Module 5

MBA Sem-III
Logistics and Supply Chain Management
Module 5: SCM Performance Measures

Performance Measure Defined
• Performance measures are a systematic attempt to learn how responsive an
organization‟s products and services are to the needs of the customer and the
organization‟s ability to pay its suppliers, employees and stakeholders.
• The companies have goals of satisfying their customers and make reasonable
profits in the process.
• Measuring performance offers an effective method of determining whether or not

an organization is meeting its goals and achieving its mission.
• To achieve customer satisfaction, companies have to carryout
several activities such as buying raw materials and
components, converting the inputs into finished products and
delivering the finished goods to the customer.
• All these activities must be performed efficiently and

effectively so as to achieve the company‟s goals and
objectives.
• The various approaches to measuring performances
are:
(i) Measuring inputs;
(ii) Managing processes;
(iii) Measuring outputs and
(iv) Measuring efficiency.

Measuring Inputs
• Inputs are the resources that a company uses to produce goods and
services.
• It includes human, financial, facility and material resources.
• Measuring inputs involve measuring all the activities linked to the

inputs.
• This includes supplier‟s performance, i.e. timeliness of supply,

quality of materials supplied etc.
Managing Processes
• Conversion processes are the various activities that the businesses

indulge in to convert the inputs into the outputs desired by the customers.
• The process include manufacturing and supporting processes such as

inventory control, store keeping, packing and inspection and quality
control and so on.
• Performance measure of these processes include inventory turnover

ratios, utilization of production capacity, adherence to production and
delivery schedules etc.
Output Measure
• The volume of output produced, quality of this output, cost of output

etc are some of the output measures. It is a means of quantified
comparison between actual result and the intended result.
Efficiency Measure
• These indicate the measures of unit cost or productivity associated

with a given outcome or output.
Supplier Performance Measurement
• It is the process of measuring, analyzing and managing supplier

performance for the purpose of reducing costs, mitigating risk
and driving continuous improvement in value and operations.
• Common and consistent measurements can be useful for

companies to focus resources, identify performance gaps,
develop strategies for improvements of supply chain performance
and determine the total cost of ownership (TCO) for supply
relationships, products and the entire supply chains.
What to measure:
• After choosing which supplier to be measured, the next step is to

choose the parameters on which the supplier is to be measured.
• Obviously, quality is the most important parameter.
• Since most of the firms choose their suppliers on the basis of a

thorough analysis of their ability to deliver quality products/services,
regular and routine performance measurement regarding quality is
not a criterion of performance measurement system.
Initiative:
• It is considered to be one of the top criteria which indicates

that more and more buying firms want their suppliers to have
the ability to demonstrate their initiative in all their dealings
with the buying firms.
Performance Categories
Four major categories of Performance metrics are:
(i) Time;
(ii) Quality;
(iii) Cost and
(iv) Supporting measures

(i) Time:
• It is considered to be an important parameter of logistics

performance while measuring effectiveness. Two elements of time-
namely elapsed time for the activity and the reliability (or
variability) are the measures considered under the “time” category of
metrics.
(ii) Quality
• Quality category has a number of dimensions that are important to

logistics and supply chain management. The “perfect order” criteria
is a good example of the increased emphasis being placed upon
customer service.
(iii) Cost
• This category indicates the measure of efficiency. Cost is crucial to

the ability of majority of the firms to compete in the market and earn
reasonable profits and return-on-investment.
(iv) Supporting measures
• Total delivered cost or landed cost has a direct impact on the prices
that will be charged in the market. Total delivered cost includes the
cost of goods, transportation, inventory and materials handling,
inventory turns and days of sales outstanding. Inventory turns reflect
how long a firm holds inventory that impacts the inventory carrying
cost.
Supply Chain Performance Measures
There are many measures or metrics, which relate to how well

various aspects of the supply chain are operating. The most
important supply chain performance measures are:
(i) Inventory
(ii) Transportation
(iii) Customer orders

(i) Inventory:
• There are multiple measures, which track aspects of a firm‟s

investment in inventory. These measures are common with physical
supply systems as well as physical distribution systems. Examples of
inventory measures include: (a) rupee value of total inventory, (b)
percentage of active to inactive part numbers (items), (c) total
number of part numbers (items), (d) working capital savings, (e)
total inventory investments, (f) days supply of inventory and (g)
inventory investment based on type of purchased items such as
production items, maintenance items, packaging materials etc.
(ii) Transportation
• These measures include actual transportation costs against some pre-

established objective; (a) quality of transportation carrier and
delivery performance levels and (b) transportation lead-time
indicators.
(iii) Customer orders
• These measures evaluate the efficiency of the organisation in

