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Performance Measures

Performance Measures. What you measure is what you get Performance measures strongly affect the behavior of managers and employees Tailor your performance measures to fit company’s mission and strategy Over-reliance of a single measure might be detrimental to company’s long-term survivability.

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Performance Measures

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  1. Performance Measures • What you measure is what you get • Performance measures strongly affect the behavior of managers and employees • Tailor your performance measures to fit company’s mission and strategy • Over-reliance of a single measure might be detrimental to company’s long-term survivability

  2. Challenges to Performance Measurements • Measure only the right things • Avoid meaningless efforts • Use the results proactively and productively

  3. Key Reasons for SC Metrics • Meeting customer expectations • Improving supply chain capability • Enhancing asset performance • Instilling workforce cooperation • Enriching the stakeholders

  4. Four Perspectives of the Balanced Scorecard • How do customers see us? (customer perspective) • What must we excel at? (internal business perspective) • Can we continue to improve and create value? (innovation and learning perspective) • How do we look to shareholders? (financial perspective)

  5. The Balanced Scorecard Framework Financial Perspective Internal Business Perspective How do we look to shareholders? GOALS MEASURES GOALS MEASURES What must we excel at? Customer Perspective Innovation & Learning Perspective How do customers see us? GOALS MEASURES GOALS MEASURES Can we continue to improve and create value?

  6. Framework for Supply Chain Performance Metrics Business Strategy Supply Chain Strategy Supply Chain Objectives Operational Metrics Customer Service Metrics Financial metrics

  7. Customer Service Metrics Customer service metrics are indications of a company’s ability to satisfy the needs of customers by meeting customers needs on a timely basis and creating exceptional values to the customers

  8. Operational Metrics Operational metrics are derived from processes, decisions, and actions taken internally to meet and/or exceed customer expectations. These are drivers of future financial performance

  9. Financial Metrics Financial metrics indicate whether the company’s strategy, implementation, and execution are creating value for the shareholders by contributing to bottom-line improvements.

  10. Supply Chain Performance Framework Customer Service Metrics Goals Measures Operational Metrics Financial Metrics Goals Measures Goals Measures

  11. Goals Waste Reduction Time Compression Unit Cost Reduction Product/process innovation Inventory Management Supplier performance Measures Supply chain cost of ownership Supply chain cycle efficiency % of supply chain target cost achieved Product finalization point Inventory turns & days of inventory Supplier evaluations Operational Metrics

  12. Goals Profit margins Cash flows Revenue growth Return on assets Return on equity Measures Profit margin by supply chain partners Cash-to-cash cycle on receivables & payables Customer growth & profitability Return on supply chain asset Return on supply chain equity Financial Metrics

  13. Goals Flexible response Product/service innovation Customer satisfaction Customer value Delivery performance Measures Number of choices & average response time Customer contact points and product finalization points Order fulfillment rate Customer profitability Delivery speed & reliability Customer Service Metrics

  14. Assessing Customer Satisfaction Lots Inventory A B Desired Operating Region Little C D Poor Good Service

  15. Assessing Performance of Product Lines Too many Product line 5 Product line 2 Weeks of Supply Product line 6 Product line 3 Product line 4 Product line 1 Too few Too low Too high Fill Rate

  16. Efficiency Frontier of a Single Product Line 10 Efficiency Frontier Weeks of Supply 0 80% 100% Fill Rate

  17. Efficiency Frontier of a Single Product Line 10 Weeks of Supply Product 2 0 Product 1 80% 100% Fill Rate

  18. Critical Factors in SC Performance Metrics • Establish performance objectives with customers in mind • Consider using order windows as the basis for order fulfillment metrics • Reflect reliability issues in the metrics they choose • Implement metrics consistently throughout the supply chain • Aggregate results as they move up the chain

  19. Critical Factors in SC Performance Metrics (cont’d) • Apply process control techniques to the business process • Avoid pitting players in the systems against one another • Collect only data you really intend to use • Communicate the actions and rational to everyone

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