Service, Cost and Cash: Core Performance Trade-offs

Good performance is not one number

Increasing inventory can look like an easy fix for product shortages, while reducing inventory can look like a direct way to release cash. Yet each decision may affect service, cost, speed, reliability and the capital tied up in the system. Supply-chain management therefore needs a set of measures that exposes trade-offs instead of optimizing one indicator at the expense of the rest.

SCOR distinguishes “performance attributes” from “metrics.” Its performance attributes include reliability, responsiveness, agility, cost and asset management. An attribute frames what matters; a metric is a specific number used to monitor it. This distinction prevents us from confusing a broad objective such as “faster responsiveness” with one particular calculation.

Service and reliability

Inventory and cash

Inventory serves an operational purpose, but it also represents value tied up until the item is used or sold. In a simplified teaching example, inventory value can be estimated as units multiplied by cost per unit, while recognizing that this is not a full financial calculation of carrying cost, tax, obsolescence or financing.

Trade-off: state the decision condition before chasing an attractive number