KEY
TOP K
SUPPLY P
PERFORMANCE
CHAIN INDICATOR
Chapter SUPPLY CHAIN OPERATIONS
9 PERFORMANCE METRICS
Introduction
There are several metrics that may be used to assess the quality of a company's supply
chain. Each supply chain performance metricC provides a distinct viewpoint on a certain
feature of the supply chain. The most critical choice for every company is determining
which supply chain metrics are important and how they will be used. Many companies
depend on supply chain performance metrics that are simple to quantify which do not
adequately reflect supply chain effectiveness. Some companies have a series of metrics
that their sales department can use, but they are oblivious that this may
have a negative
impact on some parts of the supply chain.
Learning Objectives
At the end of this chapter, you should be able to:
1. employ a usefulapproach for assessing markets and the
them; supply chains that support
2. define a concise set of metrics for
operations;
measuring the performance of supply chain
3. discuss ways tocollect, display, and make use of
supply chain performance data; an
4. use performance data to
spotlight problems and opportunities.
76
Supply Chain Performance Metrics
A supply chain performance measure is away of assessing the effectiveness of a
supply chain process. The two broad categories of supply chain success indicators are
quantitative measurements (customer satisfaction and product quality) and qualitative
measures (supply chain efficiency), for example order-to-delivery lead time, supply chain
response time, flexibility arnd resource utilization, and delivery performance.
Four Measurement Performance Categories
1. Customer Service
Customer service measures a supplychain's ability to meet the demands of its
clients. Customers in different countries will have different customer care habits,
based on the form of the company being handled. Customers in some countries
expect and compensate for high-quality supply and quick distribution of small
purchase numbers. Customers of other nations can wait indefinitely for products
and purchase in large quantities. Regardless of the business, the supply chain must
meet the demands of the people in terms of customer support.
2. Internal Efficiency
Internal efficiency refers to a company's or supply chain's ability to generate
profits. Business trends shift, and what represents a desirable level of benefit varies
by industry, much as it does with customer service. Profit levels must be higher to
justify the time and money spent in a volatile developing market. Profit margins
would be somewhat lower than in a mature market with little chance of uncertainty.
This competition allows you to do a lot of business to compensate for the lack of
gross margin by increasing gross profit.
3. Demand Flexibility
This category evaluates a company's ability to react to changes in product
demand. It shows how much of an increase in demand from current levels a
company or supply chain will handle. It also necessitates the opportunity to react
to unpredictability in the product range that could be demanded. This skill is often
needed in mature markets.
4. Product Development
This applies to a company's and the supply chain's ability to expand in line
with the markets they serve. It evaluates a company's ability to produce and
launch
new products on time. This expertise is critical when it comes to serving
markets.
developing
CHAPTER9 Supply Chain Operations Performance Metrics 77
to Order
Build to Stock CUSTOMER SERVICE Build
Order and line item fill rate " Quoted lead time and completion rate
" On time delivery rate " On time delivery rate
" Retum rate " Warranty returns and repais
INTERNAL EFFICIENCY
" Inventory value " Return on sales
"Inventory turns "Cash-to-cash cycle time
DEMAND FLEXIBILITY
" Activity cycle times "Outside flexibility
" Upside flexibility
PRODUCT DEVELOPMENT
" % of sales from new products " Cycde time for new product
developmentintroduction
" % of SKUs as new products
Figure 11. Performance Measures in Supply Chain
Characteristics of a Good Supply Chain Performance Metric
1
Easy to Understand. Astrong metric is easily understood byanybody who looks at
it. What the metriccalculates and how it is calculated should be clear.
2 Quantitative. A key feature for performance measurement of the supply chain is
that the value is quantitative, i.e., based on actual, not subjective, results.
3 Measures What Is Important. Some metrics may seem important, but when the
data is analyzed, the relevance of the metrics can be tenuous. A performance metric
on which business decisions are made must measure important data.
4 Causes Correct Behavior. An effective success metric must be used for the
consumer
totake the appropriate action. For example, if the metric meansa
certain amount of
orders each day, the right action increases the number of orders
the metric itself influences how the user processed. However,
behaves, but there are some aspects that
should be avoided. For example, by calculating the number of
the metric will increase the number of motions motions every day,
while reducing the number of loaded
trucks or handling a few orders.
5. Metrics Should Be Easy to Collect.
Sometimes companies select complex
performance metrics that are very time-consuming
to be taken away from line staff to to collect and may require time
prepare. This is counterproductive and these
types of metrics should be avoided.
78 SUPPLY CHAIN
MANAGEMENT IN HOSPTALITY INDUSTRY
Operations That Enable Supply Chain Performance
lo meet the performance requirements of the markets it serves, an
organization
must evaluate and improve its capabilities in Tour areas of supply chain operations: plan.
tuy make,and distrbute operations.
Order and tine item fill speeds, on time deltvery, stock flips, and cash-to-cash cycle
time are also metrics of how good a company IS pertorming. Similar activities are related
to specitic performance classes. For example, stock management has a significant effect
0n a company's order and ne item tillspeeds, as wel as product turns. Its
procurement
operation will have a huge etfect on its sales return and upside prospects. Data on a
cOmpany's activities in all four operational areas must be obtained and results tracked.
