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Performance Assessment of Global Supply Chains and Moving
Towards Optimization of Efforts and Challenges
Jagadeesh Rajashekharaiah,
SDM Institute for Management Development,
Karnataka, India,
E-mail: [email protected]
___________________________________________________________________________
Abstract
Supply chains are assessed for their performance using various metrics and attributes that
help to compare and benchmark the performance across the globe. Several models have been
developed in the past both for generic applications as well for specific supply chains. This
paper develops a model using both the metrics and the challenges faced by the global supply
chains. This allows the performance assessment against a supply chain’s capabilities to meet
the challenges. The paper uses the results of two independent surveys based on their
applicability and comprehensiveness and develops the model. The paper also describes how
these metrics can be used to optimize and compare using a weighted score model and how the
approach can be extended to a generic linear programming model. The objective is to provide
a better decision making model using well established mathematical models and to move
towards optimization.
___________________________________________________________________________
Key words: supply, chains, performance, metrics, optimization, global, assessment, criteria
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1. Introduction
Supply chains constitute the backbone of business and economy and hence have drawn the
attention of academics and practitioners. In the domain of Operations Management, the
supply chain management along with the logistics function is a key area management. Both in
engineering and management degree courses, the students study supply chain management
(SCM) as a core subject and acquires the necessary skills. The proliferation of the retail trade
enabled the SCM function to bloom and spread across various disciplines along with global
presence. The increased attention on supply chain management focusing on issues like supply
chain competitiveness, risk, networking and collaboration, vendor managed inventory, among
other topics, prompts more and more researchers to examine these issues in greater depth.
The SCM function involves a number of people and organizations who interlink and
exchange information, money or goods, and thus a need is felt to assess the supply chain
performance to ascertain success all along the chain. Two terms namely efficiency and
responsiveness, aare considered as the main parameters of assessment. Efficiency indicates
how well a supply chain meets the demand in terms of availability, volume and variety.
Whereas the responsiveness indicates how quickly the supply chain rises to meet the demand,
and ensures stability in spite of the uncertainty. In terms of these two parameters the supply
chain performance is dependent on several drivers, as illustrated by a simple diagram shown
in Figure 1, (Chopra & Meindl, 2007).
Figure 1: Drivers of supply chain performance
However, it is necessary to properly integrate both the internal and the external supply chains
and be inter supporting to ensure supply chain success, (Bratić, 2011), as given in Figure 2.
Figure 2: External and the internal supply chain elements.
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Today, supply chain management along with logistics management is a major topic
considering the evolution and growth of supply chains. The proliferation of outsourcing has
tremendously increased the scope of operations in a supply chain. It is important to note that
the environmental performance measurement models in the context of a global supply chain
throw open many challenges and the supply chains are expected to be robust, (Genovese,
Lenny Koh, Kumar, & Tripathi, 2014).
2. Supply Chain Priorities - Do they align with Operations’ Performance? Operations managers constantly grapple with meeting multiple objectives and thus seek
optimal utilization of the resources. Considering the evolution of the production systems,
starting from handicraft or job systems to mass and flow systems, the operations priorities
varied to accommodate the changing strategies over time. This also prompted the operations
managers to develop "operations strategies" to successfully meet and beat the competition
offered by the global players. It is understandable that the operations managers focused on
key aspects while manufacturing products and services and focused on 'critical success
factors'. These factors traditionally became the priorities and the challenge was to satisfy them
to the maximum possible extent. This also led to the practice of compromising whenever
required because of the inherent conflicts and constraints, (Boyer and Lewis, 2002). The three
fundamental success factors recognized as priorities are: quality, cost, and delivery, not
necessarily in that order but with equal importance. Later, three more factors namely
flexibility, innovation, and speed were added to expand the basket of success factors, (Ward,
et al. 1998). It is obvious that to realize these success factors a supportive supply chain
should exist and enables to realize the targets in each of the success factors considered.
This further requires the cooperation and coordination of all the supply chain partners
involved in the entire network. However, the strategic alignment between the partners is
difficult to measure and analyze, (Vachon, et al. 2009).
