Having in view the fast diffusion of the Balanced Scorecard since its development in the s, as well as your application in various industrial sectors, this paper aims to present a literature review on the alignment of this performance measurement system with the Supply Chain Management. This research was motivated by the finding of an increase in the annual number of papers published over the years. Key metrics, methodological procedures most used for developing the papers localized, benefits and limitations of using the system, as well as research gaps indicated for future works are presented.
The main contribution of this research focuses on condense into a single material an overview of the assessment methods of Supply Chain Management based on the Balanced Scorecard perspectives. Several metrics have been proposed for the development of this performance measurement system, encompassing other perspectives beyond the four traditional Balanced Scorecard perspectives. Keywords : Balanced Scorecard. Supply Chain Management. Literature Review, Performance Measurement System. Performance management of supply chains has become an activity of recognized importance, especially due to complex nature of business processes, usually involving multiple decision criteria.
The reason for this is clear: organizations are looking for ways to improve their operational performance through better integration of operations across the value chain. In SCM, performance assessment aims to obtain information on activities that are not appropriate to the established goals in order to redirect its course and also to identify opportunities for improvement. Both when performance is below the target and requires immediate action to not impact the financial results, as when performance is repeatedly upper and determines new goal, the performance assessment is required and must be addressed and managed in a systematic way in an organization.
The main benefit of a performance management system for SCs is to provide a comprehensive and current framework of information on the performance of a business.
According to several authors the four BSC perspectives are appropriate for overcoming the problems related to performance assessment in SCs. Researches exploring the application of the BSC as a performance measurement system for performance management of SCs are cited in several studies, such as those of Brewer and Speh , , Kleijnen and Smits , Park, Lee and Yoo , among others.
This paper aims to answer the following questions:. This study makes an exploratory research in order to identify characteristics of the papers on alignment of BSC with SCM and demonstrate the methods and metrics recently developed in the literature. According to Forza , the purpose of exploratory research is to build an initial idea about a topic, providing the basis for more detailed studies, in order to improve the techniques currently available.
Regarding the technical procedures used to carry out this paper, it was conceived through bibliographical research. For selecting the publications of interest, they were searched by title , abstract, keywords, irrespective of the period of publication, the following terms, combined: Balanced Scorecard and Supply Chain. Subsequently proceeded to the reading and analysis of abstract and introduction of the papers found, by selecting those with relevance to the research objectives.
With refinements, 43 papers on the theme were obtained in the three bibliographical databases. Importantly, the papers obtained in include only the publications produced until the month of April. Relevant papers found in the references bus that were not inserted into the databases were added in the literature review, in order to make it more comprehensive. Use of the Balanced Scorecard for assessing supply chains performance. According to Zimmermann and Seuring , the BSC has gained increasing acceptance as an instrument for the implementation of business strategies, and transforms them into related performance measures, which can be extended to the performance assessment of SCs.
Brewer and Speh and Bhattacharya et al. The BSC is capable of combining objectives, quantitative data, and subjective judgments, and includes the long-term trend monitoring and forecasting facilities required to support strategic planning CHANG et al.
According to Kleijnen and Smits , the performance problem becomes simpler when the BSC metrics are shared by all stakeholders managers, employees, customers, suppliers, banks, etc. Reefke and Trocchi claim that the formulation of a BSC for SCM is divided into six steps: definition of the SCM strategy, definition of the scope of application, identification of environmental and social exposure, determination of strategic relevance of sustainability aspects, definition of the cause-effect relationships, definition of measures and indicators.
For Bhagwat and Sharma a this process involves the creation of awareness for the concept of BSC to organization SCM, collect and analyze of information on corporate, business and SCM strategy as well as potential metrics related to the four perspectives, clear definition of specific business objectives and goals, development of a preliminary performance measurement system, reception of company management comments and feedback, consensus on the system that will be used by the organization, and presentation of system for all stakeholders. According to Verdecho, Alfaro and Rodriguez-Rodriguez , alignment of SC BCS and performance measurement system of the individual companies should include other collaborative elements measurement such as equity, trust and commitment in the SC, as well as levels of collaboration within the processes strategic, tactical and operational.
