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Int. J. Production Economics 89 (2004) 231243

Supplier logistics performance measurement: Indications from a study in the automotive industry
J. Schmitz*, K.W. Platts
Department of Engineering, Centre for Strategy and Performance, Institute for Manufacturing, University of Cambridge, Cambridge CB2 1RX, UK Received 15 April 2002; accepted 14 November 2002

Abstract Managing the supply base is an important but complex issue for automotive manufacturers. One of the instruments companies use in this context is performance measurement. There is ample work on the practice of performance measurement within an organisation. However, much less can be found about the practice of supplier performance measurement. In this paper we offer a brief discussion of the literature on inter-organisational performance measurement and contrast existing concepts of intra-organisational performance measurement with the concepts of performance measurement within a supply chain. We then present indications from a study of four vehicle manufacturers in Europe with regards to their practices of supplier evaluation and present a conceptual framework identifying the functions of performance measurement in this context. r 2003 Published by Elsevier Science B.V.
Keywords: Supplier evaluation; Performance measurement; Inter-organisational control; Logistics measures; Automotive industry

1. Introduction Major OEMs co-operate with hundreds of different suppliers. For example, one of the vehicle manufacturers we studied has a database of around 3000 supplier sites in Europe. More than 1600 are currently supplying the company. Additionally the company has to deal with around 30 000 suppliers of non-production goods: Ranging from suppliers of pens and paper, to suppliers of carpet and furniture. The management of the supply base has been described as a key compe*Corresponding author. Tel.: +44-1223-338-192; fax: +441223-338-076. E-mail address: johannes.schmitz@yahoo.de (J. Schmitz).

tence for a company (Fine et al., 1996). One of the techniques companies use for this task is performance measurement. There is a vast amount of literature on performance measurement frameworks and systems. However, most of this work is concerned with performance measurement within an organisation, e.g. the measurement of the performance of subsidiaries and departments, or it deals with issues such as management incentives and employee appraisal. Research on the practice of inter-organisational performance measurement, e.g. how companies use performance measurement to manage their relationships and interactions with suppliers, is rather rare. In this paper we rst discuss basic concepts of intra- and inter-organisational performance

0925-5273/03/$ - see front matter r 2003 Published by Elsevier Science B.V. doi:10.1016/S0925-5273(02)00469-3

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measurement. We argue that the reasons for measuring and the way performance measurement and management works, differ largely depending on the context. To support the implications of our theoretical reections, we present outcomes of an empirical study in the automotive industry. In this study we investigate the extent to which four automotive manufacturers use performance measurement at the interface to their suppliers in the area of logistics. We explore the subsequent use of logistics performance data within the logistics department and between different functions such as logistics and purchasing. With this paper we aim to:
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between strategic plans and their total execution. (Anonymous, 2001) Statements like this are almost a direct inversion of Garvins phrase towards the meaning of If you can measure it, you can manage it. This, of course, clearly overstates the potential of performance measurement. Nevertheless it seems to be the underlying motivation for many performance measurement initiatives. Whereas on the one hand there are the overexcited protagonists of performance measurement, on the other hand there also exist the antagonistic cynics: the managers or employees who believe that performance measurement is a fundamentally awed concept. They argue that as soon as objectives and evaluation methods are dened, managers and employees will nd their way around, either through gaming, or creative accounting and fraud. Or that the measurement will lead to tunnel vision (neglecting other areas which are not measured), disinclination on experimenting, or myopia (see Smith, 1993; Austin, 1994). Both views seem to be extreme: Performance measurement is surely not the safe secret to success. However, most managers would probably feel very uncomfortable without this instrument. The key to the evaluation of performance measurement in our view has to be based rst and foremost on identifying the function of the performance measurement system; and this, again, depends largely on the organisational context, the organisational culture and management intent. We believe that the confusion or disagreement about the sense and benet of performance measurement stems from the fact that there is dissent on the purpose of measurement and on the question of how performance measurement actually works. In order to research supplier performance measurement, we have to focus on the functions performance measurement in this context fulls and the organisational setting in which it is placed. As a starting point we briey summarise the functions of performance measurement as stated in the extant literature on intraorganisational performance measurement. We then discuss to what extent supply chain and

discuss current literature as to what insight it offers for the analysis and design of supplier performance measures and measurement systems; present empirical insights into the use of supplier performance measurement in the area of logistics in the automotive industry; establish a perspective on the functions of performance measurement as a framework for the analysis of inter-organisational performance measurement.

