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IJOPM 27,8

Using SPC to measure a national supermarket chains suppliers performance

Chris Morgan and Adam Dewhurst
CLSCM, Craneld School of Management, Craneld University, Craneld, UK
Abstract
Purpose This research paper aims to explore the application of Statistical Process Control (SPC) methods to measure the performance of a national supermarket chains problem suppliers. The use of SPC control charts was expected to help in the understanding of the management of buyer/supplier relationships and the effect of the suppliers performance in the supermarkets replenishment system. Design/methodology/approach The data analysed were based on the performance of 12 suppliers to the national supermarket over a period of 77 weeks. Quantitative data were supplemented with qualitative data obtained from the suppliers managers and the supermarkets buyers. The paper compares the measurement of the suppliers performance using descriptive statistics such as skewness, kurtosis and correlation, with those obtained using SPC-based control chart techniques. Findings The results of this analysis indicate that neither descriptive statistics nor the SPC approach were a complete answer to monitoring supplier performance in the supermarket environment. Instead a composite approach was most likely to be effective in improving buyer/supplier relationships. The use of descriptive statistics is important in establishing consistent and achievable performance targets; the use of SPC facilitates performance monitoring and enables meaningful problem-solving dialogues to be established. Practical implications From a retail managerial perspective these results help both in the design of the performance measurement system and in the establishment of realistic performance standards throughout the supply system. Originality/value The results suggest that performance measurement of supermarket replenishment systems needs to use a range of performance measures and extend beyond conventional dyadic buyer/supplier analysis. Keywords Performance measurement (quality), Statistical process control, Replacement control, Suppliers, Retail management Paper type Research paper

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International Journal of Operations & Production Management Vol. 27 No. 8, 2007 pp. 874-900 q Emerald Group Publishing Limited 0144-3577 DOI 10.1108/01443570710763813

Introduction National supermarket chains have a complicated supply structure. A typical UK national supermarket may have over 25,000 product lines, thousands of local and national suppliers delivering to several distribution centres in different geographic locations and subsequently distributing through a network to 300 to 400 stores, supermarkets and hypermarkets operating on a 24 hour, seven day a week basis. The management of this network is a non-trivial task and success or failure of the system from the customers point of view is simply whether or not what they want is on the shelf when they go to buy it. Against this background, this exploratory research was enabled when data relating to poorly performing suppliers to a well established, UK national supermarket became available for investigation and analysis. Although the supermarket has a supplier information system giving their suppliers performance data on demand, there are

suppliers that do not make best use of, or even ignore, this feedback and who default in their deliveries. When these defaults occur it can take some time for the problem to register at the supermarkets purchasing department and for action to be taken by supplier and buyer to resolve the problems. The larger the supplier base the larger the problem. Solving some of these problems can take weeks or even months during which time customer service at the store deteriorates signicantly. Simply making the performance data available does not appear to be the complete answer. As Dunn and Young (2004) point out, the difculty with many supplier performance systems is rooted in the different buyer and supplier perspectives and ineffective measurement criteria. While it may be possible to reconcile the differences and solve problems with a small supplier base, it may require a different approach with a large supplier base. Creating an effective performance evaluation environment is difcult and may be one sided if one of the parties is the more powerful in the relationship (Mannion, 1994). In contrast to retailing, non-food environments such as manufacturing have a legacy of supplier performance measurement rooted in generations of quality initiatives, for example total quality management and six sigma. This heritage has engendered a process focused perspective. Reliable, consistent, capable and lean processes have emerged as a result of this heritage and supplier relationships tend to be viewed in a longer term perspective. The internal focus of quality and quality standards has been extended to, and adopted by, the supplier network. In turn this has allowed the buyer/supplier relationship to develop. Supplier/buyer problem solving activities tend to be focused on accurate Statistical Process Control (SPC) performance data that highlights issues quickly and unambiguously. This approach recognises that performance measurement must be realistic and that performance is determined by a realistic view of buyer and supplier issues (Imai, 1986). In contrast to manufacturing, retailing (in many ways a more dynamic and complex environment in which change is endemic) has tended to be transaction driven. This can lead to a short-term view of the buyer/supplier relationship that is driven by short-term data analysis. In some instances this may not be a problem, but in others it can lead to a breakdown in buyer/supplier relationships and an expensive search for a replacement supplier. Of course, it will also lead to dissatised and possibly lost customers in the supermarkets stores. With some of the previously identied advantages of a process-based approach that is rooted in an established quality perspective in mind, this paper compares and contrasts the use of descriptive statistical analysis with basic SPC control chart techniques. This is done in order to determine how these approaches can be applied to selected dyadic retailing relationships to improve supplier performance. Literature review This literature review will focus on two important and relevant areas for this exploratory research. The rst is associated with performance measurement in the food retailing supply chain from a management and operational perspective. This will give a background to some of the key performance issues that suppliers and buyers have to cope with on a day-to-day basis. The second area will address relevant SPC issues focusing on the use of control charts in monitoring, controlling and improving process performance. Before these areas are explored a short introduction to the structure of supermarket retailing systems will be undertaken.

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Performance measurement in the food retailing environment is in effect the measurement of the replenishment cycle (Masuchun et al., 2004) and a simplied system is shown in Figure 1. This is a pull-based inventory system that has some similarity to manufacturing just-in-time systems but lacking the delivery to the point-of-use perspective. After initial stock levels have been established using forecasts based on similar products and/or market research, re-ordering is driven by customer purchases registered via the store check-out EFTPOS (Electronic Funds Transfer Point of Sale) system. The supermarkets computer system may take the sales information from the store on a continuous basis or on a batched polling basis. Whichever method is used, the sales data are consolidated and supplier orders are generated having rst checked the stock status, the reordering strategy and merchandising requests for the product. In the majority of cases supplier orders will be sent via EDI (Electronic Data Interchange). Depending upon whether the supplier already has stock or makes to order, the order will be assembled and despatched to the distribution centre within an agreed lead time. On receipt at the distribution centre the stock will normally be put into racking and agged on the stock status database. Some urgently required or short shelf life stock may be fast tracked using a cross-docking system. In this system stock will be physically registered as having been received but will not be put away in the distribution centre. Instead the stock will be moved from the receiving dock to the despatch docks in the distribution centre and allocated to the store orders mu s and Bookbinder, 2004). Normally, the replenishment stock will be immediately (Gu
N Key Measuring Points Store Back-ofStore Operations 1 Customer Purchase EFTPOS Replenishment System Retailer Payment System Order Consolidation 2 EDI Order Transfer Either/Or Order Generation Stock Status Forecasts Distribution System Bank Transactions

