SCM 354 Chapter 19 Performance Measurement and Evaluation

two categories of cost effectiveness measures

cost changes and cost avoidance

two most common methods used to arrive at an administrative budget for purchasing or efficiency

current budget plus adjustment cost ratio

two main categories of performance measurement and evaluation

effectiveness measures and efficiency measures.

methods to establish performance objectives

historical data internal comparisons external analysis

benchmarking

is the continuous measuring of products, services, processes, activities, and practices against a firm's best competitors or those companies recognized as industry or functional leaders.

features of successful performance measures

objectivity clarity use of accurate and available data creativity directly related to organization objectives joint participation dynamic over time non manipulable

five steps of the benchmarking process

planning analysis integration action maturity

effectiveness measure

refers to the extent to which, by choosing a certain course of action, management can meet a previously established goal or standard.

efficiency measure

refers to the relationship between planned and actual resources applied to reach a previously agreed upon goal

a purchasing and supply chain performance evaluation system

represents a formal, systematic approach to monitor, assess, and improve purchasing performance

control ratios

the administrative budget for purchasing is a percentage of another measure that reflects purchasing's workload.

information and data sources

trade journals web industry wide conferences/seminars suppliers

strategic benchmarking

which involves a comparison of one firm's market strategies against those of another.

critical measures of cost management

(1) year-over-year price performance based on contract prices for the same or similar items, and (2) material cost improvement that can be achieved through various approaches such as design change, process improvement, packaging, and so forth.

price performance measures

-actual price compared to plan -actual prices vs market index -price comparisons among operations -target pricing achieved

technology and innovation changes

-first insight/production outputs of supplier technology -new innovations incorporated into products or services -Standardization and Use of Industry Standards to Reduce Complexity

benefits of benchmarking

-identify best business or functional practices -breakdown a reluctance to change -source of market intelligence -creation of valuable professional contacts between firms

reasons for measuring and evaluating purchasing and supply chain performance

-measure contributions to company competitive performance -support better communication -support better decision making -provide performance feedback -motivate and direct behavior

benchmarking critical success factors

-must be accepted within the firm -willingness to create the necessary legwork -must view as a way to learn from outside companies

quality measures

-parts per million -customer defects by supplier -field failure rates by purchased item and by supplier

time/delivery/responsiveness measures

-time-to-market, new product/services -on-time delivery/responsiveness -achieving new product introduction ramp-up schedules, introduction dates -cycle time reductions -responsiveness to schedule changes, mix changes, design or service changes

problems with purchasing and supply chain measurement and evaluation

-too much data and wrong data -measures that are short term focused -lack of detail -drive the wrong performance -measures of behavior vs accomplishments

four performance measure to a balanced scorecard

1. How do we look to shareholders? (financial perspective) 2. How do our customers see us? (internal and external perspectives) 3. What must we excel at? (operational excellence perspective) 4. What do we need to do to improve? (innovation perspective)

review pages

775-777

support-activity benchmarking

During this process, support functions within an organization demonstrate their cost-effectiveness against external providers of the same support service or activity. Firms are increasingly using this benchmarking as a way of controlling internal overhead and rising costs.

operational benchmarking

a process that the purchasing function follows when it performs benchmarking comparisons. focuses on different aspects of functional activity and identifies methods to achieve best-in-class performance.