Measuring

supply chain
performance
275
International Journal of Operations &
Production Management,
Vol. 19 No. 3, 1999, pp. 275-292,
# MCB University Press, 0144-3577
Measuring supply chain
performance
Benita M. Beamon
University of Cincinnati, Cincinnati,
Ohio, USA
Keywords Flexibility, Performance measurement, Supply chain
Abstract The process of choosing appropriate supply chain performance measures is difficult
due to the complexity of these systems. The paper presents an overview and evaluation of the
performance measures used in supply chain models and also presents a framework for the
selection of performance measurement systems for manufacturing supply chains. Three types of
performance measures are identified as necessary components in any supply chain performance
measurement system, and new flexibility measures for supply chains are developed.
1. Introduction
When analyzing system performance, qualitative evaluations such as ``good'',
``fair'', ``adequate'', and ``poor'' are vague and difficult to utilize in any
meaningful way. As a result, quantitative performance measures are often
preferred to such qualitative evaluations. A numerical performance measure
might be utilized because the data are readily available, or because it has been
used for a long time. However, the chosen numerical performance measure
may not adequately describe the system's performance, and may therefore be
as vague and difficult to utilize as the above qualitative evaluations. The
difficulty of developing appropriate performance measures extends beyond
these issues of context, to also include issues of scope, such as whether the
performance measure (or measurement system) should include a single
organization or many? Is the performance measurement to include one product
line or many?
Formally, a supply chain is an integrated process wherein raw materials are
manufactured into final products, then delivered to customers (via distribution,
retail, or both). Atypical supply chain is depicted in Figure 1.
The supply chain depicted in Figure 1 contains four echelons (supply,
manufacturing, distribution, and consumers), where each level (or echelon) of
the chain may comprise numerous facilities. Thus, the complexity of the supply
chain arises from the number of echelons in the chain and the number of
facilities in each echelon. Given the inherent complexity of the typical supply
chain, selecting appropriate performance measures for supply chain analysis is
particularly critical, since the system of interest is generally large and complex.
The purpose of this research is to develop a framework for the selection of
supply chain performance measures.
The author would like to thank the editorial team and anonymous referees for their helpful
comments and suggested improvements.
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2. Performance measurement: background and previous work
When a procedure, a model, an approach, a case study, or other research is
undertaken, generally some measure of the system's performance is presented
and perhaps analyzed. A large number of different types of performance
measures have been used to characterize systems, particularly production,
distribution, and inventory systems. Such a large number of available
performance measures makes performance measure selection difficult.
Generally, performance measurement research focuses on analyzing
performance measurement systems that are already in use, categorizing
performance measures and then studying the measures within a category, and
building rules of thumb or frameworks by which performance measurement
systems can be developed for various types of systems.
Beamon (1996) presents a number of characteristics that are found in
effective performance measurement systems, and can therefore be used in
evaluation of these measurement systems. These characteristics include:
inclusiveness (measurement of all pertinent aspects), universality (allow for
comparison under various operating conditions), measurability (data required
are measurable), and consistency (measures consistent with organization
goals). Besides analyzing the measures based on their effectiveness,
benchmarking is another important method that is used in performance
measure evaluation. Benchmarking can be useful in that it can serve as a
means of identifying improvement opportunities. Camp (1989) provides an
excellent, comprehensive discussion of benchmarking.
In order to study the large number of performance measures available,
researchers have categorized them. Neely et al. (1995) present a few of the
categories in the literature, including: quality, time, flexibility, and cost. This
categorization is a useful tool in systems analysis. For example, a model may
be developed to improve one characteristic of a system, for example, time. The
model may then compare manufacturing lead time or due-date performance by
Figure 1.
Supply chain
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changing the system's configuration. In this way, a single type of measure has
been chosen, time, but within this category, many different specific measures of
time may be used. Thus, measures within a category can be compared and
analyzed, so that performance measure selection within a category may be
easier. Although with this approach, the performance category is already
determined.
One of the most difficult areas of performance measure selection is the
development of performance measurement systems. This involves the methods
by which an organization creates its measurement system. Important questions
must be addressed here: What to measure? How are multiple individual
measures integrated into a measurement system? How often to measure? How
