Chapter 9: Supply Chain

Performance Management
Section I: Performance Management in
Supply Chain
 Performance Management in Supply Chain

• SCM has been a major component of competitive strategy to enhance

organizational productivity and profitability.
• The literature on SCM that deals with strategies and technologies to
effectively manage a supply chain is quite vast.
• In recent years, organizational performance measurement and metrics
have received much attention from researchers and practitioners.
 SCM Performance Criteria

• Cost
• Customer service
• Productivity measures
• Asset measurement
• Quality
 Key Elements of SCM

• Supply chain strategy

• Organization
• Planning
• Management
• Control activities
Supply Chain Performance Management as a
Basis for Industry 4.0
• SCPM is fully integrated into the extensive supply on community and
supply on services.
• This facilitates immediate use of the system with previously integrated
participants while avoiding a drawn-out integration process of business
partners.
• The incorporation of analytical functions into the collaborative processes
creates a maximum in work efficiency and facilitates end-to-end visibility
of the entire supply chain at any given time, from order to invoice.
 Standardized Processes and Metrics for
SCPM
• Planning details throughout the entire sales and operations planning
(S&OP) process
• Customer service levels
• Accuracy of current inventories
• Transparency of supply chain costs
 Key Differentiators in Implementation

• Supply chain strategy sets the direction and defines the steering focus
• End-to-end processes paired with transparency of inventories and supply
chain cost
• Organizational alignment and clear accountability for metrics
• Integrated technology and adaptive reporting
 Trends in Management Reporting on Supply
Chain Performance
• In an information-enabled supply chain organization, more and more data
are available.
• Deloitte predicts that reporting will advance towards finding the most
relevant information in the data jungle by using web mining to quickly
react to new events, predictive analytics with sound ‘what if?’ scenarios,
and preselected content using artificial intelligence.
 Performance Measurements and
Metrics in SCM
• Order entry method
• Order lead time
• The customer order path
• Evaluation of supply link
• Evaluation of suppliers
• Measures and metrics at production level
• Range of product and services
• Capacity utilization
• Effectiveness of scheduling techniques
 The Supply Chain Visibility Roadmap

• Focusing on the main problem areas first and then expanding from there
• Creating ‘as is’ assessment of key metrics, targeted for improvement
• Including both cross-functional and department-based metrics
• Establishing a cross-functional team with an executive sponsor when
creating the roll-out plan
 SCM Performance Measurements
and Metrics
• Planning performance evaluation metrics
• Sourcing performance evaluation metrics
• Production performance evaluation metrics
• Delivery performance evaluation metrics
 Maturity Models of Supply Chain
Performance
• The Global Survey of Supply Chain Progress uses a five-stage maturity
model.
• The ‘Five Levels of Supply Chain Evolution’ begin with the basic level of
enterprise integration (level 1) and end with the highest level of full
network connectivity (level 5).
• It is seen that although companies assign very high importance to SCM, a
large part of the companies are in stages 1 and 2, which can be attributed
to lack of implementation and a gap between aspiration and reality.
 Maturity Models to Measure Supply Chain
Performance
• Essentially, maturity models are intended to describe the typical
behaviour exhibited by a company at a number of levels of ‘maturity’.
• This allows companies to codify what might be considered good practice
(and, conversely, bad practice).
• T here are some intermediate or transitional stages. The concept applies
to a range of activities, including quality management, software
development, supplier relationships and many more, both as a means of
assessment and as part of a framework for improvement.
• One of the earliest maturity approaches was Crosby’s Quality
Management Maturity Grid (QMMG).
 Maturity Levels of the Supply Chain
Maturity Model
Level Level Name Description

1 Undefined Describes a competency area for which the enterprise has no

documentation or standardization. The processes are ad hoc, dependent on
the person doing the activity and reactive to the environment.
2 Defined Describes a competency area for which the enterprise has defined the
process and procedures. The competency areas are isolated, and there is
little forward effort to integrate the many processes.
3 Manageable Describes a competency are for which the enterprise has defined established
procedures that they measure and manage to those measurement.
Moreover, the enterprise has taken action to integrate and coordinate the
internal processes and systems of the enterprise.

