This chapter discusses metrics for measuring supply chain performance. It presents a model for assessing markets and their supporting supply chains. It defines four categories for measuring performance: customer service, internal efficiency, demand flexibility, and product development. Popular metrics are identified for each category. The chapter also discusses how to collect and display supply chain performance data to identify problems and opportunities for improvement.
This chapter discusses metrics for measuring supply chain performance. It presents a model for assessing markets and their supporting supply chains. It defines four categories for measuring performance: customer service, internal efficiency, demand flexibility, and product development. Popular metrics are identified for each category. The chapter also discusses how to collect and display supply chain performance data to identify problems and opportunities for improvement.
This chapter discusses metrics for measuring supply chain performance. It presents a model for assessing markets and their supporting supply chains. It defines four categories for measuring performance: customer service, internal efficiency, demand flexibility, and product development. Popular metrics are identified for each category. The chapter also discusses how to collect and display supply chain performance data to identify problems and opportunities for improvement.
After reading this chapter you will be able to Employ a useful model for assessing markets and the supply chains that support them Define a concise set of metrics for measuring the performance of a company’s supply chain operations Discuss ways to collect and display supply chain performance data Use performance data to spotlight problems and opportunity Useful Model of Markets and Their Supply Chains A supply chain exists to support the market that it serves. To identify the performance that a supply chain should deliver, we need to evaluate the market being served. Let us start by defining a market using its two most basic components—supply and demand. A market is characterized by its combination of supply and demand. This model defines four basic kinds of markets, or market quadrants Market Performance Categories
The companies in a supply chain must be able to work
together to exploit the opportunities available in their markets. The highest profits go to the companies that can successfully respond to the opportunities their markets offer. Companies that are unable to respond to opportunities as effectively will fall behind. We will use four measurement categories: 1. Customer Service 2. Internal Efficiency 3. Demand Flexibility 4. Product Development A Framework for Performance Measurement There are other demands that real-world markets place on their supply chains; however, by using these four performance categories we can create a useful framework. Customer Service Metrics
In the words of Warren Hausman, a professor at
Stanford University, “Service relates to the ability to anticipate, capture, and fulfi ll customer demand with personalized products and on-time delivery” (Hausman, Warren H., 2000, “Supply Chain Performance Metrics,” Management Science & Engineering Department, Stanford University). There are two sets of customer service metrics, depending on whether the company or supply chain is in a build-to-stock (BTS) or build-to-order (BTO) situation. Popular metrics for a build to stock situation are: Complete Order Fill Rate and Order Line Item Fill Rate On-Time Delivery Rate Value of Total Backorders and Number of Backorders Frequency and Duration of Backorders Line Item Return Rate Popular metrics for a build-to-order situation are: Quoted Customer Response Time and On-Time Completion Rate On-Time Delivery Rate Value of Late Orders and Number of Late Orders Frequency and Duration of Late Orders Number of Warranty Returns and Repairs Internal Efficiency Metrics
Some popular measures of internal
efficiency are: Inventory Value Inventory Turns Return on Sales Cash-to-Cash Cycle Time Demand Flexibility Metrics
Demand flexibility describes a company’s ability to
be responsive to new demands in the quantity and range of products and to act quickly. A company or supply chain needs capabilities in this area in order to cope with uncertainty in the markets they serve. Some measures of flexibility are: Activity Cycle Time Upside Flexibility Outside Flexibility Activity Cycle Time Product Development Metrics
Product development measures a company or a supply
chain’s ability to design, build, and deliver new products to serve their markets as those markets evolve over time. Technical innovations, social change, and economic developments cause a market to change over time. A supply chain must keep pace with the market it serves or it will be replaced. The ability to keep pace with an evolving market can be measured by metrics such as: • Percentage of total products sold that were introduced in the last year • Percentage of total sales from products introduced in the last year • Cycle time to develop and deliver a new product Operations that Enable Supply Chain Performance In order for an organization to meet the performance requirements of the markets it serves, it must look to measure and improve its capabilities in the four categories of supply chain operations: 1. Plan 2. Source 3. Make 4. Deliver Collecting and Displaying Performance Data The business environments we live in are characterized by shorter product life cycles, mass markets dissolving into smaller niche markets, and new technology and distribution channels constantly opening up new opportunities. The pace of change is both exhilarating and relentless. A company must keep up. To do this, a company needs to build a business intelligence (BI) system that presents data at three levels of detail: • Strategic—to help top management decide what to do • Tactical—to help middle management decide how to do it • Operational—to help people actually do it