3.1 Research method
3.1.6 Performance measurement framework
Measuring supply chain performance is critical for supply chain executives to
monitor, understand and improve their supply chains. Supply chain performance
can be measured in various ways depending on the measurement purposes. The
author reviewed and analysed thirteen papers in order to understand what
frameworks have been adopted recently, their measurement perspectives and
measures. The author’s goal was to develop a robust performance measurement
framework for this research. Table 3.3 classifies the performance measurement
frameworks and their performance measures from the reviewed papers. The
Supply Chain Operations Reference (SCOR) model developed by the Supply
Chain Council was the most referenced framework in the papers since 2004.
Performance measures such as bullwhip effect, inventory level, service level,
inventory cost, total cost, delivery, sales, fill rate, flexibility and reliability were
Chapter 3 Research Methodology
Xin Wang Page 58 Table 3.3: Performance frameworks and their measures in literature
No. Paper Performance Measurement
Methods
Performance Measures
1 Cachon and
Fisher (2000)
Compare performance of inventory by Modelling/Simulation
Inventory cost,
Penalty cost
2 Chen et al.
(2000)
Measure inventory performance by Modelling/Simulation
Inventory, Bullwhip Effect
3 Li et al. (2001) Measure performance of inventory
and order fill rate by
Modelling/Simulation
Inventory, fill rate
4 Yu et al. (2001) Measure the bullwhip effect by Modelling and case study
Bullwhip Effect
(inventory level and cost)
5 Gunasekaran et
al. (2004)
Self-develop framework (SCOR)
focused on the performance metrics of Plan, Source, Make/assembling, Delivery Customer service, cost, delivery 6 LockamyIII and McCormack (2004)
SCOR framework Version 4.0
(Plan, Source, Make, Delivery)
Questionnaires on
Plan, source, make, delivery
7 Gunasekaran et
al. (2005)
A self-develop framework for
measuring performance in new enterprises
Performance Based
Costing (PBC) 8 Yao and Liu
(2006)
Integrated framework of EVA, BSC and ABC
Suggest to use various KPIs
9 Ho (2007) Use simulation to measure ERP
based supply chain performance
Total cost 10 Cai et al. (2009) A framework focused on the
performance metrics of Plan,
Source, Flexibility, Innovativeness
and Information (Partly SCOR)
KPIs on Total Cost,
Sales, Fill rate,
Supply chain
responsiveness, Information accuracy
11 Hwang et al.
(2008)
SCOR model version 7.0 Reliability,
Responsiveness,
Flexibility, Cost,
Asset
12 McCormack et
al. (2008)
SCOR Model Fill rate, delivery
13 Thakkar et al.
(2009)
A comprehensive framework which integrated balanced scorecard and SCOR
Cost, time, capacity, productivity,
effectiveness,
reliability, and
flexibility
The framework in this research was developed based on the SCOR model (Table
2.3). The performance measurement criteria from the SCOR model were divided
Chapter 3 Research Methodology
Xin Wang Page 59 (internal-facing) measures to evaluate the agility and leanness of supply chains
separately (Table 3.4) (Lai et al., 2002). Supply chain Reliability, Responsiveness and Flexibility are the three criteria used to measure the agility
of a supply chain:
Reliability aims to measure the performance for delivering the right
product to the right customer at the right time with the right quality; Responsiveness focuses on measuring the speed of providing the product
to customers ;
Flexibility measures the ability to handle changes such as demand
variation and supply chain disruption.
Costs and Assets measured the operational costs and finance to identify the
leanness of the supply chain (Camerinelli, 2005).
Table 3.4: SCOR Model (Source: Adapted from Camerinelli, 2005)
Performance Measurement Perspectives
Key Performance Measures (KPIs)
Efficiency-related (Internal-
facing/Leanness)
Costs Supply chain costs (inventory,
operational, transportation, etc)
Assets Measures of fixed and working capital;
Cash to cash cycle time Effectiveness-related
(Customer- facing/Agility)
Reliability Perfect order fulfilment; order
fulfilment performance; service level
Responsiveness Order fulfilment cycle time
Chapter 3 Research Methodology
Xin Wang Page 60 The author also investigated the performance measures affected by visibility as
Key Performance Indicators (KPIs) to monitor supply chain performance. The
major KPIs of the framework were the bullwhip effect (Chen et al., 2000; Yu et al., 2001), the service level (Bourland et al., 1996; Zhao et al., 2002; Gunasekaran et al., 2004; McCormack et al., 2008), the inventory level (Cachon and Fisher, 2000; Chen et al., 2000; Li et al., 2001; Yu et al., 2001), the order fill rate (Li et al., 2001; McCormack et al., 2008; Cai et al., 2009), the backorder penalty cost (Cachon and Fisher, 2000), the inventory costs (Chen et al., 2000; Li
et al., 2001; Lee, 2004), and the total costs (Zhao et al., 2002; Gunasekaran et al., 2004; Cai et al., 2009).
The performance measurement framework adopted in this research is illustrated
in Table 3.5. Apart from the discussed KPIs, other KPIs related to flexibility and
the bullwhip effects were chosen to measure to what extent the information
visibility impacted on supply chain performance. Furthermore, a quantitative
trust measurement was designed to measure the trust building among the supply
chain partners with the increased visibility levels. The equations for the
Chapter 3 Research Methodology
Xin Wang Page 61 Table 3.5: The performance measurement framework
Performance Measurement Perspectives
Performance
Measures (KPIs) Formula
Resource (Leanness)
Costs
Cost of Inventory (Raw Material & Finished Goods)
RM Cost + FG Cost
Operation Cost Manufacturing Cost + Delivery Cost + Fix Cost
Penalty Cost Backorders
Total Cost Cost of Inventory +
Operation Cost+ Penalty Cost
Asset
Management
Inventory Turnover Cost of Goods
Sold/Average Inventory Overproduction Finished Goods Before
Delivery – Real Demand Profitability Sale – Total Costs
Service Level (Agility)
Supply Chain Reliability
Sale Sum of items delivered
Order Fill Rate Sum of items delivered / Real Demand
Flexibility
Backorders Total backorders of the supply chain
Supply Chain
Disruption
Total number of supply chain disruption
Bullwhip
Effect The bullwhip effect
Amplification Ratio Variance of Finished Goods’ Inventory / Variance of demand Forecast Accuracy The Error of Real Demand
and Forecast / Real Demand
Chapter 3 Research Methodology
Xin Wang Page 62