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Figure 3.11 Value driver tree for supply chain management
In Figure 3.11 is shown an example of a supply chain value driver system. On the left
hand side, it can be seen that the relations between the elements are mathematically defined.
E. g. in this case the value added is the difference between the EBIT and the cost of capital,
which itself is defined by the multiplication of the WACC with the operative assets. In that
sense, the effects of a change in one of the factors on the right hand side in the KPI can be
easily calculated. On the other side for some influencing factors such as delivery capability or
complaints, the impact cannot be identified in a deterministic manner. Assumptions have to
be made or the effects of previous initiatives have to be tracked.
In summary, value driver systems offer a good possibility to calculate the financial
impact of supply chain initiatives on a top-level financial KPI. But for certain initiatives
on supply chain management or on sustainability, neither the impact can be identified
mathematically nor the desired outcome of these initiatives can be estimated.
3.3.4 Balanced scorecards
The balanced scorecard as a top down instrument for defining an organisation’s goals
and objectives was introduced by Kaplan and Norton [25] with the key notion that a total
reliance on financial measures lead organisations to make poor decisions. Instead they
suggested that firms must go beyond financial measures as they are lagging indicators and
utilise leading indicators of performance to enable strategic feedback and learning. They also
argued that the best measures are those that map the organisations strategy. Therefore, they
included four key performance measurement areas that are linked to each other:
• How do we look to shareholders (financial perspective)?
• How do customers see us (customer perspective)?
• What must we excel at (internal operations perspective)?
• Can we continue to improve and create value (innovation and learning
perspective)?