and when are measures re-evaluated? Although all of the ideas important to
examining measurement systems already in place apply, the problem is more
difficult since the ``slate is blank'' and the goal is to create the ``best'' possible
measurement system for the supply chain or chains of interest. Neely et al.
(1995) note that different measurement frameworks have been developed and
others have provided criteria for the measurement system design. However, a
generally applicable systematic approach to performance measurement has not
been developed. Different types of systems require specific measurement
system characteristics, and therein lies the difficulty in creating such a general
approach. Thus, previous work has sought to develop various performance
measure frameworks for different types of systems that share certain critical
characteristics.
3. Supply chain performance measures
Supply chain management, analysis, and improvement is becoming increasingly
important. The literature includes approaches to supply chain management (see
Bytheway, 1995a; 1995b; Lamming 1996; New, 1996; Waters-Fuller, 1995), in
addition to supply chain models. The performance measures utilized in these
models directly affects their real-world applicability. This section describes and
evaluates the various types of performance measures that have been used in
supply chain modeling, and discusses the applicability of these measures.
3.1 Overview
Supply chain models have predominantly utilized two different performance
measures:
(1) cost; and
(2) a combination of cost and customer responsiveness.
Costs may include inventory costs and operating costs. Customer
responsiveness measures include lead time, stockout probability, and fill rate.
Table I summarizes the supply chain models available in the literature and the
corresponding performance measures used. These models use the listed
performance measures as objectives that are either minimized or maximized,
subject to various operational constraints.
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Other performance measures have been identified as appropriate for supply
chain analysis, but have not yet been used in supply chain modeling research.
Although these measures may be important characteristics of a supply chain,
their use in supply chain models is challenging, since the qualitative nature of
such measures makes them difficult to incorporate into quantitative models.
Examples of such measures are: customer satisfaction (Christopher, 1994),
information flow (Nicoll, 1994), supplier performance (Davis, 1993), and risk
management (Johnson and Randolph, 1995).
3.2 Evaluation of supply chain performance measures
Cost, activity time, customer responsiveness, and flexibility have all been used
as supply chain performance measures either singly or jointly. Yet the
measures used thus far possess some significant weaknesses. This section
evaluates and identifies the limitations of these supply chain performance
measures.
3.2.1 Single supply chain performance measures. The use of a single
performance measure is attractive because of its simplicity. However, one must
ensure that if a single performance measure is utilized, this measure adequately
describes the system performance. Beamon (1996) identified and evaluated
various individual supply chain performance measures. The author concluded
that significant weaknesses were present in each of the performance measures
evaluated, based on such criteria as inclusiveness, universality, measurability,
and consistency. Repeatedly, the most consistent weakness for these
performance measures was inclusiveness. In order for a measure to be
Table I.
Performance measures
in supply chain
modeling
Measure Author(s)
Cost Cohen and Lee (1988)
Cohen and Lee (1989)
Cohen and Moon (1990)
Lee and Feitzinger (1995)
Pyke and Cohen (1993)
Pyke and Cohen (1994)
Tzafestas and Kapsiotis (1994)
Cost and activity time Arntzen et al. (1995)
Cost and customer responsiveness Altiok and Ranjan (1995)
Christy and Grout (1994)
Cook and Rogowski (1996)
Davis (1993)
Ishii et al. (1988)
Newhart et al. (1993)
Towill (1991)
Towill et al. (1992)
Wikner et al. (1991)
Customer responsiveness Lee and Billington (1993)
Flexibility Voudouris (1996)
Source: Adapted from Beamon (1998)
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inclusive, it must measure all pertinent aspects of the supply chain. Consider an
example in which a company decides to use cost as the measure of supply chain
performance. Although the supply chain may be operating under minimum
cost, it may simultaneously demonstrate poor customer response time
performance, or lack flexibility to meet randomfluctuations in demand.
3.2.2 Cost as a single supply chain performance measure. As Table I
illustrates, cost is the performance measure of choice for many supply chain
models. Although cost as a resource measure is important, there are downfalls
to relying on cost as the sole performance measure. Maskell (1991) identifies
many shortcomings of traditional management accounting. The problems
include a lack of relevance of the cost categories, cost distortions (especially
overheads), and inflexibility, such as reports that are too late to be valuable. Lee
and Billington (1992) identify many pitfalls in supply chain management and
one identified pitfall is the incorrect assessment of inventory costs. The authors
identify two commonly omitted inventory costs:
(1) obsolescence; and
(2) rework due to engineering changes.
This problem is magnified by current cost accounting methods, such as
overhead calculations, and omitted inventory costs. Existing supply chain
models have typically restricted themselves to traditional cost measures, and
