Chapter 14 3rd ed Essay

Chapter 14
PERFORMANCE
MEASUREMENT
ALONG THE
SUPPLY CHAIN

Prepared by Mark A. Jacobs, PhD
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

LEARNING OBJECTIVES
You should be able to:
 Describe why managers measure & assess performance of their firms and supply chains
 Discuss the merits of financial & non-financial performance measures
 List a number of traditional & world-class performance measures  Describe how the Balanced Scorecard & the SCOR models work
 Describe how to design a supply chain performance measurement system
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

2

CHAPTER OUTLINE
• Introduction
• Viewing the Supply Chain as a Competitive
Force
• Traditional Performance Measures
• World-Class Performance Measurement
Systems
• Supply Chain Performance Measurement
Systems
• The Balanced Scorecard
• The SCOR Model
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

3

Introduction
“You can’t improve what you don’t measure”
 Companies using performance measurement are more likely to achieve leadership positions & twice as likely to handle a major change successfully
 Performance measurements vary from company to company
 World-class status may initially cost more
 Adding several tiers of suppliers & customers complicates performance measurement
 Performance measures must be visible & communicated to all members of the SC
See video: http://www.youtube.com/wpcareyschool#p/u/25/R4HPYYR5iLw

Viewing the Supply
Chain as a Competitive
Weapon
Understanding
End Customers
Supply chains need to look at each segment of the market they serve & determine the needs of those customers.  Variety of products required
 Quantity & delivery frequency needed
 Service level desired
 Product quality desired
 Price of the products

Viewing the Supply
Chain as a Competitive
Weapon
(Continued)

Understanding SC Partner Requirements
Supply chain strategies must consider the potential tradeoffs existing between:
 Cost
 Quality
 Quantity
 Service

Viewing the Supply Chain as a Competitive Weapon
(Continued)

Adjusting SC Member Capabilities
 SC members audit their capabilities & partners’ to determine consistency with needs of end customers
& SC
 Firms & their partners must continually reassess performance with respect to requirements
 The best SC performers are more responsive to customer needs, quicker to anticipate changes in the markets, & control costs much better

Traditional
Performance Measures
Traditional Performance Measures
 Traditional cost-based information does not reflect the underlying performance of an organization’s productive systems; costs & profits can be hidden or manipulated  Decisions to maximize current stock prices do not necessarily reflect that the firm is performing well
 Financial performance measures, while important, cannot adequately capture a firm’s ability to excel in these areas

Traditional
Performance Measures
(Continued)

Use of Organization Costs, Revenue, &
Profitability Measures
Problems associated with using costs & profits to gauge performance –
 Uncontrollable environmental forces (e.g., windfall profits that occur when prices rise due to supply interruptions)  Accurate attribution of cost, revenue, or profit contributions to the various functional or business units Traditional
Performance Measures
(Continued)

Use of Performance Standards &
Variances
Establishing standards for comparison purposes can be troublesome  Employees & managers do whatever it takes to reach the goal
 Shoddy work & “Cooking” the books
Performance variance - the difference between the standard & actual performance
 Managers can be pressured to find ways to make up these variances,

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