Evaluating supplier performance
measurements
(
anonymous version)Master thesis business administration
Master of organisational & management control
Rijksuniversiteit Groningen
Vincent Schuttelaar
Student number 1385372
Thesis supervisor Drs P.C.G. Molenaar
Co-assessor Dr S. Tillema
Preface
Dear reader, before you lays my master thesis written in order to complete my study
Organisational and Management Control at the Rijksuniversiteit Groningen. This thesis was written as a result of a four months internship at Company X.
I would like to thank my thesis supervisor Drs Molenaar for his comments on earlier drafts of this thesis. The effort made in reading and providing critical feedback has been a great help. Lastly, I would like to thank all my friends and family who supported me while writing this thesis.
Vincent Schuttelaar 26-6-2009
Summary
This report is trying to answer the following question: how can the supplier service level
measurement of Company X be improved? Company X measures the delivery reliability of all its suppliers. This research is focussed on measuring the reliability of the intercompany suppliers.
Literature about supplier performance measurements and evaluation of performance measurements has been reviewed. Literature from these two fields has been combined in order to create a framework that can be used to evaluate supplier performance measurements. This framework was then used to evaluate Company X’s intercompany supplier service level measurement. The necessary information was gathered by reading documents, conducting a survey, holding interviews, observing people, and by creating a dataset.
I conclude that the quality of Company X’s intercompany supplier’s service level
measurement is insufficient. However, the basics are good and it seems that a few adjustments could greatly improve the quality of the measurement. Furthermore, I conclude that the intercompany service level measurement has a clear purpose and is strongly aligned with Company X’s strategy. The main problem of the intercompany service level measurement is that it is hardly integrated within Company X. Several recommendations are given that could (partly) solve this.
Index
1 Introduction………..………6
2 Research design………7
Theoretical background 3 The significance of supplier performance measurements…..……….……….8
3.1 Performance measurement………8
3.2 Supplier performance………..………10
3.3 Supplier performance measurement………...……….12
4 Supplier performance measurements...……….……16
4.1 Which suppliers to measure……….………...…16
4.2 The level of measurement……….………..16
4.3 What to measure…….……….17
4.4 How to measure………..……….19
4.5 The standards against which performances can be compared……….…………....19
5 Evaluating supplier performance measurements………..……21
5.1 Criteria for evaluating the quality of a performance measurement……….22
5.1.1 Trade-offs created by contradicting evaluation criteria………23
5.2 Criteria for evaluating the integration of the performance measurement within the company………25
5.3 A framework for assessing the value of a supplier’s performance measurement...27
5.3.1 Evaluating the quality of a supplier performance measurement...…..28
5.3.2 Evaluating the integration of a supplier performance measurement within a company………....………...30
Applying the framework 6 Supplier performance measurement measurement at Company X……...………33
6.1 Data gathering……….33
6.2 An introduction into Company X………...……….34
6.3 Intercompany trade at Company X………..36
6.3.1 Intercompany purchase processes………36
6.3.2 Intercompany rules………...38
6.4 Intercompany service level measurement………...38
6.5 The dataset created by following non-scoring orders……….40
6.5.1 The underlying causes for non scoring orders ...41
7 The value of Company X’s intercompany service level measurement………...44
7.1 Evaluating the quality of Company X’s intercompany service level measurement...44
7.2 Evaluating the integration of the intercompany service level measurement within Company X……...………...………47
Conclusions
8 Conclusions………52
8.1 Recommendations for improving Company X’s intercompany service level Measurement………...52
8.1.1 Recommendations for improving the quality of Company X’s intercompany supplier service level measurement………...52
8.1.2. Recommendations for improving the integration of the intercompany supplier service level measurement within Company X………...53
8.1.3. Recommendations for improving the service level score of Company X’s intercompany suppliers……….54
8.2 Conclusions concerning the framework. ………54
8.3 Recommendations for further research……….………..56
References………...57
Appendix A: Dataset……….60
Appendix B: Survey questions………..63
Appendix C abbreviations and Key words... 64
Appendix D Interviews... 65
1 Introduction
In the last couple of years we have seen an increased attention towards the field of supply chain management. Factors such as globalisation, intensifying competition, government regulation, improvements in information availability, an increased concern for the
environment, and an increasing emphasis on customer orientation have all contributed to the increased interest in supply chain management (Gunasekaran et al, 2004, p334 and
Gunasekaran et al: 2001, p71).
Companies are starting to see themselves as a member of a supply chain instead of a separated entity. Therefore, companies are trying harder to influence the behaviour of their suppliers, just as they are doing with their own employees. A well-documented and researched method for influencing behaviour is by measuring performance. This has led to many companies installing supplier performance measurements. But which supplier performance
measurements are actually adding value to the company and which measurements should be abandoned?
One of the companies asking this same question is Company X. They measure the delivery reliability of all their suppliers. They call this the service level measurement. Company X is part of Company X NV, which has factories all around Europe. This leads to a lot of products being shipped from one Company X location to another. Company X has indications to believe that their service level measurement for these intercompany suppliers is not working correctly. This was translated into the following main research question: How can the
supplier service level measurement of Company X be improved? This research has been focussed on Company X’s intercompany suppliers. However, some of the recommendations following from this research might be equally applicable to external suppliers.
The terms service level and intercompany trade have already been used. It might be useful to define these first: The measured service level is the number of orders that are delivered on time and in full divided by the total number of orders. Intercompany trade is trade between different locations of one company. In this case trade between the different locations of Company X as well as trade between Company X and other companies around the globe owned by Company X NV.
2 Research design
Below I will shortly outline the design of this study by describing the objective, the key research question, further research questions, the constraints, and the methodology used to find an answer to these questions.
Objective:
To recommend and implement changes that lead to a durable improvement in the achievement and measurement of the internal and external suppliers service levels.
Key research question:
How can the supplier service level measurement of Company X be improved? (chapter 8)
Further research questions:
• Why is it important to measure supplier’s performance? (chapter 3)
• Which supplier performance measurement systems are known in literature? (chapter 4)
• On what criteria can performance measurements be evaluated? (chapter 5) • What does the current delivery process at Company X look like? (chapter 6) • What does the service level measurement at Company X look like? (chapter 6) • What causes the differences in measured service levels? (chapter 7)
Constraints:
• This research must be conducted within 6 months
• This research is purely focussed on the intercompany suppliers.
