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MEASURING THE SUPPLY CHAIN PERFORMANCE

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Far East J. Theo. Stat. 12(2) (2004), 227-232

MEASURING THE SUPPLY CHAIN PERFORMANCE

ABRAHAM PAUL and N. CH. S. N. IYENGAR

Department of Computer Applications

Vellore Institute of Technology (Deemed University)
Vellore-632014, Tamilnadu, India

Abstract

Supply chain management is the coordination of material, information

and financial flows between and among all participating enterprises.
Traditionally, supply chain management was mainly seen as a means to
contain costs. However, supply chain should not focus only on cutting
costs. Even when it comes to cost, it is difficult to identify which costs
will best indicate supply chain effectiveness. Supply chain council’s
Supply Chain Operations Reference (SCOR) model is a method of
benchmarking
performance.
and measuring
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improvements in supply chain
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1. Introduction
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Supply chain management is the integration of key business process

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from end user through original suppliers that provides products, services
and information that add value for customers and other stakeholders.
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From a structural stand point, supply chain refers to complex network of

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relationship that organizations maintained with trading partners to

source, manufacture and deliver products.

2. Activities in Supply Chain Management

(i) Material Flows: This involves physical product flows from

2000 Mathematics Subject Classification: 90B50, 90C31, 91A35, 91B06.

Key words and phrases: financial, enterprises, benchmarking, supply chain.

Received January 15, 2004

 2004 Pushpa Publishing House
228 ABRAHAM PAUL and N. CH. S. N. IYENGAR

suppliers to customers through the chain as well as the reverse flows via
product returns, servicing recycling and disposal.

(ii) Information Flows: Involve demand forecasts, order

transmissions and delivery status reports.

(iii) Financial Flows: Involve credit card information, credit terms,

payment schedules and consignment and title ownership arrangements.

(iv) Supplier Management: The goal is to reduce number of

suppliers and get them to become partners in business relationship. The
benefits are reduced purchase order processing costs, increased number
of purchase orders processed by fewer employees and reduced order
processing cycle times.

(v) Inventory Management: The goal is to shorten the order-ship

bill cycle. The inventory management solution enables the reduction of
inventory levels, improves inventory turns and eliminated out-of-stock
occurrences.

(vi) Distribution Management: The goal is to move documents

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related to shipping (purchase order, advance ship notices etc.). Paper
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work that typically took days to cycle in the past can now be sent in
moments and contain more accurate data, thus allowing improved
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resource planning.
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(vii) Channel Management: The goal is to quickly disseminate

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information about changing operational conditions to trading partners.

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Electronically linking production with their international distributor and

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reseller networks eliminate labor in process.

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(viii) Payment Management: The goal is to link the company and the
suppliers and distributors so that payment can be sent and received
electronically.

(ix) Financial Management: Companies must work with financial

institutions to boost their ability to deal on a global basis.

(x) Sales Force Productivity: To improve the communication and

flow of information among the sales, customer and production functions.
Linking the sales force with regional and corporate offices establishes
 MEASURING THE SUPPLY CHAIN PERFORMANCE 229

greater access to market intelligence and competitor information that can

be better customer service and service quality.

In e-commerce, supply chain has the following characteristics:

(i) An ability to source raw material or finished goods from

anywhere in the world.

(ii) A centralized, global business and management strategy with

local execution.

(iii) On-line, real time distributed information processing to the

desktop, providing total supply chain information visibility.

There are two types of SCM:

(i) Push based SCM

(ii) Pull based SCM

Push based SCM is also known as modern approach to SCM. In this

approach, materials and products are flowing from supplier to consumer
via production and distributor unit.
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Pull based SCM is also known as modern approach to SCM. It is also
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known as demand supply network. In this approach the actual
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consumption pulls distribution, which in turn pulls production, in turn

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pulling material supply.

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Global experience with various companies shows Pull-based SCM is

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better than Push-based SCM.

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3. Reducing Time, Cost and Work-in-Progress

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The basic idea of JIT is simple – drastically reduce work-in-progress

inventories throughout the production system. The products flow from
suppliers to production to customers with little or no delays or
interruptions beyond the amount of time they spend being produced at
work centers in manufacturing. The overall objective of JIT
manufacturing is to reduce manufacturing lead times and this is
achieved by drastic reduction in work in progress.

