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Strategies for Measuring Supply Chain Performance

written by: Suba Lakshminarasimhan • edited by: Linda Richter • updated: 6/13/2011

Implementing processes or a system for measuring supply chain performance is vital to avoid chaotic situations and project failures in organizations. Here you will learn about a Balanced Scorecard, the SCOR model, and more.

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    What is Supply Chain?

    The progression of a product or a service from the supplier to the customer is known as the supply chain. In order to fulfill an organization’s long-term goals, management should gain insight on how its supply chain performs. Most of the time, it is only after a project failure or a complaint from a customer on products or a financial loss that companies look into the key issues related to the supply chain management.

    Supply Chain, Minolta,sxc.hu 

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    Why Measuring Supply Chain Performance is Important

    Supply chain measurements control organizational behavior and, in turn, its accomplishments. The misleading measurements directly affect the key functions of any company and lead to revenue loss and poor long-term growth. If you want to keep your company on track, it is imperative to implement the key strategies for measuring supply chain performance.

    Let us look at the most important supply chain performance measurement strategies.

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    1. Balanced Scorecard

    Even though not originally developed to measure supply chain performance, the balanced scorecard provides keen insights on the core operations. This approach recommends using EIS, an Executive Information System, to monitor supply chain performance.

    The balanced scorecard approach uses the aspects below to measure supply chain performance.

    Customers: The balanced scorecard helps to track customer interaction such as order details, shipment tracking and delivery information. Order fill rate, on-time delivery and the status of the deliverable can be tracked during any phase of the product or project lifecycle.

    Finance: The cost and the financial status, such as the cost of warehousing, transportation, delivery or manufacturing, can be monitored closely and tracked by using the balanced scorecard method. The supply chain metrics can be improved by identifying gaps in the chain and by correcting the same.

    Internal Business Perspective: The balanced scorecard method is used to track the internal business perspectives. Organizations will be able to forecast errors in the supply chain and monitor whether each aspect of the product or project lifecycle adheres to the plans.

    Innovative and Learning Perspectives: Training, Innovation and product development are the key features for any business to attain success. The balanced scorecard works in these areas as well. Organizations can identify the areas where training or a new product development is necessary to achieve competitive advantage.

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    2. SCOR Model

    The SCOR or Supply Chain Operations Reference is the product of SCC, the Supply Chain Council. The SCOR model helps companies to measure supply chain performance based on the below key aspects.

    Reliability: The SCOR model is used to achieve customer satisfaction through timely, nil damage and complete delivery of the product or service. Reliability is the key factor in determining brand loyalty and in turn achieving success in any business.

    Responsiveness: Apart from the timely delivery of the product or service it is important to achieve customer satisfaction by timely response to their queries. The SCOR model helps companies to have a system where questions from customers are handled appropriately and on time.

    Agility: The projects that are agile play a vital role in achieving company’s growth. The supply chain of a company must contend with difficulties of varying demands without delaying the planned lead time. The SCOR model helps in creating agility in supply chain performance.

    Cost: The SCOR model helps to measure and assess the cost involved in every step and phase of the supply chain.

    Assets: The SCOR model supports assessment of all the key resources used to gain customer satisfaction.

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    3. EVA - Economic Value Analysis

    The economic value analysis or EVA was developed by Stern, Stewart & Co to measure the return on capital or economic value addition of an organization. The EVA method is widely used to assess the long-term shareholder values of the company. The contribution from high level executives is vital since the organizations invest huge capital on them. The EVA method can help to measure the performance of these high level executives in supply chain management. The EVA method is widely used as a part of a logistics scoreboard approach in measuring supply chain performance.

    Read ahead to learn how the logistics scoreboard approach helps in supply chain performance measurement.

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    4. The Logistics Scoreboard

    Developed by Logistics Resources International Inc, the logistics scoreboard is designed based on key aspects below to measure supply chain performance. This logistics scoreboard is a spreadsheet-based tool that helps to measure the business value of supply chain management.

    Spreadsheet, Lustfish, Sxc.hu 

    Logistics Financial Performance Measurement: The logistics scoreboard helps to measure supply chain’s logistics financial performances such as expenses, investments, asset value and return on these assets.

    Logistics Productivity Measurement: The logistics productivity measures are absolutely necessary to measure supply chain performance based on productivity. The logistics scoreboard approach helps in analyzing and measuring such aspects like orders taken or products delivered per day.

    Logistics Quality Measurement: Measuring the quality of the supply chain is essential in continuous improvement of any company. The logistics scorecard spreadsheet helps to measure the key quality metrics such as inventory correctness, service errors or damages during transportation.

    Logistics Cycle Time Measurement: A product life cycle is the key element in supply chain management. The logistics scorecard can be used in measuring the logistics cycle time metrics such as order placing time, delivery time, transit time,etc.,

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    5. ABC - Activity-Based Costing

    Assigning costs to the activity rather than a whole project or a product is popularly known as ABC, activity-based costing. The supply chain consists of different phases with different level of activities. When the financial measures are tied with operational effectiveness, measuring the cost involved in each activity becomes imperative. The activity-based costing method helps in assigning costs in a supply chain based on its activities rather than on the end deliverables. Measuring the key finance metrics in each phase is feasible when the ABC method is implemented in supply chain management.

    The ABC method helps in assessing the financial intricacies like the total cost involved in engaging a particular customer or the metrics pertaining to a specific product in the supply chain.

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    Implement Supply Chain Performance Measurement Strategies

    Right from finance, productivity, quality and to project or product life cycle, measuring supply chain performance is essential in achieving overall and long-term growth for any organization. Identify and Implement the right strategy for the continuous improvement of your organziation by measuring supply chain performance.

    Reference:

    Lapide, Larry. Mthink.com. What About Measurign Supply Chain Performance? Retrieved at http://mthink.com/content/what-about-measuring-supply-chain-performance

    Supply Chain Council (SCC). What is SCOR? Retrieved at http://supply-chain.org/scor

    Image Credit:

    Supply Chain,Minolta,Sxc.hu

    Spreadsheet, Lustfish, Sxc.hu