Type of research
To find an answer to the questions as stated above I will use a literature study, qualitative research as well as quantitative research. Data collection will be achieved by the use of secondary sources, interviews, surveys, and analyses of data warehouses. A more precise elaboration can be found in in chapter 6.1.
Research design:
THEORETICAL BACKGROUND
In this section I will set out the theoretical background of this research. I will begin with explaining the significance of supplier performance measurement. After that supplier
performance measurement systems as well as criteria that can be used to evaluate them will be discussed. Finally, the discussed literature will be used to develop my own framework for evaluating a supplier performance measurement.
3 The significance of supplier performance measurements
Supplier performance measurement is a topic where two subjects come together; supplier performance and performance measurement. I will start by discussing performance measurement in general. After that the impact of supplier performance on companyperformance will be discussed. I will conclude this chapter with bringing those two subjects together and discuss the functions that supplier performance measurement can fulfil within a company.
3.1 Performance measurement
Neely (1995, p 1228) defines performance measurement as the process of quantifying the effectiveness and efficiency of action. Effectiveness is the extent to which a customer’s requirements are met. Efficiency on the other hand measures how economically a firm’s Performance measurement is part of the broader field of management control. Management control is centred on the general question: Are our employees likely to behave appropriately? This question can be split into several parts. First, do our employees understand what we expect from them? Second, will they always try to do what is expected from them and finally, are they capable of doing what is expected from them? (Merchant and Van der Stede, 2003, p6) So management control is centred on employee’s behaviour. Supplier behaviour is normally not included in the management control theory. According to Merchant and Van der Stede (2003, p15) we may specify four types of management control that can be used to align employee’s behaviour with company goals:
Results control: There are four destinctive steps in results control. (1) Define what and how to measure. (2) measure the performance. (3) Set performance standards. (4) Provide rewards (or punishment) to encourage (or discourage) the behaviours that will lead to the desired results (Merchant and Van der Stede, 2003, p26). Interesting is, that in the first chapter of their book (2003, p5) they state that setting objectives is a necessary prerequisite for designing a management control system, while they later see it as a part of result control instead of a prerequisite.
Action control: Action controls ensure that employees perform (or do not perform) actions that are beneficial (or harmful) to the organisation. This can be done by placing behavioural constrains, reviewing actions before they are performed, make people accountable for their own actions, or by assigning more people than necessary to a task (Merchant and Van der Stede, 2003, p67).
Cultural controls: Cultural control is designed to encourage mutual monitoring between employees. Several measures can be taken to create such a culture within a company. Firstly, codes of conduct can be communicated to the employees. Secondly, rewards can be based on group performance. Thirdly, intraorganizational transfers help to inhibit incompatible goals between departments. Fourthly, physical and social arrangements can be used, and finally, the tone at the top has to set the right example (Merchant and Van der Stede, 2003, p77).
In the distribution made by Merchant and Van der Stede, performance measurement is part of the process to ensure result control. Their work is focussed on influencing the actions of all employees in a firm. Jensen and Meckling (1986, p1) look at a higher level. They focus on actions made by departmental managers and therefore at actions of departments. They state that managerial action is controlled by the so called ‘rules of the game’. These ‘rules of the game’ are made up of three elements. (1) performance measurement and evaluation system. (2) the reward and punishment system and (3) the system for partitioning decisions rights among individuals within an organisation. The three dimensions of the’rules of the game’ are obviously related. The reward and punishment system must coordinate rewards with
performance if the performance measurements are to have desirable effects on the behaviour of organizational members. Furthermore, the performance measurements are related to the ways in which decision rights are partitioned in an organization (Jensen and Meckling 1986, p1). They identify five major categories of performance measurement systems:
Cost centres Revenue centres Profit centres Investment centres Expense centres
It depends on the decision rights what kind of performance measurement system a department is (Jensen and Meckling: 1986, p5).
Neely (1995, p 1228) defines performance measurement as the process of quantifying the effectiveness and efficiency of action. However, in modern business management,
performance measurement plays a much bigger role than just quantifying (Chan and Qi, 2003, p210). A well known saying in the managerial world states: you can not manage what you can not measure. Performance measurement can provide feedback that enables managers to monitor performance, reveal progress, enhance motivation, communicate problems, and diagnose problems (Chan and Qi, 2003, p210)
Schmitz and Platts (2004, p234) conducted a literature review on functions of performance measurement. They gathered all functions of performance measurement they could find in literature and grouped them into nine groups:
Strategy formulation and clarification: Performance measurement can translate visions and strategy into operational objectives and actions. It can help to clarify strategies and specify values.
Management information: Performance measurement can provide management information that can be used as feedback to improve control. This information can be used for planning, forecasting, and to identify performance gaps.
Horizontal communication: Performance measurement can communicate strategy throughout the organisation and provide common language for communication. It provides a basis for rationale argumentation between departments and can clarify objectives and responsibilities.
Decision making and prioritising: Performance measurement can be used to support decision making.
Co-ordination and alignment: Performance measurement can provide alignment of objectives and actions throughout the organisation. It can simplify delegation of actions and decisions while still being in control.
Motivation: Performance measurement can motivate employees by showing their contribution to the overall result. Furthermore, it can make performances clear and can be a basis for performance related pay.
Learning Performance measurement can reveal someone’s real capabilities and improve the understanding of the business process. Performance measurement can also be used to challenge the business strategy.
Other: Performance measurement can focus management attention on critical issues and provide a basis for objective evaluation. Finally, it enables data to be acquired, collected, analysed, interpreted, and disseminated.
All these functions of performance measurement are advocated by authors in the field of performance measurement. In their study Schmitz and Platts (2004, p233) did not find evidence that performance measurement in reality indeed fulfils all these functions.
3.2 Supplier performance
The Firestone/Ford case is probably the best known example of the impact suppliers can have on a company. Defective tires delivered by firestone caused Ford to recall a total of thirteen million tires wihich lead to a total cost of over three billion. Furthermore, experts estimate that it may have caused as many as 250 deaths (O’Rourke: 2001, p255). Failures like this, made by suppliers, can seriously damage the image of a corporation.
Daft (2004, p69) states that: “from a resource based perspective, organisational effectiveness is defined as the ability of the organisation to obtain scarce and valued resources and
successfully integrate and manage them”. Supplier performance could be seen as an input into the organisational process. Therefore, according to the resource based theory the effectiveness of a firm could be measured – among else - by their capability to obtain suppliers who
perform better then those of their competitors.
