Measuring system performance of an ERP-based supply chain

Metrics, the process for capturing, measuring, reporting, and assessing performance of activities, has received attention recently. The development of a metric approach to identifying potential operational problems has become very important, especially for popular enterprise systems. The purpose of this paper is to propose an integrated method, total related cost measurement, to evaluate the performance of a three-echelon enterprise resource planning (ERP) based supply chain system. To establish the validity of this integrated method, a base simulation experiment is conducted to see whether this total cost approach is responsive to such variations in operating environments as lead time variation or cost structure differentiation. Furthermore, separate sets of validation experiments are also conducted to see how sensitive the results are as obtained by the base experiment responding to changes in such parameters as the configuration of a logistics network. Both sets of simulation results are analyzed using Analysis of Variance. Research results show that an integrated approach should be considered to evaluate an ERP-based supply chain. Also, the performance of an ERP-based supply chain is significantly affected by the lot-sizing rule selected. If ordering costs can be effectively reduced, the lot-for-lot lot-sizing rule should be considered to reduce the total related cost. Otherwise, the Silver and Meal rule can be a cost-effective lot-sizing rule in various operating environments. We provide a general guideline to establish such an integrated performance measurement for ERP-based supply chain operators to better capture the system performance attributed to the use of ERP.