2. Performance measurementa disputable concept? Why is it important to look at the underlying concepts and the functions of measurement? Indeed, many managers and academics alike appear to have no doubt that performance measurement is necessary and therefore do not seek for any deeper justications. David Garvin (1993) coined a phrase in the Harvard Business Review that has become paradigmatic for this view: If you cannot measure it, you cannot manage it. There is certainly some truth in this statement. However, we think that some practitioners and academics alike go too far in an uncritical appreciation of performance measurement. For example, one director of a leading pharmaceutical company recently stated: A performance measurement system, properly structured and managed, is the missing link

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supplier measurement poses questions that differ from the ones raised by the intra-organisational literature. Finally, we present four case studies on supplier evaluation in the automotive industry in order to discuss the functions that supplier performance measurement fulls in practice.

3. Functions of intra-organisational performance measurement There is an extensive amount of normative literature on individual performance measures, performance measurement systems and frameworks, as well as the relationship between performance measurement systems and the environment (e.g. Neely et al., 1995). The literature offers several performance measurement frameworks, like Kaplan and Nortons (1996) Balanced Scorecard, the Performance Measurement Matrix (Keegan et al., 1989) or the Performance Pyramid (Cross and Lynch, 1992). Furthermore a number of checklists, guidelines and evaluation criteria are available suggesting principles to be employed when designing or evaluating individual metrics as well as performance measurement systems (e.g. Ghobadian and Ashworth, 1994; Meyer 1994; McMann and Nanni, 1994; Caprice and Shef, 1994, 1995). Authors in the eld of performance measurement have specied several functions that performance measurement is supposed to full. We list some of them in Table 1. A few alternative attempts to categorising functions or purposes of measurement can be found in the literature (e.g. van Drongelen, 1998; Flamholtz, 1996; von Bonsdorff and Andersin, 1995). However, there is no commonly accepted language or conceptual framework concerning the functions of performance measurement. As a result of our literature review, we grouped the functions mentioned in the literature into nine categories that we think provide both, a reasonable degree of abstraction to be conceptually generic and useful as well as a reasonable degree of detail to be meaningful and discriminating. Interesting enough, there is almost no study which examines in detail, whether performance

measurement in reality indeed fulls all these functions and whether performance measurement systems in place really work in the ways often presumed by normative literature. Only a few studies can be found which are explicit on the use and functions of performance measurement (van Drongelen, 1998; Kald and Nilsson, 2000). But even these are not based on rst-hand empirical data on the actual practice of performance measurement but are based solely on the perceptions of managers.

4. Performance measurement in the supply chain context Relevant work on mechanisms and techniques for inter-organisational control, such as in a supply chain context, has primarily been dominated by research on the general nature of intercompany relationships and especially the implication of trust (e.g. Lane and Bachmann, 2000; Doney and Cannon, 1997; Sako, 1992; Spekman, 1988) or on specic areas of inter-organisational collaboration such as in Research and Development (e.g. Twigg, 1995; Takeishi, 1998). More recently the use of management accounting and control techniques in supply chains has been studied (e.g. Mouritsen and Hansen, 2000; Seal et al., 1999; Cullen et al., 1999; Ahmed et al., 1997; Berry, 1994). The issue of performance measurement has been relatively neglected, though. Although the importance of this topic is widely acknowledged, there is a clear lack of relevant respective empirical research. Ahmed et al. (1997) conclude from their literature review of interorganisational management accounting and control that there are signicant gaps in theoretical and empirical knowledge. In their book on Supply Chain Management, Handeld and Nichols (1999) state that in effect, performance measurement is the glue that holds the complex value-creating system together, directing strategy formulation as well as playing a major role in monitoring the implementation of that strategy. Nonetheless, most research on performance measurement is only tackling specic individual parts of supply chain management