have not yet utilized the advantages of strategic cost management of the
supply chain. Shank and Govidarajan (1992) and Barker (1996) address
strategic cost management issues within the context of supply chains.
3.2.3 Strategic goals and supply chain performance measures. Maskell (1991)
suggests that the type of performance measures required for a manufacturing
organization are directly related to the manufacturing strategy chosen by the
company. The two reasons cited for establishing and maintaining this
relationship are:
(1) the company may determine if its performance is meeting its strategic
goals; and
(2) people in the organization will concentrate on what is measured; thus
the performance measure will steer company direction.
Consider the strategic goal examples in Table II and the corresponding implied
performance measures. Strategic goals seldom imply only one performance
Table II.
Strategic goals and
performance measures
Strategic goals Implied performance measurement system
Company Q will provide high quality custom
designed product at the lowest possible cost
Cost product quality
ABC, Inc. will manufacture product X and
consistently deliver the product to the
customer on time and at a low cost
Cost product lateness
XYZ, Inc. will produce high quality product
which will meet future customer demands
Product quality flexibility
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measure; they usually point to many, and are not always clearly defined. For
example, product quality can be measured in many different ways. Although it
may be difficult to choose the individual performance measures, it is vital that
the performance measures are related to the strategic goals of the organization.
3.2.4 Performance measure evaluation summary. Individual performance
measures used in supply chain analysis have been shown to be non-inclusive.
Consequently, important supply chain characteristics and their associated
interactions have been ignored. Measuring the use of resources, especially cost,
has also been identified as an important part of the supply chain. Many
strategic goals of organizations recognize not only the importance of
minimizing resources, but also the overall importance of the output of the
system. Additionally, ignoring the effects of uncertainty on the supply chain
results in a systemthat is unable to adapt to future changes.
Current supply chain performance measurement systems are inadequate
because they rely heavily on the use of cost as a primary (if not sole) measure,
they are not inclusive, they are often inconsistent with the strategic goals of the
organization, and do not consider the effects of uncertainty. That is, although
use of multiple supply chain performance measures may be commonplace in
real-world settings, it is not commonplace in supply chain modeling. A
performance measurement systemfor supply chain analysis must be developed
that addresses these issues. The next step, then, is to develop a framework for
measuring supply chain performance.
4. Toward a new framework for performance measurement
As previously mentioned, a supply chain performance measurement system
that consists of a single performance measure is generally inadequate since it is
not inclusive, ignores the interactions among important supply chain
characteristics, and ignores critical aspects of organizational strategic goals.
Strategic goals involve key elements that include the measurement of
resources, output and flexibility. Resources measures (generally cost) and
output measures (generally customer responsiveness) have been widely used in
supply chain models. Although flexibility has been limited in its application to
supply chains, many advantages exist to a flexible supply chain.
The use of resources, the desired output and flexibility (how well the system
reacts to uncertainty) have been identified as vital components to supply chain
success. Therefore, a supply chain measurement system must place emphasis
on three separate types of performance measures: resource measures (R),
output measures (O), and flexibility measures (F). Each of these three types of
performance measures has different goals, as illustrated in Table III. The
supply chain performance measurement systemmust measure each of the three
types (R, O and F), as each type is vital to the overall performance success of
the supply chain.
Each of the three types of measures has important characteristics and the
measure of each of these affects the others. The interrelationship among these
three types of measures is illustrated in Figure 2.
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Therefore, the supply chain performance measurement system must contain at
least one individual measure from each of the three identified types. The
individual measures chosen from each type must coincide with the
organization's strategic goals. This measurement system can then allow study
of the interactions among the measures or can at least ensure a minimum level
of performance in different areas. Each type of performance measure is
discussed in the following sub-sections.
4.1 Resources
Resource measures include: inventory levels, personnel requirements, equipment
utilization, energy usage, and cost. Resources are generally measured in terms of
the minimum requirements (quantity) or a composite efficiency measure.
Efficiency measures the utilization of the resources in the systemthat are used to
meet the system's objectives. Resource measurement is an important part of the
measurement system. Too fewresources can negatively affect the output and the
flexibility of the system, while the deployment of too many resources artificially
increases the system's requirements.
