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Computers & Industrial Engineering 53 (2007) 43–62

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Performance measurement of supply chain management:


A balanced scorecard approach
Rajat Bhagwat a, Milind Kumar Sharma b,*

a
Department of Mechanical Engineering, M.B.M. Engineering College, Faculty of Engineering and Architecture,
J.N.V. University, Jodhpur, Rajasthan, India
b
Department of Production and Industrial Engineering, M.B.M. Engineering College, Faculty of Engineering and Architecture,
J.N.V. University, Jodhpur, Rajasthan, India

Received 31 October 2006; received in revised form 10 March 2007; accepted 4 April 2007
Available online 12 April 2007

Abstract

This paper develops a balanced scorecard for supply chain management (SCM) that measures and evaluates day-to-day
business operations from following four perspectives: finance, customer, internal business process, and learning and
growth. Balanced scorecard has been developed based on extensive review of literature on SCM performance measures,
supported by three case studies, each illustrating ways in which BSC was developed and applied in small and medium sized
enterprises (SMEs) in India. The paper further suggests that a balanced SCM scorecard can be the foundation for a stra-
tegic SCM system provided that certain development guidelines are properly followed, appropriate metrics are evaluated,
and key implementation obstacles are overcome. The balanced scorecard developed in this paper provides a useful guid-
ance for the practical managers in evaluation and measuring of SCM in a balanced way and proposes a balanced perfor-
mance measurement system to map and analyze supply chains. While suggesting balanced scorecard, different SCM
performance metrics have been reviewed and distributed into four perspectives. This helps managers to evaluate SCM per-
formance in a much-balanced way from all angles of business.
 2007 Elsevier Ltd. All rights reserved.

Keywords: Balanced scorecard; Supply chain management; Performance measurement; Metrics; Framework; Case studies

1. Introduction

For any business activity, such as supply chain management (SCM), which has strategic implications for
any company, identifying the required performance measures on most of the criteria is essential and it should
be an integral part of any business strategy. Many methods have been suggested over the years for SCM eval-
uation of any organization. However, a balanced approach to evaluate SCM is a source of increasing cost and
concern to management as traditional methods focus only on well-known financial measures, which are best,

*
Corresponding author.
E-mail address: milindksharma@rediffmail.com (M.K. Sharma).

0360-8352/$ - see front matter  2007 Elsevier Ltd. All rights reserved.
doi:10.1016/j.cie.2007.04.001
44 R. Bhagwat, M.K. Sharma / Computers & Industrial Engineering 53 (2007) 43–62

suited to measure the value of simple SCM applications. Unfortunately, evaluation methods that rely on
financial measures are not well suited for newer generation of SCM applications. These complex supply chains
typically seek to provide a wide range of benefits, including many that are intangible in nature. As a result, we
suggest that it may be appropriate to use a balanced approach to measure and evaluate supply chains.
In recent years, a number of firms realized the potentials of SCM in day-to-day operations management.
However, they often lack the insight for the development of effective performance measures and metrics
needed to achieve a fully integrated SCM due to lack of a balanced approach and lack of clear distinction
between metrics at strategic, tactical, and operational levels (Gunasekaran, Patel, & Tirtiroglu, 2001; Hudson,
Lean, & Smart, 2001). Therefore, it is clear that for effective SCM, measurement goals must consider the over-
all scenario and the metrics to be used. These should represent a balanced approach and should be classified at
strategic, tactical, and operational levels, and be financial and non-financial measures, as well.
Taking into account the above factors, a balanced SCM scorecard has been proposed and developed in this
paper to discuss the several measures and metrics of SCM. The article has contributed to important issues of
SCM performance measurement theory and practices.

• It points out the importance of key players in the performance measurement of SCM, and the nature of
roles they need to play.
• A balanced performance evaluation of SCM such as, balanced scorecard not only helps organizations in
faster and wider progress monitoring of their operations but can also help them in improving their internal
and external functions of business such as engineering and design applications, production, quality
improvement, materials management, quick response, gaining lost market shares, proper implementation
of business strategies etc.
• The paper also articulates the experiences of application of balanced SCM scorecard specific to SMEs in
India, throwing light on the management of supply chain by conducting case studies. It focuses on critical
factors that are likely to contribute for the successful performance measurement of SCM, particularly in
SMEs sector.

1.1. The balanced scorecard

The need of performance measurement systems at different levels of decision-making, either in the industry or
service contexts, is undoubtedly not something new (Bititici, Cavalieri, & Cieminski, 2005). Kaplan and Norton
(1992) have proposed the balanced scorecard (BSC), as a means to evaluate corporate performance from four
different perspectives: the financial, the internal business process, the customer, and the learning and growth.
Their BSC is designed to complement ‘‘financial measures of past performance with their measures of the drivers
of future performance’’. The name of their concept reflects an intent to keep score of a set of items that maintain a
balance ‘‘between short term and long term objectives, between financial and non-financial measures, between
lagging and leading indicators, and between internal and external performance perspectives’’. The early image of
the BSC serving the CEO like a control panel serves an aircraft pilot seems to have expanded to include mech-
anisms to alter the course of action as well. Now, the BSC seems to serve as a control panel, pedals and steering
wheel (Malmi, 2001). Table 1 outlines the four perspectives included in a BSC.
Many companies are adopting the BSC as the foundation for their strategic management system. Some
managers have used it as they align their businesses to new strategies, moving away from cost reduction

Table 1
The four perspectives in a balanced scorecard (Kaplan & Norton, 1992)
Customer perspective (value-adding view) Financial perspective (shareholders’ view)
Mission: to achieve our vision by delivering Mission: to succeed financially, by delivering value to our shareholders
value to our customer
Internal perspective (process-based view) Learning and growth perspective (future view)
Mission: to promote efficiency and effectiveness Mission: to achieve our vision, by sustaining innovation and change capabilities,
in our business processes through continuous improvement and preparation for future challenges
R. Bhagwat, M.K. Sharma / Computers & Industrial Engineering 53 (2007) 43–62 45

and towards growth opportunities based on more customized, value-adding products and services (Martin-
sons, Davison, & Tse, 1999). A large number of methods of performance measurement systems have been
reported in the literature (Bititici & Nudurupati, 2002; Chan & Qi, 2003a, 2003b; Chan, Chan, & Qi, 2006;
Sharma, Bhagwat, & Dangayach, 2005). A comparison between the BSC approach and other approaches used
to measure SCM performance is briefly described as follows:

 Strategic measurement analysis and reporting technique system


Wang Laboratories, Inc. (Cross & Lynch, 1989) developed this system and it consists of a four-level pyr-
amid of objectives and measures: corporate vision/strategy, business unit market and financial objectives,
business unit operational objectives and priorities, departmental level operational criteria and measures.
 Performance measurement questionnaire
It (Dixion, Nanni, & Vollmann, 1990) involves a workshop to develop, revise, and refocus the set of per-
formance measures. It has the advantage of providing a mechanism for identifying the improvement areas
of the company and their associated performance measures. However, it cannot be considered a compre-
hensive integrated measurement system and does not consider continuous improvement.
 Strategic performance measurement system
Vitale, Mavrinac, and Hauser (1994) presented an action-focused tool, which concentrates on the organi-
zation’s strategies. The concepts and ideas were developed by hands-on experience.
 Integrated dynamic performance measurement system
Developed by Ghalayinin, Noble, and Crowe (1997) to achieve an integrated system by combining three
main areas of the company: management, process improvement team, and factory shop floor.
 Holistic process performance measurement system

Kueng (2000) presented it especially for modern process-based businesses. It assesses the performance of
the processes for five aspects: financial view, employee view, customer view, societal view, and innovation
view.
The BSC for supply chain management framework presented here in this article is structurally similar to the
BSC framework proposed by Kaplan and Norton.
The outline of the paper is as follows: Section 2 throws light on performance metrics and measurements in
SCM. Section 3 discusses performance evaluation framework for SCM. Sections 4 and 5 deal with the pro-
posed balanced scorecard for the SCM evaluation and its development respectively. Three case study evi-
dences are reported in Section 6. Finally, the conclusions and implications are presented in Section 7.

2. Performance metrics and measurement of SCM

According to Chan (2003), performance measurement describes the feedback or information on activities
with respect to meeting customer expectations and strategic objectives. It reflects the need for improvement in
areas with unsatisfactory performance. Thus efficiency and quality can be improved. In this section, we make
an attempt to summarize some of the most appropriate performance metrics and measures of SCM identified
and discussed by Gunasekaran et al. (2001), and Gunasekaran, Patel, Ronald, and McGaughey (2004).

2.1. Metrics for performance evaluation of planned order procedures

For any firm, the first activity to begin with is to procure orders. A typical order path is shown in Fig. 1.
From the figure, it is clear that the way the orders are generated and scheduled determines the performance
of the downstream activities and inventory levels. Hence, the first step in assessing performance is to analyze
the way the order-related activities are carried out. To do this, the most important issues – such as the order
entry method, order lead-time and the path of order traverse – need to be considered.

2.1.1. The order entry method


The order entry method determines the way and the extent to which the customer specifications/requirements
are converted into useful information, and are passed down along the supply chain. According to Mason-Jones
46 R. Bhagwat, M.K. Sharma / Computers & Industrial Engineering 53 (2007) 43–62

Sales Customer Ship


and order custom
market status er

Purchasing Accounting

Inventory Back order Invoice


available

Custom Invento Process Warehouse


er Credit check ry file order withdrawal
order

Production
schedule

Production Shipping Transportation


documentation scheduling

Fig. 1. The path of a customer order (Source: Christopher (1992)).

and Towill (1997), such information connects all levels of supply chain and affects the scheduling of all activities.
Proper control of the order is possible, provided that the order entry method is capable of providing timely, accu-
rate and usable data at various entry levels, and hence, can be used as a metric of performance measure.

2.1.2. Order lead-time


The total order cycle time, which is called ‘‘order lead time ’’, refers to the time, which elapses between the
receipt of the customer’s order and the delivery of the goods. This includes the following time elements:
Total order cycle time = Order entry time (through forecast/direct order from the customer) + Order plan-
ning time (Design + Communication + Scheduling time) + Order sourcing, assembly and follow up
time + Finished goods delivery time.
A reduction in the order cycle time leads to a reduction in the supply chain response time (Gunasekaran
et al., 2001). This is an important measure as well as major source of competitive advantage (Bower & Hout,
1988; Christopher, 1992). According to Towill (1997), it directly influences the customer satisfaction level.
Equally important is the reliability and consistency of the lead-time. Because of bottlenecks, inefficient pro-
cesses and fluctuations in the volume of orders handled, there will be variations in activity completion times.
The overall effect of this may lead to a substantial reduction in delivery reliability and customer service level.
To deal with these, for example, the concept of ‘‘manufacturing cell’’ can be applied, in which well integrated
actions are performed in parallel by cross functional teams to effectively decrease the order lead-time and
reduce the redundancies (Schonberger, 1990). In fact, Schonberger notes that, in one case study, Ahlstrom,
a Finnish company, was able to reduce the lead-time from one week to one day. Hence, therefore, measure-
ment of total cycle time is very important in the context of customer service, and to serve as a feedback to
control the day-to-day operations.

2.1.3. The customer order path


The path that order traverse is another important measure whereby the time spent in different routes and
non-value adding activities can be identified, and suitable steps can be taken to eliminate them (Gunasekaran
et al., 2001). For example, by tracing through the order path, the delays in the paperwork, time consumed
while the product sits in the warehouse, time spent in checking and rechecking can be identified and eliminated
using methods such as JIT, reengineering, and information technology (e.g. e-commerce, electronic data inter-
change (EDI) and Internet).
R. Bhagwat, M.K. Sharma / Computers & Industrial Engineering 53 (2007) 43–62 47

2.2. Supply chain partnership and related metrics

Recently, buyer–supplier partnership has gained a tremendous amount of attention from industries and
researchers, resulting in a steady stream of literature promoting it (e.g. Ellram, 1991; Fisher, 1997; Graham,
Dougherty, & Dudley, 1994; Gunasekaran et al., 2001; Landeros, Reck, & Plank, 1995; Maloni & Benton,
1997; McBeth & Ferguson, 1994; New, 1996; Thomas & Griffin, 1996; Toni, Nissimbeni, & Tonchia, 1994;
Towill, 1997). Most of these studies stress the partnership for better supply chain operations. Accordingly,
an efficient and effective performance evaluation of buyer and/or suppliers is not just enough; the extent of
partnership that exists between them needs to be evaluated and improved, as well. The parameters that mea-
sure the level of partnership are summarized in Table 2.

2.3. Measuring customer service and satisfaction

This measurement is aimed to integrate the customer specification in design, set the dimensions of quality
and the feedback for the control process. They contain product/service flexibility, customer query time, and
post-transaction service.

2.3.1. Flexibility
Being flexible refers to making available the products/services to meet the individual demand of customers.
This has become possible as a result of the development of such technologies as flexible manufacturing systems
(FMS), group technology (GT), and computer-integrated manufacturing (CIM). In addition, other methods
such as single minute exchange of die (SMED), as well as information technology (IT) and communication
systems (CS), which provide online information, further facilitate quick response of the control system.
The flexibility that these systems impart has a high impact on winning customers. For example, Toyota is
using FMS and logistic principles to provide a high level of responsiveness to customer needs (Bower & Hout,
1988). Stewart (1995) presents a list of practices that world-class companies employ to improve flexibility. His
analysis reveals a strong correlation of supply chain response time and flexibility.
Hence, by defining flexibility as a metric and by evaluating it (Gunasekaran et al., 2001), companies can
achieve what was previously impossible: rapid response to meet individual customer requirements.

