Академический Документы
Профессиональный Документы
Культура Документы
Summary
Purpose The purpose of this paper is to develop an integrated balanced scorecard (BSC) analytical
hierarchy process (AHP) approach for supply chain management (SCM) evaluation. It aims to measure
SCM performance from the following four perspectives: finance, customer, internal business process,
and learning and growth.
Design/methodology/approach The BSC is developed in the paper based on an extensive review of
literature on SCM performance measures, supported by AHP analysis.
Findings The paper develops a BSC for SCM evaluation and proposes a method to prioritize the
different performance levels in any organization using AHP methodology. It also suggests from the view
of different decision levels and overall performance measurement that is the best BSC perspective.
Practical implications The integrated BSC-AHP methodology developed in this paper provides
useful guidance for practical managers in evaluation and measuring of SCM in a balanced way.
Originality/value This paper proposes a balanced performance evaluation system for SCM. While
suggesting BSC, different SCM performance metrics have been distributed into four perspectives.
Different performance levels are highlighted and preferred BSC perspectives are suggested.
Keywords Balanced scorecard, Supply chain management, Analytical hierarchy process,
Performance measures
Paper type Research paper
1. Introduction
In recent years, a number of firms have realized the potential of supply chain management
(SCM) in day-to-day operations management. However, they often lack the insight for the
development of effective performance measures and metrics needed to achieve a fully
integrated SCM due to lack of a balanced approach and lack of clear distinction between
metrics at strategic, tactical, and operational levels (Gunasekaran et al., 2001; Hudson et al.,
2001). Therefore, it is clear that for effective SCM, measurement goals must consider the
overall scenario and the metrics to be used. These should represent a balanced approach
and should be classified at strategic, tactical, and operational levels, and include financial
and non-financial measures. Taking into account the above factors, a balanced SCM
scorecard has been developed in this paper to discuss the various measures and metrics of
SCM. Analytical hierarchy process (AHP) methodology is then integrated with balanced
scorecard (BSC) for SCM evaluation. This helps supply chains to prioritize different
performance levels and identify preferred BSC perspectives.
1.1. The BSC
The need for performance measurement systems at different levels of decision making,
either in the industry or service contexts, is undoubtedly not something new (Bititici et al.,
2005). Kaplan and Norton (1992, 1996) have proposed the BSC, as a means to evaluate
corporate performance from four different perspectives: the financial, the internal business
DOI 10.1108/13683040710820755
VOL. 11 NO. 3 2007, pp. 57-68, Q Emerald Group Publishing Limited, ISSN 1368-3047
PAGE 57
process, the customer, and the learning and growth. Their BSC is designed to complement
financial measures of past performance with their measures of the drivers of future
performance. The name of their concept reflects an intent to keep score of a set of items
that maintain a balance between short-term and long-term objectives, between financial
and non financial measures, between lagging and leading indicators, and between internal
and external performance perspectives. The early image of the BSC serving the CEO like a
control panel serves an aircraft pilot seems to have expanded to include mechanisms to alter
the course of action as well. Now, the BSC seems to serve as a control panel, pedals and
steering wheel (Malmi, 2001). Table I outlines the four perspectives included in a BSC.
Many companies are adopting the BSC as the foundation for their strategic management
system. Some managers have used it as they align their businesses to new strategies,
moving away from cost reduction and towards growth opportunities based on more
customized, value-adding products and services (Martinsons et al., 1999).
The BSC framework for supply chain management presented here in this article is
structurally similar to the BSC framework proposed by Kaplan and Norton.
The outline of the paper is as follows: Section 2 discusses performance evaluation
framework for SCM. Section 3 throws light on BSC evaluation of SCM. Section 4 and section
5 deal with AHP and AHP in SCM evaluation respectively. Section 6 presents result and
discussion. Finally, the conclusions and implications are presented in section 7.
Metrics of planned order procedures. These are used to measure the performance of the
order-related activities. Some metrics are order entry method, order lead-time, and order
path.
Supply chain partnership and related metrics. These are used to assess the level of
coordination among supply chain partners. Some evaluation criteria are the level and
degree of information sharing, buyer-vendor cost initiatives, extent of mutual cooperation
leading to improved quality, and the extent of mutual assistance in problem-solving
efforts.
Production level measures and metrics. This category consists of range of product and
services, capacity utilization, and effectiveness of scheduling techniques.
