Performance Measures What you measure is what you get Performance measures strongly affect the behavior of managers and employees Tailor your performance measures to fit company’s mission and strategy Over-reliance of a single measure might be detrimental to company’s long-term survivability

Challenges to Performance Measurements Measure only the right things Avoid meaningless efforts Use the results proactively and productively

Key Reasons for SC Metrics Meeting customer expectations Improving supply chain capability Enhancing asset performance Instilling workforce cooperation Enriching the stakeholders

Four Perspectives of the Balanced Scorecard How do customers see us? (customer perspective) What must we excel at? (internal business perspective) Can we continue to improve and create value? (innovation and learning perspective) How do we look to shareholders? (financial perspective)

The Balanced Scorecard Framework Financial Perspective GOALS MEASURES Internal Business Perspective GOALS MEASURES Customer Perspective GOALS MEASURES Innovation & Learning Perspective GOALS MEASURES How do we look to shareholders ? How do customers see us? What must we excel at? Can we continue to improve and create value?

Framework for Supply Chain Performance Metrics Business Strategy Supply Chain Strategy Supply Chain Objectives Financial metricsCustomer Service MetricsOperational Metrics

Customer Service Metrics Customer service metrics are indications of a company’s ability to satisfy the needs of customers by meeting customers needs on a timely basis and creating exceptional values to the customers

Operational Metrics Operational metrics are derived from processes, decisions, and actions taken internally to meet and/or exceed customer expectations. These are drivers of future financial performance

Financial Metrics Financial metrics indicate whether the company’s strategy, implementation, and execution are creating value for the shareholders by contributing to bottom- line improvements.

Supply Chain Performance Framework Operational Metrics Goals Measures Financial Metrics Goals Measures Customer Service Metrics Goals Measures

Operational Metrics Goals –Waste Reduction –Time Compression –Unit Cost Reduction –Product/process innovation –Inventory Management –Supplier performance Measures –Supply chain cost of ownership –Supply chain cycle efficiency –% of supply chain target cost achieved –Product finalization point –Inventory turns & days of inventory –Supplier evaluations

Financial Metrics Goals –Profit margins –Cash flows –Revenue growth –Return on assets –Return on equity Measures –Profit margin by supply chain partners –Cash-to-cash cycle on receivables & payables –Customer growth & profitability –Return on supply chain asset –Return on supply chain equity

Customer Service Metrics Goals –Flexible response –Product/service innovation –Customer satisfaction –Customer value –Delivery performance Measures –Number of choices & average response time –Customer contact points and product finalization points –Order fulfillment rate –Customer profitability –Delivery speed & reliability

Assessing Customer Satisfaction Desired Operating Region Lots Little PoorGood Inventory Service A B CD

Assessing Performance of Product Lines Too many Too few Too lowToo high Weeks ofSupply Fill Rate Product line 1 Product line 4 Product line 6 Product line 3 Product line 5 Product line 2

Efficiency Frontier of a Single Product Line %100% Weeks ofSupply Fill Rate Efficiency Frontier

Efficiency Frontier of a Single Product Line %100% Weeks ofSupply Fill Rate Product 2 Product 1

Critical Factors in SC Performance Metrics Establish performance objectives with customers in mind Consider using order windows as the basis for order fulfillment metrics Reflect reliability issues in the metrics they choose Implement metrics consistently throughout the supply chain Aggregate results as they move up the chain

Critical Factors in SC Performance Metrics (cont’d) Apply process control techniques to the business process Avoid pitting players in the systems against one another Collect only data you really intend to use Communicate the actions and rational to everyone