2.3.2. The customer query time


The customer query time refers to the time it takes for a firm to respond to a customer enquiry with the
required information. On several occasions, a customer enquires or needs to be informed about the status
of an order, and the potential problems on stock availability or delivery. Providing such information genuinely
helps the customers to schedule their activities, and helps the firm to retain them as customers. Thus, providing
online information is an important element of customer service, and it can be evaluated for improving the
same. To measure customer service, questions ‘‘what are the response times’’, and ‘‘what procedures exist
to inform customers’’ should be considered.

2.3.3. Post transaction measures of customer service


The function of a supply chain does not end by providing goods to the customer. The post transaction
activities play an important role both as part of customer service, and for valuable feedback for further

Table 2
Partnership evaluation parameters in a supply chain (Gunasekaran et al., 2001)
Partnership evaluation criteria References
Level and degree of information sharing Toni et al. (1994), Mason-Jones and Towill (1997)
Buyer–vendor cost saving initiatives Thomas and Griffin (1996)
Extent of mutual co-operation leading to improved quality Graham et al. (1994)
The entity and stage at which supplier is involved Toni et al. (1994)
Extent of mutual assistance in problem solving efforts Maloni and Benton (1997)
48 R. Bhagwat, M.K. Sharma / Computers & Industrial Engineering 53 (2007) 43–62

improvements in the supply chain. For example, timely availability of spares helps companies to provide bet-
ter customer service, and to trace the problems arising from warranty claims; then making improvements on
them. Apart from these, there are other post-transaction elements that need to be evaluated as discussed
hereunder:

– Service level compared to competitors: to be competitive, an organization must measure how well its ser-
vice performance compares against the competitors’.
– Measuring customer perception of service: this is done primarily through direct interviews with customers.
What are their needs? What is the service level they receive versus what are their expectations? These are
the questions firms should ask the customers to improve on products/services, and for an increased con-
fidence in the firm’s supply chain.

2.4. Production level measures and metrics

As an important part of SCM, the performance of the production process also needs to be measured, man-
aged, improved, and suitable metrics for it should be established. This category consists of range of product
and services, capacity utilization, and effectiveness of scheduling techniques.

2.4.1. Range of products and services


According to Mapes, New, and Szwejczewski (1997), a company that manufactures a wide range of
products is likely to introduce new products at a slower rate than companies with a narrow product
range. Based on a statistical analysis of ‘‘UK Best Factory Awards Database’’, these authors show that
plants that manufacture a wide range of products are likely to perform poorly on added-value per
employee, speed and delivery reliability. Furthermore, a company with an extensive product portfolio less
frequently breeds new products of innovation. This indicates the impact of ‘‘product range’’ on supply
chain performance, and so, it needs to be measured. The same analysis can be applicable for services,
as well.
According to Fisher (1997), the selection of right supply chain strategy depends upon the nature of product
variety and innovation. This also implies that the range of products and services acts as an important strategic
metric, and hence, it should be considered in performance evaluation.

2.4.2. Capacity utilization


According to Wild (1995): ‘‘All the operations planning takes place within the framework set by capacity
decisions.’’
From the above statement, the role of ‘‘capacity’’ in determining the level of all supply chain activities is
clear. This highlights the importance of measuring and controlling the capacity utilization. According to
Slack, Chambers, Harland, Harrison, and Johnston (1995), capacity utilization directly affects the speed of
response to customers’ demand. Hence, by measuring capacity, gains in flexibility, lead-time and deliverability
will be achieved.

2.4.3. Effectiveness of scheduling techniques


Scheduling refers to the time or date at which activities are to be undertaken. Such fixing determines the
manner in which the resources flow through an operating system. The effectiveness of this has a significant
impact on the performance of supply chain (Gunasekaran et al., 2001). For example, scheduling based on
JIT has tremendous influence on inventory levels. Similarly, computer generated schedules based on systems
like MRP, and more recently ERP, provide a detailed and accurate bill of materials. These impact the effec-
tiveness of purchasing, throughput time and batch size. However, the applications of such systems should
not be limited to scheduling of shop floor activities and comparing their performance with others. In the
case of supply chains, since scheduling depends heavily on customer demand and supplier performance,
the scheduling tools/methods should also be viewed from that context. Based on these, it can be concluded
that measuring and improving effectiveness of scheduling techniques will improve the performance of a sup-
ply chain.
R. Bhagwat, M.K. Sharma / Computers & Industrial Engineering 53 (2007) 43–62 49

2.5. Performance evaluation of delivery link

These measures are designed to evaluate the performance of delivery and distribution cost in supply chain.
The typical measures for delivery performance evaluation are lead-time reduction in the delivery process, on-
time delivery (delivery-to-request date, delivery-to-commit date and order fill lead-time), distribution mode,
the delivery channel, vehicle scheduling, and warehouse location, the percentage of goods in transit, quality
of information exchanged during delivery, number of faultless notes invoiced, flexibility of delivery systems
to meet particular customer needs (Gelders, Mannaert, & Maes, 1994; Novich, 1990; Stewart, 1995).

2.5.1. Measures for delivery performance evaluation


In any typical delivery distribution mode, the delivery channel, vehicle scheduling, and warehouse location
play an important role in delivery performance (Gunasekaran et al., 2001). An increase in delivery perfor-
mance is possible by selecting suitable channel, scheduling and location policies. A survey conducted by Gel-
ders et al. (1994) in Belgium shows that tremendous opportunities exist to improve the supply chain
performance based on lead-time reduction in the delivery process. What is needed, according to Gelders
et al. (1994), is an understanding of the link between delivery channels and organizational operating schedules.
Another important aspect of delivery performance is on-time delivery. This determines whether a perfect
delivery has taken place or not, and it acts as a measure of customer service level. Stewart (1995) identifies
the following as the measure of delivery performance:

– delivery-to-request date;
– delivery-to-commit date; and
– order fill lead-time

His study reveals a trend in the reduction of lead-time as an operational strategy for improving delivery
performance.
Another aspect of delivery performance evaluation is the percentage of goods in transit. A higher percent-
age signifies low inventory turns, leading to unnecessary increase in tied up capital. Various factors that can be
attributed to this are vehicle speed, driver reliability, frequency of delivery, and the location of depots. An
increased effectiveness in these areas may well lead to a decrease in inventory levels under consideration.
Like other activities, delivery heavily relies on the quality of information exchanged. For example, once the
activities are scheduled, continuous monitoring is possible based both on information derived and information
supplied across the channels of distribution. Thus, the quality and the way the information is presented deter-
mine the delivery performance to a large extent, which, therefore, can be used to measure and improve per-
formance (Gunasekaran et al., 2004).
Moreover, the following aspects of delivery also reflect customer satisfaction:

– Number of faultless notes invoiced: An invoice shows the delivery date, time and the condition under which
goods are received. By comparing these with the previous agreement, it can be determined whether a per-
fect delivery has taken place or not. Also, the areas of discrepancy can be identified so that improvements
in delivery performance can be made.
– Flexibility of delivery systems to meet particular customer needs: Nowadays, the delivery systems are
becoming more flexible towards customer needs. By being flexible, a delivery system can positively influ-
ence the decision of customers to place orders, and hence, this can be regarded as a metric for winning
and retaining customers. According to Novich (1990), customers can be grouped into different segments
based on their needs. Thus, they can be grouped critically based on their economic profitability and
flexibility.

