balanced scorecard applications in supply chain management
TRANSCRIPT
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TILBURG UNIVERSITY
Balanced Scorecard applications in Supply
Chain Management Bachelor Thesis
Kevin Donck 876767
6/19/2009
Supervisor: Drs. M.A. Overboom
Word count: 6039
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Table of Contents
Chapter 1: Introduction ........................................................................................................................... 3
1.1 Introduction ............................................................................................................................. 3
1.2 Problem Indication .................................................................................................................. 3
1.3 Problem Statement ................................................................................................................. 4
1.4 Research Questions ................................................................................................................. 4
1.5 Research Design ...................................................................................................................... 4
1.6 Data Collection ........................................................................................................................ 4
1.7 Structure .................................................................................................................................. 5
Chapter 2: Supply Chain Management (SCM) ......................................................................................... 5
2.1 Introduction ............................................................................................................................. 5
2.2 Definition of Supply Chain Management ................................................................................ 5
2.3 Objectives of Supply Chain Management ............................................................................... 6
Chapter 3: Balanced Scorecard ............................................................................................................... 8
3.1 Introduction ............................................................................................................................. 8
3.2 Performance Measurement .................................................................................................... 9
3.3 The Balanced Scorecard ........................................................................................................ 10
3.4 Benefits of Balanced Scorecard for Supply Chains ................................................................ 14
Chapter 4: Experiences so far of the Balanced Scorecard in Supply Chain Management .................... 15
4.1 Introduction ........................................................................................................................... 15
4.2. A case study of the Balanced Scorecard ................................................................................ 15
4.3 The ease of implementing the BSC in supply chains ............................................................. 18
Chapter 5: Conclusion ........................................................................................................................... 19
5.1 Conclusions ............................................................................................................................ 19
5.2 Limitations and Recommendation ........................................................................................ 21
References ............................................................................................................................................. 22
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Chapter 1: Introduction
1.1 Introduction
This thesis is written as a completion of the bachelor International Business at Tilburg
University. Its main theme is “Aspects of Supply Chain Management”. Chapter one
introduces the problem in further detail through the problem indication. Thereafter, the
problem statement and the research questions will be introduced. Finally, the research design
and the data collection will be outlined.
1.2 Problem Indication
The competitive environment in which business nowadays evolve has changed. “New
competitors, development of new products, changing customer preferences and demand
patterns may require a company to reassess its strategy” (Papazoglou & Ribbers, 2006). In a
turbulent and dynamic environment, where predictability of changes is low, organizations
have to constantly adjust to respond to those business changes to sustain their competitive
advantage. For that reason, performance measures also evolved. “Since in a dynamic
environment financial measures may not properly represent a firm‟s prospects, several
methods have been proposed to capture the long-term effect of managerial activities. The
balanced scorecard, which is the most prominent of these new concepts, provides a
framework in which both financial and nonfinancial success measures are linked by the firm‟s
strategy” (Budde, 2007, p. 515). Even though financial logistics performance measures, such
as order fill rates, damage rates, cost per order and return on asset (ROA), are essential to
manage any logistic control system, “they are not always focused on measuring, motivating,
and optimizing intra-firm and inter-firm performance” (Brewer & Speh, 2000, p. 82).
According to Kaplan and Norton (2005), the reason for this latter inappropriate focus is that
traditional logistics performance measures only provide information about the past. Therefore,
the use of a more refined complex system such as the balanced scorecard in relationship with
supply chain management can be a solution to the issue of integrating both traditional
performance measure as well as non financial performance measures. Although the balanced
scorecard has been introduced less than two decades ago, it has had a revival into recent
literature dealing with operation management because of its capacity to be used as a new
strategic management system.
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1.3 Problem Statement
The central question that will be dealt with in this thesis is: How can the balanced scorecard
be used to measure supply chain performance to support companies improving the
coordination of their processes?
1.4 Research Questions
The questions that will be subsequently answered to be able to solve the problem statement
are:
1. What are the objectives of Supply Chain Management?
2. How can performance measurement be used to improve supply chains?
3. What are the experiences so far in implementing the Balanced Scorecard in supply
chains?
