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Management and Production Engineering Review

Volume 3 • Number 2 • June 2012 • pp. 79–88


DOI: 10.2478/v10270-012-0017-x

THE LITERATURE REVIEW OF SUPPLY CHAIN PERFORMANCE


MEASUREMENT IN THE MANUFACTURING INDUSTRY
Ilkka Sillanpää1 , Pekka Kess2
1
University of Vaasa, Faculty of Technology, Industrial Engineering and Management
2
University of Oulu, Faculty of Technology, Industrial engineering and management

Corresponding author:
Ilkka Sillanpää
University of Vaasa
Faculty of Technology, Industrial Engineering and Management
PL 700, 65101
phone: +358 40 7777167
e-mail: ilkka.sillanpaa4@gmail.com

Received: 10 February 2012 Abstract


Accepted: 9 May 2012 The article addresses the issues of Supply Chain (SC) performance measurement – the
process of qualifying the efficiency and effectiveness of the supply chain. The aim of this
study is to present a supply chain measurement approaches for manufacturing industry. The
research is based on a review of the current understanding of supply chain management and
literature related to supply chain performance measurement. This study creates a framework
for supply chain measurement by presenting the main theory framework of supply chain
performance measurement.
It is stated that supply chain performance measurement is extremely important in developing
supply chain. The measurement framework in this study offers guidelines for measuring the
supply chain in manufacturing industry.
Keywords
supply chain, performance measurement, supply chain management, manufacturing industry,
strategy, operations.

Introduction answer the research question about SC performance


measurement framework.
This paper addresses the problems of developing
a Supply Chain (SC) performance measures in prac- Supply chain performance
tice. The pressures in rationalizing set by manage- measurement approached
ment create a significantly large challenge for Supply
Chain Management (SCM). The SC has to be made
Process and management based metrics
more streamlined, lead-times have to be decreased,
excess processes need to be eliminated and developed Gunasekaran et al. [1] present that SCM perfor-
as a whole in such a manner that new, more efficient mance measures can be divided into financial and
processes can be established. The basis for develop- non-financial measures. Top management needs fi-
ment work is a survey of the present state and mea- nancial measures for management level decisions,
suring efficacy of the current SC. Tools for this have but lower management and workers need operational
been scarce. This study provides a resolution to the measures for daily business. [2] Gunasekaran presents
problems of measuring the SC. a framework with the metrics of SC performance:
The first part of article is a literature study of the • Metrics for planning: order entry method, order
available frameworks and points of view for the de- lead-time, the customer order path.
velopment of the supply chain performance measure- • Evaluation of supply link, evaluation of suppliers,
ment in the manufacturing industries. The second strategic level measures, tactical level measures,
part draws a conclusion as a general framework to operational level measures.

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• Measures and metrics at production level: range and also very often reflect the investigation of broad
of product and services, capacity utilization, ef- based policies and level of adherence to organisation-
fectiveness of scheduling techniques. al goals. The tactical level deals with resource allo-
• Evaluation of delivery link, measures for delivery cation and measuring performance against targets to
performance evaluation, total distribution cost. be met in order to achieve results specified at the
• Measuring customer service and satisfaction: flexi- strategic level. Operation level measurements and
bility, customer query time, post transaction mea- metrics require accurate data and decision is made
sures of customer service by low level managers. In operational level, metrics
• SC and logistics cost: cost associated with assets are relevant for day to day business and hence the
and return on investment, information processing main metrics are time related and non-financial met-
cost. rics. Non-financial metrics include such as order lead-
Gunasekaran et al. [1] state that there should time and delivery lead-time. Many of these metrics
be several kinds of measures to be used in perfor- are time-related but also cost-related. These metrics
mance metrics: balanced approach, strategic, tactical are for top management for making strategic deci-
and operational levels and financial as well as non- sions as well as long-term plans and strategies [1, 2].
financial measures. SCM could be measured in var-
ious management or operation levels. Strategic lev- According to Gunasekaran, SCM performance
el measures influence the top management decisions metrics can be defined as in Table 1 [1, 2].

