Measuring Supply Chain Effectiveness

Measuring Supply Chain Effectiveness

Issue Date : 8/9/2005

Supply Chain metrics is not yet engaging the minds of the top management and its value is yet to be appreciated says K. Nitya Kalyani outlining some initiatives and the background.

“There is an awareness about the need for developing supply chain management metrics among the members of the senior management in India, but knowledge is still lagging and they are not clear about how it will help them,” says Mr. C. R. Chandrasekar. Director-Technology at Arrowpoint Technologies, Mr. Chandrasekar’s pet topic is Balance Scorecard for evaluating Supply Chain Management (SCM) effectiveness. The Balanced Scorecard – developed at the Harvard Business School - can be a powerful management tool for achieving a balance between financial and non-financial performance of a business. The widely used principles of the Balanced Scorecard - Business process perspective, Customer perspective, Financial perspective and Innovation and Learning perspective - are a perfect fit for SCM more than any other operational area of a business says Mr. Chandrasekar whose company has developed EnterpriseStrategyWare, or ESWare, a software tool that enables companies to track their strategy execution y monitoring specific strategic objectives and measures. “This facilitates development and deployment of an action-oriented framework for managing the company’s strategic execution,” he adds. Successfully executed, a balanced scorecard approach to SCM will bring new levels of operating efficiencies and financial performance to all of the supply chain partners said Peter C. Brewer and Thomas W. Speh of Miami University in 2000 (Using the Balanced Scorecard to Measure Supply Chain Performance, Peter C. Brewer, Miami University and Thomas W. Speh, Miami University in Journal of Business Logistics, Vol.21, No1, 2000) and attempted to design performance measurement systems in a manner that helps ensure supply chain success. “Our premise is that if firms talk about the importance of supply chain concepts but continue to evaluate employees using performance measurement systems that are either adversely affected by or completed unaffected by supply chain improvements, then they will fail in their supply chain endeavors. Conversely, if firms take action by linking their performance measurement systems to their supply chain practices, then they will be better positioned to succeed in their supply chain initiatives, they say in the introduction to the paper. They also point out that the objectives of SCM as a function and of the Balanced Scorecard are aligned. The following is the correlation they point out to.

SCM

Balanced Scorecard

SCM Goals

Business process perspective

Waste Reduction Time Compression Flexible response Unit cost reduction Customer Benefits Improved product/service quality Improved timeliness Improved flexibility Improved value

Customer perspective

Financial Benefits Financial Perspective Higher profit margins Improved cash flows Higher return on assets Revenue growth SCM Improvement Innovation and Learning Perspective Product/process innovation Partnership management Information flows Threats/substitutes

ESWare is product neutral and runs on the ERP of the company or an in house application points out Mr. Chandrasekar and can accept inputs in any form including MS Excel upload or even manual inputs, thus having a wider appeal to Indian enterprises that present a wide variety of IT enablement. ESWare scores over competing products, he says, in offering alignment of targets and the like across the organisation so that the management can view how key performance indicators (KPI) are performing. Observing that SCM systems are being implemented increasingly in India, he says that they are not being approached in an integrated way though. SCM Metrics then are being monitored but not in a formal or holistic way on an ongoing basis. So at what stage is the market? “We are waiting for proof of concept to materialise in one of the early installations, then there could be a breakthrough!” he says.