1.5 Research Design
This thesis will be an exploratory research aiming at gathering information from secondary
sources to investigate on the problem statement and the research questions stated above. The
method used will be a literature review, gathering information from knowledge published in
secondary sources. The main concepts that will be investigated are the Supply Chain, the
Balance Scorecard and the measure of performance within the supply chain. To insure the
validity of the findings deducted, they will be compared to state of the art articles from „top‟
journals of the field of operation management.
1.6 Data Collection
The source of the data and information that will be collected for the purpose of writing this
thesis will come from recent articles, books and electronic sources of the operation
management field. To insure validity of the data collected, only state of the art articles from
„top‟ journals will be used. Namely, the Harvard Business Review, the European Journal of
Operational Research, the International Journal of Production Economics, Organizational
Dynamics, the Journal of Business Logistics and the European Management Journal. Those
secondary sources where found on the catalogue, online contents and ABI/Inform and
JSTOR. The search criteria for this thesis are “performance measurement”, “supply chain
management” and “balance scorecard”. The snowball method was also used for additional
sources. Furthermore, grey literature was used to increase understanding of specific issues.
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1.7 Structure
Chapter two provides a definition of supply chain management and discusses its objectives.
Chapter three first looks into the capability of performance measurement that can be used to
improve supply chains. It then defines the concept of the balanced scorecard that was
introduced by R. Kaplan and D. Norton in 1994. In chapter four, discusses a case study of a
supply chain consisting of two companies in the chemical industry. Chapter five is the
conclusion and the recommendations of this thesis.
Chapter 2: Supply Chain Management (SCM)
2.1 Introduction
Supply Chain Management has drawn a lot of attention in academic research. “Supply Chain
Management is one of the three most important management practices for determining world
class performance”. (White, 1994, p. 31) Furthermore, “Supply chain management has
become such a „hot topic‟ that it is difficult to pick up a periodical on manufacturing,
distribution, marketing, customer management, or transportation without seeing an article
about SCM or SCM – related topics”. (Ross, 1998, p. 323) SCM is therefore important for
businesses. This chapter first introduces the notion of Supply Chain Management. Thereafter,
it will discuss the objectives and goals of SCM. Finally, it will look into the advantages of
SCM.
2.2 Definition of Supply Chain Management
Many definitions of supply chain management exist and there is little consensus on what it
means (Mentzer, et al., 2001). In their paper „Defining Supply Chain Management‟ the
authors have reviewed, categorized, and synthesized various definitions of Supply Chain
Management. After analyzing their constructs and boundaries, they presented a unified
definition that indicated the nature and consequences of the management construct.
“Supply Chain Management is defined as the systemic, strategic coordination of the
traditional business functions and the tactics across these business functions within a
particular company and across businesses within the supply chain, for the purposes of
improving the long-term performance of the individual companies and the supply chain as a
whole”. (Mentzer, et al., 2001, p. 10)
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This definition fits this thesis for two main reasons. Firstly, it encompasses the strategic
perspective of supply chain management towards other participants of the supply chain, as
well as internal strategic view of the different business functions. Secondly, this definition
highlights the central objective that businesses recognize when managing their supply chain,
long-term performance within and across businesses. Chapter 3 will explain the concept of the
Balanced Scorecard that serves as a tool to improve long-term performance.
Furthermore, this definition also led to the elaboration of a conceptual model of SCM.
Figure 1 A Model of Supply Chain Management (Mentzer, et al., 2001)
Figure one presents a model that shows how the different business functions (Marketing,
R&D, Production, Finance, etc…) manage the supply chain flows (Products, Services,
Information, Financial Resources, Demand and Forecasts) from the first supplier tier until the
final customer. Furthermore, it outlines the critical importance of customer satisfaction and
value, to reach profitability and to get competitive advantage. Furthermore, figure 1 can be
used by organizations to locate their position within the supply chain they are evolving in and
at the same time to communicate the different objectives to the different departments or
entities involved in the supply chain.
