Chapter 14—Performance Measurement Along the Supply Chain

TRUE/FALSE

1. In well-managed supply chains, performance measurement systems become smaller and less
complicated due to the closer relationships, trust and interactions.

ANS: F PTS: 1
BUSPROG: Analytic LO: 14-1 Bloom’s: Comprehension Difficulty: Easy

2. In general, firms aim toward first achieving adequate performance, and then continually improving on
those measures.

ANS: F PTS: 1
BUSPROG: Analytic LO: 14-1 Bloom’s: Knowledge Difficulty: Easy

3. In general, performance measurement systems are mostly identical from company to company.

ANS: F PTS: 1
BUSPROG: Analytic LO: 14-1 Bloom’s: Comprehension Difficulty: Easy

4. To control and enhance the capabilities of companies within a supply chain, well-designed
performance measurement systems must be implemented.

ANS: T PTS: 1
BUSPROG: Analytic LO: 14-1 Bloom’s: Knowledge Difficulty: Easy

5. Supply chain strategies must consider the trade-offs between the cost, quality, sustainability, and
service requirements.

ANS: T PTS: 1
BUSPROG: Analytic LO: 14-1 Bloom’s: Comprehension Difficulty: Easy

6. While profit, revenue, and cost related performance metrics would seem to be useful in moving a
company in the right direction, they often give no indication of the underlying causes of the financial
performance.

ANS: T PTS: 1
BUSPROG: Analytic LO: 14-2 Bloom’s: Comprehension Difficulty: Easy

7. Using cost as a departmental or business unit performance measure can actually result in actions that
raise costs for the organization.

ANS: T PTS: 1
BUSPROG: Analytic LO: 14-2 Bloom’s: Comprehension Difficulty: Easy

8. Establishing output or productivity standards creates a goal that can drive employees and managers to
do whatever it takes to reach these goals, even if it means damaging the company.

ANS: T PTS: 1
BUSPROG: Analytic LO: 14-2 Bloom’s: Comprehension Difficulty: Easy
 9. Traditional performance measures tend to link current operating characteristics to long-term strategies
and objectives.

ANS: F PTS: 1
BUSPROG: Analytic LO: 14-2 Bloom’s: Comprehension Difficulty: Easy

10. A company has 5 employees that work an 8 hour shift. During those eight hours they make 80 units.
The labor productivity would be 10 units/hr.

ANS: F PTS: 1
BUSPROG: Analytic LO: 14-3 Bloom’s: Application Difficulty: Easy

11. A weakness of the labor productivity measure is that managers might be tempted to lay off workers to
improve labor productivity.

ANS: T PTS: 1
BUSPROG: Analytic LO: 14-3 Bloom’s: Application Difficulty: Easy

12. Outputs/costs of (labor + materials + energy + capital), would be classified as a complete productivity
measure.

ANS: F PTS: 1
BUSPROG: Analytic LO: 14-3 Bloom’s: Application Difficulty: Easy

13. An effective performance measurement system consists of the traditional financial information for
external reporting purposes along with tactical-level performance criteria used to assess the firm’s
competitive capabilities.

ANS: T PTS: 1
BUSPROG: Analytic LO: 14-3 Bloom’s: Knowledge Difficulty: Easy

14. World class performance measurement systems today include assessments of environmental
performance.

ANS: T PTS: 1
BUSPROG: Analytic LO: 14-3 Bloom’s: Knowledge Difficulty: Easy

15. The Balanced Scorecard framework consists of four perspectives: financial perspective, human
resources perspective, inventory perspective, and the logistics perspective.

ANS: F PTS: 1
BUSPROG: Analytic LO: 14-4 Bloom’s: Knowledge Difficulty: Easy

16. The Balanced Scorecard approach to performance measurement seeks to improve managerial decision-
making by aligning an organization's performance measures with its strategic plan and goals.

ANS: T PTS: 1
BUSPROG: Analytic LO: 14-4 Bloom’s: Comprehension Difficulty: Easy

17. Some researchers have indicated that the Balanced Scorecard approach can problematic and costly to
implement, and even after implementation may be unsuccessful in achieving the overall objectives.