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Table 1 Functions of performance measurement as stated in the normative literature Category Strategy formulation and clarication Functions/purpose of measurement Translate vision and strategy in operationalisable objectives and actions (Kaplan and Norton, 1996; Lingle and Schiemann, 1996) Clarify strategies (Kaplan and Norton, 1996; Lingle and Schiemann, 1996) Force specicity and help to surface and resolve hidden disagreements among top management (Lingle and Schiemann, 1996) Specify values (Lingle and Schiemann, 1996) Help to dene the goals and performance expectations for organisations (Medori and Steeple, 2000) Provide management information (von Bonsdorff and Andersin, 1995) Feedback for management for improved control (Kaydos, 1999) Provide information for planning and forecasting (Kaydos, 1999) Identify performance gaps (von Bonsdorff and Andersin, 1995; Kaydos, 1999) Communicate strategy throughout organisation (Kaplan and Norton, 1996; Neely and Najjar, 2000; Simons, 1999) Ensure Clarity of communication of strategy from top to bottom of organisation (Lingle and Schiemann, 1996) Communicate clear targets for actions, decisions and improvement activities (Kaplan and Norton, 1996) Communicate performance expectations (von Bonsdorff and Andersin, 1995) Clarify responsibilities and objectives (Kaydos, 1999; Simons, 1999) Give employees certainty about how to contribute (Lingle and Schiemann, 1996; Simons, 1999) Provide basis for rational argumentation with superiors and employees (Kaydos, 1999) Provide common language for communication (Lingle and Schiemann, 1996) Communicate strategy throughout organisation (Kaplan and Norton, 1996; Neely and Najjar, 2000) Provide common language for communication (Lingle and Schiemann, 1996) Provide basis for rational argumentation with other departments (Kaydos, 1999) Clarify responsibilities and objectives (Kaydos, 1999; Simons, 1999) Support decision making (von Bonsdorff and Andersin, 1995; Simons, 1999) Provide information for resource allocation decisions (Kaydos, 1999) Quantify efciency and effectiveness of actions and assess the performance of an organisation as a whole to assist decision making (Kennerly and Neely, 2000) Provide alignment of objectives and actions throughout organisation (Kaplan and Norton, 1996; Lingle and Schiemann, 1996; Kaydos, 1999) Simplify delegation of actions and decisions while still being in control (Kaydos, 1999; Simons, 1999) Motivate employees (von Bonsdorff and Andersin, 1995; Simons, 1999) Show employees contribution to overall organisations performance (von Bonsdorff and Andersin, 1995; Simons, 1999) Provide basis for performance related pay (Kaplan and Norton, 1996; Lingle and Schiemann, 1996) Motivate employees by making their accomplishments clear (Kaydos, 1999) Improve knowledge of capabilities (Kaydos, 1999; Simons, 1999) Improve understanding of business processes (Kaydos, 1999; Simons, 1999) Challenge strategy (Neely and Najjar, 2000) Focus management attention on critical issues (Kaplan and Norton, 1996; Simons, 1999) Provide basis for objective evaluation (Kaydos, 1999) Enable data to be acquired, collated, analysed, interpreted and disseminated (Kennerly and Neely, 2000)

Management information

Vertical communication

Horizontal communication

Decision making and prioritising

Co-ordination and alignment

Motivation

Learning

Other (or more general functions)

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issues. In particular the literature is dealing with performance measurement in three separate areas:
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Logistics (e.g. Caprice and Shef, 1994, 1995; Fawcett and Clinton, 1996; Odette, 2001). Total quality management (e.g. Bohoris, 1995; Wilson, 1998; Choi and Rungtusanatham, 1999). Purchasing, and in particular supplier selection (e.g. Dickson, 1966; Weber et al., 1991; Wilson, 1994; Ellram, 1995, 1999).

Recent textbooks on supply chain management state the importance of performance measurement systems that integrate all these issues of supply chain management. Several authors recommend the balanced scorecard (BSC) as such a system (e.g. Handeld and Nichols, 1999; Hines et al., 2000). They deal with this issue in a rather cursory way, though, without much consideration about possibly necessary changes to the BSC framework that have to be considered due to the differences between the intra-organisational management of companies as compared to the management of an inter-rm supply chain. The most detailed and specic conceptual work on the use of the BSC for Supply Chain Management, so far, is presented by Brewer and Speh (2000). They introduce a modied BSC framework which incorporates integrated measures in each of the four perspectives of the BSC to include the interfunctional and partnership perspectives, and thereby linking the Balanced Scorecard to Supply Chain Performance (Brewer and Speh, 2000). These types of measures are supposed to show all members how the chain is performing and foster incentives to work with other members of the chain (Brewer and Speh, 2000). We think that Brewer and Spehs framework might well support top management in general SCM considerations, e.g. establish the basis for reengineering efforts. However, the basic and central concept of the BSC as we understand it, is the translation of corporate objectives and measures into targets and metrics on lower levels, which can be acted upon. Unfortunately, exactly this vital part for the success of the BSC, is left out by Brewer and Speh. One reason for this might be that there is a general trade-off between integration and usefulness or