One general goal of supply chain analysis is resource minimization.
Although a minimum level of output is often specified, the effect of reducing
resources on the flexibility of the supply chain is not often considered. Asupply
chain may be reconfigured with reduced resources while present demands are
Table III.
Goals of performance
measure types
Performance
measure type Goal Purpose
Resources High level of efficiency Efficient resource management is
critical to profitability
Output High level of customer service Without acceptable output,
customers will turn to other supply
chains
Flexibility Ability to respond to a changing
environment
In an uncertain environment, supply
chains must be able to respond to
change
R
O F
Figure 2.
The supply chain
measurement system
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met, but such short-term analyses do not account for the dynamic nature of
demand. In this way, resources are directly related to the system's output and
flexibility performance.
The following is an example list of supply chain resource performance
measures:
(1) Total cost. Total cost of resources used.
(2) Distribution costs. Total cost of distribution, including transportation
and handling costs.
(3) Manufacturing cost. Total cost of manufacturing, including labor,
maintenance, and re-work costs.
(4) Inventory. Costs associated with held inventory:
.
Inventory investment. Investment value of held inventory.
.
Inventory obsolescence. Costs associated with obsolete inventory;
sometimes includes spoilage.
.
Work-in-process. Costs associated with work-in-process inventories.
.
Finished goods. Costs associated with held finished goods
inventories.
(5) Return on investment (ROI). Measures the profitability of an
organization. The return on investment is generally given by the ratio of
net profit to total assets.
4.2 Output
Output measures include: customer responsiveness, quality, and the quantity
of final product produced. Many output performance measures are easily
represented numerically, such as:
.
number of items produced;
.
time required to produce a particular itemor set of items;
.
number of on-time deliveries (orders).
However, there are also many output performance measures that are much
more difficult to express numerically, such as:
.
customer satisfaction;
.
product quality.
Aminimumlevel of output is often specified, although the relationship between
the costs required to achieve different output levels is not generally considered.
What is the added value or cost if the product is delivered early? Likewise,
what are the costs if the product is delivered late? Additionally, output
measures are based on short, finite time horizons, and address issues such as
how many did I produce today? Not how many can I produce tomorrow? Thus,
resources affect the output of a supply chain, and the output of the supply chain
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system (quality, quantity, etc.) is important in determining the flexibility of the
system.
Output performance measures must not only correspond to the organization's
strategic goals, but must also correspond to the customers' goals and values,
since strategic goals generally address meeting customer requirements. For
example, Corbett (1992) identifies a furniture manufacturer that discovered that
their customers actually valued delivery reliability more than fast delivery. For
the customer, short lead times were secondary to having the product delivered on
time. Although lead times may be extremely important to the manufacturer, on-
time delivery was more important to the customer. In this case, both of these
output performance measures should be utilized.
The following is an example list of supply chain output performance
measures:
(1) Sales. Total revenue.
(2) Profit. Total revenue less expenses.
(3) Fill rate. Proportion of orders filled immediately:
.
Target fill rate achievement. To what extent a target fill rate has been
achieved.
.
Average item fill rate. Aggregate fill rate divided by the number of
items.
(4) On-time deliveries. Measures item, order, or product delivery
performance:
.
Product lateness. Delivery date minus due date.
.
Average lateness of orders. Aggregate lateness divided by the
number of orders.
.
Average earliness of orders. Aggregate earliness divided by the
number of orders.
.
Percent on-time deliveries. Percent of orders delivered on or before the
due date.
(5) Backorder/stockout. Measures item, order, or product availability
performance:
.
Stockout probability. Instantaneous probability that a requested item
is out of stock.
.
Number of backorders. Number of items backordered due to stockout.
.
Number of stockouts. Number of requested items that are out of
stock.
.
Average backorder level. Number of items backordered divided by
the number of items.
(6) Customer response time. Amount of time between an order and its
corresponding delivery.
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(7) Manufacturing lead time. Total amount of time required to produce a
particular itemor batch.
(8) Shipping errors. Number of incorrect shipments made.
(9) Customer complaints. Number of customer complaints registered.
4.3 Flexibility
Some advantages of flexible supply chain systems are:
.
Reductions in the number of backorders.
.
Reductions in the number of lost sales.
.
Reductions in the number of late orders.
.
Increased customer satisfaction.
.
Ability to respond to and accommodate demand variations, such as
seasonality.
.
Ability to respond to and accommodate periods of poor manufacturing
performance (machine breakdowns).
.
Ability to respond to and accommodate periods of poor supplier
performance.
.