ANS: T PTS: 1
 BUSPROG: Analytic LO: 14-4 Bloom’s: Comprehension Difficulty: Easy

18. A model used for integrating supply chains and measuring partner performance is the SCOR model
which separates supply chain operations into four categories: Sourcing, Costs, Operations, and
Returns.

ANS: F PTS: 1
BUSPROG: Analytic LO: 14-4 Bloom’s: Knowledge Difficulty: Easy

19. The SCOR model’s newest process category is called Enable.

ANS: T PTS: 1
BUSPROG: Analytic LO: 14-4 Bloom’s: Comprehension Difficulty: Easy

20. SCORmark allows APICS Supply Chain Council (SCC) members to benchmark performance against
selected peer companies using a benchmarking portal at the SCC's website.

ANS: T PTS: 1
BUSPROG: Analytic LO: 14-4 Bloom’s: Comprehension Difficulty: Easy

21. One of the primary steps in developing world-class performance measures is to define a product’s
functions and attributes.

ANS: F PTS: 1
BUSPROG: Analytic LO: 14-5 Bloom’s: Knowledge Difficulty: Easy

22. Currently there is no software that will aid in analyzing the present carbon footprint of firms.

ANS: F PTS: 1
BUSPROG: Analytic LO: 14-5 Bloom’s: Knowledge Difficulty: Easy

23. Supply chain perfect order fulfillment performance measures the average percentage of orders that are
filled on or before the requested delivery date.

ANS: F PTS: 1
BUSPROG: Analytic LO: 14-5 Bloom’s: Comprehension Difficulty: Easy

24. Supply chain cash-to-cash cycle time is a performance measure that provides the average number of
days between selling the end product to the customer and receiving full payment for the goods.

ANS: F PTS: 1
BUSPROG: Analytic LO: 14-5 Bloom’s: Comprehension Difficulty: Easy

25. Web-based balanced scorecard applications are sometimes referred to as performance dashboards.

ANS: T PTS: 1
BUSPROG: Analytic LO: 14-5 Bloom’s: Knowledge Difficulty: Easy

MULTIPLE CHOICE

1. Performance measurements:
a. Assist in pricing of products
b. Help to eliminate non-value-creating activities
c. Help identify new customer requirements
 d. Both B & C
ANS: D PTS: 1
BUSPROG: Analytic LO: 14-1 Bloom’s: Comprehension Difficulty: Easy

2. Once the supply chain partner requirements are understood, supply chain members can then:
a. Develop an appropriate information technology system
b. Develop their organizational skill sets
c. Audit their capabilities to see if they are consistent with the needs of the end customers
d. Implement a quality development program for the employees
ANS: C PTS: 1
BUSPROG: Analytic LO: 14-1 Bloom’s: Comprehension Difficulty: Easy

3. Dominant companies within a supply chain can use their buying power to:
a. Leverage demands for supplier conformance to its supply chain requirements
b. Eliminate the need for performance metrics
c. Increase organizational productivity
d. Motivate customers to change their buying preferences
ANS: A PTS: 1
BUSPROG: Analytic LO: 14-1 Bloom’s: Comprehension Difficulty: Easy

4. In well-managed supply chains, performance measurement systems become much larger and are
complicated by:
a. Push supply chains
b. Varied relationships, trust and interactions
c. Demand-driven supply networks
d. SCOR supply chains
ANS: B PTS: 1
BUSPROG: Analytic LO: 14-1 Bloom’s: Comprehension Difficulty: Easy

5. Nowadays, successful supply chains are those that in the face of ever changing customer needs can
continue to:
a. Deliver the right combination of cost, quality, and customer service
b. Increase the number of suppliers used
c. Eliminate the need for performance metrics
d. All of the above
ANS: A PTS: 1
BUSPROG: Analytic LO: 14-1 Bloom’s: Comprehension Difficulty: Easy

