Aligning supply chain performance measures with organizational strategy using SCOR

Developing Supply Chain Functions to Measure Performance and Improve Organizational Strategy In the current competitive environment in which organizations from all levels and sectors compete, the importance of strategic management as a success enabler becomes higher. For instance, Arasa and K'Obonyo (2012) concluded that the existence of a strong relationship between strategic planning and organizations' performance has been clearly established. Organizational performance refers to how well its strategic objectives are met, an outcome that requires the achievement of objectives at all levels of management and individuals across the organization, and adopted by all business functions internally. Karel et al. (2013) examined the relationship between the strategy and organization performance, and the hypothesis of the research that examines that was accepted to have a positive effect of written strategy on performance indicators for the surveyed Czech and Slovakian organizations. Although a growing number of companies in the USA have successfully implemented functional performance measures, organizations in Asia in general and in Malaysia, India, and Thailand, in particular, have lagged behind world-class standards (Chakraborty and Mandal, 2014).

This paper highlights the strategic importance of functional performance measures selection, and how to match the strategic direction of the organization. This will be done by selecting set of well-known measures of a function, then to propose a way to prioritize those measures based on relativeness to the strategy of the organization. In this paper, the supply chain (SC) functions and processes are the scope. For SC performance measuring, researchers and institutes proposed many measures (Gurel and Sari, 2015).

One of the most important set of measures is provided by the Supply Chain Operations Reference (SCOR) model, which is been developed by Supply Chain Council (SCC) (Anupam, 2015; Gopalakrishnan, 2015). The SCOR model also takes into account supply chain partners' performance requirements in the supply chain (Lapide, 2013). The SCOR model was designed to provide supply chain managers and other practitioners with timely descriptions concerning business activities that are associated with all aspects of customer demands and how best to satisfy these demands (Kwateng and Manso, 2014). The performance attributes of SCOR model used in this paper to represent the SC performance measures: (1) Plan, (2) Source, (3) Make, (4) Deliver and (5) Return; each of these performance measures has corresponding measurement criteria concerning (1) Reliability (2) Responsiveness/flexibility (3) Costs and (4) Asset (Kwateng and Manso, 2014).

In addition, the house of quality (HOQ) also used as a methodology that systemizes the process of selecting strategic-driven performance measures of SC. According to Murgatroyd and Morgan (1999), many companies that have implemented the HOQ methodology have experienced significant improvements in organizational performance and customer satisfaction as a result. In addition, a number of major companies, including Hewlett-Packard, AT&T, Ford, General Motors, and Toyota (Seo and Kumar, 2016) have determined that the HOQ methodology: (1) is a powerful aid in the development of shared understanding within teams; (2) helps to identify 'taken for granted' assumptions that need to be re-examined; and (3) identifies key areas for systematic improvement attempts (Murgatroyd and Morgan, 1999, p. 113).

1.1 Study Problem and Objectives

As the strategic management process has many activities and phases, improper implementation of any of those activities and phases may lead to inefficiency of the whole process. Failure of strategic goals achievement may result in the improper implementation of one or more of the activities. Any activity failure, may also cause another activity failure and so on, Figure 1 explains this interrelation. Accordingly, this study addressed the problem of the inefficient implementation of Strategic Management (SM) process, and aims to resolve one of the potential causes of that; the selection of irrelative functional performance measures to the organization strategy. As per Figure 1, a function may fail in performance due to the weakness in the performance measurement system, including the irrelative selection of performance measures.

Figure 1. Failures of Strategic Goals Related to SM Activities Failures Many causes may stand behind the irrelative selection of departmental performance measures, like:

lack of systematic tool that links the strategy to the performance measures at the function level; low level of awareness at the functional management of the strategic directions of the organization; lack of knowledge of standard performance measures; lack of prioritization tools to assure concentration on the most important measures in case resources limit the focus overall measures. Moreover, it evaluates conflicts between measures if any.