Table 1
SCM performance metrics
SCM performance metrics
Strategic level Tactical level Operational level
Total SC cycle time, non-financial met- Accuracy of forecasting techniques, fi- Cost per operation hour, financial
rics nancial and non-financial metrics metrics
Total cash flow time, financial and non- Product development cycle time, non- Information carrying cost, financial
financial metrics financial metrics and non-financial metrics
Customer query time, financial and Order entry methods, non-financial Capacity utilisation, non-financial
non-financial metrics metrics metrics
Level of customer perceived value of Effectiveness of delivery invoice meth- Total inventory as financial metrics:
product, non-financial metrics ods, non-financial metrics – Incoming stock level
Net profit vs. productivity ratio, finan- Purchase order cycle time, non- – Work in progress
cial metrics financial metrics
– Scrap level
Rate of return on investment, financial Planned process cycle time, non-
financial metrics – Finnish goods in transit
metrics
Effectiveness of master production Supplier rejection rate, financial and
Range of product and services, non- non-financial metrics
financial metrics schedule, non-financial metrics
Supplier assistance in solving technical Quality of delivery documentation,
Variations against budget, financial non-financial metrics
metrics problems, non-financial metrics
Supplier ability to respond to quality Efficiency of purchase order cycle
Order lead-time, non- financial metrics time, non-financial metrics
problems, non-financial metrics
Supplier cost saving initiatives, finan- Frequency of delivery, non-financial
Flexibility of service systems to meet metrics
particular customer needs, financial cial and non-financial metrics
metrics Supplier booking in procedures, non- Driver reliability for performance,
financial metrics non-financial metrics
Buyer-supplier partnership level, fi-
nancial and non-financial metrics Delivery reliability, financial and non- Quality of delivered goods, non-
financial metrics financial metrics
Supplier lead-time against industry
norm, non-financial metrics Responsiveness to urgent deliveries,
Level of supplier’s defect free deliver- non-financial metrics
ies, non-financial metrics Effectiveness of distribution planning
Delivery lead-time, non-financial met- schedule, non-financial metrics
rics
Delivery performance, financial and
non-financial metrics

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Measures for supply chain actions Supply chain operations reference model
Shepherd [3] categorize SC performance measures The supply chain operations reference (SCOR)
into five SC processes: plan, source, make, deliver model was introduced in 1996 by the Supply-Chain
and return or customer satisfaction, whether they Council, which is a global organization of firms inter-
measure cost, time, quality, flexibility and innova- ested in SCM. The SCOR model is a business process
tiveness and whether they are quantitative or quali- reference model and it provides a framework that in-
tative measures. As stated before, the measures can cludes SC business processes, metrics, best practices,
be categorized into business process at strategic, op- and technology features. The SCOR model attempts
erational and tactical management levels. to integrate the concepts of BPR, benchmarking,
The plan category measures are mainly cost and process measurement as well as best practice analysis
time based measures. Metrics are mainly quantita- and apply them to SC’s. According ..Theeranuphat-
tive measures. Cost-based measures are sales, profit, tana [4] the SCOR model offers users the following
rate of return on investment, cost of goods sold and benefits:
value added productivity. Time-based measures are, • standard descriptions of management processes
for example, total SC response time, order lead-time, that make up the SC,
order fulfillment lead-time, product development cy- • a framework of relationships among the standard
cle time and percentage decrease in time to produce processes,
a product. In plan category there are also quality- • standard metrics to measure process performance,
based measures such as accuracy of forecasting tech- • management practices that produce best-in-class
niques, fill rate, perceived effectiveness of departmen- performance, and
tal relations, order flexibility and also some flexibility • standard alignment to software features and func-
and innovativeness measures. tionality that enable best practices.
The source category consists mainly of quality- Theeranuphattana [4] present that the SCOR
based measures like buyer-supplier partnership lev- model is based on five core processes: deliver, make,
el, level of supplier’s defect-free deliveries, supplier plan, return and source. The SCOR model advocates
rejection rate and extent of mutual planning coop- hundreds of performance metrics used in conjunction
eration leading to improved quality. These measures with five performance attributes: reliability, respon-
are mainly qualitative ones. There are also some cost- siveness, flexibility, cost, and asset metrics.
and time based measures. Supply Chain Council presents five attributes of
The make category presents mainly cost-based SC performance [4]:
measures like total cost of resources, manufactur- SC reliability. The performance of the SC in deliv-
ing cost, inventory investment inventory obsolescence ering the correct product to the correct place, at the
and work in process. In the make category the mea- correct time, in the correct condition and packaging,
sures are mainly quantitative. There are also time- in the correct quantity, with the correct documenta-
based measures like planned process cycle time, man- tion, to the correct customer.
ufacturing lead-time, time required to produce a par-
SC responsiveness. The speed at which a SC pro-
ticular item tor set of items and also flexibility mea-
vides products to the customer.
sures like production flexibility, capacity flexibility
SC flexibility. The agility of a SC in responding to
and volume flexibility.
marketplace changes to gain or maintain competitive
The delivery category approaches are mainly
advantage.
cost-, time- and quality-based measures. These are
SC costs. The costs associated with operating the
mainly quantitative measures. Cost-based measures
SC.
are total logistics cost, distribution cost, delivery
costs and transport cost per unit of volume. Time SC asset management. The effectiveness of an or-
based-delivery measures are, for example, delivery ganization in managing assets to support demand
lead-time, average lateness of orders and percent of satisfaction. This includes the management of the
on-time deliveries. both assets: fixed and working capital.
Quality measures are delivery performance, deliv-
Map model – framework
ery reliability, quality of delivered goods and flexibili-
ty measures are like delivery flexibility and transport Lambert [5] present a “map model” – framework
flexibility. Return on investment category includes for developing SCM performance metrics. The frame-
mainly quality measures such as customer satisfac- work consists of seven steps:
tion, level of customer perceived value of product, 1. Map the SC and identify where the key linkages
customer complaints and product quality. exist