Front-ofStore Operations

EDI Invoice Transfer

Replenishment Internal Order

Figure 1. A simplied national supermarkets replenishment system

Order Assembly & Despatch Supplier System

Promotions & Offers Merchandising

Distribution Centres 3

allocated to the store on a usage and/or forecast basis. Consolidated this replenishment stock is delivered to the back-of-store operations before subsequently being moved to the shelves in the front-of-store ready for customer purchases. In these replenishment systems the opportunities for performance measurement are extensive. However, there are some key replenishment operational performance measurement points shown in Figure 1 as circles with the numbers 1, 2 and 3 in them. The rst is related to stock availability at the point of sale and is usually called on-shelf-availability (OSA). The second is related to stock availability in the distribution centre and is sometimes called central stock availability (CSA). The third is associated with supplier performance into the distribution centre and may be measured in several ways (e.g. supplier service (SS) level). Collectively these interdependent measures give an indication of how well the supermarket is managing their replenishment supply chain and, in doing so, meeting their customer needs. However, care must be taken to recognise what lies behind these three measures. Pal and Byrom (2003) identify ve factors affecting OSA in stores: the systems that control the ordering of stock and the display and rotation of stock; the standards that determine the level and quality of service within the shopping environment; the right stock that is offered at the right price, the right time, the right place; the right space utilisation to maximise the return on investment; and, the right staff to manage the day-to-day store and department operations, to replenish shelves, advise and support customers. Clearly OSA problems may be due to store related problems as well as delivery logistics or warehousing problems (Hwang et al., 2005; Taylor and Fawcett, 2001; Blumeneld, 1999). In a similar way CSA is a function of several factors. At its simplest, CSA is stock availability at the distribution centre in relation to stock requirements at the stores. CSA enables efcient store management but does not guarantee good store management. The majority of CSA performance measurement is predicated on a centralised stock holding strategy, although work by Anupindi and Bassock (1999) suggest that similar, or even better performance may be achieved through decentralised strategies. Within the rst of these perspectives CSA has been described by Brown et al. (2005) as a part of the Big Middle or the part of the retailing system in which most of the money is tied up. Inevitably this area comes under the corporate money microscope and many strategic initiatives to eliminate costs have been recently explored. These include Factory Gate Pricing in which the supermarket controls the collection and delivery of products, often from several suppliers to the distribution centre (Bosshart, 2005); RFID Initiatives in which the use of radio frequency identication tags eliminate the need for paperwork and enable automatic stock volume, location and movement monitoring thus reducing the need for supply chain labour (Twist, 2005); and, Warehouse-less Distribution a technique focused on high volume products and which involves taking stock directly from the supplier and delivering it to the store without going through the distribution centres (The Economist, 2006). Inevitably, in addition to availability and resource utility, CSA performance measurement focuses on cost containment by: measuring stock accuracy (usually through rolling sample audits); staff awareness and reporting of overstocking incidents; warehouse management software/systems for tighter control; quality inspection regimes for incoming deliveries; and, packaging simplication and

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standardisation (Chadwick and Waddington, 1982). Warehouse operations performance measurement may include receiving, put-away, replenishment, picking, shipping, slotting, counting and work measurement activities (Frazelle, 2002). Monitoring the dynamics of CSA may include the measurement of: the number of stock-outs; the amount of time a product is out of stock; and, estimation of the demand for the product when out of stock as an estimate of lost revenue (Hill, 1990), as well as embracing cycle time reduction initiatives (Ng et al., 1997). In terms of the supply into the supermarkets CSA system, and an important determinant of the performance of many subsequent processes, supermarkets seek to measure variables that conrm the planned for supplier performance. This performance may be specied in a number of ways and be subject to prevailing buying strategies. A convenient performance measurement structure for suppliers is encompassed in the concept of the perfect order. Christopher and Peck (2004) identify the perfect order as having three elements: delivery of the complete order; on time; and, an error-free invoice. Many supermarkets extend this concept to include: delivery to correct address; the product being undamaged; and, conformance to quality standards. To achieve these six customer focused targets the supplier will need to measure a wide range of other related internal aspects as shown in Table I. Each one of the performance drivers offers potential for performance measurement. For instance, one of the preconditions for a complete order is a correct picking list. For this to be correct the order information must be correct and this is a function of the sales order processing system. Stock must be there to be picked and this is a function of the inventory accuracy and internal/external ordering procedures. Stock must be picked economically and this is a function of the warehouse management system, the picking algorithms, trained personnel, warehouse layout and (if required) available picking technology. Taken as a whole, for all of the drivers of performance with all of

Customer perfect order criteria On-time delivery Delivery to correct address Complete order Correct paperwork Product undamaged Quality correct

Drivers of performance Correct Route and schedule Allowances for departure time correct know route problems Driver delivery Access to delivery Correct address OK address OK customer details Correct picking Order picked Order assembled lists correctly correctly Correct customer details Pick inspection Order assembly instructions correct Internal quality Product system approved specication correct Vehicle correctly maintained Access to off-load bay OK

Order loaded/unloaded correctly Correct order detail Delivery paperwork Invoice details correct accurate Packing and palletising correct Interface with external quality system Load/unload instructions correct Supplier/customer problem solving forum

Table I. Some drivers of perfect order performance

the pre-conditional issues that have to be correct, the potential for performance measurement is huge. Clearly, measuring all that can be measured is likely to be counter-productive. In many organisations low-level measures are used in tracing and eliminating specic problems, after which higher level measures are usually reverted to. These higher level measures are where the transition between performance measurement and performance management takes place. A failure to make this distinction is likely to lead to unwieldy performance measurement systems. A good example of a higher level performance management system was illustrated by Jacoby (2005) and is shown in Table II. In Jacobys example the high level measures are focused on cost; resource utilisation as an indicator of unused capacity or potential growth; inefciencies due to waste or returns; and, the previously discussed perfect order. Many of these measures reect the need for managers to be seen to be protecting their shareholders interests through scal due diligence. Relatively few measures are focused on the customer perspective. Taken as a whole, the problems with performance measurement are often due to a pre-occupation with internal organisation issues. Issues such as system responsiveness, driven through the intense competition in the retail sector, can distort managerial perspectives (Kritchanchai and MacCarthy, 1999). These often dominant, but transient, perspectives may work against the evolution of supply chain performance measures in which there is the need to reconcile longer term inter-organisation clashes of culture, strategy and people. These issues are not new or

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Focus for measures Cost Delivery cost/unit, inventory costs, production costs, logistics costs, packaging costs, customer service costs Sourcing Material or results service cost Supply chain results

Quality Cost of quality, scrap rate, returns and warranty costs, inspection costs

Service Fill rate, order cycle time, percentage of perfect orders

Agility New product introduction (NPI) cycle time, changeover time, time to ex up 20 per cent NPI cycle time Sourcing cycle time, supplier production exibility