The SC function is the scope of this study. Therefore, the objectives of this study will be: Using the HOQ approach as a systematic tool that models the link and priorities of performance measures of SC, as a main function and strategy of the organization; and, • Implement the HOQ approach using results of the questionnaire. The study's guiding hypothesis and corresponding null hypothesis are stated below:

H1: Organizations that implement and administer the HOQ approach will experience a statistically significant improvement in performance compared to previous benchmarks. N1: Organizations that implement and administer the HOQ approach will not experience a statistically significant relationship in performance compared to previous benchmarks. As discussed further in section 4.1 below, a custom questionnaire was developed in order to get collect the requisite data needed to develop the information needed to confirm or refute the above-stated hypothesis. Face validity for the custom questionnaire will be achieved by having the instrument reviewed by classmates, faculty members and co-workers to ensure that it collects the type of data intended and that there are no misleading or ambiguous questions (Neuman, 2003). This study's theoretical model was based on the SCOR model which has received endorsements from and is recommended by the Supply Chain Council. Finally, according to Miles and Huberman (1994), a conceptual framework is "the system of concepts, assumptions, expectations, beliefs, and theories that supports and informs the research" (p. 39). In this regard, this study's conceptual framework drew on relevant supply chain management and organizational behavior theories to formulate the above-stated hypothesis.

2.0 Literature Review Supply Chain and Performance Measurement In an empirical study, Sillanpaa (2012) categorized SC performance measures in four parts; order book analysis, outcome, time and managerial analysis. Performance measurement is defined as the process of quantifying the effectiveness and efficiency of action (Chan and Qi, 2003; Neely et al., 2005). Presutti and Mawhinney (2007) stated that 70% or more of manufacturing firms' expenditures are on SC-related activities, which highlights the potential impact of an effectively managed SC in contributing to overall improvement in financial performance. Bhagwat and Sharma (2007) suggested that a balanced SCM scorecard could be the foundation for a strategic SCM system if certain development guidelines are followed, appropriate metrics evaluated, and key implementation obstacles overcome. Regardless of the supply chain management strategy used, it is axiomatic that benchmarks must be established and SC processes evaluated to ensure that the desired outcomes are being achieved and to identify opportunities for improvement (Kumar and Ganesh, 2014). Moreover, a growing body of evidence confirms the importance of the individual components of the supply chain to organizational performance, but there remains a dearth of timely and relevant research concerning the precise interrelationships between SC components and their overall effect on performance (Kumer and Ganesh, 2014).

A meta-analysis of recent scholarship concerning the relationship between SCM and organization performance by Leuschner and Rogers (2013) also found that as supply chains increase in maturity, so too does their complexity. In addition, the network relationships between the individual supply chain components also become more complex which require thoughtful and informed integration with SC partners in order to achieve optimal outcomes. In this context, the term "supply chain integration" refers to the extent to which suppliers and customers are engaged (Leuschner and Rogers, 2013). Not surprisingly, the research to date also confirms that more fully integrated SCs provide improved organizational performance (Leuschner and Rogers, 2013). Based on their meta-analysis, Leuschner and Rogers (2013) concluded that as a strategic resource, a fully integrated supply chain can help companies of all sizes and types acquire and sustain a competitive advantage in an increasingly globalized marketplace.

The findings by Leuschner and Rogers (2013) were supported by the results of a study by Afshan (2013) which investigated the effects of SC integration on business performance. According to Afshan (2013), a more comprehensive definition of SC integration compared to that offered by Leuschner and Rogers (2013) should include the extent to which the supply chain also fully engages supply chain partners. In addition, Afshan (2013) also emphasizes the need to differentiate between SC effects on operational performance versus financial performance because in many cases, it is improvements in the latter that are regarded as being the most significant while improvements in the former may be the source of the positive effects. Therefore, it is also essential to identify relevant critical success factors that are most salient for the measure of effects on business performance (Swamy and Nanjundeswaraswamy, 2014).

To this end, Quesada et al. (2012) studied the critical success factors (CSF) affecting the SCM performance measures in the USA and concluded that SCM performance positively affects business performance. In addition, Quesada et al., (2012) pointed out that the SC performance metrics used based on the SCOR model, while the financial metrics used based on the Economic Value Added (EVA) concept. The study concluded that there is a clear and direct link between how effectively SC activities executed and how well the business performs. Elgazzar et al., (2012) proposed a method that links SC processes' performance to organizational financial strategy, for that a supply chain financial link index (SCFLI) as a tool that illustrates to which extent selected SC performance measures and financial strategy are linked is introduced. In their work, also SCOR performance measures used, while Du-Pont ratio used to evaluate the financial performance and Dempster Shafer/Analytical Hierarchy Processes (DS/AHP) utilized to evaluate the relative importance of each performance measures. According to the importance addressed of the SCPM in organizational success, this paper build on the reviewed works and employ the SCOR performance attributes as a standard PM of SC, and propose a prioritization model of it based on the relativeness to the strategic direction of the organization.

