Introduction
Supply chain efficiency measurement plays an imperative role in enabling organizations take corrective efforts in case of persistent issues in the supply chain. The measurement techniques look for ways through which suppliers, stores personnel, manufactures and marketers could come together to improve ways through which quality products are produced and supplied to the right customers, at the right time and the preferred locations. The supply chain framework includes significant processes such as how to plan, source for the raw materials, produce and then deliver to the targeted customers. This implies that it is only through effective management of the supply chain that an organization is assured of the ability to have competitive advantage from effective and efficient supply chain network. However, while focusing on the functional units to improve departmental performance, there is need for organizations to consider the entire supply chain including employees involved in the process, the marketers and outside stakeholders such as the suppliers and distributors. With SMART objectives, it is then possible to implement an integrated approach to managing supply chain while relying on measurement techniques such as the Balanced Scorecard, Logistics Scoreboard, Economic Value Added approach and the Activity Based Costing. This essay discusses the measurement methods stated and their implications in improving the supply chain efficiencies.
Improving supply chain efficiencies is important for every firm that wants to reduce costs of delivering products while ensuring that the products and services are delivered in a timely manner. There is need for organizations to rely on supply chain measurements tools that determine where improvements need to be done with the right efficiency since with the tools, it is possible to identify gaps and using appropriate interventions to close the gaps.
Supply chain managers have to be aware of the significance of performance measurement metrics since estimates provide better insight into the true effectiveness of the supply chain. This is because measuring leads to getting things done and improves management since, to a larger extent, it is impossible to manage what cannot be measured. Companies continue to experience difficulties in re-engineering their supply chain operations through improvement in the business process and reliance on technology aimed at implementing effective supply chain systems. Performance measurements of supply chain provide the means by which the firm could assess whether the supply chain efficiency has improved or if the desired changes have not been met. Measurements in this case controls the actions of those involved in the supply chain and is able to provide a basis for tracking performance such that in case of any deviations from the desired goals, the responsible personnel are trained on how to take corrective actions. However, there is need to be extremely careful with the choice of supply chain measurements tools since a wrong choice could lead to more damage of the supply chain.
Techniques for measuring supply chain efficiencies
There are various tools that can be used to measure supply chain performance including the Balanced Scorecard, Logistics Scoreboard, Economic Value Added and Activity Based Costing.
The balanced scorecard
The balanced score cards are useful since they enable the organizations to assess almost every functional aspects of the business. This is because balanced scorecards provide measures in the financial, consumer, internal process as well as the learning and growth functions.
Financial aspects include the profitability, liquidity, return on investments and the way through which the firm is minimising costs. Such financial measures are important since they determine the ability of the firm to meet its operating expense while managing to operate within a desirable profit margin. Organizations are able to assess the returns on investment such that in the event where the firm makes losses persistently, then the supply chain managers need to analyse areas that could be performing badly ad hence look for ways to improve the supply chain efficiencies. Balanced scorecards also measure the suitability of the firm in terms of its response to customers’ needs and expectations. Measures such as customers’ loyalty, satisfaction, the market share for the firm and ability to satisfy business partners are major considerations every organizations need to look into.
Major focus for the firms should be on building long term relationships with customers and business partners to ensure the business is sustainable for a considerable period. The most appropriate ways to fulfil the needs and expectations of customers is by measuring the current efforts and assessing hem against the actions pans the management considers as appropriate to achieve their supply chain gaols and objectives. Through supply chain efficiencies, it is possible to increase market share and look out for segments which the firm could penetrate easily. However, expansion plans cannot be achieved if the firm has not established a true reflection of the situation on the ground through market surveys and coming up with a scorecard to analyse the trends and its supply chain efficiencies. Internal process management is a key aspect in the balanced scorecard since it is important for organizations to look into the ways in which they could improve supply chain by introducing new products and processes as well as reducing wastes along the chain.
Wastage is among the contributing factors to increased costs of operating that in turn reduce the net margins of the firms. A reduction in profits is among the reason for conflicts with shareholders as organization fail to maximise their shareholders value. This implies that there is need for firms to look into the internal practices and determine ways through which they could improve the situation in case there are signs of limitations in the practices. Measuring internal process is also important as it allows for the supply chain managers to determine the effectiveness of the products offered in the market and ways through which the product features could be improved to meet the needs and expectations of consumers. Lastly, the balanced score card is used in measuring the learning and growth prospects of the firm which are key to improving the supply chain efficiencies. Learning and growth include ways through which employees are motivated to be committed to improving delivery of products and services to customers, ways through which innovation is managed, training of employees and measuring risk involved in the supply chain function. It is important for every organization to look into ways through which it could create desirable changes in the supply chain by providing ways to motivate employees and influence them to be innovative and creative while performing their functions. It is also important to identify the potential risks facing the firm and hence design ways through which the organization could deal with such risks.