Developments like just in time delivery, total quality management, lean production, electronic resource planning, and kaizen all stress the importance of suppliers. This in turn has added further significance to the field of supplier management and supply chain management (SCM). Today many companies have taken steps to break down barriers between them and their suppliers. This has been done to reduce uncertainty and to increase their control over supply and distribution channels (Gunasekaran et al: 2004, p333). Supplier performance has changed over the past decades from one mainly focused on cost towards a more balanced view were cost, delivery performance, product quality, information sharing, and many other aspects are considered. Not only internal motives have driven the increased attention for SCM. External factors such as globalisation, government regulation, improvements in
information availability, and an increased concern for the environment have all contributed to the increased interest in supplier performance management (Gunasekaran, 2004, p334). Interest in supplier performance has also been fuelled by increased demands on the one hand and an increased focus on net profit on the other hand. In order to achieve this, companies need to customize more products, improve quality, and react faster to changes in customer demands. While doing this, companies also need to reduce production cost, shorten lead-times, and lower inventory cost to ensure profitability. In order to survive under these pressures companies became closer and more reliant on their suppliers (Chan and Qi: 2003, p209).
The only article I could find that quantified the actual relationship between supplier
performance and company performance is from Vonderembse and Tracey (1999, p38). They state that good suppliers can eliminate raw material stock outs, increase on time delivery, reduce in-transit damage and improve incoming product quality. They find that supplier performance is highly correlated with manufacturing performance. They conclude that good suppliers can help companies in achieving lower production costs, reducing work in progress
inventory, improving product quality, and increasing in on-time-delivery to the final customer.
It is interesting that several authors discuss the reasons why supplier performance should be high on the management agenda when only one article describes a study that proves the actual effect of supplier performance on company performance. It seems that a lot of research still has to be done in this field.
3.3 Supplier performance measurement
Management control is focused on employee behaviour. However, companies can gain not only from influencing employee’s behaviour but also from influencing supplier’s behaviour. Therefore, the same questions that management control tries to answer for employees can be applied towards suppliers. Questions like: do our suppliers understand what we expect from them? Will they always try to do what is expected from them, and finally are they capable of doing what is expected of them, are equally relevant.
When we compare supplier performance with the management control theory, we see that companies usually try to influence their suppliers using result control. This is caused by the fact that supplier performance measurement usually takes place at their own company’s site (Levinson and Sonström: 2008, p12). Therefore, it is only the output of the supplier’s process that can be measured. That is why results control is often the only control system that can be applied at suppliers.
Management information: Supplier performance measurement can be used to get an objective indication of supplier performance and therefore can be used to identify gaps between
objectives and actual performance. (Gunasekaran 2004, p333, Chan and Qi 2003, p 210, Schmitz and Platts 2004, p241, Jorissen 1994, p184, Rutjes 2000 p8 and Koelewijn 1998, p12).
Strategy formulation and clarification: Supplier performance measurement can provide insights which can reveal the effectiveness of strategies. Besides that, supplier performance measurement can identify success and potential opportunities (Chan and Qi 2003 p 210).
Communication with suppliers: supplier performance measurement can facilitate a greater understanding and integration among the supply chain members and can stimulate a workable relation with suppliers because facts become visible. Supplier performance measurement increases the authority of company’s employees in their dealings with suppliers (Chan and Qi 2003, p 210, Schmitz and Platts 2004, p241, Rutjes 2000 p8 and Jorissen 1994, p184).
Communication between departments: supplier performance measurement can incorporate the purchase department in the business process. In the past purchase was responsible for
selecting suppliers and making sure that enough stock was available for production. Nowadays the purchase department is responsible for taking corrective actions when a supplier underperforms. Because of this the purchasing department has to communicate with many departments in the organisation. This is very different from the more isolated role the purchase department fulfilled in the past (Schmitz and Platts 2004, p241 and Verweel 2004, p5).
Decision making and prioritising: Supplier performance measurement can be used to prioritize supplier improvement activities, focus management attention on critical suppliers, and support decision making in supplier selection. It makes an indispensable contribution to decision making in supply chain management. (Chan and Qi 2003 p 210 and Schmitz and Platts, 2004, p241)
Co-ordination and alignment: Using performance measurement can increase the overall importance of logistics for purchasing decisions (Schmitz and Platts, 2004, p241).
Motivation of suppliers: Supplier performance measurement can positively influence supplier’s behaviour. It can be used to threaten suppliers in order to catch their attention or indicate actions (Rutjes 2000 p8, Schmitz and Platts 2004, p241and Chen and Paulraj, 2004, p. 145) Koelewijn (1998, p12) states that the performance scores need to be discussed with the suppliers in order to achieve this.
Learning: Supplier performance measurement can lead to continues improvement because suppliers get educated (Rutjes 2000 p8, Schmitz and Platts 2004, p241, Chan and Qi 2003 p 210 and Koelewijn 1998, p12).
Provide historical data for negotiations and discussions: Supplier performance measurement can provide historical data. This data can be used during negotiations and discussions
(Schmitz and Platts 2004, p241).
Measure the performance of the purchasing department: Supplier performance measurement can be used to measure the purchase department’s performance. Many of the purchase department’s tasks can only be fulfilled in cooperation with their suppliers. So by measuring supplier performance it can be seen whether the purchase department has performed these tasks correctively (Verweel, 2004, p5 and Koelewijn 1998, p12).
Receive an ISO certificate. Having a supplier’s performance measurement system is a
prerequisite for receiving an ISO 9000 certificate for quality control (Jorissen 1994, p184 and Verweel, 2004, p5).
Can lead to revised product specifications: Supplier performance measurements can lead to insights that can lead to revised product specifications (Jorissen 1994, p184 and Rutjes 2000, p8).
If we compare the functions of supplier performance measurement as mentioned above with the functions of performance measurement as identified in paragraph 3.1 we see a big overlap. However, the difference between those two is mainly concerned with the level at which it is applied. Performance measurement mainly fulfils functions at the level of an individual employee or department within the context of a company while supplier performance measurement mainly fulfils functions at the level of a department or organisation within the context of a supply chain. Therefore, it seems essential that performance measurement and supplier performance measurement are coherent with each other.
As can be read above supplier performance measurements can fulfil a lot of positive functions. However, two authors identify reasons why companies should not apply supplier performance measurement.