Asset Utilisation Supply chain cost, percentage of capacity utilisation

Percentage of defective or returned Percentage of Sourcing Percentage of processes suppliers 80 per certied suppliers cent spend, spend largest supplier, percentage of implementation of purchasing council process, percentage of change unit price, largest supplier costs

Percentage of perfect orders Percentage of time delivery, ll rate, order cycle time

Equipment uptime Repair and maintenance costs

Table II. Examples of high level supply chain performance measures

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specic to national supermarket chains. Batson and McGough (2006) indicate that manufacturing organisations have to a greater or lesser extent overcome these issues using quality as a universal focus throughout their supply chains. The principles and issues of quality-based operations are well explored in the academic and non-academic world. Literature abounds and there is little point in trying to address the whole eld. Instead the paper will focus on two closely linked key aspects of quality as they have a direct relevance to this exploratory research. These are: improving process capability; and, the use of control charts to measure process performance on an on-going basis. Given the problematic nature of the suppliers in the subsequent analysis, improving supplier capability is a necessary and desirable focus as a prerequisite to improved performance and relationships (Stuart and McCutcheon, 1996). Achieving good process capability will help to eliminate the costs associated with supplier delinquency events and subsequent supplier monitoring (Emiliani, 2003). Control charts are examined in the context of process monitoring to improve process capability and as a method of gathering reliable process control information that can be used in cross-organisational problem solving activities. Good quality performance measurements are simple, focused, relevant and useful. These concepts have been embedded since the earliest work by Shewhart (1931) and Deming (1939) through to modern quality developments such as six sigma. Improving process capability leads to improving average process performance. This is shown in Figure 2. It will be seen that process capability improvement has the effect of increasing the proportion of the sample population within tighter performance limits (Phase 1), and statistically the Kurtosis of the curve improves. Then, process performance

PHASE ONE

Improved Process Capability

Initial Process Capability PHASE TWO

Target Average Performance

Figure 2. Improving process capability and process performance

Original Actual Average Performance

Process Improvement

improvement is achieved by moving the average performance up to the desired level (Phase 2). As the capability of processes is improved (or variability is reduced) they usually become more stable and hence more predictable over time. Shewhart (1931, p. 6) dened this condition as being in control:
. . . a (process) will be said to be controlled when, through the use of past experience, we can predict, at least within limits, how the (process) may be expected to vary in the future.

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Or as Wheeler and Chambers (1992, p. 130) suggested:

If a process is out of control, it has failed to display a reasonable degree of consistency in the past. Therefore, it is illogical to expect it will spontaneously begin to do so in the future.

One important issue that this approach exposes is that the concept of an absolutely stable standard of performance can only be achieved if all of the variables in a situation or process can be absolutely controlled. For example, a key performance indicator (KPI) of 99 per cent on shelf availability (OSA) in a store is probably unachievable in an imprecise world where a supplier will be unable to control the environment in which the supply chain operates. From a retailing point of view these targets can often only be achieved by holding buffer stock in the supplier warehouse, distribution centres or stores, which in turn add to the cost prole of the product. Process capability must in some way link customer performance expectation with the natural process limits. Clearly the choice of what to measure in the context of supplier capability is critically important. As can be demonstrated (Crichton et al., 2003) buyers and suppliers measurement motivation is bound up in the purchasing strategies of the respective businesses. If price is important then that is what will dominate the measurement perspective; if on time delivery is important then that will dominate; and so on. However, as agency theory suggests, if between-organization measurement is to be effective, simple, accurate and unambiguous measures need to be jointly agreed (Eisenhardt, 1989). Having agreed the measures to be used, the focus shifts as to how to present the information in order to use it for monitoring and problem solving activities. Presenting information as numbers assumes that the receiver knows how to interpret the numbers and can then formulate subsequent actions on the basis of that analysis. While this might be the case in some instances it is less risky to present the information in a pre-processed format that reduces the probability of error or misinterpretation. As Moroney (1953) said:
Give me an undigested heap of gures and I cannot see the wood for the trees. Give me a diagram and I am positively encouraged to forget detail until I have a real grasp of the overall picture.

With this in mind, the use of a control chart to relay time-related performance information in an understandable way was anticipated by Shewhart in his early work. Both Shewhart and Deming extolled the need to make variation in processes visible and understandable. How managers interpret a control chart is an issue that Rosander (1985) addressed. He suggested that a control chart may have many uses including: . giving a history of a process; . indicating trouble or the lack of it; . measures quality progress and improvement; . being used as a control device;

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. . . .

being a communication system for information; precipitating actions; analysing outcomes; and indicating signicant shifts in process performance.

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The control chart itself may be applied to many situations. Its use in manufacturing is well known but its application to service environments has not been as well researched and reported. It is surprising that a literature search of refereed journals in the citation databases only produced two references that attempted to link control charts with the non-manufacturing supply chain processes (Marquardt, 1997). Marquardt arguing that in the supply chain context, composite measures of control charts and CUSUM would create a better measurement regime; while research has suggested that the inter-relatedness of several supply chain measures were more likely to respond to multivariate analysis reported through a composite performance index. There is little evidence to suggest that either of these ideas have been taken up in the retailing environment, but this is more a reection of the retail environment than of the ideas. Whatever the strengths and weaknesses of using the control chart, all authors agree that control charts are a widely used and practical performance monitoring device. Figure 3 is shows of a hypothetical control chart based on measuring a supply process over time. The upper graph contains the daily delivery performance data for a supplier measured over time against a target of 80 per cent. The lower graph illustrates the range data indicating the day-to-day variations in delivery performance. (The calculation of the control limits is discussed in the methodology section of the paper.) Much information can be gained from these charts For instance,: while at times the delivery performance has exceeded the target of 80 per cent, for the majority of the period it was below target (pattern recognition); the decline in performance around 30 August-2 September needs investigating (inter-organisation problem solving);
Supplier Delivery Performance
90 UCL=86.9 85 Performance (%)

80

Target performance=80.0

Mean=78.7

75

70 15 (%) 10 5 0 Tue 12 Sep 2006 Wed 13 Sep 2006 Mon 11 Sep 2006 Mon 28 Aug 2006 Wed 30 Aug 2006 Tue 29 Aug 2006 Tue 5 Sep 2006 Wed 6 Sep 2006 Thu 14 Sep 2006 Fri 15 Sep 2006 Sat 16 Sep 2006 Fri 25 Aug 2006 Sat 26 Aug 2006 Sun 27 Aug 2006 Thu 31 Aug 2006 Fri 1 Sep 2006 Sat 2 Sep 2006 Sun 3 Sep 2006 Mon 4 Sep 2006 Thu 7 Sep 2006 Fri 8 Sep 2006 Sat 9 Sep 2006 Sun 10 Sep 2006