Ability to respond to and accommodate periods of poor delivery
performance.
.
Ability to respond to and accommodate new products, new markets, or
newcompetitors.
Flexibility, which is seldom used in supply chain analysis, can measure a
system's ability to accommodate volume and schedule fluctuations from
suppliers, manufacturers, and customers.
Indeed, flexibility is vital to the success of the supply chain, since the supply
chain exists in an uncertain environment. Slack (1991) identifies two types of
flexibility: range flexibility and response flexibility. Range flexibility is defined as
to what extent the operation can be changed. Response flexibility is defined as the
ease (in terms of cost, time, or both) with which the operation can be changed.
Although there will be a limit to the range and response flexibility of a supply
chain, the chain can be designed to adapt adequately to the uncertain environment.
For example, a reduction in system resources may negatively affect the
supply chain's flexibility. Asupply chain may be currently utilizing its resources
efficiently, and producing the desired output, but will the supply chain be able to
adjust to changes in, for example: product demand, manufacturing unreliability,
the introduction of new products, or supplier shortages? Thus, flexibility is an
important consideration in supply chain performance.
5. A quantitative approach to flexibility measurement
Numerous flexibility measures for flexible manufacturing systems (FMSs) on
the machine and plant levels exist and have been well-studied. The interested
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reader is referred to Sethi and Sethi (1990) and Gupta and Goyal (1989)
for comprehensive reviews of the literature in manufacturing system
flexibility. However, as previously stated, the measurement of flexibility in
larger, more complex systems, such as supply chain systems, has rarely been
addressed.
Flexibility measures are distinctly different from resource and output
measures. Slack (1983) indicates that flexibility measures potential behavior,
whereas other operational objectives are actually demonstrated by the system's
operating behavior (performance). Therefore, flexibility does not have to be
demonstrated by the systemin order to exist. Slack (1983) identifies factors that
cause difficulty in measuring the flexibility of an entire production system.
These factors are:
.
flexibility is a measure of potential;
.
flexibility must be applied to other production objectives, such as
volume or delivery; and
.
the multiple dimensions of flexibility (range and response).
Das (1996) concludes that since every manufacturing facility experiences
different changes to different degrees, and the diversity of these possible
changes is large, several different types of flexibilities may be appropriate.
Given the complexity of assessing a system's flexibility, various measures for
flexibility in manufacturing systems have been developed.
Slack (1991) defines system flexibility as the flexibility of the entire
operation. The author further identifies four types of system flexibility, as
shown in Table IV below. Each of these types of flexibility can be measured in
terms of range and response.
Each of these types of system flexibility could be applied to supply chain
systems. However, each type may not be appropriate for every supply chain.
Examining historical data for the systemcan indicate which flexibility measure
types are appropriate for the system of interest. Table V identifies supply chain
characteristics and their corresponding appropriate flexibility types.
Although these system flexibility types are applicable to supply chains,
many different types of FMS flexibilities have been identified in the literature.
Many of these types may have some application to specific supply chain
systems, these include machine, routing, process, product, expansion, market,
Table IV.
System flexibility types
Flexibility type Definition
Volume flexibility The ability to change the output level of products
produced
Delivery flexibility The ability to change planned delivery dates
Mix flexibility The ability to change the variety of products produced
New product flexibility The ability to introduce and produce new products (this
includes the modification of existing products)
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production, and program flexibility. However, given the universality of the
uncertain environment in which supply chain systems exist, volume flexibility
is commonly desirable. Even supply chains with relatively stationary demand
experience some variation.
5.1 Volume flexibility (F
v
)
Sethi and Sethi (1990) point out that a generalization of volume flexibility is to
measure the range of volumes in which the organization can run profitably. For
manufacturing systems, the development of volume flexibility measures has
generally considered the costs associated with volume changes. For the
development of a supply chain volume flexibility measure, we are interested in
how much of the demand can be met considering only the range of volumes
that are profitable.
The volume flexibility measure, F
v
, measures the proportion of demand that
can be met by the supply chain system. First, we assume that demand volume
(D) is a random variable with an approximate normal distribution, i.e. D ~
(N(
D
;
2
D
) and define O
min
and O
max
as the minimum and maximum profitable
output volume during any period, respectively. Now, assuming that the supply
chain of interest has sufficient data regarding demand volumes, then the
parameters of the distribution for D(
D
;
2
D
), corresponding to the mean
demand and demand variance, can be effectively estimated as