A bad rating does not say anything about the underlying causes: Supplier performance measurements only indicate how a supplier performs. The score does not say anything about the underlying causes. Therefore, a supplier performance measurement on it self is worthless. The purpose is to make improvements. Corrective actions can only been taken when the underlying causes are known (Jorissen 1994, p184 and Rutjes, 2000 p, 8).
The supplier’s performance in the past is measured: Supplier performance measurement measure the supplier’s performance in the past. However, companies are interested in the supplier’s future performance (Jorissen 1994, p184 and Rutjes, 2000 p, 8).
It takes a lot of time to install and maintain a supplier performance measurement:
Installing and maintaining a performance measurement costs a lot of time. Time is a scarce resource in almost every company (Jorissen 1994, p184 and Rutjes, 2000 p, 8). It is difficult to assess the costs and benefits of a supplier performance measurement (Jorissen 1994, p184).
Important factors can be left out: A supplier’s performance consists of many elements. When a supplier performance measurement is installed the focus will be on those elements of the supplier’s performance that are being measured. However, it is very hard to incorporate all elements which contribute to a supplier’s performance (Rutjes, 2000 p, 8).
Performance measurements cost money: Installing and maintaining supplier performance measurement costs money. Money is a scarce resource in almost every company (Rutjes, 2000 p, 8).
In this chapter the relationship between management control and supplier performance measurement has been discussed. The functions of supplier performance measurements as identified in literature have been presented and so have been the reasons why a company should not measure supplier performance. It is up to the individual companies to decide whether they find the positive sides of supplier performance measurement bigger then the negative sides. This will probably depend on the situation of the individual company. What these contingencies are is beyond the scope of this thesis.
4 Supplier performance measurements
The question how to create a supplier performance measurement can be divided into several sub questions. These include: Which suppliers am I going to measure? On what level will I measure them? What will I measure? How will I measure? And finally, with which standard will I compare the supplier’s performance? Some attempts have been made to develop a framework for designing supplier performance measurements, but none has yet been able to answer all the questions as stated above. In this chapter I will try to give an overview of the research done in this field.
4.1 Which suppliers to measure
A lot of authors discuss supplier performance measurement without discussing to whom it should be applied. The authors that do address this topic seem to differ in their opinion. Verweel (2004, p8) states that it is impossible to measure all suppliers since this is too expensive compared with the rewards of supplier performance measurement. Only suppliers with an ongoing contract or suppliers that create a relatively high part of the purchase costs should be measured. On the other hand Levinson and Sonström (2008: p40) state that all suppliers of direct materials should be measured. According to them modern companies strive to be lean; consequently there are few extra parts in stock. This means that even insignificant parts that are late or defect can stop production.
Van Namen and Van Weering (1993) take a more balanced approach. They state that whether or not a supplier should be measured depends on the market and the product. This is
summarized in table 2.
Table 2: Applicability of supplier performance measurement (Van namen and Van Weering: 1993)
They illustrate this by the following example: On a hot summer’s day it will not be of much use to measure the only ice cream seller on the beach. He will always sell all his products since it is a seller’s market and a standard product. On the other end of the line is a specified software builder. There is a lot of competition and the products are specific. In this case supplier performance measurement will add much more value (Van namen and Van Weering: 1993).
4.2 The level of measurement
Supplier performance can be measured at several levels. Several authors discuss levels at which supplier performance should/could be measured. The level on which a company wants to evaluate its supplier influences what is measured and how it is measured (Levinson and Sonström: 2008: p11).
Gunasekaran et. al. (2004, p335) state that there are three levels of supplier performance measurement:
financial plans, competitiveness, and level of adherence to organisational goals. An example of this kind of measurement is supplier pricing against the market.
Tactical level: This level deals with resource allocation and measuring performance against pre-set standards. These standards have to be met in order to achieve the targets specified at the strategic level. Performance measurement at this level provides valuable feedback for mid-level management decisions. An example of this kind of measurement is a supplier’s capacity flexibility.
Operational level: Operational measurements assess the results of decisions made by low-level managers. Supervisors and workers have operational objectives that if met will lead to the achievement of tactical objectives. An example of this kind of measurement is the amount of defect free deliveries.
A segmentation made by Van Weele (2001, p287) and used by several authors consists of: Product level: The incoming products from the suppliers are checked and compared
against the preset standards.
Process level: This is focussed on the supplier’s production process. After all it is the production process that created the (lack of) quality.
Quality assurance level: The supplier’s quality management system is measured. This is done to ensure that quality improvement is an ongoing topic at the supplier.
Company level: The supplier’s management and financial status are measured. This is done to be sure that the supplier will be able to continue its operations.
Usually supplier performance is only measured at what Van Weele (2001, p287) calls the product level. This is because supplier performance measurement usually takes place at the buyer’s site, which makes it harder to perform the other three levels of measurement. When this is compared with the types of management control as described by Merchant and Van der Stede (2003, p15) we see that evaluating suppliers at the product level could be placed under result control, since it is the output of the suppliers processes that is being measured.
4.3 What to measure
The measured score is supposed to be a reflection of the supplier’s performance. It is
interesting that a lot has been written about metrics that can be used to measure a performance while the actual performance that the metric is intended to measure has received far less attention. I have found three studies that have identified elements of supplier performance. The elements of supplier performance that can be measured are summarized in table 3.
Table 3: Elements of the supplier performance that can be measured as identified in literature
For responsiveness the same applies as to reliability. Again an elaboration is not given by Huang et. al. (2005, p384). They state that the time it takes to fulfil an order is an indicator of supplier responsiveness.
All three studies identify flexibility as an element of supplier performance. Chan (2003, p539) states that flexibility can be divided into range and response flexibility. Range flexibility refers to the extent to which the range of operations can be changed. Responsive flexibility refers to the time and/or cost it takes to change operations. Neely et. al. (1995, p1240) confirm this difference between range and response flexibility. Notable is that Neely et. al. give supplier lead-time as an example that measures supplier’s flexibility while Huang et. al. (2005, p384) see this as an indicator of supplier’s responsiveness.
Cost is identified as an element of supplier’s performance by all three studies. Both Chan (2003, p 536) and Neely et. al. (1995, p1237) stress the importance of looking at total purchase cost. The total cost consists of all costs created by the purchase and use of the product. Neely et. al. (1995, p1237) even point out opportunity cost.
Huang et. al. (2005, p377) do not elaborate efficiency beyond the point that efficiency relates to the management of assets. Both in terms of working as well as fixed capital.
