Operational Performance & Measurement for Supply Chains - Literature review Example

Operational Performance & Measurement for Supply Chains Name Grade course Tutor Institution Date Introduction Supply chain management is vital and it involves operational performance assessment. Operational performance refers to the results accomplished by the daily routines, workings and actions of a supply chain. Operational performance measurement is the process of establishing how efficient and effective, actions or processes undertaken by the supply chain in their operations are. Supply chain operational performance is supposed to asses to what extent it is delivering to its customers and should address the relevant changes needed. Monitoring the performances is as important as measuring it. This is because any deviations could be noted early and corrective measures are undertaken before things get out of hand. Monitoring of the performance allows for controlling and directing of the same. Controlling and directing work hand in hand. This is because controlling involves initiating measures or steps to steer performance in the desired direction. Operational Performance According to Miller (2002, p.52) operational performance can be measured and is best done through systems rather than through specific measures. This system is built on different levels where strategic, operational and tactical levels take hierarchies in the function. This system is influenced by the time horizon and the decisions that are made at different hierarchies of management. Strategic level measures the impact of top level management decisions reflecting financial plans, investigation of polices, competitiveness and the commitment to the company’s goals (Pegels 2005, p.28). Tactical level looks in to resource allocation and it measures results against targets. Performance measuring at this level is vital as it evaluates mid level management decisions. Operational level evaluations and metrics need data that is accurate and it assesses low level managements. It requires that workers and supervisors to establish operational objectives that will facilitate tactical objectives. These measurement systems should be familiar and understandable to all supply chain members and should allow room for manipulation (Wiengarten et al 2010, p.466). According to Chia, Goh & Hum (2009, p.612) any organization needs to establish performance studies and models to facilitate achieving its goals and at the same time evaluate results allowing effectiveness of the techniques and strategies. Zhu, Sarkis & Lai (2008, p.262) note that organizations should try to balance between financial and non-financial performance measures as inequality would not lead to metrics that portray the company’s image. To create a balance approach, financial performances measurement are key to facilitate strategic decisions and external reporting while the daily control of distribution and manufacturing is monitored by the non-financial measures. Performance measurements are done by metrics and they should capture the need for organizational performance (Bidgoli 2010, p.73). Measurement metrics Metrics could be in several contexts that could be discussed under the following; cash to cash conversion times, dwell time, supply chain response time and on-shelf in-stock percentage (Wiengarten et al 2010, p.467). Cash to cash conversation refers to the period required to convert inventory purchased into sales revenue. This falls under the financial performances measuring and is important as it protects the company from investments that would hold up finances for a longer period with minimal returns (Pegels 2005, p.31). Dwell time refers to the ratio of the time an asset stays idle to the time it is required to serve its purpose in the supply chain while supply chain response time is the period or how long it takes the company to respond or act. On-shelf in stock percentage refers to the percentage of goods displayed on the shelves over the ones in stock. Supply chains are emphasizing on this percentage as their bottom-line measure because it has an impact on customer satisfaction. If it’s not gotten right, it may render all previous activities meaningless no matter how well they were done (Bayer 2010, p.101). Customer Accommodation Supply chains supply both custom and generic services and the best metrics are based on customer satisfaction (Flynn, Huo & Zhao 2010, p.63). To achieve the customer satisfaction, accommodation is necessary. Customer accommodation requires the supply chain to make necessary changes so as to deal with a customer needs as they ought or want to. This is important as it ensures better service delivery, customer satisfaction and ensures customer loyalty as their needs are sorted out individually and not as a group (Bayer 2010, p.79). Customer accommodation has to be evaluated so as to know its effectiveness. Proper systems are supposed to be established to deal with the measuring. This could be done through the following dimension; customer satisfaction, absolute performance and perfect order (Chia, Goh & Hum 2009, p.609). Customer satisfaction is important in ensuring the loyalty of the customer. To