LCL=70.5

UCL=10.1 Mean=3.1 Mon 18 Sep 2006 Sun 17 Sep 2006

Figure 3. Hypothetical sample control and range charts

Delivery Dates

and, a management action needs to be instigated in order to nd why the below target performance has been allowed to continue since 2 September (internal problem solving). By comparison Figure 4 would be a classical (or mathematical) statistical presentation of the same data. However, it gives fewer managerial prompts for action and does require some statistical knowledge to interpret. It is clear from this literature review that: many opportunities for measuring exist; there is a need for performance measurement that will be effective in enhancing buyer/supplier relationships in the food retailing environment; and, the use of control charts should be of help in improving food retailing supplier processes. The question posed is how the data that was made available can be processed in order to make these assertions more robust. Methodology The data used in this analysis was originally supplied by the supermarket as part of an internal organisation consultancy project involving the papers co-author (A. Dewhurst). The quantitative data about the 12 defaulting suppliers was extracted from the organisations enterprise resource planning (ERP) system. The supplier delivery performance data were summarised across all distribution centres on a weekly basis for a period of 77 weeks. In a similar way the store on-shelf-availability data were summarised across the stores in the supermarkets network on a weekly basis for the same period. Although this data were extensive in nature it falls short of what would normally be included in an investigation that was more complete in scope. Ideally it would have been worth trying to gather data from throughout the complete replenishment system shown in Figure 1, and which also included the performance of both delinquent and non-delinquent suppliers. Inevitably this lack of balance in the sample will limit the extent to which generalisations may be made from the analysis. On the other hand, by focusing on delinquent suppliers, a much clearer picture of
Process Capability of Supplier Delivery Performance
Calculations Based onWeibull Distribution Model

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LSL
Process Data LSL 70.5 Target 80 USL 86.9 Sample Mean 78.725 Sample N 20

Target

UCL
Overall Capability Cp 0.54 Cpk 0.41

64

68

72

76

80

84

88

Figure 4. Example of supplier delivery performance data distribution and capability

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process capability and the nature of supplier defaults could be gained. The absence of the complete data picture limits the nature of this analysis, but on the positive side helps to dene the nature of any subsequent investigation. Clarication of the ongoing developments highlighted by the quantitative data were provided using qualitative data provided by the supermarkets buyers and a representative from each of the suppliers in the sample. Unstructured interviews were conducted with both buyers and the suppliers in order to construct a historic narrative of the period under investigation for each supplier. In these interviews the people involved were encouraged to provide their version of the events. By examining these interviews for the 12 suppliers it was possible to understand many of the background issues (e.g. the cause of the supplier delinquency and the nature of the inter-organisation exchanges) that the quantitative data did not provide. The choice of unstructured interviews was largely in response to the sensitivities of many of the individuals concerned had about what were at times stressful situations. Also we were requested to exercise care in order to preserve ongoing relationships between the supplying organisations and the supermarket. The samples analysed were nominated by the supermarket and consisted of 12 suppliers who had failed to meet performance targets. These suppliers all manufactured and supplied products usually categorised as dry goods by the supermarket (i.e. goods that are usually found on store shelves that have a long shelf life and that do not require special storage conditions). The 12 suppliers were grouped in three categories very large, large and medium. Very large suppliers deliver more that 100,000 cases to the distribution depots each week; large suppliers between 40,000 and 99,999 cases and medium suppliers less than 39,999 cases. Accurate depot delivery (SS) performance data were readily available for these suppliers as was accurate on-shelf availability data. Table III gives an indication of supplier product categories and activity levels in the system. All suppliers received their orders via EDI links driven by EFTPOS data. Stock cover was dened by the supermarket as the number of weeks worth of stock in the system based on the average weekly usage for each suppliers products. When the range of historical data that the supermarket had was examined, the most reliable and complete data were those associated with two KPIs these were SS and OSA. Supplier Service (per cent) was dened by the supermarket as: Depot received volume 100 Total order volume 1 1

In other words Supplier Service is a measure of how closely the order and delivery volume to distribution depot match. As this is a volumetric measure it is summarised, possibly against several deliveries, each week. On Shelf Availability (per cent) was dened by the supermarket as: Product instances in store stock 100 Product instances required in store stock 1 2

OSA is a relative measure of what is on the shelf versus what should be on the shelf in the stores. This gure is calculated by aggregating the total actual stock for the SKU across all stores as the numerator and the aggregated planned store stock for the SKU

Supplier Weekly sales (cases 1,000) 230 95 70 120 50 30 38 55 38 56 60 30 30 30 18 1.79 2.07 1.67 3.7 5.17 3.29 3.18 3.63 3.1 3.1 3.06 2.43

Supplier size 7 5 7 5 7 6 7 6 7 6 5 6 35 18 33 25 30 37 55 60 38 50 75 53 75 100 85 40 55 100 120 60 95 85 105 100 100 70 75 100 85 85 240 250 310

Order cycle (days)

Weekly operation (days)

Weekly inward volume (cases 1,000)

Average depot stock volume (cases 1,000)

Average store stock volume (cases 1,000)

Stock cover in network (weeks)

Product categories Confectionary and cat food

Mineral water Fruit juice drinks

E F

Very large Very large Very large Very large Large

3 3

Large

H I J

Large Large Medium

3 3 3

Medium

Medium Medium

4 3

Soft drinks Confectionary Cosmetics, batteries, dental hygiene Cleaning and hygiene Confectionary Confectionary Cleaning and hygiene Canned meat and sh Sauces

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Table III. Supplier category and activity levels

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as the denominator at each week end. The denominator level is set by a combination of forecast usage data on a store-by-store basis modied by actual store usage derived from EPOS data. A customers judgement of OSA is somewhat different. Their view will be determined when they visit the store by whether or not they can full their needs in full, in part or not at all. These two internal performance measures focus on key stages in the retail supply system. Supplier Service is a measure of the effectiveness of the supply process from the supplier to the depot; OSA is a measure of the effectiveness of Back-of-shop to Front-of-shop operations. These KPIs are potentially interdependent and logically SS performance drives OSA, but OSA is also partially dependent on good in-store management and in-store buffer stock. For the purpose of this investigation it was decided to investigate both of these data sets for the selected suppliers in order to determine which gave the most usable indication of supplier performance. The data sets spanned a period of 77 weeks (beginning 4 May 2002-25 October 2003). It should be noted that SS data are consolidated from all supermarket depots and that the OSA weekly data are consolidated from all supermarket outlets. However, it was not felt that the effect of this decrease in sensitivity would have a signicant effect on the outcome of the analysis.  chart. The method used to plot and analyse the weekly OSA and SS data were the X The formula used for calculating the upper and lower control chart limits uses Shewharts equations based on single measurements (Wheeler and Chambers, 1992, p. 48): Upper control limit Mean X 2:66 Mean of the moving range Lower control limit Mean X 2 2:66 Mean of the moving range 3 4