Resource utilisation refers to the inputs of the process. Raw materials, equipment, machines, human resources, energy, warehouse space, et cetera have to be handled in a well-organised and optimum way (Chan: 2003, p538).
Chan (2003, p538) states that quality is all that influences customer satisfaction. So this includes product quality but for instance also delivery performance. Neely et. al. (1995, p1233) look at quality from two ways. They state that quality can be seen as the quality of the process or as the quality of the product. The Quality of the product can be defined by product characteristics or by the customer satisfaction it creates.
Buyer and supplier together create a chain. If a customer wants to change some product specifications this has to be communicated down the chain. Not only takes this time but it can also transform the message. Therefore, it is important to improve information transfer
between buyer and supplier by having a more visible information sharing system (Chan:2003, p 540).
Chan (2003, p541) describes trust as something that can develop when there is reliability and consistency between buyer and supplier. Trust includes risk- and information sharing.
Through compromise buyer and supplier will inform each other of any urgent issues or problems, so that they can solve the problem as quickly as possible and minimise risks. Trust seems to be an extension of reliability as identified by Huang et. al. (2005, p383).
Innovation is critical in this ever changing environment. Buyer and supplier should together try to be innovative (Chan, 2003, p541).
4.4 How to measure
Supplier performance measurement methods can be divided into two categories: objective and subjective methods. Subjective methods are based on perceptions while objective methods are based on numbers. A lot has been written about why performances should be measured. How performances should be measured has received far less attention. Both subjective and
objective performance measurements have its advantages. Those will now be discussed.
Subjective performance measurements have several advantages. First of all it is relatively easy. Secondly, it often leads to improvements from the supplier (Van der Weijden and Dekker 2000: p b3506-4). Third, subjective measurements can capture very interesting information that can not be captured by using objective measurements. And last, proponents of subjective measurements say that objective measurements are often to straight forward. A score falls within a certain category no matter the reason. Objective measurements leave no room for middle ground or interpretation (Levinson and Sunström: 2008, p42).
Objective performance measurements have several advantages as well. First of all the outcomes of objective performance measurements are far easier to compare then those of subjective performance measurements. It is difficult to compare subjective performance measurements because what for one evaluator might be a good performance might be seen as a bad performance by another evaluator. Secondly, objective performance measurements do not suffer from prejudices. Subjective evaluators often have a certain idea about a supplier before they start their evaluation and write towards that idea. Finally objective supplier performance measurements consume less time then subjective supplier performance
measurements. Subjective supplier performance measurement is very time consuming since all evaluations have to be written out while objective performance measurements are often done automatically (Levinson and Sunström: 2008, p42).
In their study Levinson and Sunström (2008, p42) conclude that the negative sides of subjective performance metrics seem to overshadow the positive sides.
4.5 The standards against which performances can be compared
The fact that a supplier scores on average 87% percent is not interesting on itself. It is the comparison with the standard that makes it interesting. After all the 87% score can represent an excellent performance when the standard is 50% while it represents a bad performance when the standard is 99%.
The NEVEM workgroup (1998, p42) identifies 7 methods for establishing standard values: Subjectively decided by the management: Management decides the standard value.
Often this way of establishing standards is used to quantify a state to which the company wants to go.
Subjectively by experts: The standard value is decided by one or several experts. Objective: The standard value is established by analysis.
Simulation: With this method it can be tested what a certain standard value will mean to the measured system. After evaluation of the simulations with different standard values the optimal standard value is chosen.
Comparative: Companies are compared with each other. Standard values are established on the basis of a benchmarking analysis.
Contract: Standard values are established during contract negotiations. In order to keep this thesis structured I have discussed all the elements of a supplier performance measurement as identified by me separately, however when designing a
performance measurement these elements should not be seen as independent factors. All those elements interconnect and together should form a coherent set.
5 evaluating supplier performance measurements
Since there is no literature available about evaluating supplier performance measurements, criteria will be discussed that are originally designed to evaluate logistic performance measurements, management accounting systems, and general performance measurements. The difference between these measurements and supplier performance measurements lies in the fact that suppliers are outside of the organisation while these measurements measure elements within the organisation. Therefore, the criteria need to be adapted in order to use them to evaluate supplier performance measurements. This results in my own framework that can be used to evaluate supplier performance measurements. This framework consist of three hierarchical levels. The first level of the framework, the conceptual map, is shown below in figure 2. The second- and third level will be introduced later in this chapter.
It is hypothesized that the value of a supplier performance measurement depends on the quality of the measurement and the degree of integration of the measurement within the company. The purpose of this chapter is not to prove the relation between the value of a supplier performance measurement and the two variables but to come to a framework that can be used to evaluate the two variables, which enables us to assess the value of a supplier performance measurement. The fact that the relation between the two variables and the value of a supplier performance measurement is not statistically proven, but based on common sense and empirical research, is a weakness in this research. However, proving the statistical relationship is beyond the scope of this research.
The functions that a supplier performance measurement can fulfil are already discussed in chapter 3 (page 13) and will therefore not be discussed in this chapter. A summary of the ways a supplier performance measurement can add value is given in figure 3.
Figure2: Level 1: factors influencing the value added by a performance measurement
• Management information
• Strategy formulation and clarification • Communication with suppliers
• Communication between departments • Decision making and prioritising • Co-ordination and alignment
• Can lead to revised product specifications
• Motivation of suppliers • Learning
• Provide historical data for
negotiations and discussions
• Measure the performance of
the purchasing department
• Receive an ISO certificate
In this chapter I will start by reviewing literature that could be used to evaluate the quality of a performance measurement. After that I will discuss literature that can be used to evaluate the integration of a performance measurement within a company. I will conclude with presenting the framework I created that can be used to evaluate the value a supplier performance measurement is adding to the company.
5.1 Criteria for evaluating the quality of the performance measurement
There is a wealth of literature available about evaluating individual metrics. However, most criteria seem to be based on practical experience rather then scientific research. Two positive exceptions are Caplice and Sheffie (1994) and Hackman and Lawler (1971). Furthermore, I will shortly discuss the article by Globerson (1985) since he mentions some criteria not mentioned by other authors and might therefore be of value when developing a framework for evaluating supplier performance measurements.
Caplice and Sheffi (1994, p14) conducted the most comprehensive research in this field. After conducting a literature review they were able to create eight groups, which were
comprehensive and sufficient in their coverage of the criteria as found in literature, that could be used to evaluate logistic performance measurements. The criteria as identified by Caplice and Sheffi will now be discussed.
