Common performance measurement approaches

Supplier performance measurement could be stand alone, but where the wider organization has an established performance measurement system in place it should integrate with or at least inform this. Therefore, before we can explore SPM further, we first need to explore the common approaches for organizational performance measurement as any SPM system would naturally form part of this.

Measurement is a vital component to enable organizations to function, and for others to determine how well the organization is functioning. Indeed the strength of entire economies is determined by examining collective performance of groups of companies. Where measures are essential to protect and comply, organizations tend to be pretty good at ensuring the necessary arrangements are in place, after all the risk of not doing this is too great. However, when it comes to measuring less tangible things, the use of effective measurement systems becomes harder to find within firms. Ask senior individuals within a business how effective the organization is at, say, responding to and aligning itself to corporate strategy and they may well struggle to point to any robust or definitive measures here beyond standard financial management information.

Whilst most organizations will use measurement of some sort, effective measurement, which adds value, is often harder to find. The problem is it is easy to measure the wrong things, to measure too many things, to not measure enough or only measure what has happened not what is happening. Add to this the fact that multiple things need to come together to make an organization successful: people, processes, customers, funding, infrastructure and of course suppliers and knowing what and how to measure efficiently becomes a challenge.

Neely et al (1995) define performance measurement in organizations as 'the process of quantifying both the efficiency and effectiveness of actions' whilst Dumond (1994) suggests it is necessary 'to support the achievement of goals with the intent to motivate, guide and improve an individual's decision making'. Performance measurement is the way firms determine, on an ongoing basis, that they have the capability to prevail and achieve. The concept has been around for over a century now and originated as accounting systems, mostly developed in the early 1900s to support manufacturing products in batches (Cunningham and Fieume, 2003). Since then measures based upon financial accounting have been the primary means by which organizations have understood and corrected performance. The shortcomings of these existing 'finance only' type approaches are well documented (Kaplan and Norton, 1996; Neely et al, 1995; Johnson and Kaplan, 1987; Dixon et al, 1990). So for performance measurement to be effective it must consider more than financial measures.

There are many different approaches for organization-wide measurement as well as for the purchasing function or for individual supplier relationships. I will explore eight models or methods that seem to be commonplace. These are top down measurement, the Balanced Scorecard, the Business Excellence Model, the Dashboard, the Performance Prism, the Results and Determinants Framework, crowd measurement and good old gut instinct. I will explore each in turn. Crucially these are approaches for measurement for an entire organization and it is important to explore these in order to figure out how supplier and supply base related measures might integrate in each case.

< Prev   CONTENTS   Next >