These calculations and charts were undertaken and created using Winchart SPC software. The process capability was calculated using data derived from the range chart. These calculations were undertaken using Minitab statistical analysis software using a non-normal distribution (Weibull) as an approximation to the observed data sets. The base data for all suppliers was transferred into Microsoft Excel from the supermarkets ERP system. Excel was used to calculate the data skewness, the kurtosis and to examine the correlation between the OSA and SS data. Skewness was calculated using:  Xxj 2 x  3 n 5 n 2 1n 2 2 s where n the number of samples, s standard deviation of the sample,  mean of the sample. xj individual sample value and x Kurtosis was calculated: ( ) Xxj 2  nn 1 3n 2 12 x 4 6 2 n 2 1n 2 2n 2 3 s n 2 2n 2 3 where n the number of samples, s standard distribution of the sample,  mean of the sample. xj individual sample value and x

The correlation coefcient for the data were calculated using: P  y 2 y  x 2 x CorrelationX; Y q P  2  2 y 2 y x 2 x

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It should be noted that in calculating the correlation of OSA and SS data for each supplier, OSA data was offset by the weeks of stock cover identied in Table III. Although not presented in their entirety all control charts were generated using Winchart and their characteristics subsequently summarised in Table IV. Results The results are presented in two parts. The rst part of the results tries to identify what can be deduced from the performance data using a mixture of classical statistical analysis (e.g. kurtosis, skewness, correlation) and control chart information (e.g. upper and lower control limits). This analysis seeks to explore the strengths and weaknesses of a numbers-based approach to managing suppliers. The second part of the results concentrates on the interpretation of the control chart performance data. While more subjective in nature, these results give important insights into the value of the SPC approach to managing supplier relationships. Table IV is a statistical summary of the 12 suppliers performance. Column 1 identies the suppliers (A to L) with SS and OSA performance data summarised in each row. Note that the target performance the supermarket sets for the supplier is 96 per cent (delivered volume related to ordered volume); and, for the store 99 per cent (stock items in store related to out-of-stock items in store). The data in Column 2 allows a comparison between the target performance and actual mean performance for SS and OSA. In only two instances does the mean performance of the suppliers SS performance closely approach the targets of 96 per cent with Supplier Bs mean equal to 95.876 per cent and Supplier Is mean equal to 95.772 per cent. In all other instances the mean performance is lower than target with supplier F having the lowest mean performance value of 85.719 per cent. The OSA performance target is 99 per cent and only suppliers G (98.803 per cent), I (98.815 per cent) and L (98.810 per cent) closely approach this target. As with SS data the remainder of the OSA data indicates performance lower than target with supplier F having the lowest mean OSA performance of 97.381. As the data are focused on poorly performing suppliers these results are not surprising. There does not seem to be a signicant difference in SS or OSA performance in the three categories of suppliers (as dened in Table III: very large, large and medium). Clearly the size of the supplier has little inuence on their delivery against order performance. Without additional evidence it is not possible to comment on OSA performance in the stores. Taken as a whole these results do raise a question as to whether the specication of a performance target without pragmatic performance limits is a realistic line to take with suppliers or with the store managers. Qualitative feedback from suppliers suggests that they regard these targets as sticks rather than carrots and the buyers regard the targets as aspirational. This suggests that not recognising process variability may not be helping in the relationship between buyer and supplier and could possibly be suppressing problem solving activities. Also it could be reasonably argued that insistence on absolute performance targets will encourage

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Supplier 0.073 0.235 2 0.337 0.430 0.451 0.788 0.057 0.419 0.138 2 0.010 0.196 0.188 102.148 98.880 103.651 99.507 101.578 99.328 102.708 99.537 100.423 98.900 97.207 98.484 101.788 99.420 102.183 98.918 103.400 99.415 105.593 99.198 102.971 99.407 104.524 99.335 84.075 97.880 88.083 95.712 86.026 96.696 86.586 96.787 79.829 97.664 74.231 96.277 88.346 98.187 84.403 97.750 88.045 98.216 83.989 97.824 79.492 97.186 81.461 98.286 18.073 1.000 15.568 3.795 15.561 2.632 16.122 2.750 20.603 1.236 22.378 2.207 13.442 1.233 17.780 1.168 15.355 1.199 21.604 1.374 23.479 2.221 23.063 1.049 2 0.933 2 2.075 2 1.501 2 2.079 2 1.163 2 2.725 2 1.933 2 1.687 2 1.038 2 0.807 2 1.292 2 1.999 2 1.046 2 0.748 2 1.408 2 1.601 2 1.534 2 0.837 2 1.358 2 1.274 2 1.801 2 2.586 2 2.844 2 1.056 0.338 4.539 2.579 5.098 1.756 14.639 4.522 4.980 0.738 2 0.278 0.387 3.001 0.326 0.181 1.202 2.460 3.126 0.006 2.020 2.886 4.898 6.983 10.167 0.752 0.66 0.50 0.87 0.65 0.62 0.47 0.72 0.55 0.64 0.50 0.34 0.31 0.57 0.45 0.58 0.46 0.80 0.60 0.96 0.72 0.57 0.46 0.66 0.52

A(SS) * * A(OSA) * B (SS) B (OSA) C (SS) C (OSA) D (SS) D (OSA) E (SS) E (OSA) F (SS) F (OSA) G (SS) G (OSA) H (SS) H (OSA) I (SS) I (OSA) J (SS) J (OSA) K (SS) K (OSA) L (SS) L (OSA)

Notes: *Target OSA performance 99 per cent; * * target SS performance 96 per cent

Table IV. SS and OSA data analysis  X UCL value (per cent)  X LCL value (per cent)  X  SS and OSA X UCL-LCL data skewness  X SS and OSA data kurtosis  X SS and OSA data correl.   X X SS and Range Range SS and OSA Cp OSA Cpk mean UCL 0.33 0.28 0.44 0.36 0.57 0.42 0.48 0.37 0.32 0.26 0.27 0.24 0.35 0.27 0.31 0.26 0.41 0.31 0.32 0.25 0.36 0.30 0.47 0.36 3.397 0.118 2.926 0.713 2.923 0.495 3.030 0.517 3.871 0.232 4.319 0.415 2.527 0.232 3.342 0.219 2.886 0.225 4.061 0.258 4.413 0.417 4.335 0.197 11.099 0.614 9.561 2.331 9.550 1.616 9.900 1.689 12.646 0.759 14.110 1.355 8.255 0.757 10.919 0.717 9.430 0.736 13.267 0.844 14.419 1.364 14.163 0.644

 X mean perform (per cent)