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2. Use the customer relationship management ty refers to accuracy, timeliness, adequacy and cred-
and supplier relationship management processes to ibility of information exchanged. This approach is
analyze each link and determine where additional connected very closely to information sharing. Shar-
value can be created. ing qualified information can lead to flexibility. In-
3. Develop customer and supplier profit and loss ternal lean practices are the practices of eliminating
statements to assess the effect of the relationship on waste in a manufacturing system. Waste is cost, tie,
profitability and shareholder value of the two firms set-up times, small lot sizes and pull-production. LT
4. Realign SC processes and activities to achieve and lean practices have become extremely important
performance objectives for effective SCM. Postponement means practice of
5. Establish non-financial performance measures moving forward one or more operations or activities
that align individual behavior with SC process ob- to a much later point in the SC. In this context SCM
jectives and financial goals activities include making, sourcing, delivering, time
6. Compare shareholder value and market capi- and postponement.
talization across firms with SC objectives and revise Li [7] identify performance outcomes as delivery
process and performance measures as necessary dependability and time to market. Delivery reliabil-
7. Replicate steps at each link in the SC ity means capability of providing products to cus-
tomer. Time to market means the time to introduce
Inventory, time, order fulfilment, quality, new products to market more quickly than competi-
customer focus and customer satisfaction tors are able to do.
Ramdas [6] present six approaches to measuring
SC performance: inventory, time, order fulfilment, Internal and external time performance
quality, customer focus and customer satisfaction. According to Ghalayini [8], the time performance
These approaches are defined as follows: inventory measurement approach is a new strategic perfor-
means inventory levels, inventory turns and inven- mance measure that should be used to promote im-
tory costs. Time is defined as product-development provement. Time-based performance measurement
time, time to market and time to break even. Order has the limitation of over-emphasizing the role of
fulfilment captures the extent to which a SC part- time and not considering the impact of other opera-
ner affects order-processing time and shipment ac- tional performance measures with respect to time.
curacy. Quality is seen as continuous improvement In order to improve time performance, all opera-
made by SC partners. Customer focus captures the tional performance measures should be measured,
extent to which a SC partner influences contribution controlled and improved. They present the main
margin, value added and customer value. Customer time-based metrics that companies could use in dif-
satisfaction means that a SC partner influences end ferent areas:
customer satisfaction and account penetration. 1. New product development includes time from
idea to market; rate of new-product introduction.
Six constructs approach 2. Decision making includes: decision cycle time
Li [7] identify six constructs of SCM practices: as well as the time lost when waiting for decisions to
strategic supplier partnership, customer relationship, be made.
information sharing, information quality, internal 3. Processing and production includes: value
lean practices and postponement. Strategic suppli- added as percentage of total elapsed time; uptime
er partnership is a long-term relationship between yield; inventory turnover and cycle time.
an organization and its suppliers. It is designed to 4. Customer service includes: response time;
leverage the strategic and operational capabilities quoted lead-time; percentage deliveries of time; and
of individual participating organization to help it time from customer’s recognition of need to delivery.
achieve significant ongoing benefits. Customer re- Toni [9] present several indicators of internal
lationship includes managing customer complaints, and external time performance. According to their
building long-term relationships with customers and research, time performance indicators in order of
improving customer satisfaction. Close customer re- superiority are the following: time-to-market, dis-
lationship is one device to differentiate from com- tribution lead-times, delivery reliability, supplying
petitors and bring value to customers. Information lead-times, supplier delivery reliability, manufactur-
sharing refers to the extent to which critical and pro- ing lead-times, standard run times, actual run times,
prietary information is communicated to one’s SC wait times, set-up times, move times, inventory
partner. Information sharing is seen to be quite an turnover, order carrying-out times and flexibility.
important point in SCM research. Information quali- Time performances are divided into external and in-

