A Common Mistake With Companies

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‘A common mistake with companies is to employ too many metrics and those that are simply too complex to understand’ (Sanders, 2014, p.172). Therefore, the ability to choose the right measurements is critical to make improvements that will lead to cost reductions, increased margins and superior performance. From this point, companies need to assess their supply chain by focusing on Key Performance Indicators (KPI). According to the Advanced Performance Institute (n.d.), KPI can be defined as measurements that enable a company to assess how well a business unit, projects or individuals are performing compared to their strategic goals and objectives. In the past, enterprises used to focus purely on financial metrics like the net profit margin…show more content…
267 words The first metric used to measure the supply chain’s performance is called the Balanced Scorecard (BSC). (Kaplan and Norton, 1996) This model is valuable as it informs the company about the level of efficiency of the supply chain in the following four areas: financial, customer satisfaction, internal processes and learning and growth ability. Moreover, it allows to identify which sector is underperforming and requires more attention. Each of the four dimensions has a specific objective and target that are set by the company and are then matched with a metric which will assess performance in each dimension. For instance, related to the financial aspect, if the company’s objective is a 10 percent turnover rise compared to the previous year, it will use the monthly turnover rate to keep track of the progress. The same procedure is to be followed for the three other areas, using different metrics as objectives will be different. The selected measurements must be meaningful to the firm as this model will be used to guide the organisation’s strategy on the long-run. A second metric available to assess a supply chain’s reliability is the perfect order index. It is defined by Harmon (2014) as ‘the percentage of orders meeting delivery performance with
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