Historically when a firm (typically a manufacturer or distributor) referred to its supply chain it primarily considered business processes directly within its control. Yes customers and vendors mattered, but these factors could be better controlled since relatively fixed production schedules were the norm, products were less commoditized, and local proximity mattered. Past initiatives to improve supply chain performance primarily focused on cost reduction, efficiency, and quality through total quality management (TQM), just in time (JIT), and six sigma initiatives.


To be competitive today emphasis needs to be placed on maximizing not only cost reduction, but on greater agility, innovation, and partnerships.

Any activity in a firm’s value chain that does not provide real competitive advantage is a candidate for outsourcing to a partner that can provide a cost or value advantage.
With this trend towards outsourcing more functions, the supply chain extends well beyond the internal functions of an organization. While this presents opportunities for competitive advantage and business agility it also presents a greater need for communication, information sharing, trust, and shared goals between supply chain partners.

Broadly defined, the term supply chain has come to mean value chain. Today supply chains exist in every type of business and represent all processes related to creating and providing value to stakeholders. For manufacturers, distributors, and retailers, a supply chain is the core business for other types of organizations: healthcare, financial services, state and local government etc. – when we think of the supply chain as the value chain the same principals apply.

Each year business executives emphasize strategy and lay out broad goals and initiatives to support corporate objectives. These lofty proclamations are put forth in annual reports, on corporate Web sites, and in company newsletters and posters that are hung in every corridor and by each watercooler.

A firm’s supply chain is the essence of how it delivers value to its customers. According to the Supply Chain Operations Reference Model (SCOR) the supply chain includes all processes related to planning, sourcing, producing, delivering, and returning goods. Today innovation is more tightly linked to these processes as supply chain partners must collaborate on ways to improve efficiency and quality.

Therefore the stakes are much higher for how a firm differentiates itself from its competitors as it seeks to achieve better alignment between its business strategy and operational execution.
The supply chain is in effect a firm’s value chain and largely embodies the actual translation of the strategy into operations. This is made even more challenging, due to the need not only to create true alignment within the enterprise, but also with each supply chain partner.

Competing Objectives

The reason that supply chain performance management is so challenging and critically important lies in the very nature of the performance objectives themselves. For each objective there is an equally important objective that if managed in isolation, will adversely impact another objective.

For example perfect order achievement – defined as delivering all of the items in the right quantities on time with zero defects – is critical to sustaining high rates of customer retention.
In order to create a buffer for fluctuations in real demand, safety stock inventory is needed at various stages of the supply chain, but maintaining excess inventory directly conflicts with objectives related to maximizing inventory turnover and return on assets. Cost metrics should be broken down to the lowest level and by customer across the supply chain – known as ABC costing – so that inefficiencies and individual costs associated with individual customer buying patterns are identified. When this is done all players in the supply chain can treat cost reduction and each supply chain sub-process as a shared goal to be balanced with other important goals.
Within an organization this challenge can be overcome with strong leadership that brings together various functional groups to balance the objectives relative to overall corporate goals and business strategies, which in turn is communicated so that everyone is on the same page.

But with the extended supply chain the challenge is exponentially harder since each company, while interdependent, answers to different shareholders.

Managing Risk

Managing objectives in order to achieve superior supply chain performance ends up being an exercise in risk management because any breakdown in the supply chain represents a risk that needs to be managed. Some examples of risk include the availability of quality labor, supplier risks, commodity shortages and price fluctuations, obsolescence, fluctuations in foreign exchange rates, and plant breakdowns.

Not only do we need to get various functions within an organization working to mitigate risk and align goals, but we must extend this process of shared goals and collaboration across the extended supply chain. When this is done then all players in the supply chain can treat managing risk as a shared goal.