Logistics Scoreboard
The Logistics Scoreboard is also key ley tool that could be used to measure performance of the supply chain. Logistics Scoreboard looks at the financial, productivity, quality and the cycle times involved in the chain such that an undesirable outcome needs to be corrected as soon as possible. The financial performance measures are focused on the need to consider the operating expenses and the return realized from the business operations.
In the event where the expenses exceed the returns, then it implies that there are financial performance gaps that need to be filled with appropriate interventions strategies. Logistics Scoreboard is useful in measuring productivity such that it assesses the efficiencies in the shipping process by looking at the time taken to deliver products to customers and the limitations of failing to utilize the container capacity. Timely delivery of goods is among the factors that bring customers closer to the organizations such that it is important for organizations to consider the most effective delivery channels to improve the supply chain efficiencies. Logistics Scoreboard also encourages managers and the workforce to adhere to quality standards by observing quality measures such as the accuracy with which goods are produced and the level of shipment dankness. Shipment damages are among the leading reasons for increased customers complaints and failure by the organizations realise their projected profits levels since they have to incur extra expenses to repair and replace the damaged products. It is also important for business to rely on Logistics Scoreboard since it measures efficiency in the cycle times by allowing supply chain managers to assess the efficiencies in transit time and order entry levels by the firm. Analysing the trends in the transit and ordering cycle is important since it determines the firm’s ability to respond to the needs of customers and ensure that the orders are processed faster and that products reach customers as scheduled. Through timely responds to orders, customers more than willing to stick with the organizations which then leads to customer loyalty and brand equity that in turn increases the firm’s markets share and revenues.
Economic Value Added Model
Economic Value Added model helps supply chain manager improve the overall performance of the supply chain network. The central aim of the Economic Value Added model is to ensure that the shareholders’ value is maximised in the long run such that the trust and confidence of investors in the business is enhanced. The only way to achieve maximization of shareholders value is by ensuring that the firm earns more that the capital used to invest in the venture. One of the main action to increase revenues by reduction in the supply chain inefficiencies that tend to increase operating costs. The objective of using the economic value added model needs to be on achieving profits that are in excess of the capital employed such that the business becomes stable for a longer period regardless of the changes in the industry.
Activity Based Costing Model
It is also strategic for business to rely on the Activity Based Costing which is used to make supply chain operations efficient by breaking the tasks into individual components such that it is easier to monitor the activities in the supply chain. By breaking down the parts, it is possible for the managers to estimate the amount to resources in terms of time and money that would be used in each activity. This then improves productivity since intervening in case of deviations from the plans is easier thereby reducing the hardships that often accompany designing and implementing of new ways to improved supply chin efficiencies.
Limitations of the measurement techniques and ways to improve their applicability
There are limitations with the tools used to measure supply chain efficiency which then means that firms have to look into ways through which they could assess the most appropriate approach to use. There is need for measurements that look at the long term prospects of the firms such that in the end, the business is able to enhance sustained profits levels. The other key limitation is that techniques such as the logistics scoreboard and the balanced scorecard only focus on the functional units such that while managers focus on specific functional areas, others are left unmonitored hence leading to gaps in the supply chain network. There is need for organizations to consider the internal and external factors that could lead to improvement in the supply chain efficiency. Such actions include analysing the functional excellence of the various units in the organizations, incorporating enterprise wide integration such that all the functional units are considered and their performance monitored to identify any incidences that could limits success of the supply chain management.
The other option is for firms to consider utilizing the extended enterprise integration that consider interactions with outside parties such that it is possible to identify whether the inefficiencies in the chain are brought about by actions of external stakeholders. Through functional excellence, it is possible to analyse the efficiencies in each of the functional units and implement actions plans that make all the units active and focused on improving efficiencies. Marketing, production, research and development and the human resource departments have to set their goals and align them to the gaols set by the organizations such that every department is able to work towards committing themselves to the need for efficiencies in operations in the supply chain.
Enterprise wide integration involves cross functional operations such that different departments compare notes on the efficiency and hence improve ability to have uniform efficiencies from all departments. Cross functional aspects prevent situations where while other functional units perform well, others derail their efforts thereby interfering with improving overall efficiencies in the entire firm. Firms also need to consider incorporating the extended enterprise integrations to avoid incidences where external parties hinder efficiencies of the firm. The ways to achieve effective extended enterprise integration is by transacting with business partners who have a good corporate reputation and are keen on adhering to quality products and reduction in wastage of resources along the supply chain. The business and its external stakeholders need to speak a common language which is to ensure that they are able to satisfy the ends and expectations of customers through quality products delivered in real time.
Conclusion
Supply chain efficiency measurements play an important role in enabling organizations take corrective efforts in case of persistent issues in the supply chain. The measurement look for ways through which suppliers, stores personnel, manufactures and markets could come together to improve ways through which quality products are produced and supplied to the right customers, at the right time and the preferred locations. Businesses need to rely on measurement tools that incorporate the functions of external stakeholders so as to have uniform standards of supply chain efficiencies.
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