3. Measuring the Supply Chain Performance – Literature Review
Measuring the performance of supply chains is a very popular area of research as observed
by the number of publication in the last two decades. While some researchers have proposed
different measures and performance metrics, some others have developed a framework that
enables performance assessment. Right form the time of developing the supply chain for an
industry or a product line or a manufacturing system, performance assessment of supply
chains became a critical issue. As the supply chains form the backbone for the successful
operations it is imperative that their performance is properly assessed with the help of
appropriate metrics, performance goals are set, and monitored for improvement.
What influences the performance of the supply chains performance is to be understood
first and it is stated that two important factors are driving the supply chain performance.
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These drivers of supply chain performance are: logistical drivers and cross functional drivers.
The logistical drivers include facilities, inventory, and transportation. The cross functional
drivers include information, sourcing, and pricing. Considering the strategic importance of the
supply chains, it is essential that the performance is assessed by comparing it with the better
performances, and an early paper (Stewart, 1995) illustrates the benchmarking of the supply
chain performance. But it is essential to remember that there will be several layers of
operations performed and Tan, et al. (1998) suggest assessment at different levels to enable a
better and comprehensive reporting. Beamon (1999) identified three types of performance
measures as necessary components in any supply chain performance measurement system,
and also recommends new flexibility measures for manufacturing supply chains. Several
researchers have developed frameworks to help better assessment of the supply chain
performance. For example, Gunasekaran, et al. (2001) demonstrate a framework for
measuring the strategic, tactical and operational level performance in a supply chain.
Based on trust, terms like Supply Chain Event Management, Supply Chain Process
Management, and Supply Chain Execution Management are used interchangeably. Supply
chain monitoring must start with tight tracking of the many different processes involved in a
supply chain. As products and information flow through different parts of the supply chain, it
is necessary to capture the information and ensure that the end users’ requirements are
satisfied. Supply chain automation is a major trend in this direction that offers a variety of
tools and techniques to monitor and improve supply chain performance, (Huhns and
Stephens, 2001). A hybrid model that suggests both bottom-up and top-down approaches is
considered more suitable for the point of optimizing and thus can be seen as a new method of
assessing the supply chain performance, (Bullinger, Kühner, & Van Hoof, 2002). Several
researchers have investigated the issue of performance measurement considering various
aspects of supply chain include. Chan (2003) introduces five other performance
measurements like resource utilization; flexibility; visibility; trust; and innovativeness.
Shepherd and Günter, (2006) have attempted a critical review of literature pertaining to
supply chain performance evaluation and have given some directions for further research. In
another survey Gunasekaran and Kobu (2007) have provided an overview of measures
applicable for performance assessment of supply chains. Bhagwat, and Sharma (2007)
developed a balanced scorecard for supply chain management (SCM) that measures and
evaluates day-to-day business operations from following four perspectives namely: finance,
customer, internal business process, and learning and growth. Wong, and Wong (2007)
suggest two DEA (Data Envelopment Analysis) models– the technical efficiency model and
the cost efficiency models that are coupled with scenario analysis to enable improved
resources planning decisions. Wong and Lee (2008) while arguing about the complexities in
performance assessment indicate how difficult the assessment could be because the supply
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chain itself is a new field. A hierarchy based supply chain performance measurement system
using the Analytic Hierarchy Process is reported by Xu, et al. (2007). Models like balanced
scorecard, SCOR, ABC, (Activity Based Costing), and standard costing to ascertain the
performance of various aspects of the supply chain, have been recommended by the
researchers, (Rangaraj, Raghuram, & Srinivasan, 2008).
Further, supply chain performance measurement system implementation (Charan et al.
2008) indicates how the system is implemented in a given situation. It is obvious from the
literature review that the performance measures have attracted the attention of the researchers
and it is a challenging task to develop an exhaustive performance measurement system
considering all the factors suggested or recommended across the world by researchers and
practitioners. Brun, et al. (2009) provide a framework for the selection of the right
Performance Measurement System (PMS) for different supply chain typologies.
Several researchers have commented that supply chain performance needs to be assessed
for several reasons, both for assessment of the status or for control and improvement,
(Yildirim Yilmaz & Umit Bititci, 2006), (Cousins, Lawson, & Squire, 2008), (Chia, Goh, &
Hum, 2009), and (Allesina, Azzi, Battini, & Regattieri, 2010). A literature review of papers
related to supply chain measures is provided by researchers who have looked into three
aspects namely (1) framework development, (2) empirical cross-industry research and (3)
adoption of performance measurement systems, (Arzu Akyuz & Erman Erkan, 2010).