satisfying its commitment to downstream customers. Examples of
these measures are: (a) percentage of on-time delivery; (b) total time
from customer order to customer delivery, (c) returned orders and (d)
warranty claims.
Supply Chain Operations Reference Model (SCOR)
• SCOR model is recognized by the 8000 companies, which are
members of the SCC as an effective “tool kit” for up-grading the
supply chain for strategic advantages for companies that want the
improvement in their supply chain management performance.
• SCOR model refers to an attempt at standardising processes for

supply chain management.
• The idea behind SCOR was to provide a language that can describe,
measure and compare supply chain operations.
Overview of the SCOR Model
• The SCOR model isolates key supply chain management

process and matches their process elements against industry-
specific best practices, benchmarking performance data and
appropriate software applications.
• These provide users with a framework for understanding

where they need to make improvements.
Overview of the SCOR Model
a. Capture the “as-is” state of a person and derive the desired “to-be”
future state.
b. Quantify the operational performance of similar companies and

establish internal targets which are based upon “best-in-class”
performance of “bench-mark” companies.
c. Characterise and describe the management practices and software

solutions that result in “best-in-class” performance.
Characteristics of SCOR Model
• The SCOR model enables companies to communicate, compare and
learn from competitors and firms both within and outside of their
industry.
• It helps to measure supply chain performance and also the

effectiveness of supply chain reengineering.
• Also, the future process improvements can be planned and tested

using the SCOR model.
• Components of the SCOR model comprises the following:
i. Standard description of the process elements that make complex

management processes.
ii. Benchmark metrics used to compare process performance to

objective, external points of reference.
iii. Description of best-in-class management practices.
iv. Mapping of software products which enable best practices.

• SCOR model focuses upon five key processes for

supply chain namely:
a. Plan;
b. Source
c. Make
d. Deliver
e. Return
a. Plan :
• The plan process encompasses demand and supply planning and

management, which requires balancing resources with requirements.
• It also involves establishing and communicating the plans for all

other processes in the supply chain.
• The planning would include management of business rules, supply

chain performance, data collection, inventory, capital assets,
transportation etc.
b. Source :
• The “source” process encompasses sourcing various materials such

as stocked, make-to-order and engineer-to-order products or
materials.
• This process would include scheduling deliveries, receiving,

verifying, transferring and authorizing vendor payments.
• It could also include the identification and selection of new sources

of supply.
c. Make :
• The “make” process encompasses make-to-stock, make-to-order and

engineer-to-order production activities, issuing materials for
production, producing and testing the products, packing, staging and
realising.
• For engineer-to-order products, the „make‟ process includes

finalizing the design and engineering activities.
d. Deliver:
• The “deliver‟ process encompasses ordering, warehousing,

transporting and installing stocked, made-to-order and engineered-
to-order products.
• It would include all order-management activities, warehousing

activities, invoicing and managing transportation related activities,
which are necessary to meet planned demand or actual demand.
Levels of Processes in SCOR Model
The SCOR model has three levels of process:
i. Level 1: Top level (types of processes)
ii. Level 2: Configuration level (categories of processes)
iii. Level 3: Element level (decompose processes)

• Level 1 defines the scope and extent of the model.

Competition performance targets are set at this level.
• Level 2 provides the opportunity to configure to order a

specific company‟s supply chain. The companies can
implement their operations strategy at this level.
• Level 3 defines a company‟s ability to compete in its markets
and would include process elements such as definitions,
information about inputs and outputs, performance metrics,
best practices, system capabilities to support best practices
and systems and tools.
• Operations strategy of companies can be fine-tuned at this

level.
• Supply chain performance measure can be defined as an approach to
judge the performance of supply chain system.
• Supply chain performance measures can broadly be classified into

two categories:
 Qualitative measures: For example, customer satisfaction and

product quality.
 Quantitative measures: For example, order-to-delivery lead time,

supply chain response time, flexibility, resource utilization, delivery
performance.
Quantitative Measures
• Mostly the measures taken for measuring the performance

may be somewhat similar to each other, but the objective
behind each segment is very different from the other.
• Quantitative measures is the assessments used to measure the

performance, and compare or track the performance or
products.
• We can further divide the quantitative measures of

supply chain performance into two types.
• They are:
 Non-financial measures
 Financial measures
Non-Financial Measures
• The metrics of non-financial measures comprise cycle

time, customer service level, inventory levels, resource
utilization ability to perform, flexibility, and quality.
Cycle Time
• Cycle time is often called the lead time.
• It can be simply defined as the end-to-end delay in a business

process.
• For supply chains, cycle time can be defined as the business

processes of interest, supply chain process and the order-to-delivery
process.
Customer Service Level
• The customer service level in a supply chain is marked as an

