance measurement system
  provides the basis for understanding the system,
  influences behavior throughout the system, and
  provides information regarding the results of the
  system efforts to supply chain members and
  outside stakeholders (Fawcett et al., 1996)
• Focus on continual improvements for end consumers
  (Simatupang Sridharan, 2002)

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Performance Measurement System Steps

• Design performance
• Performance model links overall performance
  with different decisions within individual
  members of the chain
• Metrics indicate the extent to which mutual
  objectives between members of the chain have been
  accomplished e.g. customer satisfaction, supply
  chain response time, supply chain total costs,
  total inventory, asset utilisation
• Measurement method metrics are broken down into
  secondary measures for each member of the chain
• Need to understand how the measures affect
  overall global performance

Simatupang Sridharan (2002)
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Performance measurement filter
Simatupang Sridharan (2002)
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Performance Measurement System Steps

• 2. Facilitate performance
• Developing an adequate performance information
  sharing system and resource allocation
• Monitoring and control
• 3. Encourage performance
• Members provide incentives that other members of
  the chain value
• 4. Intensify performance
• Compare and modify performance measures

Simatupang Sridharan (2002)
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What are the right measures?

• Family of measures
• 4 6 measures
• E.g. productivity, quality and customer
  satisfaction (Thor, 1994)
• Areas that should be covered
• Those of critical concern to supply chain common
  goals and strategies
• Focus on the inter influence and common concern
  among the chain members
• Both internal partners and external customers
  (Chan et al., 2003)

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Case example

• Steel supply chain delivery metrics
• Material supplier ready on time/tonnes
• Transport provider - of loads delivered on time
• Tube manufacturer - of loads delivered on time
• Transport provider and tube manufacturer
  typically had a 20 difference in the measure.
• Results in a lack of trust in the supply chain

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Efficiency and Effectiveness measure for
collaboration

• Measures should determine the efficiency and/or
  effectiveness (Stainer, 1997)
• Efficiency input vs. output
• E.g. time and money vs. benefit
• Effectiveness does it do what its supposed to
• Is it improving value for
• Customer
• Stakeholders

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Issues

• Supply chain networks
• Complexity of overlapping supply chains
• Sharing of information between organisations
• there is no evidence that meaningful
  performance measures that span the supply chain
  actually exist (Lambert Pohlen, 2001)
• No empirical research in this area
• Simulation studies tend to use inventory as a
  supply chain performance measure
• Do not relate this measure to global performance
  measurement
• Communication across the supply chain is key
• Do we need a universal measure?

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Issues

• Motivate individual members employees through a
  performance measurement reward system
• Can this is done without the right performance
  measures?
• Set up of a performance measurement team
• Who pays for this?
• Which member is responsible for this?

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• THANK YOU