Performance measurement of supply chains started off from logistics assessment and today
encompasses the entire chain, that includes functions like information management, flow of
goods and money, and checking validity, relevance and even costs and benefits, ((Sinha &
Kotzab, 2011). It is further mentioned that the performance assessment can also include
financial as well non-financial measures.
A novel application of neighborhood rough-set theory for the identification and selection
of performance measures related to externally derived outcomes is quite novel and finds
interesting applications, (Bai, Sarkis, Wei, & Koh, 2012). Supply chain mangers today have
plenty of metrics to measure the performance and that may create lot of confusion and
difficulty in application. But using many such metrics can result in better and efficient
assessment of performance of supply chains, (Elrod, Susan Murray, & Bande, 2013).
In an interesting argument the researchers (Chelariu, Asare, & Brashear-Alejandro, 2014)
wonder why only economic and operational measures are used to assess the performance and
relational and strategic measures are given less attention. Based on this approach they have
developed a comprehensive framework that recognizes four major categories
of supply chain performance measures: relational; operational; strategic; and economic, and
the authors call the model as “ROSE”. These additional measures obviously expand the scope
of assessment and makes the process more difficult.
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Using marketing and R & D policy as the base for assessing the performance is claimed as
an innovative method of assessment, (Chan, Nayak, Raj, Chong, & Manoj, 2014). Again the
intangibles involved may create difficulties in proper assessment. Supply chain performance
measurement is also done with the help of ontology and Global Supply Chain Forum (GSCF)
reference model, (Teimoury, Chambar, Gholamian, & Fathian, 2014). It is also possible to
look at the performance measures in terms of the benefits accrued to the buyers or customers,
like reduced lead time, more variety and volume, improved responsiveness, and ability to
meet the uncertainties in supply and demand. Since all these issues result in savings the
performance measurement can be a function of the “shared savings” between the buyers and
sellers, (Chopra & Meindl, 2015). It is important to develop KPI’s (Key Performance
Indicators) for each segment or part of the supply chain and measure both financial and
nonfinancial aspects and carry out benchmarking with better performers.
A performance measurement network was created for the needs of manufacturing industry
based on case research method which involves the key elements for
the measurement framework as time, profitability, order book analysis and managerial
analysis, (Sillanpää, 2015). It is really interesting to note that the supply chain performance
may have to be assessed and what if no data exists. This is the new assumption under which
supply chain is assessed, (Tavassoli, Farzipoor Saen, & Faramarzi, 2015). In a study
conducted in the automobile manufacturing industries located in the National Capital Region
of India, several enables have been identified and the vagueness of field expert's judgments
has been reduced using fuzzy decision making trial and evaluation laboratory (fuzzy
DEMATEL) approach, (Tyagi, Kumar, & Kumar, 2015). A review of papers dealing with
sustainable supply chains’ performance measures based on seven different measures is
recommended by some authors who suggest a comprehensive framework, (Tajbakhsh &
Hassini, 2015). The logistics service supply chain’s performance measurement plays a key
role and based on the overall measures, the indices have been developed, (Gong & Yan,
2015). In spite of all these assessment methods and availability of metrics, it is imperative that
the performance assessment of supply chains could range from a simple calculation of
efficiency to a complex method that tries to capture all the constituent elements.
4. Global Supply Chains - Challenges and Issues
Since the dawn of globalization in the early nineties, researchers across all disciplines have
studied the impact of going global and the associated success factors. The term globalization
is now deeply rooted in everyday business and general talk. Wikipedia (www.wikipedia.com)
defines globalization as “the process by which regional economies, societies, and cultures are
integrated through a global network of communication, transportation, and trade. The term is
used to refer specifically to economic globalization: the integration of national economies into
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the international economy through trade, foreign direct investment, capital flows, migration,
and the spread of technology, (Bhagwati, 2004). Globalization is usually recognized as being
driven by a combination of economic, technological, socio-cultural, political, and biological
factors, (Sheila, 2004).The term can also refer to the transnational circulation of ideas,
languages, or popular culture through acculturation. Alli, et al. (2007) have given a good
interpretation of globalization and its effects. According to them globalization is the
interaction between economies, technologies and politics which creates an environment that
reduces state regulation of the market promoting a more dominant role for large multinational
corporations.
