Performance Measurement in the Supply Chain

Most of the performance measures called “supply chain metrics” are nothing more than logistics measures that have an internal focus and do not capture how the firm drives value or profitability in the supply chain. These measures may actually prove to be dysfunctional by attempting to optimize the performance of individual functions at the expense the firm’s overall performance and the performance of the other firms in the supply chain, an approach that eventually decreases the value and competitiveness of the supply chain.

A well-crafted system of supply chain metrics can increase the chances for success by aligning processes across multiple firms, targeting the most profitable market segments, and obtaining a competitive advantage through differentiated services and lower costs. Inappropriate metrics, on the other hand, will result in failure to meet end customer expectations, sub-optimization of departmental or company performance, missed opportunities to outperform the competition, and conflict within the supply chain.

We provide a framework for developing supply chain metrics that translates performance into shareholder value. The framework focuses on managing the interfacing customer relationship management and supplier relationship management processes at each link in the supply chain. The translation of process improvements into supplier and customer profitability provides a method for developing metrics that identify opportunities for improved profitability and aligning objectives across the firms in the supply chain. By understanding the profitability at each link, management, over time, can make decisions that maximize performance for the supply chain.