What are performance measures in sustainable supply chain management?
As per Beamon (1999) the performance measures in supply chain management can be broadly classified into two broad categories one being qualitative measures and the other being quantitative measurers. Qualitative measures include things such as customer satisfaction and product quality while quantitative measures include quantifiable things like order-to-delivery lead time, supply chain response time, flexibility, and resource utilization and delivery performance. According to Bolstorff and Rosenbaum,(2003) although there are multiple measures of performance measurement in supply chain which includes the Balanced Scorecard, The Supply Chain Council’s SCOR Model, The Logistics Scoreboard, Activity-Based Costing (ABC), Economic Value Analysis (EVA) and Balanced Scorecards however the basic classification of the various performance measures can be said to be the following:
Quantitative measures:
Cycle Time:
The first performance measure in quantitative scenario is the cycle time that exists in the supply chain of the organization. According to Chopra and Meindl (2001), it is the end to end delay in the business process of the organization. For supply chains, the business processes of interest are the supply chain process and the order-to-delivery process. The product that has to be delivered to the customer should be delivered on time and if the product is in stock then there is a better chance of the product to be delivered to the customer in time and thus this is another performance measure in supply chain management which has to be used to determine the efficiency of the supply chain.
Customer service level:
There are various ways in which this performance measure can be used to determine the level of customer service that an organization tends to follow. The first is the order fill rate in which the amount of goods that have been given to the customers is counted. The next is the stock out rate which complements the order fill rate and determines the amount of orders that have been lost due to the lack of stock. The last but not the least is the backordered level which is used to determine the number of orders that are waiting to be delivered. Another form can be the probability of on time delivery to the customer which has a great impact on the overall customer service levels.
Inventory levels:
Another form of performance measures in supply chain management is the inventory levels that have to be maintained by the organization. As per Christopher (1998), although there are a lot of aspects of cost but the inventory levels are something that can have a very high impact on the total available cots. It has to be ascertained that the inventory levels are in accordance with the minimum costs that can be maintained by the organization but should not be so low that it results in the loss of customers for the organization.
Resource utilization:
The supply chain does not only deal with the customers but it also aims to reduce the costs of the organization and this can be achieved by optimum resource utilization. According to Cohen and Roussel (2004), the organization has to make sure that the resources that they have purchased or have been allotted to them they shall have to utilize them to the full extent possible. Be it the manufacturing resources or be it the human resources or the natural resources. The organization has to make sure that the resources are used to the best level possible as this kind of wastage can have devastating results for the organization. As this can drive up costs and can also result in other society welfare organization asking the company about the various operations that they shall undertake.
Financial measures:
As per Eccles (1991), the various fixed and operational costs that are involved in the process of supply chain management to have to be taken care of here. The organization has to make sure that they do not overshoot the costs that have been assigned to them nor they under perform on the costs as if they do not use the resources available to them then they are letting go of opportunity to grow in the future. This is something that has to be understood by the organization. Some of the costs that are associated include, raw material costs; activity-based costs including material handling, manufacturing and assembling; inventory holding costs; and transportation costs
Qualitative measures:
According to Harbour (1997), some of the qualitative measures of the performance of supply chain management are the customer satisfaction and the product quality. The qualitative measures of the same are as important as the quantitative measures. The measures have been used to understand the impact that things that cannot be measured have a great impact on the performance of the organization. This is also the basis on which the organization can measure the various supply chain consequences on their performance
Thus these are some of the measures that can be used to measure the performance of supply chain management
Why it is important and how to implement performance measures in supply chain?
As per Holmberg (2000), the importance of performance measurement systems is the following:
- Performance measures are important to control the activities in the organization, this helps to create a well performing organization
- A few of the important measurement tools can help the organization to achieve the supply chain management improvement
- They allow the organization to focus on those activities that can actually help in the improvement of the organization as focusing on activities that are not important for the organization can result in dire consequences
- They help he organization to be pro active rather than finding the solution to something after it has occurred.
As per Neely (1998), the execution of a performance measurement system is a difficult task that needs the participation of all parts of the organization, and thus makes the system an effective one rather than one which is just implemented and not followed. In the starting when the strategic goals of the supply chain has been understood and it’s essential to define the metrics that best suit the objectives and connect them with company information systems. There are multiple ways in which an organization can implement the various available performance measures including:
Pilot testing:
According to Lee (2004), the first way of implementing the performance measures is to form a pilot testing program where such measures are implemented in a small part of the organization and then utilizing the same to improve upon the total performance of the organization and help them to understand the changes in the total system of the organization that shall be changed after they have been understood in the actual workings of the organization.
Example:
An example of such a pilot testing system was the changes that were brought forward by Wal-Mart, the retail giant, where they implemented the RFID solution in the supply chain of the organization. They used radio frequency tags on their products to be able to identify them with ease and with correctness. Such a system allowed them to reduce the lead time and the excess inventory that they used to have earlier. This system was first implemented in a pilot test scenario in the US facilities of the organization. This can be termed as one of the most successful forms of pilot testing implementation.
Phased Implementation:
According to Kaplan and Norton (1996) another form of implementation of the organizations performance measurement system is the phased implementation of the system in the organization this can be done through the implementation of the system in one part of the organization and then understanding the complications in the implementation and the performance of such a system. For example such a system can be implemented in the manufacturing floor and then it can be observed. Another example of an implementation of the system can be implementing it in the marketing department which forms an ad hoc part of the supply chain. The observations there can be further used to implement such a system in the more important parts of supply chain. The organization should have the fall backs in place to ensure that in case the system does not work in the correct manner than they have something to fall back upon.
Straight implementation:
Another form of the implementation of the systems of performance of the supply chain management is the complete implementation of such a system in one go. However such a decision is not fraught with dangers. This can be proved by the fact that when the organization implements such a system in one goes the performance of the organization can be affected as there can be problems by the employees to understand the systems that has been put into place. As per Kotter and Heskett (1992), this can result in higher cycle times, higher inventory levels, decreased customer satisfaction levels and the result o which there can be increase in costs and a decrease in the profits of the organization. Thus such a system has to be implemented at one go only after a lot of thought process by the organization.
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