Delivery link measures. These are designed to evaluate the performance of delivery and
distribution cost.
Customer service and satisfaction measures. The measurement is aimed to integrate the
customer specification in design, set the dimensions of quality and as the feedback for
the control process. They contain product/service flexibility, customer query time, and
post-transaction service.
Finance and logistics cost metrics: They are used to assess the financial performance of
supply chain, such as assets cost, return on investment, and total inventory cost.
Gunasekaran et al. (2001, 2004) identified and discussed the different performance
measures and metrics of the SCM with help of a framework that gives cohesive picture to
address what needs to be measured, and how it can be dealt with. The framework
developed is shown in Table II.
Performance metrics
Strategic
Tactical
Operational
Financial
Non-financial
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
U
The metrics discussed in this framework are classified into strategic, tactical and operational
levels of management. The metrics are also distinguished as financial and non-financial so
that a suitable costing method based on activity analysis can be applied. A balanced
scorecard approach is discussed to evaluate these measures and metrics for SCM in the
section that follows.
delivery performance;
delivery reliability;
delivery performance;
delivery reliability;
capacity utilization;
total inventory cost as: incoming stock level, work-in-progress, scrap value and
finished goods in transit;
frequency of delivery.
capacity utilization;
Each of the four perspectives translated into corresponding metrics and measures that reflect
strategic goals and objectives. It is recommended that the perspectives should be reviewed
periodically and updated as necessary. The measures included in the given BSC should be
tracked and traced over time, and integrated explicitly into the strategic SCM process.
4. The AHP
The AHP is a multi-criteria decision-making tool developed by Saaty (1980). The AHP is a
systematic procedure for representing the elements of any problem, hierarchically. A
hierarchy is structured from the top (objectives from a managerial standpoint), through
intermediate levels (criteria/sub-criteria on which subsequent levels depend) to the lowest
level (which is usually a list of alternatives). It organizes the basic rationality by breaking
down a problem into its smaller and smaller constituent parts and then guides decision
makers through a series of pair-wise comparison judgments (which are documented and
can be re-examined) to express the relative strength or intensity of impact of the elements in
the hierarchy. These judgments are then translated into numbers. AHP uses pair-wise
comparison of the same hierarchy elements in each level (criteria or alternatives) using a
scale indicating the importance of one element over another with respect to a higher-level
element. The importance of scale between elements is shown in Table III.
The scaling process yields a relative priority or weight of elements with respect to criterion or
element of the highest level. The comparisons are performed for all the elements in a level
with respect to all the elements in the level above. The final and global weights of the
elements at the lowest level of the hierarchy are found by adding all the contributions of the
elements in a level with respect to all elements in a higher level.
The AHP includes procedures and principles used to synthesize the many judgments to
derive priorities among criteria and subsequently for alternative solutions. It is useful to note
that the numbers thus obtained are ratio scale estimates and correspond to so-called hard
numbers (Saaty, 1980). Once the pair-wise comparison of alternatives or sub-criteria is
Definition
Explanation
1
3
Equal importance
Moderate importance of one over another
Demonstrated importance
Extreme importance
2,4,6,8
Reciprocals of above
non-zero numbers
Source: Saaty (1980)
made with respect to an element in a higher criterion (formed as a matrix), the largest
eigenvalue (lmax) should be approximately equal to the number of elements in the
comparison matrix (n). The deviation of lmax from n is a measure of the consistency of
judgment of the decision maker. The consistency index (CI) is found using:
CI l max 2 n=n 2 1:
The consistency ratio (CR) is found by:
CR CI=RI:
RI is a random index of the same order matrix shown in Table IV.
Generally, the value of the consistency ratio should be around 10 percent or less to be
acceptable. In some cases 20 percent may be tolerated but never more (Saaty, 1980).
The AHP method has the following advantages (Abdul-Hamid, 1999).
B
A subjective decision process can be formalized owing to the hierarchy structure. This
leads to accurate decisions.
Sensitivity analysis may be performed by the results using computers before final
judgment is rendered.