In the efforts to improve profitability or to sustain the businesses,

230 ABRAHAM PAUL and N. CH. S. N. IYENGAR

most companies face a dichotomy in satisfying each customer’s needs and

keeping costs under control. Supply chain is mainly seen as a means to
contain costs – the lower the cost, the better the supply chain looks.
However cutting “fat” too deeply can lead to cutting muscle – similarly
profitability, market positioning, competitive advantage can be whittled
away if SCM only focuses on cutting costs.

The costs also include sourcing and distribution, including manpower

costs which do not get covered elsewhere. So thinking that cost is a
straightforward measure is, in itself an incorrect assumption. Once we
view supply chain management this way, as emanating from customers
needs and being integrated into every other function of the business, one
realizes that there needs to be another way to measure its success as well
as taking the key decisions related to supply: Location, production,
inventory and transportation.

4. The SCOR Model

Level 1, the top of the process-type level defines the various process
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types and performance targets at the enterprise or entity level. At this
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position an organization defines its competitive position and operations
strategy. This includes its competitive performance requirements,
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performance metrics, its supply chain scorecard and GAP analysis and a
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project plan.
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This level highlights five distinct management processes: Plan,

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Source, Make, Deliver, Return.

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(1) Plan: This process includes the assessment of supply resources,

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aggregate and prioritize demand, plan inventory, distribution

requirements, production material and rough-cut capacity of all products
and all channels, make-or-buy decisions as well as product cycles.

(2) Source: This includes supplier evaluation, certification and

feedback, quality monitoring, negotiation and vendor contracts as well as
processes dealing with the receiving of material.

(3) Make: This concerns production, execution and managing “make”

infrastructure, including manufacturing, testing, packaging, holding and
releasing of product are undertaken.
 MEASURING THE SUPPLY CHAIN PERFORMANCE 231

(4) Deliver: This comprises order management (interaction from

raising quotations), warehouse management and transportation
management. This also includes creating and maintaining customer
databases, product and price database and credit management during
the customer interaction as well as channel management rules, order
management rules and managing delivery inventories and managing
delivery quality.

Level 2, the configuration level, defines process categories that are

possible components of a supply chain. Organizations can configure their
ideal or actual operations using these processes. Each product may have
its own supply chain that might need to be configured.

Level 2 allows a degree of “what-if” analysis and therefore an

evaluation of the impact of potential improvements.

Level 3, the process element level, provides information required for

successfully planning and setting goals for supply chain improvements. It
defines the process elements and includes inputs and outputs,

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performance metrics, best practices where applicable and system
capabilities needed to support best practices. This level specifically gets
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into information and workflow analysis and helps to align performance
levels practices and systems.
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ph

Level 4 onwards, the implementation levels are company specific and

includes the organization structure and people needs, the process and the
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technology. It focuses on implementation, i.e., putting the specific supply

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chain improvements into action.

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5. Process, Not Functional References

The SCOR model is a process reference model rather than a

functional reference model. Thus it opens to analysis those processes that
involve cross-functional activity – for instance the plan process would
involve sales and marketing, manufacturing, finance and logistics among
others. It can draw attention to the gaps in the process rather than
pointing to specific departmental functioning. This can help the company
in communicating clearly, without ambiguity and help in measuring,
managing and refining particular process elements.
 232 ABRAHAM PAUL and N. CH. S. N. IYENGAR

6. Drawbacks of the SCOR Model

Some areas that are excluded by the SCOR model are sales and
marketing, research and technology development, product development
and elements of post-delivery customer support. All these have some
impact and influence on supply chains and may be brought into the fold
as the modelling evolves further.

7. Conclusion

Product development is an integral part of the supply chain. It is

linked to the customer needs, existing or potential and if the supply chain
is to be measured, the impact of the product development has to be
accounted for. The measurement and improvement of supply chains is no
easy task – but selecting a tool such as SCOR and diligent application,
can bring benefits and early results.

References

[1] om
David L. Anderson and Hau Lee, Synchronized Supply Chains: The New Frontier,
ASCET Volume 1, 1999.
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[2] Siverts Barbara, Cisco’s Enterprise Delivers Competitive Advantage
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(http://siverts.ascet.com).
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[3] Martin Christopher, Creating Agile Supply Chain (http://christopher.ascet.com).

[4] Messmer Ellen, Supply chain software meets web-based e-commerce, Network World
.p

17(8) (2000).
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[5] Bal Jay, Richard Wilding and John Guindry, Virtual teaming in the agile supply
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chain, Int. J. Logist. Manag. 10(2) (2000), 70-82.

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[6] R. Kalakota and M. Robinson, e-Business 2.0: Roadmap for Success, Addison Wesley,
2001.

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