Performance Indicators in Sustainable Supply Chain Management - Report Example

Table of Contents Table of Contents 1 1.0.Case Fill On Time (CCFOT) 3 2.0.Logistics Cost 4 3.0.Perfect Order Metric 5 4.0.On Time Delivery/Shipments 8 5.0.Order Fill Rate 10 6.0.Asset Management 13 Performance Indicators in Sustainable Supply Chain Management Supply chains have become fluid and to that regard have continuously been adjusting to changes in supply demand for commodities they deal with. To get the best performance from supply chain management companies should monitor as well as control its management and operations continuously. According to Seuring & Müller (2008) the monitoring and controlling sustainable supply chain entails measurement and analysis of key performance indicators (KPIs). Rao & Holt (2005) note that most organizations have been ignoring the significance of analyzing their KPIs, and in most cases they fail measuring and reporting these indicators. Based on this finding, it becomes challenging for such firms to identify performance indicators in sustainable supply chain management. This does not help managers in addressing root cause and understand the best strategy to apply in the chain supply management. According to Seuring et al. (2008), assessment of performance indicators in sustainable supply chain needs conceptualization of sustainable supply chain management. They define supply chain as all agents involved in ensuring that customer order is accomplished. From this definition it is significant to stress that there is more than one decision maker before the order reaches the customer. On the other hand, Darnall et al. (2008) define supply chain management as the process of coordinating and controlling the supply chain resources, operations, information and funds before the order reaches the customer. Based on these definitions, performance indicators of sustainable supply chain management will be variables that ensure the customer’s order was availed effectively and efficiently. Based on these arguments, this paper critically reviews relevant literatures on sustainable supply chain management with an aim of developing performance indicators on supply chain sustainability concepts, methods, and frameworks. 1.0. Case Fill On Time (CCFOT) Supply chain has been created to support the market and clients it serves. The identification of performance indicators that sustainable supply management should be embedded on should be based on the process Turker & Altuntas (2014) has identified. One of the KPIs they have identified in the sustainable supply chain management is Customer Case Fill On Time (CCFOT). Before detailing how CCFOT acts as KPI in sustainable supply chain management, Turker & Altuntas (2014) look at supply chain management as a set of logistically linked activities or tasks that should be performed to attain a defined business outcome. Linking this definition with CCFOT, Turker & Altuntas (2014) argue that it is a performance indicator because it has been used to monitor and assess the reliability of delivery performance or products to clients or customers. Taking a case study on companies such as Optus in with its operations in Australia, Zhu et al. (2015) further argued that CCFOT managed to capture total number of materials ordered and how effective they were delivered to customers. On the other hand, in 2006 a case study on how Nokia used CCFOT to track performance of their sustainable supply chain management showed that the tool (CCFOT) could suggest the total number of materials ordered which included all cases which the client ordered, irrespective of their availability or the integrity of the order made. Mathematically, Zhu et al. (2015) show that total number of orders shipped to customers should be the cases which are shipped from the warehouse. Total number of orders delivered on time is pegged on the requirements of the customer. However, if a given delivery date remains contentious or is not agreed with the customer, standard delivery lead must be put in use. If there is late pick-up of the order by customer then CCFOT will be affected. Putting CCFOT practically, CCFOT = (Total # of orders shipped ÷ Total # of orders) x (Total # of orders delivered on time ÷ Total # of orders shipped) The performance indicator above is able to report to the organization the value-added activities in the process of supply chain management. However, this indicator has been faulted by contemporary scholars such as Rizzoli et al. (2015) who argue that its parameters do not include factors such as cases customer is not willing to pay for resulting output. In their analysis of the indicator, they give a case of school tuition billing by saying that there comes a time where students are unwilling to pay tuition fees and the institution is not willing to spend the overhead needed to collect the fees in as much as the institution would not sustain itself without the money. Based on this example, practicability of CCFOT has further been doubted by Turker & Altuntas (2014) as a performance indicator for sustainable supply chain management. 