2.3 Objectives of Supply Chain Management
It is important to stress that over the past 40 years, the economic environment went from a
stable growth to a dynamic environment where demand regularly varies with new trends
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(Ayadi, 2005). Clients are nowadays better informed and wish for superior quality as well as
extra services included with the product. Moreover, according to Papazoglou and Ribbers,
changes incurred from a supplier driven economy to a consumer driven economy, from mass
production and mass distribution to customization and customer driven planning, from a
producer focus to a consumer focus (2006). Mass production and mass distribution is the Ford
ideology of a large production and distribution of a standardized product which was a
revolution at the time. However, in today‟s perspective, mass production and mass
distribution do not fit the customers, who wish for more flexibility of the production processes
to satisfy their needs and wants. Therefore, in order to be successful, supply chain
management must ultimately focus on individual tastes of customers, because in the end, it is
the customer themselves that decide to buy or not to buy a product.
However, this is not the only objective of SCM. According to Mentzer et al, businesses and
the supply chain they evolve in, tend to nowadays compete on the basis of time and quality
(2001). Moreover, Slack, Chambers & Johnston recognized the need for an agile supply chain
that would be sufficiently flexible to adjust itself to changes, in customer demands or in
supply chain capabilities (2007).
Brewer and Speh (2000) identified four major objectives in Supply Chain Management.
Waste reduction: “Firms practicing SCM seek to reduce waste throughout the supply
chain by minimizing duplication, harmonizing operations and systems, and enhancing
quality” (Brewer & Speh, 2000, p. 79).
Time compression: Effective coordination of the processes to ensure fast reaction to
customers‟ demand and fast throughput from raw material to final product. Moreover,
effective coordination of processes is also essential to insure on time delivery of
products.
Flexible response: “The key to flexibility is that individual customers need are met in
a way that the customer views as cost effective and the supply chain views as
profitable” (Brewer & Speh, 2000, p. 80)
Unit cost reduction: “The goal is to provide an appropriate value equation for the
customer, which means that cost in some cases will be sacrificed for meaningful
enhancements in service” (Brewer & Speh, 2000, p. 80)
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Even thought those internal goals essentially focus on the business processes, if implemented
appropriately, they result in benefits for the final customer, whose expectation about quality,
price, speed and dependability, will be met. In addition, each participant in the supply chain
will also benefit from those improvements, as their operating cost will be reduced thanks to
the minimization of wastes as well as an inventory level kept to the strict minimum.
The goals identified by Brewer and Speh are recognized and accepted by academics who
researched supply chain management. They can be further confirmed by Gaudenzi and
Borghesi who categorized the main objectives of supply chain in two parts in a less specific
view (2006).
Customer value and customer satisfaction: Businesses involved in a supply chain
must focus on the end-customers to deliver the highest level of satisfaction in order to
improve their rate of customer retention. This would in turn create customer value and
increase profitability.
Reactivity: Organizations engaged in a supply chain must focus on reducing lead time
by focusing on time compression. Moreover, they must be sufficiently flexible to deal
with changes in the environment they evolve in.
Even if the objectives identified by Gaudenzi and Borghesi are more general, those two
different sources are similar. They both recognize the importance of a supply chain that
maximizes customer satisfaction. In order to achieve this goal, prior objectives focusing on
the efficiency of business processes and on their ability to cope with changes must be
fulfilled. Nonetheless, in order to accomplish those goals and to sustain their benefits,
performances in each single segment should be measured and an appropriate strategic tool
should be used to insure an adequate focus on areas that need improvement.
Chapter 3: Balanced Scorecard
3.1 Introduction
This chapter will first introduce the concept of performance measurement and its purposes. It
will then move on to the balanced scorecard, a performance measurement system that
encompasses several perspectives. For the purpose of this thesis, I will focus on the Balanced
Scorecard applications to the supply chain.
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3.2 Performance Measurement
In order to optimize any supply chain, business must first recognize their weaknesses and
their strengths. To quantify those weaknesses and strengths, businesses must have an
appropriate internal performance measurement system. Evaluating the different activities or
output of a process is the fundamental purpose of a performance measure. To achieve that
evaluation, actual performance in any task must be compared with its predetermined
forecasts. Any negative variation between the predicted performance and the actual
performance provides information about possible room for improvement of a particular
process. On the other hand, a positive variation can be interpreted as enhancement of the
process or the activity that is being analyzed. Performance measures that business use to
assess their activities, outputs and process, must be identified and set appropriately since they
can be perceived as the ground of a formulation of a firm‟s strategy. Furthermore, since
performance measures are of crucial importance to an organization, they must represent and
correspond to the organization‟s objectives and strategies. If performance measures do not
correspond to an organization‟s objectives and strategies, it will lead to a biased result
compared to what was the focal objective of the company.
