Chapter 14 Investing in Stocks Chapter 14 Investing in Stocks.
Chapter 14
Transcript of Chapter 14
CHAPTER 14PERFORMANCE MEASUREMENT ALONG THE SUPPLY CHAIN
Principles of Supply Chain Management:
A Balanced Approach
Prepared by Daniel A. Glaser-Segura, PhD
© 2009 South-Western, a division of Cengage Learning 2
Learning Objectives
You should be able to:– Describe why firms need to measure &
assess performance– Discuss the merits of financial & non-
financial performance measures– List a number of traditional & world-
class performance measures– Describe how the Balanced Scorecard
& the SCOR models work– Describe how to design a supply chain
performance measurement system
© 2009 South-Western, a division of Cengage Learning 3
Chapter Fourteen Outline
–Introduction–Viewing the Supply Chain as a
Competitive Force–Traditional Performance Measures–World-Class Performance Measurement
Systems–Supply Chain Performance Measurement
Systems–The Balanced Scorecard –The SCOR Model
© 2009 South-Western, a division of Cengage Learning 4
Introduction
“You can’t improve what you don’t measure” – Companies using performance measurement are
more likely to achieve leadership positions & twice as likely to handle a major change successfully.
– Performance measurements vary from company to company.
– World-class status may initially cost more.– Adding several tiers of suppliers & customers
complicates performance measurement.– Performance measures must be visible &
communicated to all members of the SC.
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Viewing the SC as a Competitive Weapon
Understanding End CustomersSupply chains need to look at each segment of the market they serve & determine the needs of those customers.
– Variety of products required– Quantity & delivery frequency needed– Service level desired– Product quality desired– Price of the products
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Viewing the SC as a Competitive Weapon (Cont.)
Understanding SC Partner RequirementsSupply chain strategies must consider the potential trade-offs existing between:
– Cost– Quality– Quantity– Service
© 2009 South-Western, a division of Cengage Learning 7
Viewing the SC as a Competitive Weapon (Cont.)
Adjusting SC Member Capabilities– SC members audit their capabilities &
partners’ to determine consistency with needs of end customers & SC.
– Firms & their partners must continually reassess performance with respect to requirements.
– The best SC performers are more responsive to customer needs, quicker to anticipate changes in the markets, & control costs much better.
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Traditional Performance Measures
Traditional Performance Measures– Traditional cost-based information does not
reflect the underlying performance of an organization’s productive systems; costs & profits can be hidden or manipulated.
– Decisions to maximize current stock prices do not necessarily reflect that the firm is performing well.
– Financial performance measures, while important, cannot adequately capture a firm’s ability to excel in these areas.
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Traditional Performance Measures (Cont.)
Use of Organization Costs, Revenue, & Profitability Measures
Problems associated with using costs & profits to gauge performance:
– Uncontrollable environmental forces (e.g., windfall profits that occur when prices rise due to supply interruptions)
– Accurate attribution of cost, revenue, or profit contributions to the various functional or business units
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Traditional Performance Measures (Cont.)
Use of Performance Standards & VariancesEstablishing standards for comparison purposes can be troublesome.
– Employees & managers do whatever it takes to reach the goal
– Shoddy work & “Cooking” the books.
Performance variance- the difference between the standard & actual performance.
– Managers can be pressured to find ways to make up these variances, resulting in poor decisions.
© 2009 South-Western, a division of Cengage Learning 11
Traditional Performance Measures (Cont.)
Use of Firm-Wide Productivity & Utilization MeasuresThese measures are useful but have the same problems as revenues, costs, & profits.
– Productivity decisions may actually increase costs & reduce quality.
– Tendency to continue producing & adding to inventory to keep machines & people busy.
– Less time is spent doing preventive maintenance & training for greater performance & profits in future.
– Traditional measures favor the short-term.
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World-Class Performance Measurement SystemsDeveloping World Class Performance Measures
• Identify the firm’s strategic objectives.• Develop an understanding of each functional
area’s role & the required capabilities.• Identify internal & external trends likely to affect
the firm & its performance over time.• For each functional area, develop performance
measures that describe each area’s capabilities.• Document current performance measures &
identify changes that must be implemented.• Assure the compatibility & strategic focus of the
performance measures to be used.• Implement the new performance system.• Periodically reevaluate the firm’s performance
measurement system.
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SC Performance Measurement Systems Performance measurement systems must:
– Link SC trading partners to achieve breakthrough performance in satisfying the end users.
– Overlay the entire supply chain to assure that all contribute to supply chain strategy.
In a successful chain, members jointly agree on a SC performance measurement system.
Demand driven supply networks are supply chains with enough flexibility to quickly respond to changes in the marketplace
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SC Performance Meas. Systems (Cont.)Environmental sustainability-
– Addressing the need for protecting the environment & reducing greenhouse gas emissions as well business & consumer needs
Green supply chain management (GSCM)-– Sharing of environmental responsibility along the SC
such that sound environmental practices predominate, & adverse global environmental effects are minimized.
Carbon footprint- – Supply chains evaluate design configurations and
various options for reducing total carbon emissions
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SC Performance Meas. Systems (Cont.) Supply Chain Performance Measures1. Total SCM costs: cost to process orders; purchase &
manage inventories; & information systems.2. SC cash-to-cash cycle time: Avg. # of days between
paying for materials & getting paid by SC partners.3. SC production flexibility: avg. time required to provide
an unplanned 20% increase in production.4. SC delivery performance: avg. % of orders filled by
requested delivery date.5. SC perfect order fulfillment performance: average %
of orders that arrive on time, complete, & undamaged.6. Supply chain e-business performance: avg. % of
electronic orders received for all SC members.7. Supply Chain Environmental Performance: % of SC
w/ISO 14000 partners; avg. % env. goals met.
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The Balanced Scorecard
Developed by Kaplan & Norton to align an organization’s performance measures with its strategic plan & goals. The BSC framework consists of four perspectives:
– Financial perspective– Internal business process perspective– Customer perspective– Learning & growth perspective
Also referred to as scorecarding
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The Balanced Scorecard (Cont.)
© 2009 South-Western, a division of Cengage Learning 18
The Balanced Scorecard (Cont.)
Web-Based Scorecards
Dashboards– Web-based software applications used to design
scorecards, which also link via the Web to a firm’s enterprise software system.
– Provide managers a way to see real-time progress toward organizational milestones & help to ensure that decisions remain in sync with the firm’s overall strategies.
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Supply Chain Operations Reference (SCOR) Model
Developed by the Supply-Chain Council for SCM diagnostic benchmarking, & process improvement. The SCOR model separates supply chain operations into 5 process categories:
– Plan– Source– Make– Deliver– Return
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SCOR Model (Cont.)
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SCOR Model (Cont.)
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SCOR Model (Cont.)
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SCOR Model (Cont.)
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SCOR Model (Cont.)
Additions have been made to the SCOR model– Original SCOR model did not address sales &
marketing processes, some aspects of service, & support processes (i.e., HR & technology development).
Customer Chain Operations Reference model (CCOR)– Defines the customer part of the SC as the
integration of Plan, Relate, Sell, Contract, Service, & Enable processes.
Design Chain Operations Reference model (DCOR)– Defines the design portion of the SC as the
integration of Plan, Research, Design, Integrate, Amend, & Enable processes.