Supply Chain Costing and Performance Management, 2nd Edition

CHAPTER 12Align Performance Measures with the Strategy

PERFORMANCE MEASUREMENT POSES SEVERAL unique challenges for supply chain management. Executives and managers need to understand how the supply chain affects performance within their firm. In most instances, external trading partners have a major effect on how and why a firm performs certain activities. Executives and managers must understand how their internal performance affects the performance of their trading partners and the different activities that are performed by upstream suppliers or downstream customers. All trading partners should realize that their supply chain is competing against other supply chains for the share of wallet or purse of the customer at the end of the supply chain, and the purchase price will matter to that customer.

An understanding of these interactions requires a significant exchange of information—the right information between firms. The information must be specific to the relationship and clearly demonstrate how interactions between the supply chain and the firm affect performance in both directions. In addition, executives need the ability to translate nonfinancial performance into financial value creation for the firm, its stockholders and owners, and for the firm's trading partners in the supply chain.

The ability to translate improved process performance into value makes a compelling argument when attempting to persuade trading partners to align their business practices with supply chain ...