4 Collaborative Describes a competency area for which the enterprise has established
procedures to collaborate with suppliers and customers.
5 Leading Describes a competency area for which the enterprise has established
procedures to collaborate with suppliers and customers. It measures these
practices and regularly obtains feedback to improve these practices.
 Enterprise Goals and Supply Chain Views

To achieve the defined enterprise goals, a company needs to successfully

manage the following seven supply chain views:

•  SCM and logistics. Functions, processes, activities and tasks related to the
integration, collaboration and development of the suppliers.
• Production systems. Functions, processes, activities and tasks regarding
the transformation of the product or service.
• Inventory management. Actions related to inventory management and
control.
 Enterprise Goals and SCM Views (Contd)

• Customer relationship management. Actions regarding meeting the

customer’s needs.
• Human resource management. Actions related to the enterprise’s
employees, their integration into the company and the work environment.
• ISs and technology management. Actions linked to the development and
implementation of ISs and the technology management process.
• Performance measurement systems. To measure the enterprise’s
performance regarding processes, functions, and employees.  
 Maturity Levels of Supply Chain

Level Level Name Description

1 Undefined Describes a competency area for which the enterprise has no
documentation or standardization. The processes are ad hoc,
dependent on the person doing the activity and reactive to
the environment.
2 Defined Describes a competency area for which the enterprise has
defined the process and procedures. The competency areas
are isolated, and there is little forward effort to integrate the
many processes.
3 Manageable Describes a competency are for which the enterprise has
defined established procedures that they measure and
manage to those measurement. Moreover, the enterprise has
taken action to integrate and coordinate the internal
processes and systems of the enterprise.
4 Collaborative Describes a competency area for which the enterprise has
established procedures to collaborate with suppliers and
customers.
5 Leading Describes a competency area for which the enterprise has
established procedures to collaborate with suppliers and
customers. It measures these practices and regularly obtains
feedback to improve these practices.
Section II: Benchmarking Supply Chain
Performance
 What Is Benchmarking?

• Benchmarking can somewhat philosophically be defined as follows:

Benchmarking is the practice of being humble enough to admit that someone else is
better at something, and being wise enough to learn how to match them and even
surpass them at it.
• This definition captures the essence of benchmarking, namely learning
from others. The core of the current interpretation of benchmarking is as
follows:
o Measurement of own and the benchmarking partners’ performance
level, both for comparison and for registering improvements.
o Comparison of performance levels, processes, practices and so on.
o Learning from the benchmarking partners to introduce improvements
in your own organization.
o Improvement, which is the ultimate objective of any benchmarking
study.
 Benchmarking Supply Chain Performance

• Benchmarking is the practice of being humble enough to admit that

someone else is better at something, and being wise enough to learn how
to match them and even surpass them at it.
• This definition captures the essence of benchmarking, namely learning
from others. The core of the current interpretation of benchmarking is as
follows:
o Measurement of own and the benchmarking partners’ performance
level, both for comparison and for registering improvements.
o Comparison of performance levels, processes, practices and so on.
o Learning from the benchmarking partners to introduce improvements
in your own organization.
o Improvement, which is the ultimate objective of any benchmarking
study.
 Scope of Supply Chain Benchmarking

Supply chain performance and process benchmarking provide useful

comparisons with other companies. In addition, it can also help
organizations to identify the following areas:
• Performance improvements
• Interdependencies and relationships between KPIs
• Better business trade-offs
• Opportunities for cross-industry best practices
• Baseline information for goal setting, prioritization and ongoing
performance measurements
 Processes That Need to Be Followed for an
Effective Benchmarking
• Determine the scope of the benchmarking exercise covering planning,
procurement, manufacturing and logistics
• Decide on a set of KPIs under each identified areas for measurement and
comparison
• Zero in on the companies to be benchmarked which can be immediate
competitors, best in class and best performers in the category
• Develop reporting templates and formats and frequency of measurement
• Work out a plan of implementation and action
• Identify resources required and data collection plan
• Ensure agreements and involvement of stakeholders on its objective,
process and benefits
• Collect and validate the data
• Analyse and interpret data collected
• Compare with companies’ own performance and identify the reasons
thereof to plan for the future
 Supply Chain Performance Metrics
for Benchmarking
• Delivery performance metrics
• Cycle-time metrics
• Inventory and cash management metrics
• Supply chain cost metrics
 Improving Performance

• The ultimate aim of benchmarking is to incorporate the best practices

within the company to improve performance and to become more
competitive in the marketplace. That is how a company can ensure its
survival and growth.
• The analysis of the data collected to create a meaningful and actionable
process improvements plan holds the key. This needs great care.
• The best practices can be captured from benchmarking exercises from
various partners and then an agreed practice and process can be prepared
for implementation considering the other constraints and limitations that
a specific business can have.
 Some Common Misconceptions in
Benchmarking
• Participating in an industry survey covering a category of industry on the
basis of certain parameters is not benchmarking. This is too general and
does not give any actionable standards of performance, and they are too
broad.
• Businesses should also be careful about undertaking some action plan
based on pre-existing benchmark. A narrow focus on cost parameters
overlooking the customer service delivery and satisfaction will only serve
as part of the story.
• Benchmarking too many companies at the same time should be avoided
as it will only complicate the whole exercise and diffuse the focus.
• Not aligning the business goals with benchmarking criteria will also not be
effective and meaningful.
• After all, the ultimate goal is to improve end-to-end performance of the
business.
Project Work on Performance Measurement

• Case questions should be discussed in the class.

• Students can undertake an industry project to determine the SCM
performance.