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ternal times. Internal times can be split into run nel. Measures are customer satisfaction, distribution
and set-up times on one hand and wait and move cost per unit and market share/channel costs. Or-
times on the other. Externally-perceived time perfor- ganization approach is to manage SC relations with
mances can be divided in three parts: system times measures of transaction costs, time to network, flex-
(including supplying, manufacturing and distribu- ibility and density of relationships. The aim of the
tion leas times), delivery speed and delivery relia- strategy perspective is to connect competencies and
bility (both from suppliers and to customers) and the ability to make profit. Performance metrics are
time-to-market (or time required to develop a new time to network, time to market and ROI of focal
product). These time measures presented are called organization.
time performance [9].
Quantitative and qualitative measures
Furthermore, [9] state that performance can
be present in four indicators: 1. cost/productivity, Chan [11] presents SCM performance measure-
2. time, 3. flexibility, 4. quality. First measure is cost- ment approach which consists of qualitative and
based and other three are non-cost performance mea- quantitative measures. Quantitative measures are
sures. Cost-based performance include the following cost and resource utilization and qualitative mea-
measures: affordability of the production cost, the sures are quality, flexibility, visibility, trust and in-
productivity and the control of the working capital. novativeness. Cost is one of the quantitative mea-
Time is a performance measure which covers inter- sures and it can be measured by distribution cost,
nal times and external times. Internal time stands manufacturing cost, inventory cost, warehouse cost,
for the time controlled by a firm but that is not per- incentive cost and subsidy, intangible cost, overhead
ceived by a customer. External time is understood as cost and sensitivity to long-term cost. Resource uti-
the time that the customer perceives, such as deliv- lization means labor, machine, capacity, energy re-
ery time and frequency of introducing new products. source utilization and performance measurement in-
Performance measures in the quality approach are vestigates the percentage of excess or lack of that
produced quality, perceived quality (customer sat- particular resource within a period. Optimization
isfaction), in-bound quality (supplier’s quality) and can save both time and money and it can minimize
quality in terms of costs (cost of maintaining a high the size of the company as well as improve its per-
standard of quality). The most measured perfor- formance.
mance metrics are direct costs, labour productivity, Qualitative measures are quality, flexibility, visi-
the inventory and the net process times. Time-to- bility, trust and innovativeness. Time-based qualita-
market, non-value-added times, delivery, quality pro- tive measures are the following: customer responses
duced and customer satisfaction are not measured as time, lead-time, on-time delivery, fill rate, stock out
often [9]. probability and accuracy. An especially important
measure is lead-time which stands for the time re-
System dynamics, operational research,
quired once the product began its manufacture until
logistics, marketing, organization
the time it is completely processed. Flexibility mea-
and strategy
surement metrics are divided into input, process, out-
Otto [10] present six ways of measuring SCM put and improvement categories. Input category is
capability. Main groups are system dynamics, op- measured by labor and machine flexibility. Process
erational research, logistics, marketing, organization flexibility is presented as material handling flexibili-
and strategy. The idea of system dynamics is to man- ty, routeing flexibility and operation flexibility. Out-
age trade-offs along the complete SC. Performance put flexibility is presented as volume flexibility and
metrics are capacity utilization, cumulative inven- mix flexibility. Delivery flexibility and improvement
tory level, stock-outs, time lags, time to adapt and are divided into modification flexibility, new prod-
phantom ordering. The aim of operational research uct flexibility and expansion flexibility. Visibility is
and information technology is to calculate optimal measured by time and accuracy. Trust is measured
solutions within given degrees of freedom. Metrics by consistency, which means the percentage of late
are logistics costs per unit, service level and time or wrong delivery to the next tier which leads to
to deliver. Logistic perspective target is to integrate an inconsistent supply. Innovativeness is presented
generic processes sequentially, vertically and horizon- as a new launch of product and new use of technol-
tally. In this category capability is measured by inte- ogy [11].
gration, lead-times, order cycle time, inventory lev- Beamon [12] presents SCM performance mea-
el and flexibility. Marketing approach is to segment sures in two groups: qualitative and quantitative,
customers and connect them with the right chan- where customer satisfaction and responsiveness, flex-