The advent of globalization made the operations mangers to look beyond the local
boundaries and start getting inputs from several places across the world and to look at the
whole world as their markets. Global supply chains with inbound and/or outbound logistics
are quite common today as the suppliers and customers could be located anywhere in the
world. Secondly, it is prudent to look for suppliers and customers far beyond the local
boundaries to realize several distinct advantages in terms of quality, quantity, price, variety,
currency fluctuations, regional policy matters, and to build balanced networks. On the other
hand global supply chains also have their limitations and challenges. A survey conducted by
McKinsey reveals the interesting responses as depicted in Figure 3. This paper proposes to
measure the supply chain performance against these perceptions to construct the supply
chains to meet these challenges. This ensures that the assessment of the supply chains are
with reference to the actual performance parameters taking into mind the challenges and the
realities across the globe.
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Figure 3: Percent respondents agreeing to a given aspect of challenges
(Source: http://www.mckinsey.com/insights/operations/
he_challenges_ahead_for_supply_chains_mckinsey_global_survey_results)
5. Mapping of Global Supply Chain Challenges and Supply Chain
Performance Measures Quality, cost, and delivery are the primary key metrics anytime applicable to assess the
supply chain performance. In addition as already informed, flexibility, innovation and speed,
constitute the expectations from the supply chains. Flexibility and speed refer to several sub-
factors like flexibility in terms of volume, variety, lead times, pricing, batch size, delivery
modes, packaging, distance traveled, shelf life and ability to handle last minute changes, and
several others. Similarly, speed of operations in terms of fast delivery, rapid changes in
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design, ability to introduce new practices quickly, improved responsiveness, faster
turnarounds in inventory, and above all faster communication capabilities, will be helpful for
a comprehensive assessment.
Considering the moderate amount of literature dealing with the performance assessment of
the supply chains, the author proposes to adopt the model suggested by Anvari, et al. (2011)
based on the following considerations:
The proponents of this model have examined the various models of performance
assessment developed by different authors and have given those factors due consideration
Firstly, the affecting factors on SC performance are addressed on the basis of
literature and elites' opinions; and later industrial connoisseurs' ideas were gathered to
identify the factors to be included in the questionnaire
The survey reveals the important factors
The list of factors is modified to reflect the changes in the environment
5.1 Mapping of Factors and the Challenges
The next step involves the mapping of the list of factors given by Anvari, et al. (2011) and
the challenges given by the McKinsey studies by Gorey, Jochim, and Norton. (2015) to reveal
how the assessment can become more relevant to the industry requirements. Further based on
the respondents' perceptions and comments, the lists are ranked from most preferred to least
preferred parameters. Table 1 shows the assessment factors arranged in decreasing order of
importance. (The ranks below27 are not part of the ranks given by the respective authors but
included here for the completeness of the earlier list, and the ranks are just serially given).
Later using the McKinsey's report by Gorey, Jochim, and Norton. (2015), Table 2 shows the
challenges and the corresponding ranks.