4.0 Results and Discussion

This section aimed to implement the study's model as well as providing an analysis concerning the information collected from the questionnaire and how it being utilized in the model. Section 4.1 below discusses the "Relationship Matrix" components based on questionnaire responses; the development of the correlation matrix is discussed in section 4.2 below.

4.1 Relationship Matrix

In order to identify salient relationships between the variables of interest in the HOQ approach model using in this study, the questionnaire was designed to elicit views of the respondents in order to quantify the relationship matrix. The respondents were asked to evaluate the importance of each performance attribute to achieve specific type of strategy. Regardless of their organization behaviour and strategies, respondents were requested to complete the questionnaire based on their empirical experiences and understanding of strategy types and SC. In order to get feedback from them and reduce the number of questions and factors, the questionnaire was designed to deal with four strategies types only: (1) integration, (2) intensive, (3) diversification and (4) defensive. This part of the questionnaire employed a 5-point Likert rating scale, referring to this scale's founder Rensis Likert (1931). In the questionnaire (Rate 5) means that the respondent strongly agrees that the achievement of a SC performance attribute is an enabler to achieve a specific strategy. The responses were quantified and transposed to percentage values by using three of the used options of analysing this type of values: (1) Top Box (% of responses of 5 rate), (2) Top-Two Box (Accumulative % of responses of 5 and 4 rates) and (3) Net Top Box (% of responses of 5 rate - % of responses of 1 rate). To develop a better understanding of the questionnaire results, the mean value was calculated to represent tendency, while standard deviation and coefficient of variance were calculated to represent the consistency of the respondents to each question. This method is commonly used to interpret the results of surveys to get the percentage of responses choose the highest option (Top Box) (Thomas, 2011). In the present study, the percentage of respondents who selected the highest two options: "Strongly Related" or "Related" are accumulated as (Top-Two Box) value.

4.1.1 SCOR Performance Attributes Relationship to Integration Strategies

Reference to the definitions; integration strategies followed by organizations those aim to expand the business by acquiring other existing businesses in the same field. The targeted businesses acquired are customers (forward integration), supplier (backward integration) or competitors (horizontal integration). In all cases, the organization commonly accumulates power over the acquired organization. To be eligible for integration, the organization shall work on its SC to be more reliable, agile and responsive to be in better situation comparing to the acquired one. Reference to the questionnaire responses in this part, shown in Table 3, the five SC attributes considered related to the integration but with different percentages.

Considering the Top-Two Box, responsiveness and flexibility have high percentage. At lower level reliability, assets management and finally the cost related to the integration. This has been justified as it is one of the expanding strategies; organizations look less to the cost-effective, as normally the expanding requires increasing costs.

Table 3 Questionnaire Results Summary - Integration Strategies.

4.1.2 SCOR Performance Attributes Relationship to Intensive Strategies

In intensive strategies the organization aims to increase its sales by either developing new products, developing new markets or increasing the existing market share in the current market and products. From a SC point-of-view, it is important to reach the customer or market with higher speed, although this might generate some extra costs or increase the inventory level. Aligned with this, 93% of respondents indicated that responsiveness is relative to the intensive strategy as set forth in Table 4 below.

Table 4. Questionnaire Results Summary - Intensive Strategies.

4.1.3 SCOR Performance Attributes Relationship to Diversification Strategies

Compared to other strategies, respondents to the questionnaire rated all SC attributes with less relativeness. More respondents believed that SC attributes do not affect this type of strategy as shown in Table 5 below. Nevertheless, the respondents still reported the same order of importance, responsiveness then agility and reliability and finally the cost and assets management, which can be expected because it is also an expanding strategy.

Table 5. Questionnaire Results Summary - Diversification Strategies

4.1.4 SCOR Performance Attributes Relationship to Defensive Strategies

Organizations that employ a defensive strategy will tend to sell part of its businesses, do some liquidation of assets and seek to retrench in a specific industry with narrower scope. Such organizations will tend to care about theirs SC costs by monitoring costs and assets management attributes, and may pay less attention to the responsiveness, agility and reliability, an outcome that is clearly shown in results of questionnaire as summarized in Table 6 below. In addition, Table 6 also shows the results of responsiveness, reliability and flexibility, which are less reliable as the coefficient of variance (CV) higher comparing to all other records, meaning less consistency in these replies among respondents.