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ibility, supplier performance, and cost are presented. are time and cost. Time is a measurement for man-
He identifies three types of measures: resources, out- agement performance and it is important for both in-
put and flexibility. Beamon [13] also identifies two ternal and external customers. One important mea-
performance measures: cost and combination of cost sure is operation time, which is closely related to
and customer responsiveness. Cost consists of inven- customer satisfaction. Cost dimension is a measure
tory costs and operating costs. Customer responsive- for example labours capital, knowledge, facility and
ness measures include lead-time, stock out probabil- cost of scrap. Output measures include semi-finished
ity and fill rate. products and finished products. Popular output mea-
Beamon [13] identifies new SCM performance sures are delivery reliability, and error-free and flex-
framework, in which there are three separate types ible production and new product introduction. Pro-
of performance measures: resource measures, output ductivity, efficiency and utilization are performance
measures and flexibility measures. The goal of the re- measures. These measures are mainly operational
source measures is a high level of efficiency and the performance measures which provide information re-
purpose of the resource measures is efficient resource garding effectiveness of the management. The perfor-
management that is critical to profitability. The gen- mance measurement team is composed of the repre-
eral goal of the resources is resource minimization. sentatives from various management areas of supply
Resource performance measures include total cost of chain members. Members can be from shop floor, su-
resources used, total distribution cost, total cost of pervisors, manager and similar areas. The advantage
manufacturing, costs associated with held inventory of the members being from various management ar-
and return on investment (ROI). The goal of output eas is that they have extensive skills to analyze per-
measure type is a high level of customer service and formance in SCM [14–16].
the purpose of output measurement is that without
acceptable output, customers will turn to other SCs, Process based approach
without acceptable output. Output measures include With timely information, process-based mea-
customer responsiveness, quality and quantity of fi- surement provides a great deal of support in en-
nal product produced such as number of items pro- hancing integration and improvement of the cross-
duced, time required to produce a particular item or organizational processes. According to [11, 14], the
set of items, number of on-time deliveries, propor- main advantages of adopting process-based perfor-
tion of orders filled immediately, profit, sales, back- mance measurement in SCM are:
order/stock out, customer response time, manufac- • Providing the opportunity of recognizing the prob-
turing lead-time, shipping errors and customer com- lems in operations and taking a corrective action
plaints. Flexibility goal is the ability to respond to a before these problems escalate.
changing environment and purpose is that in an un- • Facilitating linking with the operational strate-
certain environment, supply chains must be able to gies, identifying success, and testing the effect of
respond to challenges that emerge due to changes. strategies.
Flexibility is presented in four categories: volume • Support in monitoring the progress.
flexibility, delivery flexibility, mix flexibility and new • Assisting in directing attention of the management
product flexibility. A measure that is chosen in the attention and resources allocation.
performance measure type categories must coincide • Enhancing communication of process objectives
with the organization’s strategic goals. involved in the supply chain, thus increasing trust
and common understanding.
Innovative performance
According to Chan, the steps and processes of an-
measurement method
alyzing and decomposing the process to be measured
Chan [14, 15] present an innovative performance are the following [14]:
measurement method. The aim of the method is to • Identifying and linking all the involved processes
build up a measurement team and members should of internal- and intra-organization.
be from different organizations. SCM should be mea- • Defining and confining the core processes.
sured beyond the organizational boundaries rather • Deriving the missions, responsibilities and func-
than focusing locally. SCM can be categorized into tions of the core processes.
six general processes which are linked together: sup- • Decomposing and identifying the sub-processes.
plier, inbound logistics, manufacturing, outbound lo- • Deriving the responsibilities and functions of sub-
gistics, marketing and sales and end customers. processes.
Chan [14, 15] present input measures, output • Decomposing and identifying the elementary ac-
measures and composite measures. Input measures tivities of sub-processes.