D and S
2
D
,
respectively, where

D =
P
T
t=1
d
t
T
(1)
and
S
2
D
=
P
T
t=1
(d
t

d)
2
T 1
(2)
where d
t
is the demand during period t, and T is the number of periods
considered.
Table V.
Supply chain system
characteristics and
associated flexibility
types
Flexibility type Supply chain system characteristics
Volume flexibility Variable demand
Delivery flexibility Delivery dates change regularly and costs are associated
with not meeting new delivery dates
Mix flexibility Stationary demand for multiple product types
New product flexibility Products with short life cycles
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Then we can define volume flexibility (F
v
) as:
F
v
= P

O
min

D
S
D
_ D _
O
max

D
S
D

(3)
or
F
v
=

O
max

D
S
D

O
min

D
S
D

(4)
where F
v
[0; 1), and F
v
represents the long-run proportion of demand that
can be met by the supply chain system. This relation is illustrated below in
Figure 3, in which the demand is standardized and represented as a standard
normal curve, with mean
D
and standard deviation
D
.
Example. Suppose a particular supply chain has 32 weeks of weekly demand
volume data available. These data are given belowin Table VI.
Then, for this system,

D =
P
T
t=1
d
t
T
24:69 (5)
2
( (
Figure 3.
Standardized normal
demand distribution
Table VI.
Weekly demand
volume (example)
Period
(t)
Demand
volume
(units)
Period
(t)
Demand
volume
(units)
Period
(t)
Demand
volume
(units)
Period
(t)
Demand
volume
(units)
1 16 9 12 17 38 25 24
2 21 10 43 18 19 26 17
3 32 11 8 19 29 27 36
4 5 12 29 20 12 28 11
5 18 13 33 21 34 29 28
6 26 14 39 22 49 30 23
7 40 15 7 23 16 31 32
8 31 16 15 24 30 32 17
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and
S
D
=

S
2
D
q
=

P
T
t=1
(d
t

d)
2
T 1
v
u
u
u
t
11:35 (6)
If the supply chain has a maximum profitable output volume of 50 units per
time period, and a minimum profitable output volume of five units per time
period, then the volume flexibility is given by:
F
v
=

50 24:69
11:35

5 24:69
11:35

= (2:23) (1:73) = 0:9453: (7)