operation of multiple unique performance indices.
Order fill rate
• The order fill rate is the portion of customer demands that can be
easily satisfied from the stock available.
• For this portion of customer demands, there is no need to consider

the supplier lead time and the manufacturing lead time.
 Stockout rate: It is the reverse of order fill rate and marks the portion
of orders lost because of a stockout.
 Backorder level: This is yet another measure, which is the gauge of

total number of orders waiting to be filled.
 Probability of on-time delivery: It is the portion of customer orders

that are completed on-time, i.e., within the agreed-upon due date. In
order to maximize the customer service level, it is important to
maximize order fill rate, minimize stockout rate, and minimize
backorder levels.
Inventory Levels
• As the inventory-carrying costs increase the total costs significantly,

it is essential to carry sufficient inventory to meet the customer
demands. In a supply chain system, inventories can be further
divided into four categories.
 Raw materials
 Work-in-process, i.e., unfinished and semi-finished sections
 Finished goods inventory
 Spare parts
Resource Utilization
• In a supply chain network, huge variety of resources is used. These different

types of resources available for different applications are mentioned below.
 Manufacturing resources: Include the machines, material handlers, tools, etc.
 Storage resources: Comprise warehouses, automated storage and retrieval

systems.
 Logistics resources: Engage trucks, rail transport, air-cargo carriers, etc.
 Human resources: Consist of labor, scientific and technical personnel
 Financial resources: Include working capital, stocks, etc.

Financial Measures
• The measures taken for gauging different fixed and operational costs
related to a supply chain are considered the financial measures.
• Finally, the key objective to be achieved is to maximize the revenue

by maintaining low supply chain costs.
• There is a hike in prices because of the inventories, transportation,

facilities, operations, technology, materials, and labor.
• Generally, the financial performance of a supply chain is assessed by
considering the following items:
 Cost of raw materials.
 Revenue from goods sold.
 Activity-based costs like the material handling, manufacturing,

assembling rates etc.
 Inventory holding costs
 Transportation costs
 Cost of expired perishable goods

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MBA Sem-III

Logistics and Supply Chain Management

Module 5: SCM Performance Measures

• Measuring performance offers an effective method of determining whether or not

• All these activities must be performed efficiently and

(i) Measuring inputs;

(ii) Managing processes;

(iii) Measuring outputs and

(iv) Measuring efficiency.

• It includes human, financial, facility and material resources.

• Measuring inputs involve measuring all the activities linked to the

• This includes supplier‟s performance, i.e. timeliness of supply,

• Conversion processes are the various activities that the businesses

• The process include manufacturing and supporting processes such as

• Performance measure of these processes include inventory turnover

• The volume of output produced, quality of this output, cost of output

• These indicate the measures of unit cost or productivity associated

• It is the process of measuring, analyzing and managing supplier

• Common and consistent measurements can be useful for

• After choosing which supplier to be measured, the next step is to

• Obviously, quality is the most important parameter.

• Since most of the firms choose their suppliers on the basis of a

• It is considered to be one of the top criteria which indicates

Four major categories of Performance metrics are:

(iii) Cost and

(iv) Supporting measures

• It is considered to be an important parameter of logistics

• Quality category has a number of dimensions that are important to

• This category indicates the measure of efficiency. Cost is crucial to

(iv) Supporting measures

There are many measures or metrics, which relate to how well

(iii) Customer orders

• There are multiple measures, which track aspects of a firm‟s

• These measures include actual transportation costs against some pre-

• These measures evaluate the efficiency of the organisation in

• SCOR model refers to an attempt at standardising processes for

• The SCOR model isolates key supply chain management

• These provide users with a framework for understanding

b. Quantify the operational performance of similar companies and

c. Characterise and describe the management practices and software

• It helps to measure supply chain performance and also the

• Also, the future process improvements can be planned and tested

i. Standard description of the process elements that make complex

ii. Benchmark metrics used to compare process performance to

iii. Description of best-in-class management practices.

iv. Mapping of software products which enable best practices.

• SCOR model focuses upon five key processes for

• The plan process encompasses demand and supply planning and

• It also involves establishing and communicating the plans for all

• The planning would include management of business rules, supply

• The “source” process encompasses sourcing various materials such

• This process would include scheduling deliveries, receiving,

• It could also include the identification and selection of new sources

• The “make” process encompasses make-to-stock, make-to-order and

• For engineer-to-order products, the „make‟ process includes

• The “deliver‟ process encompasses ordering, warehousing,

• It would include all order-management activities, warehousing

The SCOR model has three levels of process:

i. Level 1: Top level (types of processes)

ii. Level 2: Configuration level (categories of processes)

iii. Level 3: Element level (decompose processes)

• Level 1 defines the scope and extent of the model.

• Level 2 provides the opportunity to configure to order a