93.112 98.380 95.867 97.610 93.802 98.021 94.647 98.162 90.126 98.282 85.719 97.381 95.067 98.803 93.293 98.334 95.722 98.815 94.719 98.511 91.232 98.297 92.993 98.810

overstocking in the supplier network to buffer variations in customers demand. This will add cost to products that the end customer eventually has to pay for. If the DC is regarded as a supplier for the store then unless DC stock is balanced with store customer demand there will be a similar propensity to hold excess balancing stock at the store. While the data does not allow differentiation as to where and how much stock is held in the supermarkets system, it seems probable that the excessive stock cover identied in Table III is a result of holding just-in-case stock rather than just-in-time stock. Columns 3, 4 and 5 give indications of process variability. The upper and lower SS control limit values in all cases indicate the extent of the problems that are likely to be encountered with suppliers. With a target of 96 per cent SS performance, with one exception (supplier F), all calculated upper and lower control limits suggest that process variability as dened in the data, will lead to either over or under stocking as a normal pattern. The OSA data indicate similar patterns with presumably similar outcomes. What is interesting is the range of variation when SS and OSA data are compared. Column 5 indicates that while SS variations are very wide (13.442 to 23.479) OSA variations are quite small (1.000 to 3.795). It is tempting to suggest that either the decoupling effect of the DC stock is important in smoothing supply to the stores, and/or provides further evidence that back of store stock is being used to balance demand and supply. Care must be taken in making this intuitive leap as the natural gearing between the number of DCs and the number of stores may be attenuating the relationship between SS and OSA performance. Columns 6, 7 and 8 contain the calculated values of SS and OSA data skewness, kurtosis and correlation, respectively. The skewness calculations indicate that all suppliers and both SS and OSA data are negatively skewed. This indicates that the distribution curves for the sample data in general have a longer under-performing tail than an over-performing one. Higher values (e.g. suppliers A (OSA), B (OSA)) indicate excessively long tails on the distribution curves. The kurtosis values shown in column 7 give an indication of the narrowness of the data distribution curves, in general the higher the value the steeper and narrower the curve. Although there are some very high values in these results (i.e. Suppliers C (OSA) and L (SS)) and some very low values (i.e. Supplier A (OSA), E (OSA), G (OSA), I (OSA), the majority of the values lie between . 1 and 6. The single negative value (Supplier E (OSA)) indicates a at distribution of data with signicant number of results in the distribution tails. On balance this would suggest that the performance of the suppliers and stores is for a greater part of the time reasonably predictable although not necessarily on target. It should be noted that while skewness and kurtosis give indications of the data sets statistical performance neither indicates when the performance problems occur or how long the problems persist for. The correlations in Column 8 seek to identify if the SS performance is any predictor of the OSA performance. Will a problem with SS performance in week N appear in the OSA performance in week (N X), where X is the number of weeks of stock cover? The correlation results shown in column 8 are reasonably conclusive and while it is true that there does appear to be fairly strong correlation between SS and OSA in supplier F, the remainder of the results suggest that SS performance is not a good predictor of OSA performance. This negative result, which is based on the supplier sample analysed, could change if the stock cover was reduced, but this would be a

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risky strategy unless the suppliers performance was far more predictable. Also it would be necessary to identify exactly where stock is being held in the supermarkets operations and to what extent the store managers are using stock to manipulate the OSA performance gures. Although Cp and Cpk have been calculated (columns 9 and 10) the predominantly skewed distributions indicated in column 6 mean that column 10 should be the main indicator of process capability. The inclusion of column 9 allows a judgement to be made as to how near to a normal distribution the supplier data set is (i.e. when Cp Cpk). As will be seen if only Cp had been calculated an unduly optimistic view of the supplier and store capabilities would be made. Examination of column 10 (Cpk) clearly indicates that the process capabilities are low with the SS performance range 0.27-0.57 and the OSA performance range 0.24-0.42. While this outcome could have been guessed by using the calculated mean, upper control limit and lower control limits, the Cpk values give a clear indication of the scale of process capability improvements required if a moderate target of Cpk $ 1 is to be achieved. However, process capability by itself can be misleading. The data analysed in this investigation reected 77 weeks of supplier and supermarket activity. If too short a period is used for the calculations of Cp or Cpk it is possible to get a distorted view of the process capability, potentially too optimistic or too pessimistic. This argues for a balanced statistical analysis based on a time span in which normal demand and performance variations (e.g. seasonal and cyclical) must be the basis for retail performance monitoring. The range data included in columns 11 and 12 gives some indication of the variations embedded in the current processes. By itself it is not particularly useful and it is best considered in the control chart context where the range chart is valuable in highlighting changes from normal activity. The second part of the results examines the use of the graphical information in managing supplier relationships. As there is little evidence of control charts being systematically applied to retail supplier management outside the manufacturing milieu this is uncharted territory. To impose a structure two elements will be explored: (1) the interpretation of the charts; and (2) a comparative analysis of SS results in search of recurring performance patterns. Clearly, while analysis of the type discussed previously may be of interest to the academic community, a more pragmatic approach will be needed by practitioners. In this context, the use of recording actual performance in a real time environment gives useful insights into the timing and seriousness of the supplier default. Weekly data for a 77 week period was readily available for this analysis and Supplier A has been chosen as an example to analyse. Figure 5 shows the SS and OSA performance for supplier A for a 77 week period beginning 4 May 2004.Christmas occurred during weeks 34-35, Easter occurred during weeks 51-52.Comparing the upper and lower charts it is clear that the erratic supply pattern of goods into the distribution centre has been heavily smoothed at the store. Given the variability of the input from the supplier, it seems remarkable that the eventual major OSA default that began in week 66 did not occur much sooner. However, these graphs also show the importance of having the complete picture as it

Supplier A - Weekly Supplier Services into D.C.

105

UCL=102.148 100

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SS Into D.C. (Target = 96%)

95

Performance Target=96.000
Mean=93.112

90

85 LCL=102.148

80 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 Weeks

Supplier A - Weekly OSA Performance in Store

99.5

99.0

Target Performance =99.000

UCL=98.880

OSA Performance at Store (Target = 99%)

98.5 Mean=98.380 98.0 LCL=97.880 97.5

97.0

96.5

96.0

95.5 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 Weeks

Figure 5. Supplier A weekly SS performance into the retailers distribution centre and in-store OSA performance

was obvious that poor supplier delivery performance would eventually drive down buffer stocks and trigger the week 63 slide. It may even be possible to argue that the poor supplier performance in weeks 51-52 could have been the trigger for the problems subsequent to week 63. These graphs also illustrate the importance of improving the capability of supplier A to perform more predictably and in doing so tightening the control limits for that part of the supply process. Such actions would have two effects, the rst would be to reduce the need for buffer stock in the system and the second would be to reduce buyer