Collaborative planning forecasting and replenishment (CPFR) is a concept that seeks cooperative management of inventory by replenishing products throughout the supply chain. Information is shared between suppliers and retailers in planning and satisfying customer demands. By providing real-time visibility into demand and inventory, CFPR seeks to make the supply chain process more efficient by:
• Decreasing inventory, logistics, and transportation
• Improving the flow of goods from raw material suppliers and manufacturers to retailers
• Quickly identifying discrepancies in forecasts, inventory, and order data so problems can be corrected before they impact sales or profits
• Gaining up front agreements – SLA scorecards
• Sharing information and fostering collaboration
• Responding to and measuring issues as well as improving processes



A large distributor of office supplies and furniture, ships 640,000 order lines per day through 64 warehouses. Their largest customers are office supply superstores. Drop shipping directly to the superstores’ commercial customers cuts out costly steps in the supply chain.
 In order to achieve this type of cooperation between supplier and retailer there needs to be real sharing of information and real trust. In effect the superstore is entrusting their customer relationship to the supplier. This trust is developed through shared goals so otherwise conflicting objectives of agility vs. cost and efficiency vs. effectiveness are balanced.


The Case for Information Sharing – Collaboration and Trust

Fostering a high performance value chain starts with an overall emphasis on creating an environment where performance and operational information is shared in a transparent manner.

This creates an environment of trust, which empowers the supply chain partners to collaborate in a proactive way to solve operational problems while constantly striving for more innovative ways to improve overall performance and achieve greater value. The old axiom that knowledge is power must be revised for the highly interdependent world of the supply chain to knowledge is power only when it is shared.


There is enormous benefit that can be derived through information sharing of strategies, performance goals, key performance indicators (KPIs) and operational information. Creating and sharing strategies ensures the necessary alignment is in place, shared goals ensure stakeholders “are pulling in the same direction, KPIs let us know how we are performing and operational information enables us to be agile, collaborative, and operate in real time.



Aligning Objectives Across Strategies and Perspectives

The start of any exercise is to establish specific value chain themes to create a real focus on the organization’s strategy and define what it is uniquely qualified to do.
When developing a scorecard, companies need to choose a few themes, for example customers for life, that will guide the inevitable tradeoffs among objectives and resource allocations.
Strategic and tactical objectives are assigned measures and targets so progress towards objectives can be measured. Objectives are then grouped along the four scorecard perspectives and loaded, with their individual metrics and targets, into a performance management database.

To maximize performance across the value chain, business intelligence (BI) must be provided across the organization from both a strategic and operational perspective. The strategy map provides an integrated model that balances diverse goals and processes across the organization.

Objectives and initiatives are described in cause and effect chains, which are then cascaded throughout the organization so each participant understands how they will be measured and how their contributions relate to corporate goals.

The ultimate goal is to improve business performance, which comes from improving execution on the processes designed to support strategic goals.

With shared goals and the information needed to optimize performance in real time, stakeholders work together to close the gap between strategy and operations. When you provide performance management coupled with operational intelligence to everyone in the extended enterprise you achieve strategic business intelligence because now BI directly supports operational effectiveness in alignment with strategies and goals.

Operational Performance Management

If performance management is a strategic corporate directive, defining corporate business objectives needs to be a priority.

To manage performance from a strategic and operational point of view, systems and processes need to interact in a way that delivers a two-cycle closed-loop solution. The first cycle is the operational business intelligence systems used by individual business units. Operational BI needs to deliver usable and actionable operational data across all business units and then deliver key performance indicators to a strategic performance management system.

The two closed loop systems, operational and strategic, need to intersect in order for data to be shared and to create alignment between all levels of the organization so executives and operational managers are tracking the same benchmarks. For example, balancing the lagging financial indicators of sales and charge-backs with the leading indicators of customer satisfaction and cycle-time measures can drive coordinated performance across the customer support, manufacturing, and sales business-units.

Not only do shared goals and operational information open up the possibility for greater alignment, but they also create the potential for a cycle of continuous improvement.

Fostering a High Performance Supply Chain

Once the basic strategies and goals have been established, tools are needed to motivate and empower everyone in the enterprise to execute on organizational plans. First powerful tools for communicating performance information are provided through intuitive and personalized dashboards. Since all stakeholders will ultimately use these tools, implementation should require no training, be strictly browser-based, adhere to the strictest security standards and be highly scalable.

A true performance management system must be an overseer to all business-unit operational systems. It needs to evenly and objectively manage the indicators and plans of each unit. And it needs to review each unit’s key performance indicators and objectives within the context of the organization as a whole.