2.6. Supply chain finance and logistics cost

Determining the total logistics cost can assess the financial performance of a supply chain. It is necessary to
decide on a broad level of strategies and techniques that would contribute to the smooth flow of information
50 R. Bhagwat, M.K. Sharma / Computers & Industrial Engineering 53 (2007) 43–62

and materials in the supply chain environment. They are used to assess the financial performance of supply
chain, such as assets cost, return on investment, and total inventory cost.

2.6.1. Cost associated with assets and return on investment


Supply chain assets include accounts receivable, plant, property and equipment and inventories (Stewart,
1995). With increasing inflation and decreased liquidity, pressure is on firms to make the assets sweat, i.e.
improve the productivity of their capital. In this regard, it is essential to determine how the costs associated
with each asset, combined with its turnover, affects the ‘‘total cash flow time’’. According to Stewart (1995),
this can be measured as the average number of days required transforming the cash invested in assets into the
cash collected from a customer.
Once the total cash flow time is determined, it can readily be combined with profit with the objective of
providing an insight into the rate of return on investment (ROI). This determines the performance that the
top management can achieve on the total capital invested in business. As a corollary to this, the logistics man-
agement policies have a significant impact on ROI.
For example, superior customer service leads to improved sales and an increased profit, and subsequently, a
higher ROI. Likewise, other areas of organization can be explored. By measuring ROI and the impact of the
logistics policies on it, significant insights can be gained about the financial health of the supply chain.

2.6.2. Total inventory cost


In a supply chain, inventories range from raw materials, subassemblies and assemblies to finished products,
as well as inventories held up in transit. What was traditionally perceived as a buffer in production to cope
with uncertainties actually emerged to be one of the reasons for the increase in lead-time (Slack et al.,
1995). As customer service requirements constantly increase, effective management of inventory in a supply
chain becomes increasingly critical and important. Hence, it is essential that costs associated with inventory
should be evaluated, and proper trade-offs, with suitable performance measures, should be implemented.
In a supply chain, the total costs associated with the inventory (Christopher, 1992; Dobler & Burt, 1996;
Lee & Billington, 1992; Levy, 1997; Slack et al., 1995; Stewart, 1995) consists of the following:

• Opportunity cost consisting of warehousing, capital and storage,


• Cost associated with inventory as incoming stock level, work in progress,
• Service costs, consisting of costs associated with stock management and insurance,
• Cost held up as finished goods in transit,
• Risk costs, consisting of costs associated with pilferage, deterioration, damage.
• Cost associated with scrap and rework.
• Cost associated with shortage of inventory accounting for lost sales/lost production.

In dealing with these costs, consideration should also be given to part/material size. A low cost part may
have large size, and consequently, a large space requirement. Also, in deciding which cost should be tackled
first, Pareto analysis can be used to prioritize the options. In addition, proper trade-offs should be considered
in dealing with inventory at various levels in a supply chain. An excellent discussion on this, based on pitfalls
and opportunities, is provided by Lee and Billington (1992). In particular, they point out that the cost of
reworking stored components due to engineering changes and the risk of obsolescence could inflate the inven-
tory holding costs by 40%. Clearly, not considering such factors may lead to inappropriate choices.
In dealing with inventory in transit, a trade-off is needed because changing the mode of transportation can
significantly affect inventory investment and service performance. A faster and more expensive shipping mode
may save enough in inventory investment to justify increase in shipping cost, but if inventory costs rates are
appropriately chosen. According to Levy (1997), care must also be taken for longer lead-time due to longer
distance as it increases the ‘‘volatility’’ of inventories, resulting in either too high or too low inventory levels.
This, in turn, can lead to higher administrative costs being incurred, and can be the cause of costs due to lost
sales.
Another factor that needs to be measured and dealt with regarding inventory is the accuracy of forecasting
techniques. According to Fisher (1997), supply chain in many industries suffers from inventory, owing to their
R. Bhagwat, M.K. Sharma / Computers & Industrial Engineering 53 (2007) 43–62 51

inability to predict demand. A new demand forecasting system that takes sales data from distributor’s com-
puter and combines with on-hand inventory could serve as a technique to deal with this problem. Harrington
(1996) shows that using such techniques, Microsoft has been able to keep production schedules open until one
week, and make what the market will accept.
Therefore, measuring inventory at supply, production, distribution and scrap levels as well as accuracy of
forecasting techniques, can provide an insight into the cost performance and reduce the lead-time in a supply
chain.

3. Performance evaluation framework for SCM

Although there is an ever-increasing amount of literature addressing theories and practices of supply
chain management, the existing performance measurement methods fail to provide significant assistance
in supply chain development and an effective method is lacking (Chan & Qi, 2002). Many methods
and techniques have been suggested over the years for SCM evaluation. Traditional methods focus on
well-known financial measures, such as the return on investment (ROI), net present value (NPV), the
internal rate of return (IRR), and the payback period. These methods are best suited to measure the
value of simple SCM applications. Unfortunately, evaluation methods that rely on financial measures
are not well suited for newer generation of SCM applications. These complex supply chains typically seek
to provide a wide range of benefits, including many that are intangible in nature. There is, however, a
greater need to study the measures and metrics in the context of following reasons (Gunasekaran et al.,
2001):

(I) Lack of a balanced approach. Financial measures, which are required for examination by external
stakeholders, are generally well developed. However, operational measures are typically ad hoc and
lack formal structure (Hudson et al., 2001). Many firms have realized the importance of financial
and non-financial performance measures. However, they failed to understand them in a balanced
framework. According to Kaplan and Norton (1992), while some managers and researchers have
concentrated on financial measures of performance, others have concentrated on operational mea-
sures. Such equality does not lead to metrics that can present a clear picture of the organizational
performance. As suggested by Maskell (1991), for a balanced approach, companies should bear in
mind that, while financial performance measurements are important for strategic decisions and exter-
nal reporting, day-to-day control of manufacturing and distribution operation is better handled with
non-financial measures.
(II) Lack of understanding on deciding on the number of metrics to be used. Quite often, companies have a
large number of performance measures to which they keep on adding based on suggestions of employees
and consultants, and fail to realize that performance measurements can be better addressed using a good
few metrics.
(III) Lack of clear distinction between metrics at strategic, tactical, and operational levels. Metrics that are used
in performance measurement influence the decisions to be made at strategic, tactical, and operational
levels. Using a classification based on these three levels, each metric can be assigned to a level where
it would be most appropriate.