Table 6. Questionnaire Results Summary - Defensive Strategies

5.0 Conclusions and Recommendations

In an effort to address the failure in strategic management implementation, this paper studied and improved one of the strategic management processes. The process of SC (as a business function) requires performance measures selection in order to match the modeled strategic direction of the organization. The HOQ approach model is used in this study, in which the "What's" are the type of strategies pursued by organizations. The "How's" of the HOQ are the performance attributes of SCOR model. A HOQ-based model was developed to measure and prioritize the relative SC measures to the type of strategy that was adopted by an organization. Any organization in a phase of strategy formulation is encouraged to use HOQ as a tool for determining the priorities of each functional performance measures so as to focus on and utilize its resources most efficiently.

In sum, the HOQ-based model enables organizations to understand and quantify the relativeness of each performance measure to the strategy as depicted in the "relationship matrix" and the correlation between performance measures as depicted in the "correlation matrix." In order to realize the HOQ approach, a questionnaire was developed for the purpose of this study as a proforma copy is shown at Appendix A and the data that was collected from 41 respondents was analysed. The questionnaire was designed to explore the relationships between the five performance attributes of SCOR and four categories of strategies. It was concluded based on the respondents' views that the five SC performance attributes differ in importance depending on the strategy adopted. The responsiveness-defensive relativeness had the lowest rate, with only 44% of the respondents rating it in the Top-Two Box. Similarly, reliability and flexibility are relative to the defensive by only 54% and 46%, respectively. This finding aligned with the declining nature of defensive strategies in which organizations aim to reduce their costs and allocate less attention to the responsiveness of the SC. The highest rated relationships were the RS-IV and RS-IG with 93% Top-Two Box. Integration and intensive strategies were also highly related, >80% Top-Tow Box, to reliability, responsiveness and flexibility of the SC, while they are less relative to cost and assets management with Top-Two Box range of 73% - 78%. Responsiveness is the relative (85%) attributes to diversification strategy, followed by reliability and flexibility then cost, while the least relativeness was for assets management (68%). Finally, defensive strategy was the least affected by SC attributes, but this strategy still needs to focus on cost and assets management to implement and administer it effectively. The correlation matrix of the HOQ is discussed through the definitions of SCOR performance attributes are reviewed and accordingly a Correlation Matrix" is stated but not proven by the questionnaire. Therefore, it is recommended that future surveys use these benchmarks for further exploration of these issues.

It has been discussed that cost is negatively related to the responsiveness, reliability and flexibility, while positively related to the assets management. Responsiveness is positively related to the flexibility and reliability. In addition, assets management was affected negatively by the flexibility required to increase the stock level. The correlation matrix was helpful in this area by adding more highlights or changes to the relationship matrix results. Positive relations between the "How's" were shown to improve their priorities, while negative relations may require additional attention of organization and/or to exclude the least important "How."

This study had some limitations in getting results to utilize in the HOQ that should be noted. First, the nature of questionnaire was highly complex because it involved a high number of strategies (eleven corporate strategies and five competitive strategies) and high number of performance measures of SCOR (ten performance measures). To overcome this, the list of HOQ inputs shortened to be in terms of four types of strategies and the performance attributes level of SCOR rather than the performance measures level. A second limitation in the questionnaire was the exclusion of the roof of the HOQ input "Correlation Matrix"; this limitation was addressed by the researcher reviewing the description of attributes but there is still room for improvement in this area.

Based on the conclusions and limitations, the study recommended that future research should be conducted in order to:

1. Study and provide a literature in each corporate strategies in terms of requirements from each function to achieve the strategy,

2. Present the model for other functions than the SC, to be used the "What's" are only the change, and also to be applicable for the overall organizational performance,

3. Utilize the model in a specific organization as a case study to measure the change comparing to the current management of the SC and measuring the effect on the strategic plan achievement,

4. Propose the concept of the model to SCC to set strategic dimension for its SCOR performance measures and attributes definitions, and,

5. Study the correlation between the performance measures, the roof of the HOQ of the model.

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