“Performance measures serve several purposes; they communicate the strategic priorities of
the firm and the performance drivers critical to achieving those priorities to lower-level
managers and employees, provide a framework to ensure that adequate resources are
available for the achievement of long-term goals and strategies, specify the cause-and-effect
relations between business priorities and profit, set benchmarks to identify areas of weakness
and prompt operational improvements, provide information about the needs and demands of
the external environment (e.g customers, suppliers, labor market), and (may) increase the
efficiency in contracting with lower-level managers” (Verbeeten & Boons, 2009, p. 114).
Therefore, improving supply chains is unfeasible without a set of specific performance
measures. “There is a need to define and measure performance for the supply chain as a whole
and to be able to drilldown to different measures and different levels of detail, in order to
understand the causes of significant deviations of actual performance from planned
performance” (Lohman, Fortuin, & Wouters, 2004, p. 272). Consequently, an appropriate
measurement system of supply chain is necessary to align operational capabilities with
strategic objectives.
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3.3 The Balanced Scorecard
Introduced in the early 1990‟s by R. Kaplan and D. Norton, the balance scorecard was a
performance measurement framework. The balanced scorecard served as a solution to the
inadequacies enlightened by researchers and managers. Traditional financial performance
measures do not measure every essential aspect of a business operations‟. Moreover,
“traditional financial accounting measures like return on investment and earnings per share
can give misleading signals for continuous improvement and innovation – activities today‟s
competitive environment demands” (Kaplan & Norton, 2005, p. 172). Operation
management‟s research literature paid particular attention to this inadequacy. Two main
stream of research can be identified. According to Verbeeten and Boons, the first stream of
performance measurement literature concentrated their efforts on developing the financial
measures of a business (2009).
The other line of thoughts focused on the use of non-financial measures in order to reflect all
the key strategic areas of an organization that are not accurately reflected in the traditional
financial performance measures. Non-financial measures can be defined as measures that
focus on customers, business processes, intellectual capital and intangible assets, without
analyzing them from an accounting nor financial view. A common misconception of the non-
financial measures is that this latter line of thoughts does not include traditional financial
measures. As a matter of example, the Balanced Scorecard, one the most famous performance
measurement systems, uses both the financial and non-financial performance measures.
Over the year the Balanced Scorecard has evolved from a performance measurement tool to a
framework for determining the alignment of an organization‟s human, information and
organization capital with its strategy. Furthermore, the Balanced Scorecard is used in
organizations for two main purposes. The first one is to measure effectively the performance
of a business. The second one is to implement a successful strategy.
R. Kaplan and D. Norton who are the founders of the Balanced Scorecard identified four
different perspectives that would give managers a balanced view of their business (2005):
The customer perspective: Value to customer is nowadays the center of focus of
successful supply chain management. It is therefore fundamental to include a
perspective that will keep an eye on customer satisfaction. Customers tend to evaluate
what companies offers from four categories: time, quality, performance and services,
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and cost. Therefore, to implement the balanced scorecard, companies should set
specific measures for each of the categories previously mentioned. Possible
performance measures could be delivery performance to customer, quality
performance for customer, customer satisfaction rate, customer percentage of market
and customer retention rate. The main question that will be answered by this
perspective is: How do customers see us?
The internal business process perspective: After measuring performances from a
customer perspective, managers need to know if their internal business processes are
performing according to their customers‟ expectations. For this purpose, metrics have
to be internally developed by people that know and understand the internal business
processes in order to fit the mission statement of the company. Those metrics should
focus on the processes they must excel at for customer satisfaction. Measures that can
be used for this perspective should focus on quality, lead time, inventory, productivity,
efficiency, non-value adding activities, risk minimization and alternative distribution
channel. The main question that will be answered by this perspective is: What must we
excel at?