6. Which of the following is NOT a problem with using cost, revenues or profits as performance
measures?
a. It is difficult to attribute costs to various functional units
b. Cost and profit information could be hidden or manipulated
c. They are difficult to compare with other firms
d. Weaknesses in functional areas are not identified
ANS: C PTS: 1
BUSPROG: Analytic LO: 14-2 Bloom’s: Comprehension Difficulty: Easy

7. Which of the following is a problem with a company establishing standards for performance? For
example: production rates of 10 units per hour.
a. Employees are driven to work so fast they may make defects
 b. Employees and managers may falsify production records
c. Once performance goals are reached, incentives to improve may disappear
d. All of the above
ANS: D PTS: 1
BUSPROG: Analytic LO: 14-2 Bloom’s: Comprehension Difficulty: Easy

8. When utilizing performance standards, the difference between the standard and the actual performance
is called the:
a. Productivity Gap
b. Organizational Variance
c. Certified Variance
d. Performance Variance
ANS: D PTS: 1
BUSPROG: Analytic LO: 14-2 Bloom’s: Knowledge Difficulty: Easy

9. Cost-based performance measures _____ reflect the underlying performance of the productive systems
of an organization.
a. Usually
b. Always
c. Rarely
d. Never
ANS: C PTS: 1
BUSPROG: Analytic LO: 14-2 Bloom’s: Comprehension Difficulty: Easy

10. Traditional performance measures include:

a. Cost and Revenue
b. SCOR and DCOR
c. Profit and Perfect Order Fulfillment
d. All of the above
ANS: A PTS: 1
BUSPROG: Analytic LO: 14-3 Bloom’s: Knowledge Difficulty: Easy

11. A company produces 300 bicycles every day. Each bicycle is worth $250. The inputs used to make
those bicycles are labor, materials, and machine costs. The company pays their employees a total of
$10,000 per day, the materials to make each bicycle cost $50, and the cost to operate the machines is
$3000 per day. Based only on the data provided, what is this company's total productivity for one day?
a. 2.68
b. 0.33
c. 0.77
d. 1.31
ANS: A PTS: 1
BUSPROG: Analytic LO: 14-3 Bloom’s: Application Difficulty: Easy

12. A company produces 750 bicycles in one week. The labor used to make the bicycles was 400 hours.
The next week, output was 710 bicycles using 360 hours. What was the change in labor productivity?
a. Increased by 1.9%
b. Increased by 5.2%
c. Decreased by 2.4%
d. Decreased by 3.3%
ANS: B PTS: 1
 BUSPROG: Analytic LO: 14-3 Bloom’s: Application Difficulty: Easy

13. According to the textbook, which of the following zoos audited their waste recycling performance?
a. San Diego Zoo
b. Lincoln Park Zoo
c. Phoenix Zoo
d. Bronx Zoo
ANS: A PTS: 1
BUSPROG: Analytic LO: 14-3 Bloom’s: Knowledge Difficulty: Easy

14. World-class performance measures can be used in different functional areas of a firm to satisfy
objectives, enhance the value of the firm's products and services, and increase customer satisfaction by
providing measures in which of the following capability area(s)?
a. Quality
b. Cost
c. Customer Service
d. All of the above
ANS: D PTS: 1
BUSPROG: Analytic LO: 14-3 Bloom’s: Comprehension Difficulty: Easy

15. Which of the following is a traditional performance measure?

a. Average safety stock levels
b. Overall total productivity
c. Number of suppliers who are quality certified
d. Number of product return per units sold
ANS: B PTS: 1
BUSPROG: Analytic LO: 14-3 Bloom’s: Comprehension Difficulty: Easy

16. Which of the following was designed by Kaplan and Norton in an effort to align performance
measures with strategic plans and goals?
a. Balanced Scorecard
b. SCOR
c. DCOR
d. GSCM
ANS: A PTS: 1
BUSPROG: Analytic LO: 14-4 Bloom’s: Knowledge Difficulty: Easy

17. Which of the following is NOT one of the four perspectives of the BSC framework?
a. Financial
b. Internal Business Process
c. Customer
d. Reliability
ANS: D PTS: 1
BUSPROG: Analytic LO: 14-4 Bloom’s: Knowledge Difficulty: Easy