guidance (Caprice and Shef, 1994). Measures such as return on supply chain assets (Brewer and Speh, 2000) might offer a highly integrative power in a SCM context but are of little or no operational guidance. To our knowledge there is no research on any real application of an integrated performance measurement system for supply chain management. Rather this area is identied as a gap in the literature (see also Lambert et al., 1998). Theories on performance measurement within an organisation are normally based on a clear understanding of the boundaries of the organisation and a commonly shared concept of a hierarchy of objectives and goals for this organisation. One of the reasons why the management and measurement of supply chains seems to be more difcult, is that in this context an understanding of the boundaries of the system to be measured and managed is by no means trivial. Also, a major pitfall of any supply chain management effort stems from the fact that although the supply chains overall performance depends on the joint performance of all supply chain members, each site is normally managed by an autonomous management team with its own stake- and shareholders, its own missions and objectives. These objectives may not only have little to do with each other, they oftentimes stay in direct conict with each other (Lee and Billington, 1992). There is no comprehensive theory on interorganisational performance measurement. Nonetheless, some authors such as Handeld and Nichols (1999) propose criteria for effective supply chain performance measurement:
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Measuring overall supply chain performance rather than only the performance of the individual chain member. One central, overriding focus: Continual improvement of end-customer service. Allow managers not only to identify but also to eliminate causes of supply chain operational problems.

More specic demands on supply chain performance measurement are presented by other authors. According to them supply chain

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performance measurement systems should include measures on:

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changes in both the average volume of inventory held and frequency of inventory turns across the supply chain (Fawcett and Clinton, 1996); adaptability of the supply chain as a whole to meet emergent customer needs (Bello and Gilliland, 1997; Naylor et al., 1999); the extent to which supply chain relationships are based on mutual trust (Fawcett and Clinton, 1996).

for each company in the supply chain, this particular chain is of sufcient priority; there are appropriate levels of trust and cooperation in the supply chain; processes are in place to share the prots or cost savings that come from increasing overall supply chain performance. This is not necessarily the case in practice.

5. Indications from the empirical study In order to explore the complexity of performance measurement in the supply chain context we present insights into the practice of performance measurement at four automotive companies. The aim of our research is to identify roles and functions of performance measurement as a management control mechanism and tool in supply chain management in the automotive industry. In this paper we focus on its use at the vehicle manufacturer as the dominant partner in the supply chain. We investigate its role in terms of communication and co-ordination between vehicle manufacturer and its rst tier suppliers. The companies we studied, used a whole range of different performance measurements: Quality audits and ratings, product and process FMEA, total cost analysis, strategic vendor categorisation etc. In this paper we purposefully emphasise one particular area of measurement: the ongoing measurement of the logistics performance of suppliers. Within this relatively constrained eld, we investigate differences in the practice of performance measurement at each of the companies and explore whether these may be explained through different functions that are fullled by measurement or through idiosyncrasies of the power structure and culture within the organisations. 5.1. Methodology Four major vehicle manufacturers were studied using questionnaires as well as semi-structured interviews during site-visits. For every company the European logistics director and three to ve

Unfortunately, most authors generally do not present empirical studies to support their normative statements. Furthermore, it is questionable how the requirements for supply chain performance measurement should be implemented. Basically there are two open questions: The rst question deals with nding appropriate measures, which accurately measure supply chain or value chain efciency and effectiveness. This question is tackled by mainstream literature. The second, and for this article more important, question, is: What are appropriate ways to implement measures? A performance measurement system should always be seen in the context of the overall performance management system (Otley, 1999). To determine accurate measures for supply chain performance is different from knowing what measures are best to implement in a supply chain. Performance measures do not only have to reect performance in an accurate way, they also have to be implemented in a way that takes into account the motivational issues of performance management. Also, a company in the middle of the supply chain might view their immediate customers as end customers. Is it reasonable, then, to suggest that these companies should employ measures that reect overall supply chain performance? Trying to increase overall supply chain performance does not necessarily mean to improve performance in terms of this companys (nancial) objectives. Using overall supply chain performance measures as requested by Handeld and Nichols (1999) or Brewer and Speh (2000), seems only to be reasonable if:

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additional managers and analysts from the purchasing and logistics departments at their European headquarters and at one of their German plants were interviewed. The companies provided documents on quality management, supplier selection and evaluation procedures etc. as well as actual supplier ratings and exemplary correspondence with suppliers. Additionally, a more detailed study was undertaken at Company A over the period of more than one and a half years involving direct observation of meetings in the logistics department, between logistics and purchasing managers and between Company As representatives and supplier representatives. Due to limitations in space, we can only present an overview of the performance measurement systems at each of the four companies in Table 2. 5.2. Research ndings Although the basic activities at all companies are similarafter all, they are in the same industry, dealing with the same or similar suppliers, using very similar processesthe measurement process at the companies showed some differences. Although the criteria at all companies bear resemblance, the form in which they are evaluated differed: Company A is the most centralised and bureaucratic company in this study. It also has the most formalised supplier rating system and the most advanced information system to support performance evaluation. Company A strives to establish performance measurement as a main tool for communication with suppliers and control of the supply base. Supplier ratings are produced on a monthly basis and are used in order to catch the attention of the suppliers and to initiate action by threatening them with downgrading. This use of performance measurement as an instrument of threat towards suppliers follows a perceived lack of power over the suppliers. As one logistics manager in Company A stated: The purchasing guys are the important people for the suppliers. They sign the contracts and decide who is in the business and who is not. In their view, we are just doing the operative stuff.

[y] Logistics performance measurement as part of the Quality Management system has strengthened the logistics position, though. Now logistical issues determine one ofcial criterion for purchasing decisions. [y] However, we believe, that the highest priority for purchasing is still cost. It is interesting to note that the impact of the logistics rating on purchasing decisions is indeed very limited. One purchasing manager stated that she did not know of any case in which a preferred supplier was not chosen because of its logistics rating. Nevertheless suppliers take the performance rating serious and can be threatened with the prospect of being downgraded. For example, when Company A had to conduct a container count and needed suppliers collaboration, they simply sent out letters with the remark: Due to the importance of the subject matter please be informed that non-availability of your response with us on 19th February will lead to 10 demerit points. Suppliers which did not react to this (around 40%!) were called up by some of the analysts mentioning the potential downgrading. Right after the call they received a fax stating: Urgent! please reply! Please complete the attached Fax-Form and return it within the next 30 minutes! (Too late answers will lead to further demerit points.) The reaction to letters and phone calls like this was normally very prompt. Hence, in the eyes of Company A, the logistics department that originally had only quite limited inuence on suppliers, received a very powerful lever to inuence suppliers by implementing an integrated supplier performance measurement system thatat least ofciallylinks logistics performance to the purchasing decision. Although ofcially Company A is supposed to follow-up on every under-performing supplier, request detailed improvement plans, and offer technical assistance, Fig. 1 shows that less than a third of the suppliers actually receive this kind of assistance in their improvement programs. The

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Table 2 Summary of case studies Company A Evlauation criteria 1. Communication systems (25 points) 2. Up-to schedule shipping performance (25 points) 3. Reaction to problems (15 points) 4. Overshipment (10 points) 5. Record maintenance by supplier (15 points) 6. Other supplier performance (10 points) Company B 1. Schedule Adherence 2. Early Warnings (e.g. material shortfall without prior advice) 3. Reliability (e.g. response to faxes, questionnaires, etc.) 4. Flexibility (e.g. reaction to increase or decreases of requirements) 5. EDI (meets all EDI requirements) Company C 1. Adherence to delivery dates (20%) 2. Adherence to delivery quantities (20%) 3. Delivery exibility (e.g. reaction to change) (15%) 4. Pilot lot logistics (e.g. adherence to dates and quantities) (10%) 5. Operative logistical transaction (e.g. labels, documents) (10%) 6. Communication (e.g. time to react) (20%) 7. Innovation (willing to engage in new logistics concepts) (5%) Company D 1. Degree of EDI integration (information systems) 15% 2. Supplier process (e.g. delivery documentation; packaging adherence; deliver condition during production runin)25% 3. Delivery discrepancies (e.g. delivery sequence; under-/over-deliveries; emergency deliveries)40% 4. Communication behaviour (e.g. information follow-up; responsibility and competence)20% Weighted scoring (additive model)