2.0. Logistics Cost Logistics cost has been argued as one the critical performance indicators for sustainable supply chain management (Christopher 2012; Christopher & Lee 2004). For instance, Christopher (2012) argues that logistics cost help firms ascertain efficiency of the logistics and supply chain management operations from the time a product is manufactured to the time it reaches customers. While researching on Toyota’s logistical challenges, Christopher (2012) adds that logistical costs is a significant performance indicator as it helps is assessing supply chain agility and efficiency when it comes to sustainable supply chain management practices. Taking a case study of Telstra, Foster et al. (2015) also argued that Optus exaggerated its network coverage area in a TV advertisement---a move that aimed at providing unfavourable condition for operation for Telstra. However, Telstra used logistics cost as its supply chain management performance indicator in the assessment of how broadband, fixed telephony, pay TV services and ICT services reaches their customer. This approach according to Foster et al. (2015) made the Company benefit from the economies of scales creating strong relationships with customers and suppliers, which has been placing it in a strong bargaining position with its upstream partners and allowing leveraging the costs. Brand reputation, at the same time, has continued to serve as a competitive edge in an increasingly competitive market. What Foster et al. (2015) fail to recognise in their conceptualisation of logistics costs as performance indicator is that they only occur internally within an organisation, outsourced to logistics service providers and have always occurred through inventory carrying costs. Therefore assessment of logistics costs as performance indicator should consider the fact that the sum of these three attributes (they occur internally, they are outsourced and occur through inventory carrying costs) should be the one to enable organisations evaluate their chain supply management and benchmark themselves against other firms. Martin (2007) added that it is through the mix of the three that firms will be able to evaluate their logistical costs and compare it with supply chain management cost structure while enabling them to strategise their business model. 3.0. Perfect Order Metric Some sectors that manufacture products that are urgently needed by customers have suggested different performance indicators for their sustainable supply chain management. Perfect order metric as Melnyk et al. (2014) put it tops the list of some companies. It is a higher level performance indicator or measure formed by a combination of different performance markers. Mitra (2014) adds that perfect order metric is a unique and dynamic KPI that has made it possible to establish if various factors in supply chain management have been factored successfully, including cases where shipments have been delivered to the right customer or place and at the intended time, in the right condition and with the correct invoice. Research conducted by Myerson (2012) on Coca-Cola Company showed that the firm has designed a comprehensive perfect order metric that it uses to determine different factors regarding their sustainable supply chain management. According to the Company what goes into their calculation is dependent on what is delivered to their customers. The figure below has been adopted to show how Coca-Cola Company calculate their perfect order metric. Figure 1: Perfect Order Metric Coca-Cola Source: Myerson (2012) From the figure above the formula can be interpreted by multiplying the rate of every individual area by each other. The result percentage is the correct order metric. In as much as each individual area is performing fairly well, the ability of having a perfect order in this case stands at about 81.4%. This means that there is risk of issue in 18.6 percent of its orders. This indicator has widely been supported by scholars such as Wisner et al. (2015) arguing that it has the ability of measuring the perfect order deliveries. Based on the margin of error it can offer, Schaltegger & Burritt (2014) found that as a performance indicator the tool offers a holistic perspective on the process of delivering goods. Comparing this tool with previously discussed, perfect order metric will always ensure that customer has perfect order, and wrong performance in one aspect of ordering or transaction is always overshadowed with otherwise seamless customer service. Conclusively, the tool is compelling in the sense that it ensures that sustainable chain supply management ensures customer satisfaction taking into consideration of several factors that are involved in supply chain. While its applicability has been critical, researches have on the other hand, showed that perfect order metric may not stand alone. While researching on the supply chain management of Optus