18. Which of the following BSC framework perspectives deals with new product development, innovative
elements of processes, and time-based measures?
a. Financial
b. Internal Business Process
c. Customer
 d. Reliability
ANS: B PTS: 1
BUSPROG: Analytic LO: 14-4 Bloom’s: Knowledge Difficulty: Easy

19. Companies typically like to design scorecards that fit their business and industry. As a result there are
now software applications that can help companies design scorecards that fit their individual needs.
These web-based balanced scorecard applications are often referred to as:
a. E-Cards
b. Executive Barometers
c. Performance dashboards
d. SCOR Boards
ANS: C PTS: 1
BUSPROG: Analytic LO: 14-4 Bloom’s: Knowledge Difficulty: Easy

20. According to the SCOR model, which of the following is NOT one of the five supply chain operation
process categories?
a. Plan
b. Market
c. Return
d. Source
ANS: B PTS: 1
BUSPROG: Analytic LO: 14-4 Bloom’s: Knowledge Difficulty: Easy

21. Which of the following is focused on promoting the sharing of environmental responsibility along the
supply chain?
a. SCOR
b. Balanced Scorecard
c. GSCM
d. Single-factor productivity measures
ANS: C PTS: 1
BUSPROG: Analytic LO: 14-5 Bloom’s: Knowledge Difficulty: Easy

22. According to the textbook, the initial step in creating an effective performance measurement system is
to:
a. Develop the process
b. Contact supply chain partners
c. Identify the firm's strategic objectives
d. Improve performance as much as possible
ANS: C PTS: 1
BUSPROG: Analytic LO: 14-5 Bloom’s: Knowledge Difficulty: Easy

23. Which of the following supply chain performance metrics measures the average percentage of orders
that are filled on or before the requested delivery date?
a. Total supply chain management costs
b. Supply chain perfect order fulfillment performance
c. Supply chain cash-to-cash cycle time
d. Supply chain delivery performance
ANS: D PTS: 1
BUSPROG: Analytic LO: 14-5 Bloom’s: Knowledge Difficulty: Easy
 24. Which of the following supply chain performance metrics measures the average percentage of orders
that arrive on time, complete and damage-free?
a. Total supply chain management costs
b. Supply chain perfect order fulfillment performance
c. Supply chain cash-to-cash cycle time
d. Supply chain delivery performance
ANS: B PTS: 1
BUSPROG: Analytic LO: 14-5 Bloom’s: Knowledge Difficulty: Easy

25. Which of the following would be considered a way to measure Supply Chain Environmental
Performance?
a. Percentage of partners that are ISO 9000 certified
b. Measuring the Supply Chain Carbon-to-Carbon Cycle Time
c. Percentage of partners that have created a director of environmental sustainability position
in their company
d. All of the above
ANS: C PTS: 1
BUSPROG: Analytic LO: 14-5 Bloom’s: Comprehension Difficulty: Easy

SHORT ANSWER

1. The textbook described 7 supply chain specific performance measures adopted by supply chain trading
partners to further align supply chain objectives. List FOUR of those metrics.

ANS:
a. Total supply chain management costs
b. Supply chain cash-to-cash cycle time
c. Supply chain production flexibility
d. Supply Chain delivery performance
e. Supply chain perfect order fulfillment performance
f. Supply chain e-business performance
g. Supply chain environmental performance

PTS: 5
BUSPROG: Communication LO: 14-1 Bloom’s: Comprehension Difficulty: Moderate

2. Explain the difference between Total productivity and Single-factor productivity.

ANS:
Productivity = Outputs / Inputs

Total productivity takes into account all possible inputs. For example:
outputs
costs of (labor +capital +energy +material )

Single-factor productivity takes into account only those inputs related to the one factor, such as labor.
For example:
outputs
costs of labor

PTS: 5
 BUSPROG: Communication LO: 14-3 Bloom’s: Comprehension Difficulty: Moderate