Already for Park, Lee and Yoo to take SCM into account, the notion of the BSC needs to expand the internal business process perspective to include the inter-organizational process for the communication and collaboration of SCM between suppliers and customers, and the customer perspective should to consider the demand chain process. For Alfaro et al. According to Chang , the BSC has been utilized for assessing SCM performance in the dimensions customer integration, internal process integration, supplier services and material integration, technology and planning integration, measurement integration, and relationship integration.
By combining these different perspectives, BSC helps managers to understand the inter-relationships and tradeoffs between alternative performance dimensions, thus leading to improved decision making and problem solving RAJESH et al. In the SC, upstream companies attach more importance to customer integration, and downstream companies attach more importance to supplier integration CHANG et al. According to Rajesh et al. For Barber , criticisms of the BSC and its many applications and various developments state that people and suppliers are excluded, regulations and competitive environments are ignored as well as the environmental and social aspects of industry.
According to Reefke and Trocchi , environmental and social aspects can be integrated in the four perspectives by establishing strategic priorities that influence the formulation of targets, measures, and respective indicators, representing strategically important factors which may otherwise not be sufficiently represented through integration into the four standard BSC perspectives. Identified limitations in literature for the performance measurement system. Naini, Aliahmadi and Jafari-Eskandari claim that there are some limitations to the BSC for SCM such as does not take into account the relation of cause and effect over time, does not provide mechanisms for selecting best measures of performance, does not define value chains in strategic operations, and is not dynamic enough for online control.
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The literature review of Agami, Saleh and Rasmy reveals that most of the already existing SCs performance measurement systems are inflexible and lack continual improvement. For Thakkar, Kanda and Deshmukh the integration between SCOR and BSC ensures the greater effectiveness of performance measurement system, because the BSC does not provide a mechanism for maintaining the relevance of defined measures, fails to integrate top level, strategic scorecard, and operational level measures potentially making execution of strategy problematic, and fails to specify a user-centered development process.
The SCOR model overcomes these shortcomings by adopting a building block approach and offers complete traceability, by defining the type of process planning, execution and enabling and configuring them to suit the SC requirements, and generating sufficient information to even develop tailor-made software system. According to Xian, Qiu and Zhang , although the performance measurement of SCM can be studied as a BSC, such approach is not effective for corporate-level assessment in that many measures can also be influenced by other business activities. For Xian, Qiu and Zhang , the index of SC performance assessment with BSC in existing literature is not fully measurable and the SCM measures are used only for constructing the theoretical framework of SC performance assessment index system, but the assessment model or algorithm is scarce.
Discussion of the complex issues of a balanced system of performance assessment is not simple. For De Felice and Petrillo and Bhagwat and Sharma , Analytic Hierarchy Process AHP represents one of the methods that can address the complex issues of a balanced system of performance assessment. The application of this method along with BSC considers several relevant dimensions of organizational performance and formally explains how to weight their importance within a comprehensive framework.
Technical procedures used for the development of papers and industrial sectors analyzed. Although the literature review to be an essential part of the development of any academic paper LAKATOS; MARCONI, , in classification used in this paper were considered of theoretical nature the papers that used only the conceptual approach in its design. Table 1: Classification and annual distribution of papers according to the technical procedure used for its development.
Technical procedure. Case study. Literature Review. The high incidence of case studies is explained by maturation of thematic research over the years and need for thorough analysis of the application of the performance measurement system in organizational practices. Table 1 shows that although with some fluctuations, there was growth in studies that address the alignment of the BSC with SCM over the years, considering that in only 1 paper was published and there was a peak of 8 posts in and Metrics proposed in the literature for the performance measurement system development.
