Supply Chain Management can be termed as “the process of planning, implementing and controlling efficient and cost effective flow of materials, in-process inventory, finished goods and related information from point-of-order to point-of-consumption, for the purpose of conforming to customer requirements”. The basic motive is to efficiently complete the customer demand cycle which portrays the performance standards of supply chain. The level of competition present in the market emphasizes on higher performance through speedy, cost efficient, accurate and reliable supply chain. Supply Chain Management is no longer a matter of operational and functional areas of the firm. It has become a prime concern for the top management and is a part of strategic plans. The customer value is increased by a good supply chain performance. Performance measurement of supply chain is difficult to make. Still, these days on the basis of supply chain performance there is a lot of competition. The organizations in the present scenario emphasize so much on supply chain that the main competition is only on the company supply chain. Therefore, it becomes an utmost priority to find the right measurement technique.
Supply chain performance measurement is based on four significant areas:
- planning – Effective supply chain planning saves time and money. It also ensures that products reach customers efficiently.
- operations – When evaluating operations, companies must ensure that customers receive the products in a timely manner.
- delivery – Delivery is an important aspect of customer satisfaction. You must ensure that customers are satisfied the first time they receive their products.
- post-delivery – A customer’s opinion of a company will be formed when the order is placed, when the sale is made, when the product is received, and when payment is made.
Supply Chain Measurements
The ways to measure the performance are
Benchmarking
The essential feature of supply chain benchmarking is that there are a number of critical measures of performance that need to be continuously monitored through ‘Key Performance Indicators’ (KPI).
The three parameters to judge performance are
- Better
- Faster
- Cheaper
It is obvious that once such measures are put in place, management attention will be directed to these key issues. Measurement of performance is essential in the context of these key indicators. Measurement provides means by which a company can assess whether its supply chain can be more efficient or not.
Balance Score Card
This approach uses the Executive Information Systems (EIS) that tracks a number of balanced metrics that are closely aligned to strategic objectives.
These below mentioned aspects are considered for measurement of supply chain performance:
- Customer
- Financial
- Internal business
- Innovative and learning
Supply-Chain Operations Reference-model SCOR Model
SCOR is a process reference model developed by the management consulting firm PRTM and endorsed by the Supply-Chain Council (SCC) as the cross-industry de facto standard diagnostic tool for supply chain management. SCOR enables user to address, improve, and communicate supply chain management practices within and between all interested parties in the Extended Enterprise.
The model is based on 3 major “pillars”:
- Process Modeling
- Performance Measurements
- Best Practices
Comprising of a combination of the below mentioned measures, the method is applied:
- Cycle time metrics
- Cost metrics
- Service/quality metrics
- Asset metrics
The supply chain operations reference model (SCOR) is a management tool used to address, improve, and communicate supply chain management decisions within a company and with suppliers and customers of a company. The model describes the business processes required to satisfy a customer’s demands. It also helps to explain the processes along the entire supply chain and provides a basis for how to improve those processes.
The SCOR model was developed by the supply chain council (http://www.supply-chain.org) with the assistance of 70 of the world’s leading manufacturing companies. It has been described as the “most promising model for supply chain strategic decision making.” The model integrates business concepts of process re-engineering, benchmarking, and measurement into its framework. This framework focuses on five areas of the supply chain: plan, source, make, deliver, and return. These areas repeat again and again along the supply chain. The supply chain council says this process spans from “the supplier’s supplier to the customer’s customer.”
- Plan – Demand and supply planning and management are included in this first step. Elements include balancing resources with requirements and determining communication along the entire chain. The plan also includes determining business rules to improve and measure supply chain efficiency. These business rules span inventory, transportation, assets, and regulatory compliance, among others. The plan also aligns the supply chain plan with the financial plan of the company.
- Source – This step describes sourcing infrastructure and material acquisition. It describes how to manage inventory, the supplier network, supplier agreements, and supplier performance. It discusses how to handle supplier payments and when to receive, verify, and transfer product.
- Make – Manufacturing and production are the emphasis of this step. Is the manufacturing process make-to-order, make-to-stock, or engineer-to-order? The make step includes, production activities, packaging, staging product, and releasing. It also includes managing the production network, equipment and facilities, and transportation.
- Deliver – Delivery includes order management, warehousing, and transportation. It also includes receiving orders from customers and invoicing them once product has been received. This step involves management of finished inventories, assets, transportation, product life cycles, and importing and exporting requirements.
- Return – Companies must be prepared to handle the return of containers, packaging, or defective product. The return involves the management of business rules, return inventory, assets, transportation, and regulatory requirements.
The SCOR process can go into many levels of process detail to help a company analyze its supply chain. It gives companies an idea of how advanced its supply chain is. The process helps companies understand how the 5 steps repeat over and over again between suppliers, the company, and customers. Each step is a link in the supply chain that is critical in getting a product successfully along each level. The SCOR model has proven to benefit companies that use it to identify supply chain problems. The model enables full leverage of capital investment, creation of a supply chain road map, alignment of business functions, and an average of two to six times return on investment.
The Supply Chain Operations Reference Model is a reference that has been developed and endorsed by the Supply Chain Council, as the cross-industry standard diagnostic tool for supply chain management. It works towards the improvement in efficiency. It is a management tool that can be used to define measure and manage supply-chain processes, spanning from the supplier’s supplier to the customer’s customer. The SCOR model follows four steps that represent the path a company takes on the road to supply chain improvement.
- Step 1: it is the point at which a company establishes its supply chain competitive objectives and defines the plan, source, make and deliver process types.
- Step 2: it defines the 17 core process categories that are possible components of a supply chain. A company can configure both its actual and ideal supply chain by selecting from the core processes.
- Step 3: it enables to get the information needed to successfully plan and set goals for its supply chain improvements. These include process definitions, target benchmarks, best practices and system software capabilities as elements to enable best practices.
- Step 4: it specifically emphasizes on improvements to be made in the system. It defines practices to achieve competitive advantage and to adapt to changing business conditions.
Logistics Scoreboard
The following categories include an integrated set of performance measures
- Financial performance
- Productivity performance
- Quality performance
- Logistics cycle time performance
The above mentioned approaches provide less help in assessing specific metrics to be used, although they do provide guidance for measurement. Every company has its own different supply chain strategy depending upon its competencies and strategic directions.
Dimensions of Service Quality
Following are the parameters on which customer value is evaluated which apparently proves to be an effective technique of performance measurement
- Understanding: understanding customers’ needs
- Competence: skills and knowledge to perform specified services
- Tangibles: appearance of the facilities, equipment and personnel
- Courtesy: politeness, respect, consideration and friendliness towards customers
- Reliability: meeting the deadlines
- Credibility: quality of customer satisfaction
- Security: freedom from danger, risk and conflict
- Access: approachability and ease of contact with the organization
- Communication: two way communication with customers
- Responsiveness: customer service and help
Businesses will have to find ways to incorporate some of the metrics listed above in their supply chain measurement programs even if it is a bit difficult for them.
The measurement standards for various metrics can be like under
- Delivery performance: percentage
- Fill rates :percentage
- Perfect Order fulfillment: percentage
- Order fulfillment lead time: days
- Production: days
- Total logistics cost: percentage
- Inventory: days
- Cash-to-cash cycle time: days
- Net assets turns: turns