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• Linking goals to each hierarchy from processes to quality of products and services, company’s perfor-
elementary activity. mance service and cost effectiveness. Internal busi-
Process-based approaches are cost, time, capaci- ness perspective measures business processes that
ty, capability, productivity, utilization, and outcome. have the greatest impact on customer’s satisfaction
Cost is the financial expense for carrying out one factors. Innovation and learning perspectives can
event or activity. It is always one of the indispens- win efficiency to firm’s operative business in the
able aspects in assessing the performance of the busi- future [24–26].
ness activities and processes. Time is an important According to Thakkar [27], SCOR and BSC are
resource in modern business environments. Capaci- to ensure the greater effectiveness of PMS system on
ty is the ability of one specific activity to complete the following grounds:
a task or perform a required function.. Capability • BSC does not provide a mechanism for main-
measures include effectiveness, reliability, availabil- taining the relevance of defined measures. SCOR
ity and flexibility measures. Utilization means the adopts a building block approach and offers com-
utilizing rate of the resources to carry out one spe- plete traceability.
cific activity. Outcome is the results or value added • BSC fails to integrate top level, strategic score-
of one specific activity or event [14]. card, and operational level measures potentially
making execution of strategy problematic. SCOR
Balanced scorecard approach clearly defines the type of process (planning, exe-
cution and enabling) and configures them to suit
Several researchers have proposed using Bal-
the SC requirements.
anced ScoreCard (BSC) to measure SCM capability
• BSC fails to specify a user-centred development
[1, 17–23].
process. A detailed exercise on SCOR generates
Kaplan [24] presented BSC model to evaluate cor- sufficient information to even develop tailor-made
porate performance in four types of approaches: the soft-ware system.
financial, the internal business process, the customer
Thakkar present the SCOR-BSC framework that
as well as learning and growth. The name of this
is related to various decision areas of SCOR model
concept comes from of a set of items that main-
in Level 1. For each SCOR decision area various SC
tain a balance between short term and long term
planning processes are considered. Level 2 SCOR cat-
objectives, between financial and non-financial mea-
egory and an appropriate plan-source-make-deliver
sures, between lagging and leading indicators and
configuration are chosen by an individual organiza-
between internal and external performance perspec-
tion. The processes determined at Level 2 are now
tives. BSCs have two main approaches: customer
decomposed to sub-processes at Level 3 and process
perspective and financial perspective. Customer per-
element definition, inputs-outputs, process, and per-
spective, which is a value-adding view and financial
formance metrics are summarized. Analysis is carried
perspective, is the shareholders’ view. The approach
out to gain understanding regarding the difference
mission of customer perspectives is to achieve vision
between the present scope of performance measure-
by delivering value to customers. It is also an inter-
ment and proposed scope of SCOR-BSC framework
nal perspective (process-based view) and its aim is
to derive a suitable implementation plan (at Lev-
to promote efficiency and effectiveness in the busi-
el 4) [27].
ness processes. Mission of financial perspective is to
succeed financially, by delivering value to the share-
holders and to achieve the vision, by sustaining in- Challenges for supply chain
novation and change capabilities, through continuous performance measurement
improvement and preparation for future challenges.
This approach has also learning and growth per- One of the main challenges in SCM performance
spective in future view [24–26].Bhagwat and Shar- measurement is that measures are mainly internal
ma introduce BSC approach: financial metrics, cus- logistics performance measures and do not capture
tomer perspective, internal business perspective as the way the SC has performed as a whole. Inter-
well as innovation and learning perspective. Finan- nal logistics measures such as fill rate, lead-time, on-
cial performance measures the company’s financial time performance, damage and responsiveness do not
result. Profitability, growth in sales turnover and measure the whole SCM performance [5].
maximizing wealth of shareholders are also the met- There are some in-depth problems of PMSs in the
rics of BSC financial metrics. Evaluating customer SC context [1, 14]:
perspective approach is to find out how customers 1. The lack of a balanced approach in integrating
see the business. Measures also include lead-time, financial and non-financial measures.