Furthermore, for De Felice and Petrillo , using the BSC allows for stakeholders to determine the health of short-, medium- and long-term objectives at a glance. Based on the literature review, several authors have proposed specific structures that align performance metrics of supply chains with the perspectives of the Balanced Scorecard.
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In this paper, in order to portray the layout of these structures, a model that portrays a combination of the most important features in some of these proposals is presented. The representation of this model can be seen in Table 2. Financial Perspective. C ash flow. Costs structure. Revenue growth. Customers Perspective. Company image. Customer relationship.
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Product leadership. Business Internal Processes Perspective. Deliveries management. A single product type might have different priorities based on market dynamics, customer needs, and life cycle stage. During a product launch, for instance, the key priorities are apt to be service and agility, thereby ensuring product availability to physicians—who must start changing prescription patterns—and the ability to respond effectively to potential upside demand. Cost effectiveness may only become a priority at later stages of the product life cycle, during its maturity and decline.
The same product can have a very stable demand pattern in a mature market such as the U. Using the three key business priorities of service, cost effectiveness, and agility, BCG identified four segmentation models that pharma companies can apply to their operations.
The applicability of each supply-chain model depends on the business segment, customer needs, and key product behaviors and characteristics. See Exhibit 3. The Service Model. This supply-chain model is well suited to segments in which the cost of an unavailable product is high, either due to reputational impact in the case of medically necessary products , the availability of competing products, or basic economics if the product margins are high. Because aiming for percent product availability is costly, the service model works best for high-margin products and those with predictable demand.
The model requires investing in capacity and inventory to achieve high service levels. To get the highest return on these investments, pharma companies should optimize their production systems and inventory levels, capitalizing on demand predictability. Forward-looking companies are also rethinking traditional pharma products and their distribution and are looking for innovative service components that would be a source of competitive advantage and added revenues. The Cost-Effective Model. For segments with shrinking margins, inefficiency and waste must become relics of the past.
Lean operations are critical when selling to emerging markets with significant pricing pressures, when competing against low-cost providers, and when selling lower-margin products such as generics and OTC drugs. The low-cost supply chain aims for manufacturing scale, high capacity utilization, streamlined processes, minimal complexity and waste, minimal transportation costs, and process reliability to keep costs low while maintaining high-quality standards. In many cases, these improvements require a step change in capability beyond what typical continuous-improvement programs will deliver.
For example, manufacturers of generic products will pursue global scale, reduce product complexity, set up facilities in low-cost locations, and keep prices low, aiming for high volume rather than high margins. Generic companies must constantly rebalance their portfolios, adding new products and dropping those that no longer fit.
Using Models to Improve the Supply Chain | Taylor & Francis Group
The Agile Service Model. Availability and fast response times are critical when new products are launching, customer demand is volatile, and sales volumes fluctuate due to factors such as competitors moving in and out of a market and the introduction of competing drugs in a therapeutic area.
The goal of the agility model is to create a flexible, highly responsive manufacturing and distribution network by rethinking current processes, production strategies, and network design; outsourcing noncore activities; and using partnerships, contract manufacturing, and logistics providers to increase flexibility.
Strong end-to-end supply-and-demand planning and information flows are also critical in order to optimize inventory levels. Segments that will benefit the most from this model are those in which product enhancements have resulted in a proliferation of stock-keeping units, new priority markets have highly uncertain forecasts, and constraints of a technical nature such as cold chain or shelf life require supply chains that are more flexible and responsive. A good example of a segment well suited to this model is a patented product with strong growth prospects in a large emerging market such as Brazil.
The Agile, Cost-Effective Model. While high service and low cost tend to be mutually exclusive, agility and cost effectiveness can coexist to a certain degree in the same supply chain if companies thoroughly understand their business needs, plan rigorously, improve end-to-end processes, keep operations lean, and outsource noncore activities. They must also be ready to use partnerships, contract manufacturing, and logistics providers as needed to increase flexibility. For instance, in competitive tender situations, demand can be hard to predict and downward pressure on prices means operations must be lean.