The tedious calculations of the AHP process are no longer a problem using computers and
specialized software such as Expert Choicee software. AHP has been used in a wide range
of applications such as plant layout (Abdul-Hamid, 1999; Dweiri and Meirer, 1996), new
product screening (Calantone, 1999), part-machining grouping (Gungor and Arikan, 2000),
Table IV Random index (RI) for factors used in the decision-making process
n
10
11
12
RI
0.58
0.9
1.12
1.24
1.32
1.41
1.45
1.49
1.51
1.58
vendor selection (Partovi et al., 1990), quality function deployment (Bergquist and
Abesysekera, 1996), software metrics evaluation (Sureshchandar and Leisten, 2006),
material selection (Dweiri and Al-oqla, 2006) and supplier selection (Percin, 2006). Use of
AHP in a problem-like IS architecture evaluation, however, is not prominent in the literature.
matrix is produced. The square matrix has an equal number of rows and columns together
with eigenvectors and eigenvalues. The reason for this computation is that it gives a way to
determine quantitatively the relative importance of factors. The factors with the highest
values are the ones that should be concentrated on for developing a plan of action to
achieve objective. AHP structures the problem hierarchically and a matrix is arranged to
compare the relative importance of criteria in the second level with respect to the overall
objective or focus of the first level. Similarly, matrices are also constructed for pair-wise
comparisons of each alternative in the bottom level with respect to the criteria of the second
level. These are shown in Tables V-VII and described in section 5.2. Case study
methodology was used in making the pair-wise comparisons and the following types of
questions have been noted to occur.
In comparing one element with another:
B
All the questions asked during the case study appeared to fall in one of these three
categories. In comparing criteria it is asked which criterion is more important? In comparing
alternatives with respect to criteria it is asked which alternative is desired?
5.1. Case study
Five supply chains from different industrial contexts and backgrounds were chosen for this
study in order to achieve a fairly generalizable set of results. These companies are selected
on the basis of their business operations as well as performance measurement related
practices. All the five companies are leading companies in their respective areas with
sizable market shares. From five cases, one company is a leading automotive company, one
is an electronic goods company, one is a food and beverage company and the other two
companies are leading fast moving consumable goods supply chains. The study comprised
open and semi-structured interviews with the senior executives. Apart from executives, key
Table V P overall performance (level 1)
Po
1 P strategic
2 P tactical
3 P operational
Weights
1.00
0.17
0.13
6.00
1.00
5.00
8.00
0.20
1.00
0.755
0.067
0.178
P strategic
P tactical
P operational
0.227
0.326
0.234
0.213
0.212
0.205
0.224
0.359
0.345
0.149
0.350
0.156
Financial
Customer
Internal business
Innovation and learning
Financial perspective
Customer perspective
Internal business perspective
Innovation and learning perspective
0.247
0.286
0.254
0.213
functional managers as well as supervisory staff were also interviewed to obtain their
viewpoints. Interviewees were asked to compare pair-wise on a scale of 1 to 9 their
agreement with a number of criteria/alternatives. Interviews lasted from 1 to 2 hours. Criteria
and alternatives were ranked on the basis of the opinion of the majority of the interviewees.
Wherever available, the interview data was supplemented with archival data such as
department manuals, process manuals, financial reports and other performance
measurement related documents. Use of multiple-informants and use of archival data
helped us crosscheck pertinent information and verify the reliability of the data obtained.
5.2. An illustration of subjective judgments using the scale
While considering criteria and alternatives independent, the cells of the AHP matrix have
been filled in with the subjective judgments using the 1 to 9 scales and based on the
preference and perception of the criteria for the overall performance measurement. For
example in Table V, which represents the level 1 of hierarchy, when asked, With respect to
overall performance measurement, what is the importance of performance measures at
strategic level (P strategic) to performance measures at tactical level (P tactical)? If the P
strategic was strongly more important then the integer 6 was entered in the corresponding
cell; it is reciprocal, or 1/6 was automatically entered for the reverse comparison. In the same
way other cells of the matrix were also filled in. According to the majority of respondents
feedback in the case study, different ranks are entered in the table. In the bottom level, the
four BSC perspectives are to be pair-wise compared for each of the performance levels
(criteria). Priorities are synthesized from the second level down by multiplying local priorities
by the priority of their corresponding criterion in the level above and adding them for each
element in a level according to the criteria it affects. This gives the global or composite
priority of that element which is then used to weight the local priorities of elements in the level
below compared by it as criterion and so on to the bottom level.
