A framework for supply chain performance measurement

More documents

Recommendations

Info

ARTICLE IN PRESS334A. Gunasekaran et al. / Int. J. Production Economics 87 (2004) 333–347the way that manufacturing and non-manufacturingoperations meet the needs of their customers.Development of cross-functional teams alignsorganisations with process oriented structure,which is much needed to realise a smooth flow ofresources in a supply chain. As suggested by Trentand Monczka (1994), such teams promote improvedsupply chain effectiveness. They minimiseor eliminate functional and departmental boundariesand overcome the drawbacks of specialisation,which according to Fawcett (1995), candistribute the knowledge of all value addingactivities such that no one, including upper levelmanagers, has complete control over the process.Such teams helped in the formation of modernsupply chains by promoting greater integrationof organisations with their suppliers andcustomers.Supplier partnerships and strategic alliancesrefer to the co-operative and more exclusiverelationships between organisations and their upstreamsuppliers and downstream customers. Todaymany firms have taken bold steps to breakdown both inter and intra firm barriers to formalliances, with the objective of reducing uncertaintyand enhancing controlof supply anddistribution channels. Such alliances are usuallycreated to increase the financialand operationalperformance of each channelmember throughreductions in totalcost and inventories andincreased sharing of information (Maloni andBenton, 1997). Rather than concerning themselvesonly with price, manufacturers are looking tosuppliers to work co-operatively in providingimproved service, technological innovation andproduct design. This development has produced asignificant impact by expanding the scope of SCMthrough greater integration of suppliers withorganisations.The growth and development of SCM is notdriven only by internal motives, but by a numberof externalfactors such as increasing globalisation,reduced barriers to internationaltrade, improvementsin information availability, and environmentalconcerns.Furthermore, computer generatedproduction schedules, increasing importanceof controlling inventory, government regulationsand actions such as the creation of a singleEuropean market, and the guidelines of GATTand WTO have provided the stimulus for developmentof and existing trends in SCM. Supplychain integration is needed to manage and controlthe flow in operating systems. Such flow controlisassociated with inventory controland activitysystem scheduling across the whole range ofresource and time constraints. Supplementing thisflow control, an operating system must try to meetthe broad competitive and strategic objectives ofquality, speed, dependability, flexibility and cost(Slack et al., 1995; Gunasekaran et al., 2001; DeToni and Tonchia, 2001). Controlis also essentialas both customer needs and supply chain performancemight change with time.To meet objectives, the output of the processesenabled by the supply chain must be measured andcompared with a set of standards. In order to becontrolled, the process parameter values need to bekept within a set limit and remain relativelyconstant. This will allow comparison of plannedand actualparameter values, and once done, theparameter values can be influenced throughcertain reactive measures in order to improve theperformance or re-align the monitored value tothe defined value. For example, an analysis of thelayout of facilities could reveal the cause of longdistribution time, high transportation and movementcosts and inventory accumulation. Usingsuitable approaches like re-engineering facilities,problems can be tackled and close monitoring andsubsequent improvements can be possible fromanalysis of the new design. Thus, control ofprocesses in a supply chain is crucial in improvingperformance and can be achieved, at least in part,through measurement. Well-defined and controlledprocesses are essential to better SCM.There are number of conceptualframeworksand discussions on supply chain performancemeasurements in the literature; however, there isa lack of empirical analysis and case studies onperformance metrics and measurements in asupply chain environment. We will discuss thebackground for the research, review the selectedliterature on supply chain performance metricsand measurements, develop a framework based onthe literature and an empirical analysis, andfinally, summarize the findings and conclusions.
ARTICLE IN PRESSA. Gunasekaran et al. / Int. J. Production Economics 87 (2004) 333–347 3352. Background for researchIn this section, the literature is used in describingthe generalcontext within which measurementof supply chain performance is undertaken. Theworks of various authors are used in establishingthe need for supply chain performance measurementand to describe in generalterms how it should beaddressed—emphasis is on measurement systemsand approaches as opposed to specific measures.The strategic, operational and tactical levels arethe hierarchies in function, wherein policies andtrade-offs can be distinguished and suitable controlexerted(Ballou, 1992). According to Rushtonand Oxley (1989), such a hierarchy is based on thetime horizon for activities and the pertinence ofdecisions to and influence of different levels ofmanagement. The strategic level measures influencethe top level management decisions, veryoften reflecting investigation of broad basedpolicies, corporate financial plans, competitivenessand level of adherence to organisational goals. Thetactical level deals with resource allocation andmeasuring performance against targets to be metin order to achieve results specified at the strategiclevel. Measurement of performance at this levelprovides valuable feedback on mid-level managementdecisions. Operational level measurementsand metrics require accurate data and assess theresults of decisions of low level managers. Supervisorsand workers are to set operationalobjectivesthat, if met, will lead to the achievement oftacticalobjectives.Many firms look to continuous improvement asa toolto enhance their core competitiveness usingSCM. Many companies have not succeeded inmaximizing their supply chain’s potential becausethey have often failed to develop the performancemeasures and metrics needed to fully integratetheir supply chain to maximize effectiveness andefficiency. Lee and Billington (1992) observed thatthe discrete sites in a supply chain do not maximizeefficiency if each pursues goals independently.They point to incomplete performance measuresexisting among industries for assessment of theentire supply chain. Measurements should beunderstandable by all supply chain members andshould offer minimum opportunity for manipulation(Schroeder et al., 1986). Performance studiesand models should be created so that organisationalgoals and achievement of those goals can bemeasured, thus allowing the effectiveness of thestrategy or techniques employed to be accessed.Most companies realise the importance offinancialand non-financialperformance measures,however they have failed to represent them in abalanced framework. According to Kaplan andNorton (1992), while some companies and researchershave concentrated on financialperformancemeasures, others have concentrated onoperationalmeasures. Such an inequality doesnot lead to metrics that can present a clear pictureof organisationalperformance. For a balancedapproach, Maskell (1991) suggests that companiesshould understand that, while financial performancemeasurements are important for strategicdecisions and externalreporting, day to daycontrolof manufacturing and distribution operationsis often handled better with non-financialmeasures. Another area where inequality persists isdeciding upon the number of metrics to be used.Quite often companies have a large number ofperformance measures to which they continue toadd based on suggestions from employees andconsultants. They fail to realise that performanceassessment can be better addressed using a trivialfew—they are not really trivial, but instead arethose few areas most criticalto success.The metrics that are used in performancemeasurement and improvement should be thosethat truly capture the essence of organizationalperformance. A measurement system should facilitatethe assignment of metrics to where theywould be most appropriate. For effective performancemeasurement and improvement, measurementgoals must represent organisational goalsand metrics selected should reflect a balancebetween financialand non-financialmeasures thatcan be related to strategic, tactical and operationallevels of decision making and control.3. Performance measurements and metrics in SCMIn this section, the literature on performancemeasurements and metrics in SCM is reviewed.
Page 1: ARTICLE IN PRESSInt. J. Production
Page 5 and 6: ARTICLE IN PRESSA. Gunasekaran et a
Page 15: ARTICLE IN PRESSA. Gunasekaran et a

A framework for supply chain performance measurement

Create successful ePaper yourself

Delete template?

Save as template?