The innovation and learning perspective: Now that the company has been monitored
and examined from a financial, a customer and an internal business process, there is a
need to focus on innovation and learning. It is through the ability of a company to
innovate, improve and learn that will ensure value. The focus in this perspective is the
people working in the different departments of a business and their ability to innovate,
learn and improve. Investing in the human infrastructure of an organization is an
evidence of investing in the future. This because the ability of the human capital of an
organization to learn and share knowledge is an indicator of long-term success. The
main question that will be answered by this perspective is: Can we continue to
improve and create value?
The financial perspective: Even thought Kaplan and Norton recognized the need for a
more „balanced‟ view of the organization performance, they never intended to ignore
the importance of the financial perspective. “A well designed financial control system
can actually enhance rather than inhibit an organization‟s total quality management
program” (Kaplan & Norton, 2005, p. 178). Financial measures assess the ultimate
results of a business. Return On Investment (ROI), Economic Value Added (EVA),
Cash Flow, Return on Capital Employed as well as financial results provide key
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information about past performance that are essential to run day to day operations. The
main question that will be answered by this perspective is: To succeed financially, how
should we appear to our shareholders?
Figure 2, is a visual example of the Balanced Scorecard that clearly identifies the four
perspective stated above.
Figure 2 : The Balanced Scorecard (The Balanced Scorecard Institute, 2009)
Brewer and Speh identified a relationship between the objectives of supply chain management
and the Balanced Scorecard framework. Each of the four perspective of identified by R.
Kaplan and R. Norton represent an area that must be measured appropriately to provide clear
information about the particular area. The internal business process can be linked and adapted
to measure the objectives of supply chain management, namely waste reduction, time
compression, flexible response and unit cost reduction. The customer perspective can also be
used to measure their satisfaction about the product they purchased as well as their view on
the flexibility the supply chain. The financial perspective can be adapted to measure the
financial benefits that participation in a supply chain brings to an organization. The
innovation and learning perspective can be linked and adapted to measure the potential
improvements of a supply chain.
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Table 1 provides possible measures for each of the four perspectives identified by R. Kaplan
and D. Norton.
Table 1: Sample Measures and Measure Clusters (Papalexandris, Ioannou, Prastacos, & Soderquist, 2005)
Although table 1 provides a set of possible measures for the four perspective of the Balanced
Scorecard, academic researchers (Brewer and Speh 2001; Kaplan and Norton 2005;
Thompson and Mathys 2008) stressed that organizations and supply chains should identify
their measures themselves instead of copying it from competitors or from the best practice in
the industry in order to reflect their own overall strategy.
R. Kaplan and D. Norton focused their efforts on providing a strategic tool that would widen
and diversify the traditional financial performance measures. However, this wasn‟t the only
line of research. According to F. Verbeeten and A. Boons, the other stream of literature,
concentrated their efforts on improving the financial measures of organizations without
adding other perspective that can lead to an increase in the complexity of performance
measurement (2009). Both literature streams recognize that the traditional performance
measures only provide information about the past and cause an excessive short-run
orientation. Nevertheless, the Balanced Scorecard is acknowledged to provide a management
tool to enhance long-term profits.
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3.4 Benefits of Balanced Scorecard for Supply Chains
The research literature recognized multiple benefits from implementing the Balanced
Scorecard. This section states the benefits as perceived from to research literature‟s
perspective
The Balanced Scorecard main purpose and reason for being developed is to provide the key
performance dimensions as a whole and not merely accounting performance measures (Ittner,
Larcker, & Randall, 2003). Moreover, as Van der Stede et al acknowledged increasing the
measurement diversity potentially reduces the dysfunctional effects of financial performance
measures (2006). The Balanced Scorecard provides organizations with a management system
that enables them to invest in the long term, namely human capital, information capital,
organizational capital and customer, instead of focusing on short term profits.