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precautionary over-ordering in the rst instance. As has already been suggested improving capability by itself would only be part of the solution as the effect of this improvement would be to reduce variability around the current SS performance average of 93.1 per cent (somewhat short of the supermarkets target of 96 per cent). The more signicant improvement would be to shift this 93.1 per cent performance to 99 per cent and thereby balance the overall system and reduce stock even further. This strategy is very much in line with quality theory that suggests that unless a process is consistent (i.e. capable) there is little point in trying to improve it (Snee, 2003). These conjectures and observations to some extent reect what was happening in the world represented by the graphs. In the real world the supermarkets buyers rst identied the supplier (A) problems during week 34-35.On investigation they found that the supplier was unable to deliver because they had failed to give their haulier accurate forecasts. In turn the haulier did not have delivery capacity to meet the Christmas demand from the supermarket. Other than urging the supplier to improve, little else was done by the buyers as performance improved during the weeks that led up to Easter (weeks 51-52). However, as Easter arrived, almost the same series of events occurred again with the same problems in evidence. This time the buyers initiated action that sought to encourage supplier A and their haulier to work more closely together in planning and co-ordinating activities. Some improvements were achieved as a result of this action. The next crisis occurred during week 68 when a rapid increase in in-transit damage began. This was primarily due to a change in the design of the pallets instigated by the supermarket as a part of the re-design of the distribution centre operations. The new pallets could not be securely anchored during transport. The haulier had been unaware of the pallet change as the supplier had failed to inform them and as a consequence had used the wrong kind of vehicle for transportation. Comparing the insights obtained from graphical information with the observations from the buyers gives two interesting insights: (1) The supplier problems were observable long before the crisis of weeks 34-35.They were in evidence from the beginning of the 77 week monitoring period (and incidentally, before that as well). In spite of this information being available both the buyer and supplier failed to focus on the erratic delivery patterns, failed to investigate the problem, failed to eliminate the problem and nally the supplier failed to deliver at critical periods in the supermarkets calendar. These cumulative failures were rooted in buyer/supplier attitudinal problems and in behaviour patterns that had been in existence within this specic supply chain for years. (2) Problems in the relationship between the supplier and their haulier were in evidence from the start, but were these the only problems with the supplier? Did the supplier have other problems and use the haulier as an excuse? The evidence is that the suppliers average performance failed to reach the 96 per cent target set by the buyer. Also, the control limits give a clear indication that the capability of the supplier was very low. Had the supplier and buyer used the graph data and recognised its implications, it would almost certainly have resulted in proactive rather than reactive corrective action. In turn this joint approach to problem solving could have helped to avoid the ongoing problems experienced by both parties. These observations conrm that many problems

that are observed in one part of the supply chain may have their roots elsewhere in the supply chain. However, a consistent supply chain measuring platform is required to pinpoint problems and enable solution development. Inspection of all performance charts for the 12 suppliers indicated that there were three basic patterns contained in the charts and these are shown in Figure 6. The charts chosen to illustrate these behaviours are the weekly OSA charts. These have been chosen because they are focused on the most critical performance measurement from the supermarkets point of view. The three basic patterns observed are: Deteriorating performance in which a steady deterioration was observed. This has been illustrated with the control chart of supplier D although similar patterns have been observed for suppliers A, H and J. The approximate rates of deterioration for suppliers in this category are D , 0.035 per cent per week, A , 0.08 per cent per week, H , 0.035 per cent, J , 0.023 per cent per week. These slow patterns of deterioration may be ignored by both buyers and suppliers if the monitoring horizon is short, and yet in their way they are just as serious as the following, and more spectacular mono-modal breakdowns. A mono-modal breakdown is one in which a single and signicant perturbation was observed. This is illustrated with the control chart for supplier F, but similar patterns were observed in suppliers B, C and K. The time of the delinquency varied quite a lot B , 13 weeks, C , 3 weeks, F , 20 weeks and K , 14 weeks. Clearly, if these were sole suppliers of the product ranges involved, these events would have had a serious impact on OSA and on the merchandising strategies of the supermarket. None of the four suppliers identied in this category consistently achieved the supermarkets target OSA performance of 99 per cent. Periodic defaults in which delinquency occurs at regular periods. This has been illustrated with the control chart for supplier I which is similar to the charts of suppliers E and L. The approximate periods of suppliers default in this category are: I , 25 weeks, E , 52 weeks and L , 41 weeks. Clearly, repeating patterns of this type need further investigation. They may give an indication of cyclic default tied to the normal retail demand patterns (e.g. the Christmas rush) or tied to normal supply patterns (e.g. the availability of raw materials). Once again it would be possible to miss these patterns if the data used for control was based on a short time (say monthly) performance horizon. An examination of all graphs suggests that major defaults, which in themselves may continue over extended periods, are often signalled by increasing erratic supplier delivery performance. In fact it was quite rare for a sudden deterioration in supplier performance to occur. When they did occur they were often due to catastrophic events such as equipment breakdown in manufacturers that could take a signicant time to repair or replace. These observations indicate that consistent measurement of relevant performance can be very effective in enhancing the processes that link buyers and suppliers. As has already been signalled much of the incidental qualitative data gathered as a part of this investigation tends to support the suggestion that suppliers distrust data supplied by the supermarket mostly because supermarkets tend to be more sensitive to OSA rather than SS data and blame suppliers for all of their problems. This supplier distrust

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100 99

Supplier D - Weekly OSA Performance

UCL=99.537
Performance Target=99.000

894

Weekly OSA Performance (%)

98

Mean=98.162

97 LCL=96.787

96

Long term trend

95

94 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 Weeks

Supplier F - Weekly OSA Performance

99 UCL=98.484 98 Mean=98.162 97 96 95 94 93 92 91 90 2 4 6 LCL=96.277
Target Performance=99.000

Weekly OSA Performance (%)

