How to measure supply chain performance?

Published by Ngoc Tran on

A taxonomy of logistics performance measures -figure-1

It is not an easy question to answer. There are numerous ways to formulate criteria to monitor the supply chain performance (SCP), and you can indeed think of several criteria which may make it more complicated to mix and match the indicators with what is needed to measure. This article is going to briefly discuss over these concerns and suggest methods called the Balanced scorecard and the SCOR model, used for tracking your SCP.

#1: How many metrics are sufficient?

The answer is dependent on your organization’s needs. You can create or collect lists of indicators, then discuss with the involved stakeholders and narrow down the vital ones that are best suited for what you want to measure. Other recommendations are:

  • While creating your metrics, you should ensure that the needed data, processes, or procedures are documented properly, so the right data is available and accessible at the right time to the right person.
  • If your company is process-focused, your measurement should reflect the actual work performed in the operation.
  • If a new process is introduced, new performance indicators should also be developed.
  • While designing key performance indicators (KPIs), it is important to ensure that the KPIs are well-communicated, understood and agreed by the shop-floor employees. Starting with the WH-questions could be a good start to determine responsibility, deadline, how to implement, what to measure, and so on.
  • Since it is required a huge amount of data, information technology (IT) plays a crucial role in controlling and managing data transaction, so investment in IT should be taken into account while establishing KPIs.
  • It would be better to be critical and selective when creating metrics. One of the most prevalent issues related to performance measure is too many metrics, some of which are often irrelevant.
  • Different roles have different needs, so there should be specific KPIs associated with particular positions, besides generic ones.
  • A taxonomy of logistics performance measures (see figure 1 above), developed by C. Caplic and Y. Sheffi (1994), provides standards (e.g. quantitative or qualitative, ratio of input-output, value versus profit and cost, etc.) that can be used with performance measures. There are three main standards, including utilization, productivity, and effectiveness.

#2: What are the commonly used KPIs?

A typical method of measuring KPIs is the Balanced scorecard, which considers four perspectives related to the organisation, such as customer, innovation, financial, and internal business. If you recognize, it has a similar idea with the Porter’s Five forces model, and what I want to emphasize here is that this kind of thinking can be applied into several areas in business as well as other industries, so keep in mind when you brainstorm ideas. Below is a generic balanced scorecard developed by Kaplan and Norton in 1992, which is still in use these days (with adaptation to fit your needs).

Balanced scorecard by Kaplan and Norton-figure-2

Figure 2. Balanced scorecard by Kaplan and Norton (1992)

Another performance measurement is the SCOR model (Supply Chain Operations Reference model) of APICS. The model is based on five management processes, namely Plan, Source, Make, Deliver and Return. It is recently updated by adding “Enable” as a capability. Thus, it involves all customer interactions, physical material transactions from suppliers to customers, and market interactions (aggregate demand to the fulfilment of each order). Besides, the SCOR model consists of four major sections such as Performance (focus in this article), Processes, Practices, and People. There are five performance metrics, in which has at least one detailed metric called level 1 (and if more, level 2, and 3). The lower-level metric will diagnose performance gaps or causes of level 1-metric. This way of thinking is similar to root-cause analysis in order to find the bottleneck and build up solutions.

  • Reliability, Responsiveness, and Agility: customer-oriented
  • Cost and Asset Management Efficiency: internal-focused

Figure 3 illustrates the SCOR model with respect to the supply chain processes and performance section.

SCOR model supply chain processes-figure-3

Figure 3. SCOR model

As discussed, there are multiple things you should consider when designing supply chain performance metrics. The Balanced scorecard and SCOR model are the most common methods of monitoring the performance of your supply chain.

I hope this article is useful for you. As always, thank you for reading and leavecomment below to share your opinions with the community. Please share this post if you think someone else may find it interesting.

Logistics management (D.B. Grant, 2012)
Global Logistics and Supply Chain Management (J.Mangan et al., 2012)
Supply Chain Operation Reference Model (APICS, 2017)
Related reading:

Series of posts “Supply chain performance measurement”

1 Comment

bcrc · 15 December 2021 at 3:55 pm

This is a very impressive overview of ways to monitor supply chain performance.

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