R. Kaplan and D. Norton recognized four benefits of using the Balanced Scorecard (1996).
The first advantage is that the BSC translates the vision of the organization into a set
of objectives and measures that reflect the long-term drivers of success. This
translation of vision from the overall strategic statement of a supply chain to a set of
measures, provides the different participants of the supply chain as well as the
different departments of a supply chain with a clear understanding of what each one
needs to achieve to contribute to the overall supply chain benefit. This advantage
therefore permits the alignment of each participants of the supply chain with its overall
objective. This process of goal alignment is characterized by a funnel representation
where the overall objective of the supply chain is at the very bottom of the funnel
while the specific goals of organizations and their departments are at the top.
The second advantage of the BSC is that it communicates and links the strategy that
was put in place by senior executives up and down the organization and across the
supply chain. This advantage enables each one involved in the supply chain to know
how his work, or how a department, or how an organization, contributes to the overall
strategy of the supply chain.
The third advantage of the BSC is the improvement it brings to business planning.
Traditionally, businesses and more specifically senior executives work alone on
strategic planning as well as for resource allocation and budgeting. Using the Balanced
Scorecard to measure supply chain performances pressures separated organizations to
work together on planning and budgeting issues. This has for advantage to offer a
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balanced view of planning and budgeting including a wider range of knowledge from
the last supplier tier up to the last customer tier.
The fourth advantage of BSC is that is provides a system that gives the ability to
reflect on the strategic feedback and learn from it. This latter advantage makes it
possible for organizations and supply chains to avoid sub-optimization and to focus on
what really matters.
The benefits as stated by the academic research literature recognize the positive effects that
implementing the Balanced Scorecard has on communicating the strategy inside the
organization and across the supply chain, on business planning and on organizational
alignment.
Chapter 4: Experiences so far of the Balanced Scorecard in Supply
Chain Management
4.1 Introduction
This chapter will first summarize an empirical case study focusing on a supply chain
consisting of two companies in the chemical industry. Thereafter it will evaluate the ease of
implementation of each of the four perspectives and discuss critics of the learning and growth
perspective that were pointed out by academic literature.
4.2. A case study of the Balanced Scorecard The empirical study is based on a research project, done by K. Zimmermann, carried out at
two companies in the chemical industry (2002). The two organizations under investigation are
International Chemicals, a large international producer of chemicals, and ChemTrade, a
medium-sized distributor. In January 2000, both companies launched a joint project that
aimed at improving all processes from International Chemicals to the final consumer. A
graphical representation of the supply chain of both companies is presented below to improve
the understanding of the case study.
Figure 3: Chemicals Supply Chain adapted from (Zimmermann, 2002)
Raw Materials Supplier
International Chemicals
ChemTrade Consumer
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International Chemicals produces final chemical products from raw material. ChemTrade is
the largest distributor of International Chemicals and in most cases sells directly to the final
consumers.
The development of the Balanced Scorecard started a year after the project had begun. When
developing the Balanced Scorecard, International Chemicals and ChemTrade started by
defining the following strategic objectives:
Profitable growth
Increased customer satisfaction
Reduction of inventory costs
Enhancement of delivery service
Improved administrative processes
Use of e-commerce
Increased satisfaction of employees involved in co-operation
Joint marketing strategies and actions
Thereafter, both organizations recognized performance measures for the strategic objectives
stated above. Table 2 summarizes the allocation of the strategic objectives and performance
measures.
Dimension Strategic Objective Performance Measure
Financial Profitable growth Turnover
Market Share
Customer High customer satisfaction
Customer Satisfaction Index
Complaint Number
Complaint Quota
Processes
Enhancement of delivery services Delivery Reliability
Reduction of inventory costs Inventory
Sales Day's Coverage
Improved administrative processes Sales Volume
Development
Use of e-commerce possibilities Not Yet Defined
Increased satisfaction of employees involved in co-operation Not Yet Defined
Joint marketing strategies and actions Not Yet Defined Table 2: Allocation of Strategic Objectives and Performance Measures (Zimmermann, 2002)
From Table 4, follows the allocation of strategic objectives as R. Kaplan and D. Norton
suggested using four perspective: the financial perspective, the customer perspective, the
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business process perspective and the learning and growth perspective. Table 4 highlights the
inability of recognizing the proper performance measures for the learning and growth
perspective called development perspective in this case study. According to K. Zimmermann
this problem is due to the fact that the organizations could not identify any performance
measures or that the performance measures would result into „unjustifiable economic efforts‟
(2002). This latter issue will be discussed in the next section.