what extents are you able to solve their need and what value do they get for their money and do you ensure services reliability? This could be established by evaluating how many of the clients or customers prefer your services to that of your competitor (Miller 2002, p.59). Customer satisfaction should be the first priority. Perfect order refers to an order that is complete, on time, it is in a perfect condition, with all necessary documentation and it is at the right location (Flynn, Huo & Zhao 2010, p.65). Getting this right requires that the total order cycle performances to be carried out without defects and goes a long way in establishing customer satisfaction. Absolute performance refers to the ability to correlate the supply chain actions in delivering and operation metrics with that of the client. It is important as it ensures customer satisfaction and delivery within stipulated time frame. When developing customer accommodation it is important to segment customers based on their needs. The supply should adapt to serve those different segments and should choose the relevant customer oriented strategy and programs for customer relationship management (Bhagwat & Sharma 2009, p.681). Benchmarking To fully measure operational performances of a supply chain, benchmarking is necessary. Benchmarking refers to comparing the supply chain with its primary competitors (Bhagwat & Sharma 2009, p.682). Continuous measuring of the supply chain’s products and services with its toughest competitor is vital. This is because it greatly influences strategic planning, financial management and restructuring. It also enables the supply chain stay ahead of their competitors. It also points out the flaws in operational performances creating an opportunity for improving. Benchmarking could be done in several different ways. This includes; internal, competitive, non-restrictive and world class (Zhu, Sarkis & Lai 2008, p.262). Internal benchmarking is done within the organization. This is where different departments offering almost similar services are compared. Competitive benchmarking refers to comparing the firm’s performance with that of the key competitors while non-restrictive is where benchmarking is not bound by parameters such as competitors but supply chain could be compared to any other organization. World class benchmarking refers to comparing an organizations performance with another organization that is not necessarily in the same geographical region. Measurements are important in benchmarking as it comes before comparing. Without proper quantitative data, it is not possible to control the supply chain. Benchmarking is supposed to be an indicator on how better or worse an organization is doing compared to its competitors (Bayer 2010, p.94) Conclusion From the above, it clear that proper and accurate data is relevant for proper measurements. Customers are very important to the existence of the supply chain and their satisfaction should the first priority. The performance measurement is important to any supply chain. This is because it reduces inefficiencies greatly and propels performance further. This inefficiency is caused by firms pursuing their own interest. Also, the performance measurement system defines and measures what is and what is not relevant in achieving company goals. Performance measuring gives the organization a chance to make adjustment where the plans are not effective or efficient. References Bayer, S 2010, ‘Supply Chain Performance Measurement & E-Business Supply Chain Management: Including a Practical Excursus on the Intel Case: Operations Strategy – Supply Chain Management’, GRIN Verlag, New York. Bhagwat, R & Sharma, M 2009, ‘An application of the integrated AHP-PGP model for performance measurement of supply chain management’, Production Planning & Control: The Management of Operations, vol.20, no.8, pp 678-690. Bidgoli, H 2010, ‘The Handbook of Technology Management: Supply Chain Management, Marketing and Advertising, and Global Management’, John Wiley & Sons, New York. Chia, A, Goh, M, & Hum, S, 2009, ‘Performance measurement in supply chain entities: balanced scorecard perspective’, Benchmarking: An International Journal, Vol. 16, no. 5, pp.605 – 620. Flynn, B, Huo, B, & Zhao, X 2010, ‘The impact of supply chain integration on performance: A contingency and configuration approach’ Journal of Operations Management, vol.28, no.1, pp 58-71. Miller, T 2002, ‘Hierarchical Operations and Supply Chain Planning’, Springer, New York. Pegels, C 2005, ‘Proven Solutions For Improving Supply Chain Performance’, IAP, Sydney. Taylor, D & Brunt, D 2005, ‘Manufacturing Operations and Supply Chain Management: The Lean Approach’, Cengage Learning EMEA, New York. Wiengarten, F, Humphreys, P, Cao, G, Fynes, B, & McKittrick, A. 2010, ‘Collaborative supply chain practices and performance: exploring the key role of information quality,, Supply Chain Management: An International Journal, Vol. 15 no. 6, pp.463 – 473. Zhu, Q, Sarkis, J, & Lai, K, 2008, ‘Confirmation of a measurement model for green supply chain management practices implementation’, International Journal of Production Economics, vol.111, no.2, pp 261-273. Read More