5.2 Delivery flexibility (F
D
)
The ability to move planned delivery dates forward may be important in
supply chain management. This ability allows the supply chain to
accommodate rush orders and special orders, and will be described as delivery
flexibility. Delivery flexibility will be expressed as the percentage of slack time
by which the delivery time can be reduced. More specifically, define t
+
as the
current time period, L
j
as the due date period (or the latest time period during
which the delivery can be made) for job j, and E
j
as the earliest time period
during which the delivery can be made for job j. If there are j = 1, . . ., J jobs in
the system, then the total slack time for all jobs j is given by the quantity
X
J
j=1
(L
j
t
+
);
and the minimumdelivery time for all jobs j is given by
X
J
j=1
(E
j
t
+
):
Thus F
D
, the instantaneous delivery flexibility, may be measured as the
proportion of excess slack across all jobs j, which can be formally defined as:
F
D
=
P
J
j=1
((L
j
t
+
)) (E
j
t
+
))
P
J
j=1
(L
j
t
+
)
(8)
which simplifies to
F
D
=
P
J
j=1
(L
j
E
j
)
P
J
j=1
(L
j
t
+
)
(9)
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5.3 Mix flexibility (F
m
)
Mix flexibility, F
m
, is similar to, and often used interchangeably with process
and job flexibility. Generally, mix flexibility measures either the range of
different product types that may be produced during a particular time period,
or the response time between product mix changes. More specifically, Slack
(1991) discusses measuring mix flexibility as:
.
the number of different products that can be produced within a given
time period (product mix flexibility range); or
.
the time required to produce a new product mix (product mix flexibility
response). Formally, the product mix flexibility range is given by:
F
m
= N(t) (10)
where N(t) is the number of different product types that can be produced
within the time period t, with t > 0 and N(t) I

. The product mix flexibility

response, then, may be calculated as:
F
m
= T
ij
(11)
where T
ij
is the changeover time required from product mix i to product mix j,
with T
ij
_ 0 for any i and j.
5.4 New product flexibility (F
n
)
New product flexibility, F
n
, is defined as the ease with which new products are
introduced to the system. The introduction of new products will generally
involve some time for development and set-up. Sethi and Sethi (1990) discuss
measuring product flexibility as either the time or cost required to add new
products to existing production operations. Time-based new product flexibility
may be formally expressed as:
F
n
= T (12)
where T is the time required to add new products, with T _ 0. Similarly, cost-
based newproduct flexibility may be formally expressed as:
F
n
= C (13)
where C is the time required to add newproducts, with C _ 0.
6. Summary and conclusion
Performance measurement selection is a critical step in the design and
evaluation of any system. Generally, the larger and more complex the system,
the more challenging it becomes to measure effectively. While there is an ever-
increasing number of supply chain models presented in the literature, there is
very little available in supply chain performance measure selection. As such,
many of the existing models use inappropriate or ineffective performance
measures that are limited in scope (non-inclusive). Of course, the use of simple
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performance measures is tempting, since simple measures are more easily
implemented into numerical models; however, by limiting the scope of the
performance measurement, these models ignore important performance trade-
offs. The effects of these performance trade-offs are magnified when the supply
chain is reconfigured on the basis of a non-inclusive measurement system. In
order to improve the effectiveness of supply chain models, performance
measures must be selected that will allow for a more complete and accurate
analysis.
This research discusses the importance of a supply chain system to achieve
simultaneously a high level of efficiency, a high level of customer service and
the ability to respond effectively to a changing environment. Previous work in
performance measurement has generally focused on:
.
developing newperformance measures for specific applications;
.
benchmarking, as in Camp (1989); and
.
categorizing existing performance measures, as in Neely et al. (1995).
The research presented here goes beyond this previous work by establishing a
foundation toward the development of a universal framework for the selection
of performance measures for supply chain systems. The categorization of
supply chain performance measures resulted in the identification of three types
of performance measures that are necessary components in any supply chain
performance measurement system: resource, output and flexibility. Although
many individual supply chain performance measures exist for resources and
output, the number of flexibility measures actually applied to supply chains is
few. Therefore, this paper also develops volume flexibility and delivery
flexibility measures for supply chains, and presents existing measures for mix
flexibility and new product flexibility. Supply chain models that utilize this
framework can more completely characterize the supply chain system and the
resulting reconfiguration effects, thus enabling the development of models that
are more complete, accurate, and therefore more effective.
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