Table 1: Assessment factors and corresponding ranks (Anvari, et al. (2011)
Assessment factors Rank
Purchase order cycle time 1
Order entry methods 2
Quality of delivered goods 3
Supplier ability to respond to quality problems 4
Buyer-supplier partnership level 5
Cycle Time 6
Delivery performance 7
Rejection rate 8
Effectiveness of distribution planning schedule 9
Customer satisfaction 10
Range of product and services 11
Order responsiveness 12
Fill rate 13
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Warehouse cost 14
Accuracy of forecasting techniques 15
Lead time 16
Information sharing and availability 17
Frequency of delivery 18
Supplier assistance in solving technical problems 19
Flexibility to meet particular customer needs 20
Total Cash Flow Time 21
Supplier cost saving initiatives 22
Delivery reliability 23
Quality of delivery documentation 24
Inventory flow rate 25
Product development cycle time 26
Delivery lead time 27
Effectiveness of delivery invoice methods 28
Level of customer perceived value of product 29
Level of supplier's defect free deliveries 30
Master Production Scheduling 31
Rate of Return On Investment 32
Rate of unfilled orders 33
Variations against budget 34
Table 2: Global challenges ranked in Gorey, T., Jochim, M. and Norton, S. (2015)
Global Challenges Rank
Increasing volatility of customer demand 1
Increasing consumer expectations about quality 2
Increasing cost pressure in logistics/transportation 3
Increasing pressure from global competition 4
Increasing volatility of commodity prices 5
Increasingly complex patterns of customer demand 6
Increasing financial volatility 7
Increasingly global markets for labor and talent 8
Increasing complexity in supplier landscape 9
Growing exposure to differing regulatory requirements 10
Increasing environmental concerns 11
Geopolitical instability 12
5.2 Observations and remarks
The first challenge in Table 2 pertains to the "Increasing volatility of customer demand"
which refers to the unpredictability of the demand and makes the forecasting difficult. This in
turn demands applying sophisticated methods of forecasting to improve the accuracy. But,
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from Table 1, "Accuracy of forecasting techniques" is ranked at 15 thereby showing a lesser
preference. This is an indication of mismatch between what the customers perceive and the
experts opine. Complex pattern of customer demand is a challenge, ranked at the middle of
the list almost corroborating to the lesser preference to the forecasting accuracy. However,
the conventional factors like quality, cost, and delivery, rank higher in both the customers' list
and list of the challenges. Similarly, factors like flexibility, innovation, and time related
parameters, are ranked almost at the same level of preferences in the two lists. However, the
two lists do not relate in any way in terms of the people surveyed or place of survey or
industries or the profile of the respondents. Hence, the lack coherence between the two lists
need not surprise in general, nevertheless shows some connectivity across the factors.
6. Weighted Score Model using the Multiple Criteria of Performance
Assessment Whenever a certain decision is based on multiple criteria a simple approach would be to
use a weighted score model. In the case of performance assessment of supply chain based on
factors as shown in Table 1, there are 34 factors established and hence a weighted score
model would be appropriate to simplify the decision of comparing the performance of the
same supply chain over a period of time or comparing a set of supply chains using similar
criteria. The first step in using the weighted score model is to convert the ranks to
corresponding weights. The criteria weights are developed by using the approach suggested
by Alfares and Duffuaa (2006), where a linear relationship specifies the average weight for
each rank, assuming a weight of 100% for the first-ranked (most important) factor. For any
set of n ranked factors, the percentage weight of a factor ranked as r is given by:
W(r, n) = 100 – Sn (r – 1)
Where, Sn = 3.19514 + (37.75756/n), 1<= r <= n, and r and n are integers
In the present case n = 34 and using a spreadsheet the weights are calculated and shown in
Table 3 along with their ranks.
Table 3: Rank and weights of the factors
Assessment factors Rank Weight in %
Purchase order cycle time 1 100
Order entry methods 2 95.69434353
Quality of delivered goods 3 91.38868706
Supplier ability to respond to quality problems 4 87.08303059
Buyer-supplier partnership level 5 82.77737412
Cycle Time 6 78.47171765
Delivery performance 7 74.16606118
Rejection rate 8 69.86040471
Effectiveness of distribution planning schedule 9 65.55474824
Customer satisfaction 10 61.24909176
Range of product and services 11 56.94343529
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Order responsiveness 12 52.63777882
Fill rate 13 48.33212235
Warehouse cost 14 44.02646588
Accuracy of forecasting techniques 15 39.72080941
Lead time 16 35.41515294
Information sharing and availability 17 31.10949647
Frequency of delivery 18 26.80384
Supplier assistance in solving technical problems 19 22.49818353
Flexibility to meet particular customer needs 20 18.19252706
Total Cash Flow Time 21 13.88687059
Supplier cost saving initiatives 22 9.581214118
Delivery reliability 23 5.275557647
Quality of delivery documentation 24 0.969901176
Multiplying the regular scores by the weights, the weighted scores can be established and
the composite score is calculated taking up the sum of all the weighted scores. The weights
assigned by the model follow a linear decrement. However, this model starts tapering to lower
values and eventually reaches close to zero when there are 24 factors. Another approach to
assign weights could be to use "learning curve" theory, which starts assigning weights from
100 to the first value and then decrements the values in a negative exponential manner.