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Rating method

Weighted scoring (additive model)

Worst rating of any single criteria equals overall score (conjunctive model)

Weighted scoring (additive model)

Scale Frequency of evaluation

0 (worst) to 100 points (best) Monthly

1 (best) to 5 (worst) Once per year and in cases of serious under-performance

A (best) to C (unsatisfactory) Initial rating; then mainly in cases of serious under-performance

1 (worst) to 10 (best) Once per year and in cases of serious underperformance Medium. Some formal guidelines. Based on formal performance documents and subjective experience >9: Letter of commendation

Level of formality

High. High degree of reliance on quantitative data, guidelines and rules

High to medium. Formal guidelines. Based to great extent on subjectivity/experience

Medium. Some formal guidelines. To a great extent based subjectivity/experience

Actions

o80 for 6 month: Quality certicate (QC) suspended. No new orders

4: Initiating of improvement process. If no improvement visible, then:

C: No new orders. If no improvement within 3 month, purchasing is requested to look

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same is true for Company C. Company B, on the other hand offers assistance to almost every supplier that is under-performing. However, Company B is very reluctant to rate suppliers as unsatisfactory in the rst place and does not have such strict guidelines and xed procedures in its rating process as for example Company A. Company D is somewhere in the middle. It regards almost ten percent of its supply base as unsatisfactory (although only around 1% are regarded as serious under-performers). It manages to offer most of them technical assistance, though. Company D is the most decentralised company in our study. Logistics personnel at the plant is responsible for supplier follow-up and supplier technical assistance. They developed a whole range of performance measurement tools with which they work on a daily basis. Problems are mostly addressed with suppliers as soon as they occur. An additional vehicle to communicate with suppliers and to highlight under-performance is through a system of administrative charges: Company D charges individual suppliers with administrative cost occurred at the logistics department due to suppliers underperformance. After initial resistance, this procedure has now become fully accepted by suppliers. The monthly supplier performance rating is mainly seen as a support tool. Whereas the initiative to develop supplier performance measures at Companies A and D came mainly from the logistics departments, the initiative to develop a comprehensive supplier evaluation tool in Companies B and C came from the purchasing department in the beginning of the 1990s, when the companies tried to cut cost but wanted to maintain quality. These companies seem to use performance measurement less enthusiastically, mainly as a reporting and exception management tool. This would explain why both companies have considerably fewer suppliers rated unsatisfactory (less than 5%). Companies A and D, on the other hand try to use performance measurement as an instrument for their day-to-day work and use it in order to frequently interact with the suppliers. They use the whole range of supplier ratings and do not show any reluctance to downgrading

High. Follow-up on under-performance done on plant level

1999 (beforehand: No standardised system)

Company D

1989 (same criteria since 1993)

Company C

for replacement

Medium to low. Not enough personnel to follow-up on underperformance

Central logistics department, QM

o80 for 12 month: Loss of QC. Re-sourcing

Central purchasing department, QM Initiator

Same criteria since 1993

Company B

5: Find replacement

Same criteria since 1996

Company A

Centralisation of logistics activities

Table 2 (continued)

Consistency of actions

Introduction

High. Central department involved in most logistics issues (incl. Supplier follow-up)

High to medium. Plant is responsible for most logistics issues. PM administered centrally

Seemingly high. But very reluctant to downgrade suppliers in rst place

Medium. Supplier training & PM development done by central department

Central purchasing department, QM

Medium

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a) Percentage of suppliers with good, satisfactory, and unsatisfactory rating
good 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% satisfactory unsatisfactory 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

b) Percentage of suppliers with unsatisfactory rating that receive technical assistance from OEM

Fig. 1. Supply base performance at the four companies in 2000 (percentage of suppliers dened by company as satisfactory or unsatisfactory).