Therefore, it is clear that for effective management of supply chain, measurement goals must consider
the overall scenario and the metrics to be used. These should represent a balanced approach and should
be classified at strategic, tactical, and operational levels, and be financial and non-financial measures, as
well.
This being the background, Gunasekaran et al. (2001) illustrated the above discussed performance mea-
sures and metrics of the SCM with help of a framework that gives cohesive picture to address what needs
to be measured, and how it can be dealt with. The framework developed is shown in Table 3.
The metrics discussed in this framework are classified into strategic, tactical and operational levels of man-
agement. The metrics are also distinguished as financial and non-financial so that a suitable costing method
based on activity analysis can be applied. Such a classification helps in signifying which metric should be used
52 R. Bhagwat, M.K. Sharma / Computers & Industrial Engineering 53 (2007) 43–62

Table 3
A framework of metrics for the performance evaluation SCM (Gunasekaran et al., 2001)
Level Performance metrics Financial Non-financial
p
Strategic Total supply chain cycle time
p
Total cash flow time
p p
Customer query time
p
Level of customer perceived value of product
p
Net profit vs. productivity ratio
p
Rate of return on investment
p
Range of products and services
p
Variations against budget
p
Order lead time
p
Flexibility of service systems to meet particular customer needs
p p
Buyer–supplier partnership level
p
Supplier lead time against industry norms
p
Level of supplier’s defect free deliveries
p
Delivery lead time
p p
Delivery performance
p
Tactical Accuracy of forecasting techniques
p
Product development cycle time
p
Order entry methods
p
Effectiveness of delivery invoice methods
p
Purchase order cycle time
p
Planned process cycle time
p
Effectiveness of master production schedule
p
Supplier assistance in solving technical problems
p
Supplier ability to respond to quality problems
p
Supplier cost saving initiatives
p
Supplier’s booking in procedures
p
Delivery reliability
p
Responsiveness to urgent deliveries
p
Effectiveness of distribution planning schedule
p
Operational Cost per operation hour
p p
Information carrying cost
p
Capacity utilization
p
Total inventory cost as:
Incoming stock level
Work-in-progress
Scrap value
Finished goods in transit
p p
Supplier rejection rate
p
Quality of delivery documentation
p
Efficiency of purchase order cycle time
p
Frequency of delivery
p
Driver reliability for performance
p
Quality of delivered goods
p
Achievement of defect free deliveries

where, and which can together act as a fair indication of the problems persistent in respective links. These met-
rics are extracted from the mainstream supply chain management literature as well as the emerging literature
on other related SCM practices. Table 5 shows the high performance metrics that target broader functional
areas of supply chain.
A balanced scorecard approach is proposed to evaluate these measures and metrics for SCM in the section
that follows. These measures are generic in nature; because each corporate mission and the strategic goals are
related to it will require a unique set of measures (Barua, Lee, & Whinston, 1996; Kaplan & Norton, 1996;
Letza, 1996).
R. Bhagwat, M.K. Sharma / Computers & Industrial Engineering 53 (2007) 43–62 53

Table 4
A list of key SCM performance metrics (Gunasekaran et al., 2001)
Level Performance metrics Financial Non- References
financial
p
Strategic Total cash flow time Stewart (1995)
p
Rate of return on investment Christopher (1992); Dobler and Burt (1996)
p
Flexibility to meet particular customer Bower and Hout (1988); Christopher (1992)
needs
p
Delivery lead time Rushton and Oxley (1991); Christopher (1992)
p
Total cycle time Christopher (1992); Stewart (1995)
p p
Buyer–supplier partnership level Toni et al. (1994)
p
Customer query time Mason-Jones and Towill (1997)
p
Tactical Extent of co-operation to improve Graham et al. (1994)
quality
p
Total transportation cost Rushton and Oxley (1991)
p
Truthfulness of demand Fisher (1997); Harrington (1996)
predictability/forecasting methods
p
Product development cycle time Bower and Hout (1988)
p
Operational Manufacturing cost Wild (1995)
p
Capacity utilization Stewart (1995)
p
Information carrying cost Levy (1997); Lee and Billington (1992)
p
Inventory carrying cost Stewart (1995); Dobler and Burt (1996); Slack et al.
(1998); Pyke and Cohen (1994)

4. Balanced scorecard for SCM evaluation

SCM captures the notion of organization and coordination of activities from procurement of raw materials
to the final customer (Wagner, Fillis, & Johansson, 2003).
The BSC for SCM framework presented here is structurally similar to the BSC framework at the cor-
porate management level as proposed by Kaplan and Norton. Gunasekaran et al. (2001) identified supply
chain metrics and proposed a framework for SCM performance evaluation. Here, in this article, the BSC
is applied to these metrics with the intent to evaluate SCM performance comprehensively. Four perspec-
tives of the BSC are applied to these discussed metrics or in another words the different metrics are fitted
into four different perspectives of BSC as shown in Tables 5–8. Each of the four perspectives should be
translated into corresponding metrics and measures that reflect strategic goals and objectives. The perspec-
tives should be reviewed periodically and updated as necessary. The measures included in the given BSC
should be tracked and traced over time, and integrated explicitly into the strategic SCM process. The
remainder of this article considers the development and implementation of a BSC to evaluate SCM mea-
sures and metrics.

Table 5
Performance metrics for the financial perspective
Customer query time
Net profit vs. productivity ratio
Rate of return on investment
Variations against budget
Buyer–supplier partnership level
Delivery performance
Supplier cost saving initiatives
Delivery reliability
Cost per operation hour
Information carrying cost
Supplier rejection rate
54 R. Bhagwat, M.K. Sharma / Computers & Industrial Engineering 53 (2007) 43–62

Table 6
Performance metrics for the customer perspective
Customer query time
Level of customer perceived value of product
Range of products and services
Order lead time
Flexibility of service systems to meet particular customer needs
Buyer–supplier partnership level
Delivery lead time
Delivery performance
Effectiveness of delivery invoice methods
Delivery reliability
Responsiveness to urgent deliveries
Effectiveness of distribution planning schedule
Information carrying cost
Quality of delivery documentation
Driver reliability for performance
Quality of delivered goods
Achievement of defect free deliveries