Australia, Hassini et al. (2012) note that perfect order metric when used dropped from one week to the next, it made it difficult for the company to understand if the drop in the number went down in the invoicing, complete delivery or the timeliness. This means that this tool needs other KPIs for proper assessment of the supply chain tracking and management. For that matter, Hassini et al. (2012) suggest performance indicators such as CCFOT by adding that they can be used alongside perfect order metric to make up this metric. On the other hand, Bai et al (2012) has found that contemporary manufacturing and supply chain process have become complex and dynamic that perfect order metric may not be able to provide true picture of performance in the supply chain. They argue further that the tool cannot guide companies to look at both their lagging indicators such as statistics that have been based on past outcomes and lea ding performance indicators such as proactive markers that can anticipate future outcomes. This review agrees with Martin (2007) in the sense that modern companies face competition therefore there is need to utilize business intelligence for assessment of both data to track performance and feedback from customers regarding the supplies made. 4.0. On Time Delivery/Shipments Performance indicators that are used for supply chain management should be designed to create an understanding of the process of the sustainable supply chain’s procedures, guides the process of collaboration efforts and in general, these indicators should optimizes supply chain excellence (Foster et al. 2015). As indicated by Turker & Altuntas (2014), ‘No measure of performance, no improvement in supply chain’ (p. 218). What matters here is not to measure but suggest a tool that can effectively measure the right supply chain process. This is prompted by On Time Delivery/Shipment as another critical performance indicator for sustainable supply chain management. According to Turker & Altuntas (2014) this tool ensures that companies monitor, asses and control their operations on a daily basis to get the actual performance that conform to their objectives of ‘sustainable.’ According to Varsei et al. (2014), there are a number of measures that have been discussed in the literatures regarding the importance of On Time Delivery/Shipment as a critical tool for measuring performance of supply chain management. Studies such as Green Jr et al. (2012) have even suggested the minimum number of variables this tool should measures for it to qualify as an important tool for supply chain management. The point is On Time Delivery/Shipment should not be static in the constantly changing and varying contexts of supply chain. Looking at studies such as Christopher (2012); Foster et al. (2015) it can be recognized that little attempts have been made to determine the minimum number of indicators that can qualify a tool to be effective performance indicator. This argument relates to what Darnall et al. (2008) found about On Time Delivery/Shipment. In their argument they believe that On Time Delivery/Shipment is not an effective tool because it depends on the use of cost as primary indicator. Supply chain based companies such as Walmart, Dell, Toyota, Lenovo, and Samsung have used this tool as their performance indicator (Foster et al. 2015). This tool according to The Annual Monitoring Report enabled these companies track and monitor performance of their supply china from time of manufacturing to the time the manufactured good reaches the targeted customer (Foster et al. 2015). According to Ahi & Searcy (2015), a sustainable supply chain management can be poorly designed unless there is comprehensive performance indicator established to support the company’s practices. This is how Ahi & Searcy (2015) link On Time Delivery/Shipment. The tool when well integrated with a company’s supply chain can determine effectiveness of the supply chain. Ahi & Searcy (2015) has further argued that On Time Delivery/Shipment is able to define cross organizational boundaries, analyse process of supply chain so that companies can be sustainable in competitive advantage. Performance measurement should be concerned with the process of qualifying and quantifying the efficiency as well as effectiveness of an action by means of metrics. According to Wu et al. (2015), On Time Delivery/Shipment offers these metrics buy also ensuring that supply chain performance measurement becomes dynamic and multi-dimensional. Depending on the specific model of organizations, either on time shipment or on time delivery may be more effective than the other. However, the rationale for measuring their effectiveness is the same. Based on Wu et al. (2015) view regarding ‘On Time Delivery/Shipment’ and its ineffectiveness in sustainable supply chain management, an on time shipment can be understood as a shipment that is off the dock and in transit on schedule. On the other hand, on time delivery insinuates the situation where goods reach customers