Measuring supply chain performance
Innovations are meant to increase supply chain performance. As innovations take effort and investment this should ‘pay’ back. The return does not necessarily need to be financial. Performance improvement has many facets. People, planet and profit (3Ps) are often used to stress that measuring performance is about more than monetary return on investment.
Already in the 1990s the Balanced scorecard was described by Robert Kaplan and David Norton to allow managers to assess a business from four perspectives.
- How do customers see us?
- What must we excel at?
- Can we continue to improve and create value?
- How do we look to shareholders?
These questions lead to four perspectives (customer, internal business, innovation and learning, financial) that each business can develop their goals and measures for. Recently, more emphasis has been put on measuring sustainability. The performance indicators should be carefully selected. Luckily a lot of research has been done and experience gained in measuring performance, so you don’t have to start from scratch.
For example, the Supply Chain Operations Reference model (SCOR) introduced in step 1.8 provides a set of performance attributes (Supply chain reliability, responsiveness, agility, costs, asset management efficiency) and performance metrics at various levels.
As an example, SCOR proposed to measure Reliability of a supply chain as
Perfect order fulfillment =
[total perfect orders] / [total number of orders] * 100%
This level 1 metric has several underlying level 2 performance metrics:
- % orders delivered in full
- Delivery performance to customer commit date
- Documentation accuracy
- Perfect Condition
Again these level 2 metrics are composed of several level 3 metrics. Some examples are:
- % item location accuracy
- % Delivery quantity accuracy
- % orders delivered damage free
- Return shipments shipped on time
In addition to SCOR many performance indicators can be found in supply chain literature, on the web and in software and reference models. Each industry sector has built performance indicators. Often regulators and certification programs require reporting on specific performance indicators. Larger companies have also come up with their own unique set. They often also want assess suppliers based on their view of performance.
Examples of indicators that specifically address sustainability are Revenue from green products (financial), %Green products (Customer), %certified suppliers (Internal business), Greenhouse gas emissions (internal business), #Employees certified in sustainable practices (innovation and learning).
Performance indicators if selected carefully, measured properly and used smartly can help to achieve strategic goals. In a supply chain that measures its performance along various dimensions, innovations can be planned, implemented and evaluated. Success of innovations can be determined. Such an environment can be fruitful and encourage innovative ideas to flourish and change to happen.
Have you seen performance indicators that worked well and really helped in improving performance? Have you experienced the ‘dark side’ of performance measurement? Performance metrics that are ill defined, incorrectly measured and did only make the supply chain or business perform worse?
© University of Twente