suppliers (around 10% of suppliers are rated as unsatisfactory). 5.3. Functions of supplier performance measurement To conclude the discussion of our case studies we summarise main functions of supplier performance measurement in Table 3. The framework we propose is based on the literature review on intra-organisational performance measurement presented in Table 1. We would like to emphasise two aspects of supplier performance measurement in particular: 1. Supplier performance measurement is primarily used as a communication toolcommunication between the OEM and its supplier or between individual departments. 2. The performance measurement system can inuence the power structure or at least the perceived power, authority and inuence structure between individual departments of the OEM as well as between individual employees of the OEM and the supply base.

6. Conclusion and future work Supplier performance measurement appears to be an important tool in the automotive industry.

All vehicle manufacturers that were contacted for this study, invested considerable manpower and management resources in establishing new or improving and standardising existing measures. The academic literature offers only few empirically consolidated ndings that offer guidance on the kind of measures to choose and the form of the performance measurement and management process that should be implemented in the interorganisational context. Mainstream literature emphasises the use of integrative measures and the measurement of overall supply chain performance. We discussed in this paper potential problems that are linked to such holistic approaches. Also we found that the companies we contacted for our case studies were more interested in performance measurement that helps them in the management of their supply base and in the communication between suppliers and the OEM or between different departments of the OEM than in highly integrative and holistic supply chain measurement systems that cover the whole supply chain. For the understanding of the practice of supplier performance measurement we found it important not only to see the OEM as one homogeneous entity but to take into account the different interest groups and power structures within the organisation. Individual departments that interact with suppliers such as logistics and purchasing, are in interaction with each other as well. They are

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Table 3 Functions of supplier logistics performance measurement as identied in the case studies (the most eminent functions are highlighted and the companies at which the function was most distinguished are indicated) Strategy formulation and clarication Management information Communication with suppliers Not an identied priority at any of the companies

Provide information on supply base for management [A,B,C,D] Communicate dissatisfaction with suppliers performance [A,B,C,D] Provide basis for rational argumentation between OEM and suppliers [A,D] Increase authority/power of OEMs employees in their dealings with suppliers [A,D] Clarify and communicate performance expectations to supplier [A,B,C,D] Communicate supply base performance to purchasing department [A,B,C,D]

Communication between departments Decision making and prioritising

Prioritise supplier improvement activities [A,D] Focus management attention on critical suppliers [A,D] Support decision making in supplier selection [A,B,C,D] Support decision making for design of logistical system (transport mode, inventory etc.) [A] Increase the overall importance of logistics for purchasing decisions [A,B,C,D] Provide more balanced criteria for purchasing decision [A,B,C,D] Instrument to threaten supplier in order to catch their attention or initiate action [A,C,D, to less extent at B] Continuous improvement [explicitly aimed for only at company D] Provide documental evidence on historical performance for negotiations and discussion [A,D]

Co-ordination and alignment

Motivation of suppliers

Learning Other (or more general functions)

in a struggle for authority, inuence and power within their own organisation as well as in their contacts to suppliers. We believe that the conceptual framework of functions of performance measurement that we present in Table 3 supports a better understanding of these aspects. Although we are aware of the limitations of a study with only four companies, we found in our research, that the establishment of supplier evaluation led to improved supplier performance. All companies reported that with the introduction of performance measurement, the supplier performance increased. After the initial improvement, supplier performance became stagnanton a higher levelafter about 1 or 2 years. However, we do not have the data to make a statement whether this could be explained similarly to the Hawthorne effect or whether the companies showed actual learning and continuous improvement activities. We believe that the issues of

benet of performance measurement and return of investment on performance measurement initiatives offer opportunities for future research. Expectations about the effects of performance measurement are high. The range of functions that performance measurement is supposed to full is vast. However, our study suggests that the use of performance measurement in the context of supply chain management poses a range of new questions. Although on the face of it, all companies in our study had quite complex and sophisticated supplier evaluation schemes, the use of the performance measurement and management systems in place, to some extent appears to be rather ambiguous. Companies seem to be still in a testing phase, to nd the most suitable measures and measurement system, and to establish the appropriate management processes that support continuous improvement and control of the supply chain. With this study we hope to contribute to these thoughts by

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