Finally in P overall (Table VII), the customer perspective (0.286) would be selected first
followed by the internal business perspective (0.254). It shows that for overall performance
measurement, the criteria related to customer perspective and internal business operations
should be focused most as compared to other BSC perspectives. In summary, above results
suggests prioritization of the different performance levels. It further ranks the different BSC
perspectives in SCM evaluation.
This study contributes to performance evaluation of SCM. It points out the importance of
key players in the performance measurement of SCM, and the nature of roles they need to
play.
A balanced performance evaluation such as, balanced scorecard not only helps
organizations in faster and wider progress monitoring of their operations but can also help
them in improving their internal and external functions of business.
BSC perspective can be important in firms specific contexts at different decision levels
and how to prioritize different perspectives from the point of view of the overall
performance measurement. It focuses on critical factors that are likely to contribute for the
successful performance measurement of SCM.
References
Abdul-Hamid, Y.T. (1999), The analytical hierarchy process approach to the choice of manufacturing
plant layout, Proceedings of the Institute of Mechanical Engineers, Part B, Journal of Engineering
Manufacture, Vol. 213, No. B4, pp. 397-406.
Bergquist, K. and Abesysekera, J. (1996), QFD a means for developing usable products,
International Journal of Industrial Ergonomics, Vol. 18 No. 4, pp. 269-75.
Bhagwat, R. and Sharma, M.K. (2007), Performance measurement of supply chain management,
Computers & Industrial Engineering (in press).
Bititici, U.S., Cavalieri, S. and Cieminski, G. (2005), Editorial: implementation of performance
measurement systems: private and public sectors, Production Planning and Control, Vol. 16 No. 2,
pp. 99-100.
Calantone, R.J. (1999), Using analytical hierarchy process in new product screening, International
Journal of Production and Innovation Management, Vol. 16 No. 1, pp. 65-76.
Dweiri, F. and Al-oqla, F.M. (2006), Material selection using analytical hierarchy process, International
Journal of Computer Applications in Technology, Vol. 26 No. 4, pp. 182-9.
Dweiri, F. and Meirer, F.A. (1996), Application of fuzzy decision-making in facility lay out planning,
International Journal of Production Research, Vol. 34 No. 11, pp. 3201-25.
Gunasekaran, A., Patel, C. and McGaughey, R. (2004), A framework for supply chain performance
measurement, International Journal of Production Economics, Vol. 87 No. 3, pp. 333-48.
Gunasekaran, A., Patel, C. and Tirtiroglu, E. (2001), Performance measures and metrics in a supply
chain environment, International Journal of Production and Operations Management, Vol. 21 Nos 1/2,
pp. 71-87.
Gungor, Z. and Arikan, F. (2000), Application of fuzzy decision-making in part-machining grouping,
International Journal of Production Economics, Vol. 63 No. 2, pp. 181-93.
Hudson, M., Lean, J. and Smart, P.A. (2001), Improving control through effective performance
measurement in SMEs, Production Planning and Control, Vol. 12 No. 8, pp. 804-13.
Kaplan, R. and Norton, D. (1992), The balanced scorecard: measures that drive performance,
Harvard Business Review, Vol. 70 No. 1, pp. 71-99.
Kaplan, R. and Norton, D. (1996), Using the balanced scorecard as a strategic management system,
Harvard Business Review, Vol. 74 No. 1, pp. 75-85.
Malmi, T. (2001), Balanced scorecards in Finnish companies: a research note, Management
Accounting Research, Vol. 12 No. 2, pp. 207-20.
Martinsons, M., Davison, R. and Tse, D. (1999), The balanced scorecard: a foundation for the strategic
management of information systems, Decision Support Systems, Vol. 25 No. 1, pp. 71-88.
Partovi, F.Y., Burton, J. and Banerjee, A. (1990), Application of analytical hierarchy process in operation
management, International Journal of Operations & Production Management, Vol. 10 No. 3, pp. 5-23.
Percin, S. (2006), An application of the integrated AHP-PGP model in supplier selection, Measuring
Business Excellence, Vol. 10 No. 4, pp. 34-49.
Saaty, T.L. (1980), The Analytical Hierarchy Process, McGraw-Hill, New York, NY.
Sureshchandar, G.S. and Leisten, R. (2006), A framework for evaluating criticality of software metrics:
an analytical hierarchy process (AHP) approach, Measuring Business Excellence, Vol. 10 No. 4,
pp. 22-33.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.