on the schedule. This is basically what Ahi & Searcy (2015) research miss thus giving different view on the issue. Mathematically, this should be represented as; Total number of orders delivered or shipped on time/Total number of orders shipped The need for this tool as a performance indicator is perhaps the most obvious for companies. Where there are competitions, customers are looking for on time shipments and deliveries then it fits best. For this reason, it is for the best interest of companies to ensure that on time delivery is as high as possible and this can only be possible by integrating On Time Delivery/Shipment as performance indicator tool. In addition, in the business to business (B2B) world, there has been push for quick and on time delivery as this can have huge impact on the business waiting for the finalized product (Linton et al. 2007). For business to customer (B2C) the impact is even more fragmented, Ahi & Searcy (2015) argue that sometime customers may return late orders and others give companies bad ratings and reviews. Taking a case of Samsung, Ahi & Searcy (2015) add that there came a situation where customers wanted a refund as a result of delayed upgrade on their iPhones thus influencing cash flow. It is for this reason that ‘On Time Delivery/Shipment’ can tell a company where there is a problem in sustainable chain supply management thus eliminating the ability to be proactive on delays. 5.0. Order Fill Rate Many researchers have devised new performance indicators and metrics that consider the constant changes in markets as well as enterprise environment. Mitra (2014) has defined performance indicators in terms of new changes and technological improvements in the supply chain and has such proposed a different performance indicator. He defines performance indicator in terms of five categories such as value-based competition, intellectual capital, plan, network performance, deliver and return (Harms 2013). From this definition, it can be assumed that major performance attributes of supply chain management is to outperform their competitors and be superior when it comes to flexibility and responsiveness, delivery performance, asset management and logistics cost (Chkanikova 2012). These analyses prompted his research to propose Order Fill Rate as another performance indicator for sustainable supply chain management. According to Mitra (2014), Order Fill Rate helps as performance indicator as it assess company’s financial performance and competitiveness, which focuses on the determinants of what is manufactured and what is delivered to customers. Mitra (2014) took a case study on Blackmores as a manufacturing company in Australia. Integrating Order Fill Rate within Blackmores’ supply chain and logistics and the process management system, it has to be noted that the Company has a role of developing, manufacturing, and distributing branded vitamin products and their supplements within the country (Australia) and Southeast Asia. Based on its chain supply operations between 2011 and 2012 financial year, it was reported that there was improvement when it came to supply chain activities. According to the report, Order Fill Rate as KPI was used in the supply of products to Southeast Asia. Specifically, Mitra (2014) adds that through its supply to Eu Yan Sang’s retail outlets in Singapore and Malaysia supply management made an improvement on its sustainable supply chain management and efficiency by applying Six Sigma tools such as Pareto charts, Cause and Effect, Value stream mapping and 5S programme. From this, the Company managed to identify and address the main cause of problems in the process of supply chain to Eu Yan Sang’s retail outlets. This on the other hand, eliminated wastes that were earlier noticed, promoted the operational system and increased the profit margin. For Blackmores, Order Fill Rate and sustainable supply chain management system means management and planning of activities that entail procurement, sourcing, logistics and conversation management (Mitra 2014; El Sayed 2013). This definition suited its recent entry into Korean market by partnering with CJ O Shopping Co. Ltd. (this company is based in Korea and it is the major home shopping network) so as to have an opportunity of supplying its products directly to consumers in Korea. Through the partnership Blackmores was able to continuously understand the needs of their customers, business processes and application of data collected to enhance their activities---this is what Foster et al. (2015) has also termed as Six Sigma fact-based, data-driven strategy of quality improvement. According to Mitra (2014), when firms partner with others it becomes the best way to handle a shared sustainable supply chain management. From the definition of Mitra (2014) about Order Fill Rate, sustainable supply chain management entails the process of integration and strategies that enhance effective communication during the process of supply chain. Based on this understanding, Wisner et