Supply Chain Performance Measurement

The main objective of performance measurement is to provide valuable information which allows firms to improve the fulfillment of customers’ requirements and to meet firm’s strategic goals. It is therefore important to measure how effectively the customers’ requirements are met and how resources are efficiently used to reach a certain level of customer satisfaction. Supply chain performance measurement is used to evaluate the effectiveness and efficiency of organizational structures, processes and resources not only for one firm but also for the entire supply chain. It provides some basis for understanding the whole system, influence the behavior and supply information about the performance of the supply chain participants and stakeholders. Developing and using performance measures is an essential function of management. The usage of performance measurement systems also supports the objectives of transparency and a mutual understanding of the whole supply chain.

Supply Chain Controlling

One of the main tasks of supply chain controlling is to implement a common knowledge and understanding of the processes in the whole supply chain. The phrase ‘supply chain controlling’ indicates the construction and steering of the interactions within the whole supply chain by using adequate controlling concepts.

The objectives of supply chain controlling can be divided into direct and indirect objectives. The direct objectives focus on the performance measurement of processes and resources, while the indirect objectives concentrate on more strategic objectives, such as competitiveness or gaining market shares.

Considering this brief description it is seen that supply chain controlling includes the strategic objectives of companies, while supply chain performance measurement focuses on effective and efficient operations only. Therefore supply chain performance measurement could be seen as an element to support the supply chain controlling objectives. Supply chain controlling defines the strategic objectives of the supply chain performance measurement systems. The concept of supply chain controlling covers all aspects of trying to control, measure or evaluate the performance in a complete supply chain on the strategic, tactical or operational levels.

Supply Chain Monitoring

Theory states that the performance of supply chains should be monitored providing cost measures and non-cost related measures. The central concept to monitor the supply chain and achieve higher visibility is called supply chain monitoring. Supply chain monitoring is defined as the effort of actors in a supply chain to manage and control visibility of information regarding flows of products and services in different levels and directions in a supply chain. The central key of a supply chain monitoring system is the exchange of information in form of standardized data between all the participants of the chain.

Therefore supply chain monitoring focuses on sharing information and data among the entire supply chain, while supply chain performance measurement is directly connected with specific goals, such as achieving effectiveness and efficiency. In general it can be seen that the three approaches of supply chain controlling, supply chain performance measurement and supply chain monitoring build up on each other.

These approaches can be related to the different strategic, tactical and operational levels in supply chain management. On the strategic level, supply chain controlling focuses on the entire supply chain and the controlling of the objectives of the whole supply chain. The tactical level is covered by supply chain performance measurement measuring the effectiveness and efficiency of resources and processes based on the strategic objectives of the supply chain. And last, on a more operational level, the supply chain monitoring concept is based on the exchange of information and data. In sum, supply chain controlling is the main phrase for measuring the performance of a supply chain, including or using the other two approaches. Therefore supply chain performance measurement is a substantial element in controlling and managing a supply chain.

Internal Supply Chain Performance Measurement

Internal supply chain performance measurement primarily focuses on such measures as lead time, fill rate or on-time performance. These measures are generated within a company and do not evaluate the whole supply chain. It is for this reason why this literature seeks to address performance measures holistically and not restrictive to logistics performance measures. Taking only one company into account can lead to situations where seemingly good measures lead to inappropriate outcomes for the entire supply chain.

The central roles of these internal supply chain performance measurement systems are measuring the performance of business processes, measuring the effects of the companies’ strategies and plans, diagnosing of problems, supporting decision-making, motivating improvements and supporting communication within a company.

Furthermore its criticized such traditional roles of performance measurement as short-term and finance oriented, lacking strategic relevance, strong internal focus, avoiding overall improvements, inconsistent measures and the quantification of performance in numbers. Bearing these roles of internal performance measurement and the connected criticism in mind, it becomes obvious that these internal performance measurement systems cannot be adapted to external performance measurement systems, measuring the entire supply chain. Therefore in modern environment it has become necessary to develop external supply chain performance measurement systems which extend the limited scope of single companies and their individual functions.

External Supply Chain Performance Measurement

Performance measurement systems are seldom connected with overall supply chain strategies, lack balanced approaches to integrate financial and non-financial measures, lack system thinking and often encourages local optimization. Due to increasing requirements of supply chain management it is necessary to explore suitable performance measures and how accurate performance measurement systems can meet the need of support in decision-making and continuous improvement in supply chains.

Taking these challenges and the fact that more and more firms recognize the potential of supply chain management into account, it becomes obvious that there is much request for supply chain performance measurement systems for the supply chain as a whole. The existing performance measurement systems in supply chain environment often fail to fulfill the needs due to the different vertical and horizontal influences in supply chains.