Validity: A metric is valid if it reflects the actual activity being performed and controls for any exogenous factors that are outside of the management’s control. In the case of supplier performance measurement this means that the performance measurement should reflect the supplier’s real performance. This means that the supplier should not be measured on factors that he or she can not influence.
Robustness: A metric is robust if it is widely accepted, is interpreted similarly by different users, and can be used for comparisons across time, locations, and organisations.
Usefulness: a metric is useful if it is readily understood by the decision maker and suggests a course of action or direction to be taken. So for example, composite metrics that are
combining several factors into a single score are less useful. The method used to calculate the composite score might be seen as a black box, and therefore does not indicate a specific action to be taken.
Integration: A metric is integrative if it incorporates all the major components and aspects of the process being measured and promotes coordination across functions, divisions, or firms in the supply chain.
Economy: A metric is economical if the benefits outweigh the cost to collect, process, and report the metric.
Level of detail: A metric has the correct level of detail if it captures and reports the data in a level of aggregation that is useful to the decision maker. The level of detail is very closely tied with the function of a user. For instance a purchaser would want to know the delivery
reliability of each of his suppliers, while the logistic manager might be interested in the overall reliability of all suppliers combined.
Behavioural soundness: A metric that is behaviourally sound discourages any counter-productive actions or game-playing by those people or organisations being measured. Hackman and Lawler (1971, p287) state that there are three important factors when it comes to motivating employees with performance measurements: completeness, objectivity, and what they call ‘influencibility’. When a performance measurement is incomplete it will motivate people to focus only on the measured part of the job while neglecting parts of the job that are not being measured.
When a performance measurement is subjective employees will not believe that their
performance will be measured fairly. Unless employees feel that the measurement is fair and reasonable they will not change their behaviour. A performance measurement will not influence an employee’s behaviour when he or she is not able to see the connection between his or her performance and the measurement. For instance, employees low in the organisation will often have the feeling they do not have an influence on the final financial results. As a result they will not change their behaviour when their performance is measured by measuring the financial performance of the total company. So according to Hackman and Lawler, good performance measurements are complete, objective, and can be influenced by the individual. Globerson (1985, p643) gives three criteria for evaluating performance measurements. He mentions the level of aggregation, measurement accuracy, and crosscheck mechanism. According to Globerson the level of aggregation has to fit the needs of the management. Furthermore, he states that the level of aggregation can not be too high because random events can always influence the process. So the highest level of aggregation is the level where the measurement is still statistically relevant.
Globerson splits measurement accuracy into two parts.
1. The discrepancy between the reported value and the actual value.
2. The period of time elapsed between the moment the event was measured and the moment the measurement is reported.
Crosscheck mechanisms improve the reliability of the measurement. A crosscheck mechanism can for instance be created by generating a conflict of reporting interests. For example, when department A delivers department B and department A is measured on output while
department B is measured on basis of output divided by input then it is in A’s interest to report a high output while it is in B’s interest to report a low input.
5.1.1 Trade-offs created by contradicting evaluation criteria
Figure 4: Trade-offs within the metrics evaluation criteria. (Caplice and Sheffi: 1994, p17)
The first primary trade-off between validity and robustness implies that a metric becomes less valid when it becomes more robust. This also works the other way around. When a metric becomes more situation specific it can better reflect the actual situation, however it will become harder to compare the score.
The second primary trade-off is between integration and usefulness. The better a metric promotes coordination between departments or companies the less useful it will be for individual managers. This also works the other way around. For instance when the delivery time for a product is measured from the raw materials producer to the final customer this certainly promotes coordination between the different companies in the supply chain. However, this metric will not be of much use to the managers of the individual companies within the supply chain.
The secondary trade-offs are less restrictive. Usefulness and validity are somewhat contradicting because if a metric captures all the details of a process it is highly valid. However, these kinds of metrics tend to become very complex and therefore harder to understand. When a metric becomes more integrative it has to measure several processes at once. Therefore, the metric becomes less situation-specific and therefore less valid. The last secondary trade-off is between robustness and usefulness. The less situation-specific a metric is, the easier it will be to compare the score. However, when the metric becomes less
situation-specific it will be of less value while managing a process.
As can be seen in figure four, the only two non conflicting criteria in Caplice and Sheffi’s framework (figure four) are integration and robustness. A performance measurement can promote coordination while it is still easy to compare.
5.2 Criteria for evaluating the integration of the performance measurement within the company
The second variable influencing the value of a supplier performance measurement is the integration of the measurement within the company. This means that the performance measurement is used in such way that the company gains an advantage from using it. In the most extreme case a performance measurement could be executed without anyone within the company ever knowing that the performance measurement took place. These kinds of
measurements evidently will not add value to the company. There is relatively little literature available about this topic. Most frameworks concerning performance measurement are more like roadmaps indicating activities that have to be performed in order to create a performance measurement system. A noticeable exception is Neely et al. (1997). They created a
performance measurement record sheet that can be used to determine what a good
performance measurement constitutes. In addition an article from Chenhall and Morris (1986) will be discussed were they discuss research into the perceived usefulness of a management accounting system by managers. They conclude that the more managers perceive a system as being useful the more they will use it. Finally the conclusions of the NEVIM workgroup concerning setting standards will be discussed.
The framework developed by Neely et al. (1997, p1136) consists of thirteen elements. All of these elements have to be considered when evaluating a performance measure. These thirteen elements consist of the following.
Title: The title of the measurement should be clear. A good title immediately makes clear what is measured and why it is being measured.
Purpose: If a measurement has no purpose then it should not be measured. Therefore, the rationale underlying the measurement should be specified.
Relates to: A measurement should be aligned with the business objectives of a company. Therefore, a connection has to be made between the measurement and the business objective. A measurement could serve a very clear purpose. However, if this purpose is contradicting the business objectives the measurement is not adding value to the company.
Target: A measurement should have a clear target. The desired level of performance and the time within this level has to be achieved should clearly be defined. The desired performance depends on the level of performance of the competitors.
Formula: The way the performance is measured. The process should be measured in such way that the measurement is an actual representation of what was intended to be measured.
Frequency of measurement: It should be clearly defined and argued how often a performance should be measured. The more important the measurement the more often it should be measured.
Frequency of reporting: It should be clearly defined and argued how often a performance should be reported. The more important the measurement the more often it should be reported.
Source of the data: The source of the data should be identified and be consistent over time.
Who owns the measure: The person who owns the measurement should be identified.
