12.2 Balanced Scorecard Approach for Supply Chains
3 min read•july 25, 2024
The Balanced Scorecard approach is a powerful tool for supply chain management. It provides a comprehensive view of performance by considering financial, customer, internal process, and learning aspects. This holistic approach helps align supply chain activities with overall business strategy and goals.
In supply chains, the Balanced Scorecard adapts its four perspectives to focus on relevant metrics. It measures financial performance, customer satisfaction, internal processes, and employee growth. This approach helps identify relationships between different areas and drives across the entire supply chain.
Understanding the Balanced Scorecard Approach
Balanced Scorecard approach overview
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Strategic management and performance measurement tool developed by Robert Kaplan and David Norton in 1990s transforms strategy into actionable objectives
Four perspectives provide comprehensive view of organizational performance encompassing financial, customer, internal processes, and learning and growth aspects
Aligns business activities with organizational vision and strategy facilitating improved internal and external communications
Monitors organizational performance against strategic goals enabling data-driven decision-making and continuous improvement
Balanced Scorecard in supply chains
Adapts four perspectives to supply chain context focusing on specific metrics relevant to supply chain management
measures cost reduction, asset utilization, and revenue growth (inventory carrying costs, return on supply chain assets)
evaluates on-time delivery, order accuracy, and customer satisfaction (perfect order fulfillment rate, customer complaints)
Internal Process perspective assesses , cycle time, and quality metrics (, defect rate)
tracks employee skills, innovation, and technology adoption (training hours per employee, new product introduction rate)
Links supply chain objectives to overall business strategy ensuring alignment and coherence
Cascades scorecards throughout supply chain aligning metrics across organizational levels (corporate, division, department)
Identifies cause-and-effect relationships between metrics understanding how improvements in one area impact others (reduced cycle time leading to increased customer satisfaction)
Implementing the Balanced Scorecard in Supply Chain Management
KPIs for supply chain strategy
Select appropriate Key Performance Indicators aligning with supply chain objectives and balancing leading and lagging indicators
Financial KPIs: Total supply chain costs, return on supply chain assets, working capital utilization
Customer KPIs: Perfect order fulfillment rate, order lead time, customer retention rate
Internal Process KPIs: Forecast accuracy, supplier performance, inventory turnover ratio
Learning and Growth KPIs: Employee retention rate, training hours per employee, innovation index
Create visualizing relationships between objectives and KPIs identifying critical success factors
Establish SMART targets and initiatives for each developing action plans to achieve goals
Specific: Define clear, unambiguous targets
Measurable: Ensure targets can be quantified and tracked
Achievable: Set realistic goals considering available resources
Relevant: Align targets with overall supply chain strategy
Time-bound: Specify deadlines for achieving targets
Balanced Scorecard benefits vs limitations
Benefits:
Provides holistic view of supply chain performance integrating financial and non-financial metrics
Facilitates strategy execution and alignment ensuring all activities support overall goals
Enhances communication and collaboration across supply chain breaking down silos
Enables proactive decision-making and continuous improvement through real-time performance tracking
Limitations:
Implementation and maintenance complexity requiring significant time and resources
Difficulty selecting appropriate metrics balancing comprehensiveness and focus
Potential information overload overwhelming decision-makers with excessive data
Risk of focusing on metrics at expense of overall strategy (gaming the system)
Overcoming challenges:
Ensure leadership commitment and support fostering organization-wide buy-in
Provide adequate training and resources empowering employees to effectively use the scorecard
Regularly review and update scorecard adapting to changing business environment
Integrate scorecard with existing management systems avoiding duplication of efforts