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2. The lack of system thinking, in which a SC Conclusion of supply chain


must be viewed as a whole entity and the measure- performance measurement
ment system should span the entire SC.
3. The loss of the SC context. According to the literature research, Supply
According to Lin [28], there are four challenges Chain capability can be measured by using different
in SC performance measurement. First, the major- kind of approaches. Chan [14] proposed a process-
ity of articles are focused on the study of intra- based PMS for mapping and analyzing complex
organizational performance – measures that do not SC networks; van Hoek [19] emphasizes the impor-
measure SC performance as a whole. Secondly, the tance of performance measurement from the point
previous research did not consider the variation of of view of the third-party logistics alliances in SC;
measured values. The decision makers found it dif- Gunasekaran [1] develop performance measures and
ficult to find real performance values, identify weak metrics in a SC environment from a managerial point
areas, take corrective actions, and make continual of view. Morgan (2004) offers nine preconditions nec-
improvements. Thirdly, no common metrics existed essary for effective and dynamic performance mea-
for evaluating different processes on the same scale. surement within SC’s. These preconditions include
Different characteristics of associated processes can- cheap and reliable identification of units in tran-
not be compared without using the correct metrics. sition, standard protocols, communication systems
Fourthly, the process teams should have motivation, that are capable of handling the volume of data,
capacity, and authority to improve processes and hardware and software, multi-layered control sys-
their results. Human attributes such as cooperation, tems, system handshake protocols, routing and re-
skill, communication, etc. should have been consid- routing protocols that allow SC cost control, speed
ered as important dimensions of SC performance, but and flexibility of delivery response, high velocity elec-
previous researches did not integrate these human tronic cash transfers instigated automatically; and
attributes into the SC performance measurement robust systems with inbuilt automatic recovery abil-
model [28]. ities [35]. Thakkar [27] proposed a balanced scorecard
(BSC) framework for a case organization using an
Almost every researcher states in their articles integrated approach of interpretive structural mod-
that SCM performance measurement is not studied elling and analytic network process.
enough. Furthermore, almost every researcher identi-
According to the literature review it is possible to
fies that more research regarding SCM performance
nominate the following principal approaches for SC
or capability measurement should be carried out.
performance measurement:
Research-related issues are the factors influencing
the successful implementation of performance mea- • Management approach
surement systems [29, 30] the forces which shape • Time based approaches
the evolution of performance measurement systems • Quantitative and qualitative measures
[31, 32] and the way performance measurement sys-
Managerial approach
tems are maintained over time so they remain aligned
with dynamic environments and changing strategies Gunasekaran [2] divide performance categories in
[29, 31]. SC activity/processes (plan, source, make/assemble,
[2,34] state that problems in performance mea- and deliver) and management approach to strate-
surement frame of references include: gic, tactical and operational management perspec-
tives. As stated before, measurement metrics were
• Incompleteness and inconsistencies in perfor- chosen based on a research in which companies were
mance measurement and metrics. asked which of the metrics is the most important for
• Inability to represent a set of financial and non- their business. They further present that SCM per-
financial measures in a balanced framework, some formance can be measured in three different manage-
measures concentrating on financials, others con- ment levels. The levels are strategic, tactical and op-
centrating on operational measures. erational level. Strategic level measures performance
• Large number of metrics, makes it difficult to iden- for needs of top management. These measures are
tify the critical few among trivial many. usually corporate level performance measures. The
• Inability to connect the strategy and the measure- tactical levels measure performance against targets
ment. and also collect feedback from mid-management lev-
• Biased focus on financial metrics. el. Operational level metrics require data that is rel-
• Too much inward looking. evant to low level management.

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Time based approach Further studies


The time-based measuring approach seems to After setting up the framework of Supply Chain
be one of the most wide-known SCM capability performance measurement the framework should
measures among researchers. Time is also identified tested in scientific terms in real case situations. This
as the important source of competitive advantage. would either a) approve the operationalization ca-
Therefore it seems that even though time has been pabilities of the framework or b) give feedback for
quite a common measure in SC performance it is still further studies and improvements in the framework.
an accurate and useful measure. Lead-time, order cy-
cle time, time-to-market and other time measures are
actually relevant for every management level. Op- References
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