When developing the Balanced Scorecard for their supply chain, International Chemicals and
ChemTrade needed to add to the individual enterprise performance measures, measures that
incorporated inter-enterprise performances. These were complaint number, complaint quota,
inventory and sales days’ coverage. To form those performance measures International
Chemicals and ChemTrade combined their data. However, the combination of the data was
not performed in the same way for each performance measures. The data for complaints
number and complaints quota were displayed next to each other for each company, while for
inventory and sales days‟ coverage the same was done but with an extra measure that
represents the data of both organizations combined.
This case study provides proof that the Balanced Scorecard is feasible in a supply chain
context. Moreover, International Chemicals and ChemTrade, recognized several benefits from
using the Balanced Scorecard in a supply chain context. These were:
The success of the supply chain co-operation could be continuously monitored.
The results of actions initiated by the partnership could be evaluated.
The Balanced Scorecard provided a focus on critical performance measures.
By using inter-enterprise performance measures potential for improvement in the
supply chain could be identified and implemented.
Planning security could be enhanced through better information knowledge.
The Balanced Scorecard provided an effective framework to discuss joint
improvement efforts in a structured way.
It is therefore clear that using the Balanced Scorecard as a strategic tool in supply chain
management is feasible and according to the case study realized by K. Zimmermann in 2002,
it is a tool that provides several benefits. However, as the next section identifies, several
drawbacks can occur if the Balanced Scorecard is not implemented appropriately.
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4.3 The ease of implementing the BSC in supply chains Comparing Table 2 with Table 1 automatically leads to discussion. It can be identified that the
four dimensions of the Balanced Scorecard represent different levels of difficulty to
organizations when implementing them in a supply chain. This section discusses the level of
difficulty that the four perspectives represent and identifies reasons for those dissimilarities.
The financial perspective is widely understood by organizations. Accounting and financial
measures are extensively used by organizations for reporting as well as for assessment
purposes. This first perspective can be described as relatively easily understood and
implemented when constructing a Balanced Scorecard measurement system.
The business process perspective is also a dimension that is relatively easily understood and
implemented by organizations. Multiple measures have been identified to represent
organizations and supply chains processes performances and reliability.
The customer perspective imposes more troubles to organizations than the financial
perspective and the customer perspective. A reason for this is that in comparison with the
measurement of financial data that is automatically gathered by companies in a supply chain
for reporting or assessment purposes, gathering accurate information about customers
impression about quality, tastes represents more difficulty. Customer satisfaction and
customer brand recognition measures are more complex to implement and to identify than
accounting measures that are considered more straight forward.
The learning and growth perspective, called development dimension in the empirical case
study of K. Zimmermann is recognized to be the most complex perspective to implement both
by academic literature (Speckbacher, Bischof, & Pfeiffer, 2003) and by the grey literature
(Marr B. , 2008). In the empirical case study about International Chemicals and ChemTrade
summarized above, two main reasons were given for not having defined performance
measures for that particular perspective.
The first one being that “adequate performance measures which effectively measure the
respective objective could not be identified” (Zimmermann, 2002, p. 406). This first reason
highlights the lack of knowledge and understanding of the learning and growth perspective. R.
Kaplan and D. Norton recognized this weakness of the balanced scorecard in 2004 and
provided clarifications for this perspective. They divided the learning and growth perspective
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in three categories of intangible assets (Kaplan & Norton, Strategy Maps: Converting
intangible assets into tangible outcomes, 2004, p. 13):
1. Human capital: representing employees‟ skills, talent and knowledge.
2. Information capital: representing the technology infrastructure of organizations, their
databases, networks and information systems.
3. Organizational capital: representing the organizations culture, its capacity to manage
knowledge, to work in teams, to align employees‟ goals with the overall goals of the
company.