Table 7
Performance metrics for the internal business perspective
Total supply chain cycle time
Total cash flow time
Flexibility of service systems to meet particular customer needs
Supplier lead time against industry norms
Level of supplier’s defect free deliveries
Accuracy of forecasting techniques
Product development cycle time
Purchase order cycle time
Planned process cycle time
Effectiveness of master production schedule
Capacity utilization
Total inventory cost as:
Incoming stock level
Work-in-progress
Scrap value
Finished goods in transit
Supplier rejection rate
Efficiency of purchase order cycle time
Frequency of delivery

Table 8
Performance metrics for the innovation and learning perspective
Supplier assistance in solving technical problems
Supplier ability to respond to quality problems
Supplier cost saving initiatives
Supplier’s booking in procedures
Capacity utilization
Order entry methods
Accuracy of forecasting techniques
Product development cycle time
Flexibility of service systems to meet particular customer needs
Buyer–supplier partnership level
Range of products and services
Level of customer perceived value of product
R. Bhagwat, M.K. Sharma / Computers & Industrial Engineering 53 (2007) 43–62 55

4.1. Measuring and evaluating financial metrics

Financial performance measures indicate whether the company’s strategy, implementation and execution
are effectively contributing to the bottom line improvement of a firm. Financial goals include achieving prof-
itability, maintaining liquidity and solvency both short term as well as long term, growth in sales turnover
and maximizing wealth of shareholders. Financial performance indicators are shown in Table 5. In simplicity,
financial goals are to survive, succeed and prosper. Survival is measured by cash flow, success by growth in
sales and operating income and prosperity by increased market share and return on equity and capital
employed.

4.2. Measuring and evaluating customer perspective

How do customers see the business: the BSC demands that the management must translate their general
mission statement on customer service into specific measures that reflect the factors that really matter to
the customers. Customers generally, concern to lead-time, quality of products and services, company’s perfor-
mance service and the cost effectiveness. But on long term basis and more importantly in the era of globaliza-
tion any firm’s competitiveness lies on different customer related factors are shown in Table 6.

4.3. Measuring and evaluating internal business perspective

What must business excel at: the internal measures for the BSC stems from the business process that
have the greatest impact on customer’s satisfaction factors that affect cycle time, quality, skill of the
employees, and of course, productivity. Firms should decide what processes and competencies they must
excel at and specify measures for each of them. Performance metrics for the internal business perspective
are shown in Table 7.

4.4. Measuring and evaluating innovation and learning perspective

Can we continue to improve and create value: a company’s ability to innovate, improve and learn lies
directly to company’s value. Innovation and continuous learning process can bring about efficiency in
operating domain of the business. Moreover, it ensures cost reduction and product differentiation to
meet the varied requirements of the customers. As a result, it strengthens the financial ability through
earning higher profitability and greater degree of appropriation of profit and retaining larger share of
earnings to finance the forthcoming expansion of future projects of the company under consideration.
Performance metrics for the innovation and learning perspective in a BSC includes measures as shown
in Table 8.

5. Development of BSC

In order to put the BSC to work, companies should articulate goals for time, quality, performance and ser-
vice and then translate these goals into specific measures. Firms should stop navigating only by financial mea-
sures but with combination of operational measures for day-to-day business operations too.
In building a firm specific balanced SCM scorecard, following steps are recommended:

(1) Create awareness for the concept of balanced SCM scorecard in the organization;
(2) Collect and analyze data on the following items:
 Corporate strategy, business strategy and SCM strategy;
 Specific objectives and goals related to corporate strategy, business strategy and SCM strategy;
 Traditional metrics already in use for SCM evaluation;
 Potential metrics related to four perspectives of balanced scorecard;
(3) Clearly define the company specific objectives and goals of the SCM function for each of the four
perspectives;
56 R. Bhagwat, M.K. Sharma / Computers & Industrial Engineering 53 (2007) 43–62

(4) Develop a preliminary balanced SCM scorecard based on the defined objectives and goals of the enter-
prise and the approach outlined in the paper;
(5) Receive comments and feedback on the balanced SCM scorecard from the management, and revise it
accordingly;
(6) Achieve a consensus on the balanced SCM scorecard that will be used by the organization; and
(7) Communicate both the balanced SCM scorecard and its underlying rationale to all stakeholders.

It is essential to have a common understanding of the SCM related tasks in the organization and also the
well defined specific goals and objectives before developing the balanced SCM scorecard. The metrics included
in the balanced SCM scorecard should meet three criteria. They should be quantifiable, easy to understand,
and ones for which data can be collected and analyzed in cost-effective manner. It is recognized that certain
attributes do not have metrics that can be measured directly in quantitative terms. In such cases, it will be
important to relate these attributes to other ones that can be quantifiable.
Kaplan and Norton (1996) also stress the importance of adhering to three principles in order to develop
BSC that is more than a group of isolated and eventually conflicting strategies and measures:

– Build in cause-and-effect relationships;


– Include sufficient performance drivers;
– Provide a linkage to financial measures.

5.1. Cause-and-effect

A strategy is a set of assumptions about cause-and-effect. If cause-and-effect relationships are not ade-
quately reflected in the BSC, it will not translate and communicate firm’s vision and strategy. These cause-
and-effect relationships can involve several or all four of the perspectives in the BSC framework. For example,
flexibility of service systems to meet particular customer needs (internal business operations perspective) will
be more likely to meet customer expectations (customer perspective). Higher level of customer expectations
will lead companies to supply more innovative products and services (learning and growth perspective). This
in turn will increase the market share and profitability (financial perspective).

5.2. Performance drivers

A well built BSC will include an appropriate mix of outcome measures and performance drivers. Out-
come measures like total supply chain cycle time without performance drivers like buyer–supplier partner-
ship level do not communicate how the outcomes are to be achieved. Furthermore, performance drivers
without outcome measures may enable the achievement of short-term operational improvements, but will
fail to reveal whether the operational improvements have been translated into enhanced financial
performance.
A company may invest resources significantly in maintaining buyer–supplier partnership and coordination
in order to improve day-to-day business operations. If, however, there is no outcome measure for buyer–
supplier partnership (e.g., faultless deliveries), it will be difficult for companies to determine whether its strat-
egy has been effective. Outcome measures are more or less generic, but performance drivers are more
company-specific and will often be based on the particular strategy that is being pursued.

5.3. Linkage to financial measures

The ultimate aim of a balanced SCM scorecard will be to support management in a manner that improves
the overall financial performance of the enterprise. ‘‘A failure to convert improved operational performance
into improved financial performance should send executives back to the drawing board to rethink the com-
pany’s strategy or its implementation plans’’ (Kaplan & Norton, 1996). Further, we must continuously keep
in mind the fact that measurements are not enough, since they must be use and acted upon by the manage-
R. Bhagwat, M.K. Sharma / Computers & Industrial Engineering 53 (2007) 43–62 57

ment. The BSC is not only an operational tool, but it can also be the foundation for strategic management
system.
The following steps may be appropriate in order to implement effectively the balanced SCM scorecard as a
strategic management system:

– Clarify and translate the vision and strategy into specific action programs;
– Link strategic objectives to team and individual goals;
– Link strategic objectives to resource allocations;
– Review performance data on a periodic basis and adjust the strategy as appropriate.

