The local implementation of a global Balanced Scorecard. Performance measurement in Akzo Nobel Marine & Protective

Background There is increased pressure on the supply chain to drive improvements to support overall business performance. Previously, the overall supply chain performance has lacked the right set of performance measures and has not been monitored, with fragmented improvement projects as the result. To address this, a supply chain Balanced Scorecard has been devised for global use. Implementation of the top level measures will take place during 2009. The measures thereafter will be cascaded throughout the organisation. Purpose and focus The study aimed at contributing to the ongoing Balanced Scorecard initiative by examining the present situation in the light of recent research within business process management and performance measurement systems. The focus will be on the production process. Research objectives The project had three objectives: O1. Validate the suggested supply chain Balanced Scorecard with respect to the strategy of the business unit. O2. Suggest a KPI structure for a process oriented performance measurement system that links operational activities to the high level end‐to‐end process as well as the organisation’s top level measures. O3. Determine and explore the driving forces and barriers for implementing a process oriented performance measurement system. Method The study was based on a case study of Akzo Nobel Marine & Protective Coating’s European supply chain for Marine products. Direct observations and interviews were the main data gathering methods. The interview series spanned all organisational levels, all in‐process departments and the supply chain entities downstream of the factory. Conclusions The supply chain Balanced Scorecard The proposed measures can all be related to the company strategy. However, two strategic performance aspects that are not covered have been identified. These are ‘New product development’ and ‘Responsiveness’. Although the Balanced Scorecard is rather weak in measuring the internal environment and the employee perspective, the initiative has the potential to fulfil its intended role. That there is no business unit Balanced Scorecard is a source of concern. A process orientation could increase the benefits by avoiding sub‐optimisation and encouraging a customer focus. Today, there is little understanding of the importance of customer satisfaction as an external measure. A customer satisfaction measure/survey should therefore be instated, perhaps on a rolling basis. Measuring On Time In Full (OTIF) is an important complement. The OTIF improvement potential is big and the measure sees strong support despite having been underrated historically. A key performance indicator (KPI) structure for the production process Any balanced set of measures should capture four vital performance areas: Internal processes, external processes, internal environment and external environment. A process based cascading structure with three levels is recommended. The production process exemplifies the lowest KPI level. The suggested KPIs cover process inputs and outputs (physical and informational), activity linkage and factors that influence the top level measures of the supply chain Balanced Scorecard. Time measures are important to link activities and promote process thinking. Moreover, it is desirable to step away from the filling line focus to finding measures for the entire process. OTIF and customer satisfaction are important outcome measures. New product introduction, batch despatch and improvement activities are other suggested new measurement areas. It is recommended to discard cost per litre in favour of product cost breakdowns, overhead costs and batch costs. Driving forces and barriers Many strong driving forces relate to the initiative’s potential business benefits. Instating a well‐functioning OTIF reporting is also likely to gain support for the initiative. Another powerful driver is employee involvement which is why the recommended cascading approach is very participative. Focusing on training with the help of skill matrices could further leverage this driver. The key barriers are lack of trust, no existing process owner and the restriction of the initiative to Operations. The latter is of particular concern since top management backing is a strong driving force. The suggested measurement cascading approach challenges the assumption that cascading is synonymous with breaking down the measures and suggests that the measures instead should be created by in‐process workers based on visions and guidance from management and the central Business Improvement team.