However, these models are definitely worth examining further in order to justify the
methodology of assigning weights. For any model chosen variance around mean is to be
established and any model selected should be having a minimum deviation from the central
value. This paper will not delve into the details as it would demand a separate analysis.
Looking at the factors and to simplify the process of optimization, the top three priorities
are considered as shown in Table 4. The second factor is common across both the past and
future priorities.
Table 4: The top three priorities over the past three years and the next five years
Rank Rank over the past three years Rank over the next five years
1 Increasing volatility of customer demand Increasing pressure from global
competition
2 Increasing consumer expectations about
quality
Increasing consumer expectations about
quality
3 Increasing cost pressure in
logistics/transportation
Increasingly complex patterns of
customer demand
7. Moving towards Optimization
The optimization process of the performance measures here is shown as generic model and
proposes the application of linear programming to achieve the objectives. The new challenges
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considered are 12 in number and are considered vital for the sustainability of the supply
chains. Table 5 illustrates the new challenges and their weights.
Table 5: New challenges and the corresponding weights
New Challenges Rank over the
next 5 years Weights
Increasing pressure from global competition 1 W1
Increasing consumer expectations about quality 2 W2
Increasingly complex patterns of customer demand 3 W3
Increasing cost pressure in logistics/transportation 4 W4
Growing exposure to differing regulatory requirements 5 W5
Increasing financial volatility 6 W6
Increasing volatility of commodity prices 7 W7
Increasingly global markets for labor and talent 8 W8
Increasing environmental concerns 9 W9
Increasing volatility of customer demand 10 W10
Increasing complexity in supplier landscape 11 W11
Geopolitical instability 12 W12
Considering only the top three priorities over the next five years, we can say that the
following challenges need to be addressed on top priority. Thus the weights can be assigned
on a scale based on the severity, like for example:
W1:W2:W3 = 0.5:0.3:0.2 or 50, 30, 20% and this can be interpreted as shown in Table 6.
Table 6: Efforts required and expected returns for the challenges
Challenge Required Return
Increasing pressure from global competition At least 50% of the total efforts R1
Increasing consumer expectations about quality At least 30% of the total efforts R2
Increasingly complex patterns of customer demand At least 20% of the total efforts R3
Let E1, E2, and E3 represent the individual efforts or the resources in a generalized way,
and R1, R2 and R3 be the corresponding returns associated with the efforts. The efforts
required or resources to be used can be further expressed in terms of total budget, labor time,
number of persons involved, and other practical considerations.
Here for illustration purpose only three challenges are taken but the model can be extended
to include other challenges. Then the proposed linear programming model is as follows:
Maximize: R1*E1 + R2*E2 + R3*E3
Subject to:
E1 >= 0.5 (E1 + E2 + E3)
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E2 >= O.3 (E1 + E2 + E3)
E3 >= 0.2 (E1 + E2 + E3)
This means any effort represented by E, should not exceed some percent of the total
combined efforts. This automatically ensures that the efforts spent are not channelized in only
one direction rather in all possible directions and forms. The obvious difficulty here is to
express everything in numbers and quantifying the return and the efforts in common terms.
Thus some approximations would be required.
8. Conclusions and Recommendations
Performance assessment of supply chains is considered a vital aspect sine the last two
decades because of the immense importance of the supply chains in the global economy and
also due to the proliferation of the global supply chains. Many researchers and professional
bodies have developed a variety of measures to assess the performance of supply chains and
most of these assessment parameters seems to be agreeing with the conventional measures
that existed right from the days of prioritizing the operations requirements. In this paper the
factors as obtained through a comprehensive survey and the challenges identified by a well-
known research based professional agency, have been mapped to examine how the
assessment can be made with respect to the challenges. This serves the objective of assessing
against the challenges faced and hence tests the ability of the supply chains in meeting those
challenges. However, the model proposed here is limited by the fact that the two lists
containing the factors and the challenges are not based on the survey conducted on common
respondents nor the two lists have any other common factors, and hence not congruent. But
the paper demonstrates the methodology to lead to a better model compared to simply ranking
the factors and converting the values to a single score say using the sum of the weighted
scores. The optimization model is conceptual and needs further refinement. It is also to be
noted that further research on similar lines can be done with a common participating group of
respondents repeated several times which will lead to reliable results.
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