Mono-modal default

8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 Weeks

Supplier I - Weekly OSA Performance in Store

100

Periodic default
OSA Weekly Performance (%)
99.5 UCL=99.415

99.0

Target Performance=99.000

Mean=98.815

98.5 LCL=98.216 98.0

Figure 6. Patterns of performance deterioration

97.5

8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 Weeks

manifests itself in a number of ways, the most signicant of which are a lack of ownership of the performance data and how little this data helps in building and maintaining a constructive relationship. In the manufacturing environment it is recognised that these issues are quite critical for the development of an effective quality system and for process capability. Most performance progress has been made in manufacturing when: information has been presented graphically as a spur to operator actions within processes (Dale, 1999); when a problem solving culture has been engendered by management (Beckford, 1998, p. 24); and, when suppliers are regarded as an integral part of the system rather than something outside (Beckford, 1998, pp. 265-6). Conclusions The rst and probably most important conclusion of this analysis is that approaches to supplier management based solely on an analysis using techniques such as kurtosis or skewness, are not ideal. The drawback of this approach is that it assumes that managers in the buying and supplying organisations will have sufcient statistical knowledge to be able to decide which statistical techniques to use and then to interpret the results when they are obtained. Also, these approaches do not add much management value in understanding the time relatedness of the data analysed. Trends and transient phenomena can be difcult to identify and evaluate. However, the advantage of the approach is its precision and the analysis in this paper shows that it can be of help when establishing or exploring performance targets and understanding the scope of performance variations, particularly in retailing performances where data are available from ERP systems. In contrast, control charting approaches require managers to understand both supplier and buyer processes if they are to be effective in problem solving activities. Stuart and White (2002) hint that many managers behave more predictably when faced with control charts and have a natural predisposition to interpret them responsibly. This bodes well for problem solving activities but implies that both the buyer and supplier have access to similar computer technology and that ERP systems can actually communicate with one another. Sadly, as Van Decker (2006) reects, this is often not the case. However, as has been demonstrated, when consistently applied, control charts can prove to be useful tools in identifying longer term trends as well as short-term variations. The proviso to this is that the processes being monitored are capable and on performance target. The results strongly suggest that the best solution to improving supplier performance would be to adopt a composite approach in which descriptive statistical analysis (e.g. data kurtosis and supplier capability) is used to establish standards; and, control charts form the basis for measuring and monitoring actual performance and subsequently form the basis for joint buyer/supplier problem solving. From a pragmatic point of view the retail replenishment system for any given SKU may be regarded as a series of internally connected processes and interfaces within organisations; and, external inter company interfaces between companies in the supply/replenishment chain. This research has focused on only one indicator of inter-company performance, supplier service; and on only one interface in the replenishment cycle, OSA. However, in spite of these limitations the results suggest that unless and until all processes and interfaces are synchronised from a performance point

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of view taking variability into consideration (an issue that Beamon, 1999 emphasises in her exploration of supply chain performance models), managers are forced to use inventory to compensate for the variability in supply. In this perspective the concept of the KPI that is predicated on the discrete transaction philosophy becomes less relevant. Instead, the focus for supply system improvement becomes that of: (1) consistent process performance measurement throughout linked processes in a supply system; (2) individual process capability improvement to maintain consistent on target performance; and (3) a continuous improvement philosophy to drive performance upwards. The implication of these three targets is the need to recognise that optimisation of supply systems or networks must include cross organization/culture activity and that the targets within the supply chain need to be consistent. This investigation has shown that one part of a replenishment system that has a KPI of 96 per cent feeding another part of the same system with a KPI of 99 per cent is a recipe for problems. Also it is clear that improving individual processes may be a waste of time unless that process is at the point in the supply network at which overall supply system performance is constricted. This may be either inside or outside the organization and may include processes over which the organisations in the supply chain have no control (e.g. road transport on overcrowded motorways). This research also identies the necessity for accurate information that is acceptable to, and understandable for, both buyers and suppliers. It has been shown that if a considered approach is taken, a great deal of information about trends and patterns of performance can be identied. But this can only take place if appropriate data are consistently gathered and presented in a way that enables proactive management. Without this data there is a natural inclination for buyers and suppliers to operate in a short-term window that engenders both aggressive relationships and a propensity to use inventory as way of overcoming the vagaries of the supply system. This is both costly in terms of emotion and excess inventory (Sheu et al., 2006). The maintenance of a consistent system for achieving end of chain performance requirements will require a problem solving approach to be taken throughout the supply chain. This approach requires that an economic pattern of supplier monitoring is undertaken. Consequently, a form of cadence sampling (Figure 7) suggest by Logothetis (1992) is most likely to be effective when resources are focused on the areas of problems rather than a blanket approach. Moving to proactive supply system management requires trust building, shared objectives and unbiased data. These hurdles may be high for many organizations and may require some fundamental rethinking of frameworks of analysis and strategy making. This is not to suggest that such an approach would be without problems. The investment of buyer managerial time in establishing joint strategies is only worthwhile if suppliers have the inclination and ability to perform to the required standard (Krause et al., 1998). The exploratory nature of this research has inevitably raised other research observations and questions:

Promotion/Demotion Triggers Sustained Performance Improvement Sustained Performance Improvement Sustained Performance Improvement

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Sustained Performance Deterioration

Sustained Performance Deterioration

Sustained Performance Deterioration

Daily Sampling

Weekly Sampling

Monthly Sampling

Quarterly Sampling

Supplier Sampling Regime

Figure 7. Supplier sampling system

H1. The structure of subsequent investigations should embrace the complete replenishment cycle. Only by doing this can a full understanding of inter and intra-organisation activities be achieved and the identication of key performance measures be made. The dominant dyadic approach that dominates much research needs to be challenged. H2. To what extent can these results be applied to other supply system environments? Clearly a much wider sample is needed, a sample that embraces: a range of performing and underperforming organisations and processes; and, a wide range of organizations in both the private and public sectors. Also, given the increasingly international nature of many supply systems, it would also seem to be relevant to extend the investigation to include international perspectives. H3. What process variables are most likely to give the best indication of supply system performance? At this stage it is not clear as to how many and what variables should be measured using the techniques described. Also it is not clear which variables could be sensibly measured throughout the supply system and to what extent these variables could/should be dictated by customers. H4. To what extent will a move to process related measurement actually improve buyer/supplier relationships? This question will require a longitudinal approach that measures relationship changes as the process-based approach to supply system performance measurement approach is adopted. Will proactive approaches actually be engendered through this approach? Will control charts provide the right mechanism for problem solving approaches?

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H5. Can the conicts between organizational and supply system strategies be resolved? This is one of the key questions that drive the applicability of individual performance measures throughout supply systems. If the answer to the question is no, then it is unlikely that any supply system can be optimised in a stable way. If the answer to the question is yes then the door is opened to a revolution in supply chain performance measurement. Much still needs to be done if the ideas in this paper are to be established on a rmer basis but the prospect of better performance measurement in supply systems is a tantalising goal.
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Twist, D.C. (2005), The impact of radio frequency identication on supply chain facilities, Journal of Facilities Management, Vol. 3 No. 3, pp. 226-40. Van Decker, J. (2006), Understanding the consolidated BPM landscape, Business Performance Management Journal, Vol. 4 No. 3, pp. 4-8. Wheeler, D.J. and Chambers, D.S. (1992), Understanding Statistical Process Control, 2nd ed., SPC Press, Knoxville, TN. Further reading Talluri, S. and Srinivas, J. (2002), A methodology for monitoring systems performance, International Journal of Production Research, Vol. 40 No. 7, pp. 1567-82. Corresponding author Chris Morgan can be contacted at: chris.morgan@craneld.ac.uk

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