To succeed, supply chain operations and the business must maintain an active dialogue to plan production and align priorities so that they can allocate product if supply is constrained. Moreover, the business must agree to accept potential product shortages in certain markets—a necessary tradeoff to allow for the coexistence of cost and agility. For example, after its key primary-care product lost patent exclusivity, one pharma company had to redesign its supply chain, moving from a service model to a focus on cost effectiveness and agility in order to compete against generic manufacturers.
9 Important Ways to Improve Supply Chain Management
The company consolidated its supply network, increased capacity utilization, minimized inventory levels, and redesigned production processes. Tailored supply-chain models offer a range of benefits. They can increase manufacturing flexibility for products with more volatile demand; help ensure that resources and capabilities are allocated in ways that better meet the needs of specific customer segments; and support growing complexity at a competitive cost. In short, more effective supply-chain designs can be both economical and a strong source of competitive advantage, yet few pharma companies segment their supply chains beyond product type or business.
Those that do may segment some production steps based on volume and volatility profiles. For instance, they may move to a make-to-order strategy for low-volume, low-volatility products to eliminate inventory, or they may drive down levels of inventory for high-volume, low-volatility products. But companies can go much further than this to fully capitalize on the potential benefits of supply chain segmentation by making segment-specific decisions along each step in their supply chains.
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This requires a strong analytical and programmatic approach. As a first step toward developing more tailored, effective supply chains, pharma companies must truly understand the demand and performance patterns of their different segments. It is equally critical to analyze the end-to-end supply-chain performance for each segment in areas such as cost to serve, service levels, and inventory levels.
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This analysis can reveal preexisting problems with supply chain design that the new strategic realignment can address. The new design must consider how to reshape the manufacturing and sourcing network; when and where to collaborate with external partners; and what new systems, processes, and metrics to put in place. On the basis of our work and experience, BCG has identified a set of key levers along the supply chain that leaders can use to improve supply chain performance:. Once the right design is selected, the next steps are to align execution at each plant and distribution point, build the required tools and skills, and ensure data transparency across the network.
Finally, it will be necessary to install simple coordination mechanisms along the supply chain and ensure agreement among all end-to-end players. All functions along the supply chain will be involved in the transformation, increasing the importance of a programmatic approach to change management and senior-leader alignment. Major change is always challenging, but this evolution has been a long time coming for the pharma industry.
If not, does your company understand the implications of these changes—and their effect on your supply chain? Have you redesigned your supply chain to improve performance and better coordinate your operations with current realities? Have you identified the strategic priorities of each product and customer segment and incorporated those priorities into the planning process to ensure that your company delivers on them? How are you balancing the agility, cost, and service tradeoffs? Do you know which segments are hurting supply chain performance, and do you understand the true underlying drivers of these problems?
Evolving Challenges, Competing Agendas The pressures generated by these fundamental changes tend to affect all functional areas within the pharma organization—and competing agendas can lead to conflicts of interest. Lessons from Other Industries Pharma companies have much to learn from other industries, especially those that have developed a deep understanding of the needs of their business segments and aligned their supply chains to achieve competitive advantage.
Balancing the New Priorities: Service, Cost Effectiveness, and Agility To meet the current industry challenges and increase overall competitiveness, pharma supply chains must improve how they manufacture and deliver finished goods, create new channel strategies, and drive revenue and margin performance. This ambitious agenda requires excelling in three critical dimensions: Service.
Supply chains must continue to ensure that the right products are at the right place at the right time. For some segments, this is the most important supply-chain priority, and cost effectiveness and agility are secondary considerations. When this is the case, pharma companies should design their supply chains to focus on product availability. An analysis of demand patterns will reveal which products have stable, predictable demand—and which have more volatile demand, possibly requiring investments in capacity and inventory.
Once product availability is in place, companies can focus on offering greater speed, convenience, and other services to their customers. Cost Effectiveness.