al. (2015) see Order Fill Rate as an indicator that has ‘Four Absolutes of Quality’ that are; The definition of quality is conformance to requirements The system of quality is prevention. Performance standard is zero defects. The measure of quality is the price of nonconformance Order Fill Rate and Wisner et al. (2015)’s four absolutes of quality are other areas where companies such as Dell has succeeded in their implementation of sustainable supply chain management, logistics and the process management systems. Dell Chairman, Michael Saul Dell argued that the Company, between 2012 and 2014 had been increasing its on time shipment sine the adoption of Order Fill Rate and by mid-2014 the operational figure rose from 79% to 93% thus improving confidence of their customers (Wisner et al. 2015; Ambe, 2013). On the other hand, there have been reductions on product development cost as a result of strategies that were put to increase the Company’s inventory turnover from 8 to 12 (Wisner et al., 2015). 6.0. Asset Management Performance indicators of sustainable supply chain management should be assessed in terms of quality conformance, flexibility and cost on the assets. According to Rizzoli et al. (2015) managing product quality in terms of supply chain should be assessed on how assets have been managed. Supply chain asset management means the effectiveness of a company in the management of assets to support demand satisfaction of the completed products (Schaltegger & Burritt 2014). This encompasses the management of all assets. There are three indicators that can be used to measure sustainable chain asset management efficiency. The first according to Schaltegger & Burritt (2014) in the cash-to-cash cycle time. The second aspect is the asset turns and the third being inventory days of supply. Good management of assets in a firm brings what Christopher (2012) terms as product variety. According to Zhu et al. (2015) product variety, supply chain management and asset management are related. Product variety on the on hand measure the number of product families that can be process in a company (Schaltegger & Burritt 2014; Cao and Zhang, 2011). Flow time and processing costs will in turn reflect in company’s supply chain effectiveness since it will increase product variety. This is what Hassini et al. (2012) has also argued about by has done this by incorporating ‘law of variety’ (law of variety argues that satisfied customers changing brand since there is variety attractiveness). The argument by Hassini et al. (2012) best fits automotive industries such as Bayerische Motoren Werke AG, commonly known as BMW AG or BMW, where they have been seen to extending their product range to retain their customers but at the same time the number of variants per car model continues to grow. This strategy has improved their chain supply management. Secondly, asset management has been looked at in terms of inventory days of supply measure. According to Mitra (2014), this is the number of days the cash is tied up in a given inventory. The calculation of asset returns are based on revenue which is divided by the total assets, this however, include both the working capital as well as fixed assets. Relating the argument with asset management as performance indicator, it will be difficult for companies to put in place all measures or indicators for the sake of optimization of its performance. In order to benefit from asset management, BMW AG as a company developed their personal action plan on what assets are assigned for production, assessment, shipment and deliveries. The chairman of the Company noted that asset management as performance indicator helps supply chain management in their assessment of the implementation of proposed plan. The road map exercise according the chairman is made up of long-term perspective into a given action items linked to specific demands of clients, return on investments and project time frame. Based on the researches that have been evaluated so far, there can be a conclusion that sustainable supply chain management is there to support the market it intends to operate in and support. Additionally, firms tend to be divided on specific performance indicators that can suit all firms. Instead, firms tend to device their indicators based on the specific demands of their customers or the market of operations. This study therefore aimed at suggesting performance indicators that can suit firms seeking to improve their supply chain management so as to remain competitive in the market. It has been realized from studies such as Hassini et al. (2012) that performance indicators are not solution to attaining sustainable supply chain management instead, companies should consider supply chain as a network of different services that include manufacturers, and customers who should work together so as to convert and move products/products from raw materials status through to the end user. Concluding from a case study on companies such as Blackmores integrating performance