Business organisations regularly measure the performance of their supply chain operations to establish a strategic alliance with upstream suppliers and downstream customers. According to Bhagwat and Sharma (2007), the aim of measuring the performance of the supply chain is to fine tune and optimise internal operations of a firm to increase profits by satisfying demand in the market with the right quality and quantity of products.
The measurements are based on accurate parameters that capture the true essence of organisational performance by aligning business operations with customer expectations. Bhagwat and Sharma (2007) argue that channel operations can be utilised to improve opportunities for collaboration, minimise wastes, increase profitability and improve return on investment.
Bhagwat and Sharma (2007) notes that within the performance measurement framework, internal measurements, financial indicators, and operational metrics define the service level efficiencies that enable organisations to improve product inventories (safety, cycle, and seasonal inventories), transportation, and information flow (daily coordination and forecasting and planning).
Fawcett, Ellram and Ogden (2014) proposed a supply chain management system that factors internal measurements which are used to define the level of effectiveness required to compress the time and cost requirements for a supply chain management system. According to Fawcett et al. (2004), financial metrics enable managers to create better cash cycles, cash flows, establish return on supply chain equity, and customer growth and profitability.
On the hand, managers use operational metrics to make better decisions, define more efficient processes, and establish the best internal actions to improve the financial performance of an organisation (Bhagwat & Sharma, 2007). The study shows that an effective supply chain management system facilitates innovation, which leads to cost reductions, better coordination and use of company assets, and inventory improvements.
A study by Fawcett et al. (2004) affirms that a successful logistics and supply chain management systems depend on the key performance indicators and metrics that are used to measure the efficiency of the SCM system at the planning, sourcing, assembly, and delivery process stages. Managers evaluate each process stage using unique performance metrics that respond to the desired operational efficiencies to identify flaws and take corrective actions at each stage.
For instance, the metrics used to ensure efficient order planning processes are established by using an order entry method that shows how customer specifications can be used to improve the supply chain management system. On the other hand, the strategic level measurements are used to establish lead time, product quality, and strategies for making cost saving initiatives.
After studying the supply chain management operations, I realised that learning on how to measure the performance of the supply chain management systems was not only crucial and beneficial to the manufacturer, but also to the customer and those who play intermediary roles within the supply chain management system.
Here, managers use performance metrics to improve the supply chain phases to become more effective, accurate, and reliable. For instance, performance measurements help managers to accurately establish inventory costs, inventory turnover, order tracking, and the accuracy of the supply chain at the planning, sourcing, and product delivery stages.
The goal is to satisfy customers in a cost- effective manner at the strategic, tactical, and operational levels. However, the study leads to the question on: how do organisations measure the financial, operational, and customer specific metrics in the supply chain?
References
Bhagwat, R., & Sharma, M. K. (2007). Performance measurement of supply chain management: A balanced scorecard approach. Computers & Industrial Engineering, 53(1), 43-62.
Fawcett, S. E., Ellram, L. M., & Ogden, J. A. (2014). Supply chain management: from vision to implementation. London: Pearson.