3. Briefly describe the FOUR primary perspectives of the balanced scorecard.

ANS:
a. Financial Perspective - measures that address revenue and profitability growth, product
mix, cost reduction, productivity, asset utilization and investment strategies. Traditional
financial measures are typically used.
b. Internal business process perspective - focuses on performance of the most critical
internal business processes of the organization including quality, new product
development, flexibility, innovative elements of processes and time-based measures.
c. Customer perspective – measures that focus on customer requirements and satisfaction
including customer satisfaction ratings, reliability and responsiveness, customer
retention, new customer acquisition, customer valued attributes and customer
profitability.
d. Learning and growth perspective – measures concentrating on the organization’s people,
systems, external environment, and including retaining and training employees,
enhancing information technology and systems, employee safety and health and
environmental sustainability issues.

PTS: 5
BUSPROG: Communication LO: 14-4 Bloom’s: Comprehension Difficulty: Difficult

4. The textbook described 7 important steps in creating an effective performance measurement system.
List FOUR of those critical steps.

ANS:
1. Identify a the firm's strategic objectives
2. Develop an understanding of each functional area’s set of requirements for achieving the
strategic objectives.
3. Design and document performance measures for each functional area that adequately
track each required capability.
4. Assure the compatibility and strategic focus of the performance measures to be used.
5. Implement the new performance monitoring system
6. Identify internal and external trends likely to affect firm and functional area performance
over time.
7. Periodically re-evaluate the firm's performance measurement system as these trends and
other environmental changes occur.

PTS: 5
BUSPROG: Communication LO: 14-5 Bloom’s: Comprehension Difficulty: Moderate

ESSAY

1. In your opinion, how can using organizational costs, revenues, and profitability performance measures
be ineffective or even damaging in managing a process, system, or organization?

ANS:
 Environmental, political, and/or economic events may skew these numbers (Lucky or unlucky
events).
 It is difficult to attribute cost, revenue, or profit contributions of the various functional units or
business units of the organization. This is because departments/business units are
 interdependent and share costs, equipment, labor, and revenues.
 Using these performance metrics may cause departments to buy cheap materials, use unskilled
labor, or purchase inadequate machines, which will result in poor quality for the customer.
 Since many of the costs associated with business are fixed/overhead costs, managers are left to
minimize the variable costs such as labor. This may result in minor changes at best or lower
quality at worst.

PTS: 10
BUSPROG: Ethics LO: 14-2 Bloom’s: Application Difficulty: Difficult

2. Describe, in general terms, how the SCOR model works. What are the benefits to firms using this
model?

ANS:
a. The SCOR model helps to integrate the operations of supply chain members by linking
the delivery operations of the seller to the sourcing operations of the buyer. This model
separates supply chain operations into six process categories: plan, source, make,
deliver, return and enable. Within each of these categories performance attributes are
assigned. Firms score themselves in the categories and input their results using the
SCOR software. Member firms of the APICS Supply Chain Council can benchmark
performance against peer companies using a benchmarking portal at the APICS SCC
website.

b. The SCOR model enables effective communication, performance measurement and

integration of processes between supply chain members. This leads to continuous
improvements and sustainable competitive advantage for the supply chain’s participating
members. Using SCOR software firms can greatly reduce the time it takes firms to
perform a benchmarking study. Positive results from firms using this model have
included improved flexibility and reduction of total finished goods inventory levels,
leading improved shareholder confidence and stock price.

PTS: 10
BUSPROG: Communication LO: 14-4 Bloom’s: Comprehension Difficulty: Difficult

3. Briefly, explain why understanding the end customer is important to all supply chain parties in
developing an effective performance measurement system.

ANS:
By being able to identify the needs of the end customer the supply chain is able to reconcile trade-offs
between cost, quality, and service requirements.

Those in charge of developing and maintaining the supply chain will be better able to choose and
manage partnering organizations such that the supply chain will be equipped to serve the needs of the
customer.

Also, the supply chain is able to address deficiencies. This may require adding additional capacity or
investing in new equipment, technology, and/or higher quality materials and components.

PTS: 10
BUSPROG: Communication LO: 14-5 Bloom’s: Comprehension Difficulty: Moderate