indicators in sustainable supply chain management should link customers input in the informational flow, physical flow and monetary issues. References Ahi, P., & Searcy, C. (2015). An analysis of metrics used to measure performance in green and sustainable supply chains. Journal of Cleaner Production, 86, 360-377. Ambe, I. M. (2013). Key Indicators For Optimising Supply Chain Performance: The Case Of Light Vehicle Manufacturers In South Africa. Journal of Applied Business Research (JABR), 30(1), 277-290. Bai, C., Sarkis, J., Wei, X., & Koh, L. (2012). Evaluating ecological sustainable performance measures for supply chain management. Supply Chain Management: An International Journal, 17(1), 78-92. Cao, M., & Zhang, Q. (2011). Supply chain collaboration: Impact on collaborative advantage and firm performance. Journal of Operations Management, 29(3), 163-180. Chkanikova, O. (2012). Sustainable supply chain management: theoretical literature overview. Journal of Integration and Knowledge Transfer, 25(6), 1075-1082. Christopher, M. (2012). Logistics and supply chain management. Pearson UK. Christopher, M., & Lee, H. (2004). Mitigating supply chain risk through improved confidence. chain. New York, NY: McGraw-Hill Irwin. Darnall, N., Jolley, G. J., & Handfield, R. (2008). Environmental management systems and green supply chain management: complements for sustainability?. Business Strategy and the Environment, 17(1), 30-45. El Sayed, H. (2013). Supply Chain Key Performance Indicators: Analysis. Dubai, UAE. Foster, S. T., Sampson, S. E., Wallin, C., & Webb, S. W. (2015). Managing Supply Chain and chain. New York, NY: McGraw-Hill Irwin. Green Jr, K. W., Zelbst, P. J., Meacham, J., & Bhadauria, V. S. (2012). Green supply chain management practices: impact on performance. Supply Chain Management: An International Journal, 17(3), 290-305. Hassini, E., Surti, C., & Searcy, C. (2012). A literature review and a case study of sustainable supply chains with a focus on metrics. International Journal of Production Economics, 140(1), 69-82. International Journal of Physical Distribution & Logistics Management, 34(5), 388-396. Harms, D. (2013). Environmental Sustainability and Supply Chain Management—A Framework of Cross-Functional Integration and Knowledge Transfer. Journal of Environmental Sustainability, 1(1), 9. Linton, J. D., Klassen, R., & Jayaraman, V. (2007). Sustainable supply chains: An introduction. Journal of Operations Management, 25(6), 1075-1082. Martin, J. W. (2007). Lean Six Sigma for supply chain management: The 10-step solution Journal of Logistics & Supply Chain Management Perspectives, 3(1), 839-845. Melnyk, S. A., Cooper, M. B., & Hartley, J. L. (2011). Managing operations across the supply Journal of Logistics & Supply Chain Management Perspectives, 3(1), 839-845. Mitra, D. (2014). A STUDY OF LEAN SIX SIGMA IN CARL ZEISS INDIA. International Journal of Logistics & Supply Chain Management Perspectives, 3(1), 839-845. Myerson, P. (2012). Lean supply chain and logistics management. McGraw Hill Professional. Operations. Prentice Hall. Rao, P., & Holt, D. (2005). Do green supply chains lead to competitiveness and economic performance?. International Journal of Operations & Production Management, 25(9), 898-916. Rizzoli, A. E., Montemanni, R., Bettoni, A., & Canetta, L. (2015). Software support for sustainable supply chain configuration and management. In ICT Innovations for Sustainability (pp. 271-283). Springer International Publishing. Schaltegger, S., & Burritt, R. (2014). Measuring and managing sustainability performance of supply chains: Review and sustainability supply chain management framework. Supply Chain Management: An International Journal, 19(3), 232-241. Seuring, S., & Müller, M. (2008). From a literature review to a conceptual framework for sustainable supply chain management. Journal of cleaner production, 16(15), 1699-1710. Seuring, S., Sarkis, J., Müller, M., & Rao, P. (2008). Sustainability and supply chain management–an introduction to the special issue. Journal of Cleaner Production, 16(15), 1545-1551. Turker, D., & Altuntas, C. (2014). Sustainable supply chain management in the fast fashion industry: An analysis of corporate reports. European Management Journal, 32(5), 837 849. Varsei, M., Soosay, C., Fahimnia, B., & Sarkis, J. (2014). Framing sustainability performance of supply chains with multidimensional indicators. Supply Chain Management: An International Journal, 19(3), 242-257. Wisner, J., Tan, K. C., & Leong, G. (2015). Principles of supply chain management: a balanced process. New York, NY: McGraw-Hill. Wu, K. J., Liao, C. J., Tseng, M. L., & Chiu, A. S. (2015). Exploring decisive factors in green supply chain practices under uncertainty. International Journal of Production Economics, 159, 147-157. Zhu, Q., Sarkis, J., & Lai, K. H. (2015). Institutional-based antecedents and performance outcomes of internal and external green supply chain management practices. Journal of Purchasing and Supply Management, 19(2), 106-117. Read More