The cost of preparation processes, commodity funding costs, inventorydays of arrival
on hand, and forecast accuracy are all valuable indicators in the scheduling phase.
Data
on product purchase costs, sourcing cycle times, and rawmaterial days of distribution are
useful n the sourcing operation. The number of product defects/complaints, make cycle
times, build-order attainment rates, and product quality are all valuable indicators in the
production phase. Fill rates, order delivery costs, order lead times, and package return
rates are all suggested delivery system indicators. This data should be collected regularly,
and changes should be tracked. Because performance objectives have not been reached,
the next move is to examine the organizational structures that support that
production.
Diagnostic metrics can be used to measure the supply chain's complexity and
configuration, as well as to investigate particular activities. The quantity and percentage of
order movements, the number of stock-keepingunits (SKUs), retainedproduction numbers,
and inventory carrying costs are all ambiguity measures throughout the scheduling phase.
Configuration indicators keep track of things like product number by path, channelcount,
and supply chain positions. Planning time length, forecast accuracy, and redundant
product on hand are all indicators of management practices in the planning phase.
The number of vendors, percentage of purchasing expense by distance, and purchased
material by geography are all indicators of complexity and configuration in the source
phase. Any examples of standard practice indicators include supplier delivery efficiency,
payment duration, and the percentage of products purchased by their corresponding lead
time. The number of SKUs, upside production versatility, manufacturing process steps
by geographical location, and power consumption are all indications of complexity and
configuration in the manufacturing activity.
Managementpractice measures include the value-added ratio, the number of output
order changes due to operational challenges, and work-in-process inventory. There are
complexity indicators in the fourth supply chain method, deliver, such as the number of
orders by road, the number of line items andshipments by direction, and the proportion
of line items returned. Delivery locations by geOgraphy and the number of channels are
interface metrics. Practice interventions include things like published delivery lead times,
the number of invoices with billing errors, and order entry
procedures.
CHAPTTR9 Supply Chain Operations Pertormance Metrics 79
Performance
Business Operations and Company
have an indirect effect on overall supply chain productivity,
Allbusiness purchases classes. The
certain transactions have a significant impact on specific output
although
fields of outcomes that are most adversely affected by each
table below shows the
enterprise.
OPERATIONS
BUSINESS DEMAND PRODUCT
PERFORMANCECUSTONMER INTERNAL
FLEXIBILITY
DEVELOPMENT
CATEGORIES SERVICE EFFICIENCY
As measured by: As measured by:
As measured by: As measured by: New Production
Inventory Turns: Cycle Times:
Fill Rate: Sales:
On-Time Delivery: Return on Sales: Upside Flex:
Outside Flex: %Revenue: Cycle
Product Returns Cash-to-Cash
Time
Demand X X
Forecasting
PLAN
Product X
Pricing
Inventory X X
Management
SOURCE X
Procurement X
Credit and X
X
Coliections
Product X X
MAKE Design
Product X X
Scheduling
Facility X X
Management
DELIVER
Order X X X
Management
Delivery X
Scheduling
80 SUPPLY CHAIN MANAGEMENT IN HOSPITALITY INDUSTRY
Chapter Summary
Metrics such as order and line-item Till rdte, on-time arrival, and item-return rates
are used to assess Customer service efficiency. Internal efficiency relates to a company's
or supplychain's capacity to exploit its assets ds proritably as practicable, Metricssuch as
inventory value, inventory turns, and return On Sales are common indicators of internal
efficiency. The capacity of an organization or supply chain to respond to unexpected
consumer requests for dramatically expanded amounts of goods or specific items outside
of the usual package of products offered is reterred to as demand flexibility, Product
creation assesses a company's capactyto plan, build, and produce innovative goods to
suit its customers as those markets change over time. Performance in this field is especially
significant in emerging markets.
As businesses examine the different performance indicators available, there are
avariety of features that they can search for when choosing metrics to aid in business
decisions. Successful supply chain efficiency metrics should have five characteristics: they
should be simple to interpret, quantitative, calculate what is significant, affect correct
behavior, and measurements should be easy to obtain.
Discussion Questions
1 Enumerate the four measurement categories for supply chain operations.
2 For each measurement category, name at least two metrics in that category and
describe what they measure.
3. Discuss the importance of measuring the performance of supply chain operations.
CHAPTER9 Supply Chain Operations Performance Metrics 81
Post-assessment Evaluation
Choose one hospitality business establishment and conduct an interview on its
supply chain management performance based on the following template. Discuss your
assessment in the class.
OPERATIONSPERFORMANCE
BUSINESS CATEGORIESCUSTOMER INTERNAL DEMAND PRODUCT
SERVICE EFFICIENCY FLEXIBILTY DEVELOPMENT
As measured by: As meastured by: As measured by: As measured by:
FillRate: Inventory Turns: Cycle Times: New Production
On-Time Return on Sales: Upside Fiex: Sales:
Delivery: Cash-to-Cash Outside Flex: % Revenue:
Product Returns Cycle Time
PLAN Demand
Forecasting
Product Pricing
Inventory
soURCEManagement
Procurement
Credit and
Collections
MAKE Product Design
Product
Scheduling
Facility
DELIVERManagement
Order
Management
Delivery
Scheduling
CHAPTER9 Supply Chain Operations Performance Metrics 83