What does the person(s) who owns the measurement do: What does the owner of the measurement process do with the measurements.
Who acts on the measure: The person who is to act on the measurement should be identified
What does the person who acts on the measurement do: What actions should the person responsible for acting on the measurement perform.
Chenhall and Morris (1986, p16) investigated the relationship between the usefulness of a management accounting system and structural decentralisation, perceived environmental uncertainty, and organisational interdependence. Usefulness is here defined as the perceived usefulness of the management accounting system by the management, whereas Caplice and Sheffi (1994, p14) define usefulness as a metric that is readily understood by the decision maker and suggests a course of action or direction to be taken. Chenhall and Morris define four characteristics of management accounting systems: scope, timeliness, level of
aggregation, and information that assist integration (see figure 5).
They found that managers in decentralised companies prefer aggregated and integrated information. These two characteristics of information provided by a management accounting system sound similar to the ‘integration’ and ‘level of detail’ criteria mentioned by Caplice and Sheffi. For integration this is indeed true, and both authors define that criterion similarly. However, for aggregation this is not true. With level of detail Caplice and Sheffi mean that the manager is getting the information with such a level of aggregation that it is optimal for his decision making. However, Chenhall and Miller define aggregation as the ability of the management accounting system to aggregate information in time, functional area, et cetera.
Figure 5: Information characteristics (Chenhall and Miller, 1986, p 19)
Information characteristics
Scope: -External information
-Nonfinancial information
-Future-oriented (e.g. probabilistic) Timeliness: -Frequency of reporting
-Speed of reporting
Aggregation: -Aggregated by time period -Aggregated by functional area -Analytica or decision models
Integration: -Precise targets for activities and their interrelationship within sub-unit
Furthermore, they find that managers prefer management accounting systems that provide timely information with a broad scope when their environment is uncertain. Finally they find that managers in companies with lots of organizational interdependence find management accounting systems useful that have a broad scope, the possibility to aggregate information, and that provide integrated information.
One might wonder why the findings of Chenhall and Miller were discussed in this paragraph and not in the paragraph discussing criteria for evaluating the quality of performance
measurements. The characteristics of information as identified by Chenhall and Miller are indeed very similar to some of the criteria that can be used to evaluate the quality of a performance measure. However, Chenhall and Miller use these characteristics of information to investigate how three situational factors influence the perceived usefulness of information. When a manager perceives the management accounting system as useful there will be a bigger chance that he is actually going to use it as when he perceives the management accounting system as useless. Therefore, the findings of Chenhall and Miller influence the integration of a performance measurement within the company instead of influencing the quality of a performance measurement.
The NEVEM workgroup (1998, p43) gives several criteria that need to be fulfilled in order to ensure that a standard is workable. They state the following criteria should be kept in mind when setting standards:
External acceptability: The performance standards should be aligned with the standard of the customer. For instance if a wholesale sales department has to deliver 95% of their orders on time, it will not be acceptable for them when logistic department has to be able to fulfil 90% of the orders out of stock.
Internal acceptability: All participants in the organisation need to accept their standards.
Clarity: Standards should be clear to all people involved in the process. Both in terms of values and definitions.
Achievability: Standards should be achievable. If standards are not achievable resistance against the standards will arise and motivation will be lost.
Equal burden: All participants should feel that everyone contributes equally towards the achievement of the corporate goals.
Together these criteria create a bandwidth wherein a standard can be established. If the standard falls outside the bandwidth it will become useless and might even harm the organisation.
In my conceptual map (figure 2, p21, level one of my framework) I stated that there are two variables that influence the value of a supplier performance measurement. I now go one step further and hypothise that there are two prerequisites for a performance measurement to add value to a company. (1) The performance measurement has to be of sufficient quality. A performance measurement can be used extensively throughout the company, however when the measured figure turns out to be an incorrect or unworkable number the performance measurement will not be adding any value. (2) The performance measurement has to be integrated within the company. A performance measurement can be of the highest quality, however when nobody is using the measurement for making decisions or is changing their behaviour because they are being measured the performance measurement is not adding value. Since non-value adding activities have to be eliminated either the quality of the performance measurement has to be improved(1), the intergration of the performance
measurement has to be improved (2) or the performance measurement needs to be abandoned (3). This is the second level in my framework and is graphically represented in figure 6.
In order to place a supplier performance measurement in the framework as presented in figure six, one need to be able to place the supplier performance measurements on both axes. In order to do that an evaluator needs criteria. Therefore, I created two checklists with criteria. One for evaluating the quality of a supplier performance measurement and one for evaluating the integration of a supplier performance measurement within a company. These checklists will be presented below and are the third level of my framework.
5.3.1 Evaluating the quality of a supplier performance measurement
As a basis for evaluating the quality a supplier performance measurement I take the criteria as developed by Caplice and Sheffi (1994, p14). As mentioned before this work is of high quality compared with other authors in this field. For all eight criteria it was checked whether they could be applied specifically to supplier performance measurements. It was also checked whether other similar criteria exist that are better defined or suited to the situation. This resulted in two criteria being omitted (namely level of detail and compatibility).
Caplice and Sheffi state that the correct level of detail is the level of detail that captures and reports the data with such level of aggregation that it is useful to the decision maker.
However, in my opinion they miss the fact that one measurement can be used by several people at several levels, who adapt the way information is presented to them to their own needs. Instead I introduce the criterion aggregation which is largely based on the
‘characteristic of information’ aggregation as described by Chenhall and Morris (see figure 5 p,26).
Aggregation: The supplier performance measurement is able to report the results in such way that it is useful to the decision maker. This includes aggregation in the level of detail, time, functional area, et cetera.
Furthermore, I omit the criterion compatibility. This criterion is defined as: A metric is compatible with the existing data collection information systems, and information flows of the firm, if no significant additional work is required to install and use the metric. However, this framework is constructed to evaluate existing performance measurements. So the metric will not be installed. Besides this, I find that Caplise and Sheffi are evaluating the same element twice. When evaluating a measurement on the criterion compatibility they assess whether it takes extra time to use a performance measure. This should already be evaluated when the costs and benefits are assessed for the criterion economy.