5.4. Format and content of output

The BSC that we are presenting here is essentially non-prescriptive, since all organizations are unique and
management will weight different measures accordingly during its decision-making. This organizational dis-
tinctiveness and uniqueness will influence both the format of outputs and the way that they are used.

6. Putting our proposal into practice

During the last decade many small and medium sized enterprises (SMEs) are now more and more taking
part in the global business network, participating in many interlinked supply chains (Bhagwat & Sharma,
2006). This makes balanced SCM one of the key issues for many companies (Hvolby & Trienkens, 2002;
Sharma & Bhagwat, 2006). A few pioneering SMEs have applied the BSC concept to their SCM related
activities.

6.1. Case study

The authors have recently observed the implementation of balanced SCM scorecard in three SMEs (two
were medium sized companies and one was a small scale enterprise). One company is a leading welding con-
sumable manufacturer and operates in a multi plant environment. It was established in 1980 and situated in a
major industrial town of western India, which is very well connected by rails. It was the first company to
launch production of mild steel general purpose welding electrodes in the western region in India. The number
of employees in the firm is 100. Apart from having very well Nation wide distributor to dealer network it is
one of the prominent suppliers of electrodes to the Railways, Road transports, Coalmines, Construction com-
panies and public sector companies.
The second case company is a leading manufacturer of brakes and clutches of all types of four wheelers.
It is a medium scale company with a manpower of 300. It manufactures a wide range of brakes and
clutches of diesel commercial vehicles (heavy, medium and large commercial vehicles) and passenger cars.
It was established in 1973 and situated in the most developed state of the western India and belongs to a
reputed industrial group of the state. The company operates in a single plant environment. It enjoys 40%
market share in domestic market for light commercial vehicles and 30% in medium and heavy commercial
vehicles.
The third case company operates in a multi-plant environment in western India. It is in the field of iron
handicraft manufacturing and exclusively export-oriented unit (EOU). Majority of its customers are based
at United States of America and Europe. The company is running five overseas marketing offices also to
look after marketing and sales related activities for better customer services. It is the largest company in its
segment of products and ISO 9001 certified company. The company was established in 1985 with a small
turnover. The company has 200 employees. Use of computers and IT tools are very prominent in day-
to-day functioning of the company. Strength of the company lies in its innovative design and product
development.
The main purpose of this study is to find out how SMEs in India apply the BSC concept. As the concept
seems to have evolved in recent years, we aim to assess, in particular, whether BSCs are used as an improved
performance measurement system or as a strategic management system. There are a number of sub-questions
58 R. Bhagwat, M.K. Sharma / Computers & Industrial Engineering 53 (2007) 43–62

through which the nature of applications is studied. We will first focus on the content of the scorecards,
including perspectives on the use, number and novelty of the measures used, and an assessment of whether
the assumed cause-and-effect relationships are reflected in the scorecards (Norrekilt, 2000). Content provides
a basis for understanding use of the BSC in the companies. The key questions addressed are the following:
Who is interested in the performance reported by the BSC measures? Are targets set for measures? Are man-
agers rewarded on the basis of scorecard measures? And in which hierarchical level(s) of the organization is the
BSC applied? We also address the perceived benefits of the BSC. Another purpose of this study is to provide
some preliminary insight on why companies adopt BSCs. The study comprised semi-structured interviews.
Interviews were considered the most suitable method to provide answer to the research questions at this early
stage of the BSC diffusion. We found that all the three companies were fairly in the early phase of BSC imple-
mentation. In each company we tried to identify the person most knowledgeable about the development and
use of the BSC application. Five of the interviewed persons represented marketing and sales planning, three
were from finance and accounting, and three were CEOs or other managers. Interviews were semi-structured,
lasted from 1 to 2 h and were all tape-recorded.

6.2. Results

6.2.1. Content of the scorecards


All the three companies interviewed have four perspectives in their scorecards, mainly those suggested by
Kaplan and Norton. However, two of the companies expressed willingness to add employee perspective to
their scorecards in near future. The number of measures in the BSC varies from 4 to maximum 15 among
the companies interviewed.
Implementing the BSC has meant adopting new measures that were not used earlier in all case companies.
Most interviewees stated that BSC has forced them to select the most important measures from the existing
ones and helped them to focus their attention.
One of the key ideas suggested by the Kaplan and Norton (1996) in constructing scorecards is to link the
measures to the strategy and to each other following the assumed cause-and-effect relationships. Case compa-
nies stated that they have derived their measures from strategy, based on cause-and-effect reasoning. However,
when asked to give an example of such cause-and-effect chain, the claimed link between strategy and measures
appeared weak in all the cases.

6.2.2. The use of scorecards


In all the case companies we studied, BSCs are applied at business unit level, in contrast to the top man-
agement level on the one hand and to department or individual level on the other. Business unit refers to profit
center. However two of the three case companies have agreed to develop the BSCs at departmental and func-
tional activity levels in near future.
BSCs are used for performance measurement. Case companies set targets for BSC measures. Managers
and supervisory staff are held responsible for achieving the targets. Non-financial measures and targets
are used along with financial measures to provide more comprehensive accountabilities and to direct
managerial emphasis to issues of strategic relevance. BSCs are also viewed as information system in
the organization as companies often use the same as a tool to see what to improve? However, on inves-
tigating, how the managers and supervisory staff are rewarded, case companies had some sort of bonus
programs. But BSCs had nothing to do with the bonus programs. Companies are not able to link their
bonus programs with the BSCs at this early stage of applications, but in further studies this would be
one of the key issues.

6.2.3. Practicalities of applications


In all the three cases data for BSCs are collected manually and systems are maintained on spreadsheet pro-
grams. However one company expressed its willingness to acquire some special purpose software in near
future. BSCs results in companies we observed are usually reported as paper reports distributed to key func-
tional managers and supervisors. The most common reporting frequency appears to be once in a quarter year.
R. Bhagwat, M.K. Sharma / Computers & Industrial Engineering 53 (2007) 43–62 59

Automation of data collection, electronic processing of information and improvement in reporting techniques
are seen as future targets of improvement.

6.2.4. Difficulties in BSC deployment and the lessons learnt


The study from these cases suggests that several common errors must be avoided when implementing BSC
concept. Three of these errors are discussed below

– Failure to include specific long-term objectives;


– Failure to relate key measures to performance drivers by means of cause-and-effect relationships; and
– Failure to communicate the contents of, and rationale for the balanced SCM scorecard.