Even though this further clarification was aimed at providing a better understanding of the
learning and growth perspective, academic research has criticized it. B. Marr and C. Adams
identified a critic to R. Kaplan and D. Norton‟s „intangible assets‟ (2004, pp. 23-25). The
critic is questioning the fact that the information capital is separated from the organizational
capital. Moreover, information capital consists of assets that are not recognized as intangible
assets (central servers and communication networks) but as tangible assets. This has for
obvious effect to further confuse organizations and supply chains who want to implement and
find the adequate measure that will suit their strategic objectives.
The second reason given for not having defined performance measures for the learning and
growth perspective was that the collection of the data would result in an „economically
unjustifiable effort‟. This latter point first stresses that the importance of the learning and
growth perspective in a supply chain. R. Kaplan and D. Norton stated that the learning and
growth perspective identified three intangible assets essential for implementing any strategy
(2004). The second reason given also highlighted that ChemTrade and International
Chemicals did not fully recognize the benefits of a balanced scorecard that would „balance‟ its
measurements between the four different perspectives.
Chapter 5: Conclusion This chapter draws the conclusion from the thesis. The first part answers the problem
statement identified in section 1.3 by looking at the findings of each of the previous chapters.
5.1 Conclusions The central question that was dealt with in this thesis was: „How can the Balanced Scorecard
be used to measure supply chain performance to support companies improving their
coordination processes’. This thesis provided an answer to the problem statement by dividing
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it in three research questions. The first research question identified the objectives of supply
chain management which showed the considerable importance that the final customers have
nowadays on supply chain management. Business processes are build to satisfy the customer,
to cope the changes of customer demands, to maximize efficiency and to be as cost effective
as possible. The second research question investigated the how the use of performance
measurement could improve supply chains. Chapter 3 provides an answer to this question by
identifying the purposes of performance measures and by discussing the Balanced Scorecard
and the benefits that this strategic tool brings to supply chain management. Performance
measures were recognized to be essential in order to assess an organization‟s processes and to
achieve a company‟s strategic objective. Thereafter, the Balanced Scorecard was defined and
the benefits it brought to supply chain management were outlined. The third research question
investigated the experiences so far in implementing the Balanced Scorecard in supply chain
management. This questions was answered by discussing a study case were the Balanced
Scorecard was implemented in two companies that formed a co-operation, by examining the
ease of identifying measures and by implementing them in each of the four perspectives of the
Balanced Scorecard. The subsequent answers of the research question provided a base to
answer to the problem statement in this conclusion. With the information gathered from the
literature review in chapter on till chapter 4 included, it can be concluded that the Balanced
Scorecard can be used as a performance measurement system to support organizations
improving the coordination of their processes. Furthermore, as stated in section 3.3, the
Balanced Scorecard has evolved over the years and is now not only used as a performance
measurement system, but also as a strategic tool to achieve an organization predetermined
objectives. But the biggest achievement of the Balanced Scorecard as B. Marr and C. Adams
stated it was its “immense help in breaking the mould of financial measures being „the only
game in town‟ over dozen years since it was introduced” (Marr & Adams, 2004, p. 25). In
order to improve the coordination of the processes of an organization, two factors must be
taken into account. The first one is that performances and outputs must be appropriately
measured and they must refer to the key strategic objectives of the organization. The second
factor is the data provided by those performance measures must be assessed and examined in
order to successfully contribute to the improvement of the efficiency of the business process
of an organization. For this purpose, the Balanced Scorecard serves first as a performance
measurement system that captures key performance indicators from the customer, the internal
business process, the financial, and the innovation and learning perspective. This four
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perspectives measurement system enables an organization not to miss out on key performance
indicators that affects their business by balancing traditional financial measures with measures
on consumer satisfaction, on business process efficiency and on learning and growth.
5.2 Limitations and Recommendation The empirical case study that investigated the implementation of the balanced scorecard the
supply chain consisting of ChemTrade and International Chemicals highlighted a common
issue that organizations face when having to identify performance measures for the learning
and growth perspective. Even though R Kaplan and D. Norton re-clarified this latter
perspective, critics still continue to arise from academic literature. Moreover this perspective
still represents an issue to organizations (Marr & Adams, 2004). Furthermore according to
grey research literature, the learning and growth perspective was neglected and had for result
incomprehension (B. Marr, 2008). Therefore, this area of incomprehension could be further
explained in future researches.
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