Caplice and Sheffi do not consider the motivation of the object being measured. This is logical since their work is aimed at the logistic function of a company, so the objects being measured are within the company. Motivation would therefore be seen as a way of integrating the measurement within the company. However, in the specific case of supplier performance measurements the object of measurement (the supplier) is outside the company. For this reason the measurement on itself has to be designed in such way that it motivates the supplier to improve his performance. That is why I include the motivation of the entity being measured as described by Hackman and Lawler (1971, p287) in this framework. Hackman and Lawler (1971, p287) state that there are three important factors when it comes to motivating
employees with performance measurements: completeness, objectivity, and what they call ‘influencibility’. Their criterion completeness is defined the same way as the behavioural soundness criterion from Caplice and Sheffi. Consequently the criterion completeness can be left out while the criteria objectiveness and ‘influencibility’ need to be included. A
measurement should make a supplier feel that he is being measured objectively. The best way to achieve this is by making the measurement on itself objective. The same applies to
‘influencibility’. Therefore, I defined these two criteria as:
• Objectiveness: A measurement is objective when the measurement is based on figures and not on perceptions.
• ‘Influencibility’: A measurement is “influencible’ when the supplier is able to influence the outcome of the measurement.
5.3.2 Evaluating the integration of a supplier performance measurement within a company
As a basis for evaluating the integration of a supplier performance measurement within a company I take the framework developed by Neely et al. (1997, p1136). I choose this
framework because it is the only framework that is specifically developed for evaluating how “good” a single performance measurement is. I checked whether the thirteen criteria could be applied specifically to supplier performance measurements. Moreover I checked whether other similar criteria exist that are better defined or suited to the situation.
The first criterion that I omit is formula. This criterion is defined similar as the criterion validity that I use to evaluate the quality of a supplier performance measurement. The second criterion that I omit is ‘source of the data’. Neely et al. (1997, 1137) state that the source of the data should be specified. This needs to be done because a consistent source of data is necessary to compare performance over time. However, the comparability of the measurement is already evaluated when the quality of the measurement is assessed. The last criterion I omit is target. In my opinion the criterion standard is more comprehensively defined by the
NEVEM workgroup. Therefore, I include the criterion as presented by the NEVEM workgoup when assessing the standard value of a supplier performance measurement.
Chenhall and Morris (1986, p16) state that managers in decentralised companies find management accounting systems that provide aggregated and integrated information more
Evaluating the quality of a supplier performance measurement
• Validity: A metric is valid if it reflects the actual activity being performed and controls for any exogenous factors that are outside of the management’s control. • Robustness: A metric is robust if it is widely accepted, is interpreted similarly by
different users, and can be used for comparisons across time, locations and organisations.
• Usefulness: A metric is useful if it is readily understood by the decision maker and suggests a course of action or direction to be taken.
• Integration: A metric is integrative if it incorporates all the major components and aspects of the process being measured and promotes coordination across functions, divisions, or firms in the supply chain.
• Economy: A metric is economical if the benefits outweigh the cost to collect, process, and report the metric.
• Behavioural soundness: A metric that is behaviourally sound discourages any counter-productive actions or game-playing by those people or organisations being measured.
• Objectiveness: A measurement is objective when the measurement is based on figures and not on perceptions.
• Influencibility A measurement is “influencible’ when the supplier is able to influence the outcome of the measurement.
• Timeliness: The measured performance can be reported before decisions have to be made.
• Crosschecks: The measured performance is being crosschecked.
useful. A supplier and his buyer are not one company but could be viewed as a decentralised part of a supply chain. Therefore, I feel that supplier performance measurements should provide information that is aggregated and integrated. The criterion aggregated is already being evaluated, however, for integration I have not been able to find a well-developed criterion that relates to the way the measurement is being used within a company. For that reason I use the characteristics of integration as defined by Chenhall and Morris (see figure 5) to come to the following criteria:
Integration of buyer and supplier: It is clearly specified when and who is going to inform the measured supplier about the influence his performance has on the buyer.
This criterion should not be confused with the criterion integration that is evaluated when the quality of the measurement is assessed. The integration criterion assesses whether or not the measurement improves integration between buyer and supplier. Whereas the ‘integration of buyer and supplier criterion’ assesses whether it is made clear to the supplier what impact his performance has on the performance of the buying organisation.
Chenhall and Morris (1986, p16) also state that managers in organisations with lots of organisational interdependence find accounting systems useful that provide integrated
information with a broad scope and the possibility to aggregate information. Buyers are often dependent on their suppliers, therefore these characteristics of management accounting systems should also be included in the criteria for evaluating the integration of a supplier performance measurement. However, the framework does not need further adaptations to include these characteristics since the scope of an information system is concerned with several measurements, while this framework is focussed on evaluating a single measurement. The criteria aggregation and integration are already included in the framework.
A complete overview of the checklist developed to assess the integration of a supplier performance measurement within a company can be seen in Figure 8.
In this chapter I presented a framework (figure 6, p28) for evaluating supplier performance measurements. This framework does not offer an objective evaluation of supplier
performance measurements. The same measurement can be placed differently in the framework by different evaluators even though they both use the same checklists (figure 7, p30 and figure 8, p32). In my opinion it is impossible to evaluate the quality of the
measurement objectively since some of the criteria are contradicting. This contradiction leads to the fact that a measurement can not do well on all criteria. It is up to the evaluator to decide whether or not these trade-offs are made consciously.
Evaluating the integration of a supplier performance measurement within the company
• Title: The title of the measurement should be clear. A good title immediately makes clear what is measured and why it is being measured.
• Purpose: If a measurement has no purpose then it should not be measured. Therefore the rationale underlying the measurement should be specified. • Relates to: A measurement should be aligned with the business objectives of a
company.
• Standard: The standard must be within the range created by the following criteria: • External acceptability: The process standards should be aligned with the
standards of the customer.
• Internal acceptability: All participants in the organisation need to accept their standards.
• Clarity: Standards should be clear to all people involved in the process. • Achievability: Standards should be achievable.
• Equal burden: All participants should feel that everyone contributes relatively equal towards the achievement of the corporate goals.
• Frequency of measurement: It should be clearly defined and argued how often a performance should be measured.
• Frequency of reporting: It should be clearly defined and argued how often a performance should be reported.
• Who measures: The person who is to collect and report the data should be identified.
• Who owns the measure: The person who is the owner of the measurement should be identified.
• What does the person(s) who owns the measurement do: It should be clear what actions the owner of the measurement should take.
• Who acts on the measure: The person who is to act on the measurement should be identified.
• What does the person who acts on the measurement do: It should be clear what actions this person should perform.
• Integration of buyer and supplier: It is clearly specified when and who is going to inform the measured supplier about the influence his performance has on the buyer.