The strategic performance objectives in the organizations we observed were sub-optimal and rather modest,
or else peripheral to improvements in the system performance. As a result, we believe that including stretch
goals that require significant improvements in key areas will enhance the effectiveness of a BSC for SCM.
Each of the observed companies was only able to identify a few cause-and-effect relationships and perfor-
mance drivers during their development of a balanced SCM scorecard. In one case, faultless deliveries, cus-
tomer query response time, and supplier rejection rate were agreed to be performance drivers for internal
business perspective. However, the management team neglected to specify how the performance in these three
areas would be improved.
We would suggest that such improvements are possible through different mechanisms, including the better
buyer–customer partnerships and coordination, the adoption of new development tools, and delivery reliabil-
ity. As a result, we propose that explicit cause-and-effect relationships be identified before a balanced SCM
scorecard is implemented. It is critical not only to relate performance drivers to the performance measures
in each key area, but also to consider how each of the performance drivers will significantly improve one
or more key measures of performance.
We also observed a surprising lack of intraorganizational communication as the balanced SCM scorecards
were developed. For example in two of the three cases observed, the draft version of the BSC was circulated
only to two or three members of the top management, and one or two key middle level managers and super-
visory staff. All functional mangers were not told about the scorecard’s content or rational. Not surprisingly,
they had little enthusiasm for a commitment to this concept. Individual performance objective and appraisal
criteria for individual function were not linked directly to the BSC. As a result, we wish to stress importance of
broadly communicating both the purpose and intent of balanced scorecard and firmly integrating it into the
company’s performance management system. Scorecard templates and results that are communicated to
employees can motivate their efforts and reward them for meeting targets. But a missing link is observed
between the company’s bonus program and the BSC. Our discussions and limited testing within the company
also suggest that graphical rather than tabular presentation formats be employed. Moreover, interorganiza-
tion communications were also found weak during the process of development of the BSC. Supply chain trad-
ing partners such as customers and suppliers were not actively involved in the building process of the balanced
SCM scorecard.
The cases we studied reinforced a belief that while the specifics of balanced SCM scorecard will differ from
organization to organization; it is beneficial to build upon a standard framework, such as the one presented
here, rather than starting from the scratch. In one case where a clean-sheet approach was employed, the learn-
ing and growth perspective contained some measures that were clearly related to internal business operations,
the customer perspective was poorly developed, and the internal business operations perspective neglected the
measures, which are very crucial for day-to-day business operations.
Additional case studies are likely to reveal other barriers, obstacles and errors that can hinder the success of
balanced SCM scorecard.

7. Conclusions and implications

Performance measurement is an essential element of effective planning and control as well as decision-
making. The measurement results reveal the effects of strategies and potential opportunities in SCM
60 R. Bhagwat, M.K. Sharma / Computers & Industrial Engineering 53 (2007) 43–62

(Chan, Qi, Chan, Lau, & Ip, 2003). Although implementations of performance measures in companies are
now wide spread (Turner, Bititici, & Nudurupati, 2005), there is not a great deal of literature that
addresses the various issues faced by organizations during SCM implementation in a balanced way.
We have proposed application of the balanced SCM scorecard to organizations with the objective to eval-
uate their day-to-day business performance. This paper has considered the use of a BSC framework to
measure and evaluate SCM. A concept initially proposed as a decision-making tool for senior managers
was examined in the day-to-day operations management domain by proposing and detailing four SCM
evaluation perspectives. We have also considered specific metrics for each of the perspectives. While
applying the BSC in SCM, it is interesting to observe that some of the metrics in one category contradict
other metrics in another category. Even within a category one SCM metric compromises others. For
example, efforts to minimize metric ‘variations against budget’ often result in problems related to other
measures such as on-time delivery, inventory, lead-time, cash flow and forecasting from other categories.
By reducing flexibility of change in finance metric ‘variations against budget’, sudden high market
demands could be compromised. Measure such as ‘supplier rejection rate’ contradicts buyer–supplier part-
nership level in the finance perspective. Similarly, ‘range of products and services’ compromise metrics
such as flexibility to meet particular customer needs, order lead time, responsiveness to urgent deliveries
and effectiveness to distribution planning schedule in the same category of customer perspective. By
increasing more range in products and services offered by supply chains, their performance could be com-
promised on other measures. Metric ‘responsiveness to urgent deliveries’ from customer perspective cate-
gory compromises with internal business metrics such as capacity utilization, total inventory cost and
planned process cycle time. Reasons are obvious as serving to an urgent order could disturb routine pro-
duction planning and planned delivery schedule. Hence, it also contradicts metrics such as delivery reli-
ability and delivery performance in the same customer category. Within internal business perspective
category, metric ‘capacity utilization’ contradicts other measures such as range of products and services
and responsiveness to urgent deliveries. Maximum utilization of plant and machinery could affect delivery
performance, delivery lead-time and delivery reliability adversely. Supplier’s cost saving initiatives metric
from innovation and learning category also compromises with other metrics such as delivery performance
and delivery lead time of other categories. Managers using BSC should look into these contradicting met-
rics carefully before applying it in the organizations.
The four perspectives and related metrics represent a template rather than definitive strategic SCM mea-
surement system. Future research is recommended in order to determine whether the proposed perspectives
and measures are a necessary and sufficient set. Nevertheless, the framework does represent a strategic
SCM evaluation tool that can be used to monitor and guide specific projects and general performance
improvement efforts. The value of the balanced SCM scorecard rises if it is used to evaluate SCM performance
on daily routine basis to coordinate wide range of business operations simultaneously. The management of
companies are likely to benefit at all decision levels from a systematic framework based on goals and measures
that are agreed upon in advance.

Acknowledgement

The authors like to put on record appreciation to the anonymous referees for their valuable suggestions,
which have enhanced the quality of the paper over its earlier version.

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Rajat Bhagwat is an Associate Professor in the Department of Mechanical Engineering, J.N.V. University, Jodhpur. He has also worked as
a Research Assistant in the University of Hong Kong, Hong Kong. His areas of research interests include information system, simulation,
modeling and control of flexible manufacturing system. He has working experience in industrial projects in the areas of production,
planning and control, capacity expansion, and layout planning. He has been awarded a postdoctoral fellowship at the University of
Bordeaux, France. He has a number of publications in international journals and conferences.

Milind Kumar Sharma has taught many subjects related to production & industrial engineering and operations management. Prior to
joining the J.N.V. University, Jodhpur in 1998, he has served in industry for four years. He has been awarded research projects under the
Career Award for Young Teacher Scheme by the All India Council for Technical Education (AICTE) and University Grants Commission
(UGC), New Delhi, India. His areas of research interests include management information system, performance measurement, supply
chain management and small business development. He has published research papers in Production Planning and Control, Computers &
Industrial Engineering, Journal of Manufacturing Technology Management, International Journal of Globalization and Small Business,
International Journal of Enterprise Network Management, International Journal of Productivity and Quality Management and Mea-
suring Business Excellence.