Unit 8C Revised

7/29/2019 Unit 8C Revised

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GITAM INSTITUTE OF INTERNATIONAL BUSINESS

Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD

LSM-306SupplyChainMan

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Synopsis

Performance measurements and metrics in SCM

Supply Chain Performance Measurement Systems

Measuring Supply Chain Performance

Integrated Performance Measurement

Performance Metrics For Supply Chain

Drivers of supply chain performance

A framework for structuring drivers

Facilities Inventory

Transportation

Information

Obstacles to achieving fit


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Performance measurements and metrics in SCM

The metrics and measures are discussed in the context of the following

supply chain activities/processes:

(1) plan

(2) source

(3) make/assemble

(4) delivery/customer (Stewart, 1995; Gunasekaran et al., 2001).


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SC Performance Measurement Systems

Performance measurement systems must:

Link SC trading partners to achieve breakthrough performance in satisfying

the end users

Overlay the entire SC to assure that all contribute to SC strategy

In a successful chain, members jointly agree on a SC performance

measurement system.


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SC Performance Meas. Systems (2)

Specific Supply Chain Performance Measures

Total SCM costs:

cost to process orders; purchase & manage inventories & information systems.

SC cash-to-cash cycle time: Average # of days between paying for materials and getting paid by SC partners.

SC production flexibility:

average time required to provide an unplanned 20 % increase in production.

SC delivery performance:

average % of orders filled by requested delivery date.

SC perfect order fulfillment performance: average % of orders that arrive on time, complete, and damage free.

Supply chain e-business performance:

average % of electronic orders received for all supply chain members.


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Measuring Supply Chain Performance

Strategic decision-making, development of action plans and operations

improvement relies on the development of performance measurement systems

It monitors current and past states and enable projections into the future.

Also stops considering financial accounting measures as the basis for performancemeasurement R.G. Eccles (1991)

According to Neely (1995)

The nature of the work is changing, cost allocation techniques outdated.

Increased levels of competition create pressure to reduce costs and increase value

generated by products

Specific actions geared towards operations improvement / meeting quality standardsrequire specific measures to assess the impact on performance

External demands require firms to be more adaptable

Performance measurement systems need to focus simultaneouly on resource

efficiency, effective output and flexibility (Beamon, 1998)


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GITAM INSTITUTE OF INTERNATIONAL BUSINESS Professor Dr. P.R.S SARMA M.B.A & Ph.D. - IITD


agement


Balanced Scorecard (Kaplan e Norton, 1996)

The BSC translates the firm strategy into a set of metrics that track

performance along four inter-related perspectives:

Financial Perspective

Customer Perspective

Internal process Perspective

Learning and Growth Perspective

Strategic Maps (Kaplan e Norton)

Show causal relationships between metrics associated with the differentperspectives.

Build a cohesive and integrative view of the firm strategy.

Four key themes are value creation, customer value, operational excellence

and comunity relationships.


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The Performance prism (Neely e Kennerley, 2002)

Satisfy stakeholders and internal strategic objectives:

Satisfaction of stakeholders

Stakeholderscontribution

Strategy

Processes

Competencies


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Performance Metrics For SC

Propose a set of metrics for supply chain management following the

background literature on performance measurement systems. A few

specific concerns were identified:

Balancing metrics

Internal Vs external metrics;

Financial Vs non-financial;

Functional Vs cross-functional;

Current performance Vs learning and innovation.

Identifying key performance areas Key performance areas are related to value creation.

Identifying key processes in the supply chain


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Drivers of Supply Chain Performance

Facilities

places where inventory is stored, assembled, or fabricated

production sites and storage sites

Inventory

raw materials, WIP, finished goods within a supply chain

inventory policies

Transportation

moving inventory from point to point in a supply chain

combinations of transportation modes and routes

Information

data and analysis regarding inventory, transportation, facilities throughout the

supply chain

potentially the biggest driver of supply chain performance


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A Framework for Structuring Drivers

Efficiency Responsiveness

Facilities Transportation Inventory Information

Supply chain structure

Drivers


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Supply Chain Decisions: Structuring Drivers

Strategy(Design)

Planning

Operation


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Facilities

Role in the supply chain

the where of the supply chain

manufacturing or storage (warehouses)

Role in the competitive strategy

economies of scale (efficiency priority)

larger number of smaller facilities (responsiveness priority)


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Components of Facilities Decisions

Location

centralization (efficiency) vs. decentralization (responsiveness)

other factors to consider (e.g., proximity to customers) Capacity (flexibility versus efficiency)

Manufacturing methodology (product focused versus process focused)

Warehousing methodology (SKU storage, job lot storage, cross-docking)

Overall trade-off: Responsiveness versus efficiency


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Inventory



Components of inventory decisions


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Inventory: Role in the Supply Chain

Inventory exists because of a mismatch between supply and demand

Source of cost and influence on responsiveness

Impact on

material flow time: time elapsed from: material entry in the supply chain to its

exit from the supply chain

throughput

rate at which sales to end consumers occur

Inventory and throughput are synonymous in a supply chain

If responsiveness is a strategic competitive priority, a firm can locate larger

amounts of inventory closer to customers

If cost is more important, inventory can be reduced to make the firm more

efficient

. Trade-off


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Components of Inventory Decisions

Cycle inventory

Average amount of inventory used to satisfy demand between shipments

Depends on lot size

Safety inventory inventory held in case demand exceeds expectations

costs of carrying too much inventory versus cost of losing sales

Seasonal inventory

inventory built up to counter predictable variability in demand

cost of carrying additional inventory versus cost of flexible production


more inventory: greater responsiveness but greater cost

less inventory: lower cost but lower responsiveness


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Transportation



Components of transportation decisions


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Transportation: Role in the Supply Chain

Moves the product/people between stages in the supply chain

Impact on responsiveness and efficiency

Faster transportation allows greater responsiveness but lower efficiency

Also affects inventory and facilities


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Transportation:

Role in the Competitive Strategy

If responsiveness is a strategic competitive priority, then faster

transportation modes can provide greater responsiveness to customers who

are willing to pay for it

Can also use slower transportation modes for customers whose priority isprice (cost)

Can also consider both inventory and transportation to find the right

balance


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Components of Transportation Decisions

Mode of transportation:

air, truck, rail, ship, pipeline, electronic transportation

vary in cost, speed, size of shipment, flexibility

Route and network selection

route: path along which a product is shipped

network: collection of locations and routes

In-house or outsource



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Information



Components of information decisions


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Information: Role in the Supply Chain

The connection between the various stages in the supply chain allows

coordination between stages

Crucial to daily operation of each stage in a supply chain e.g., production

scheduling, inventory levels


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Information:

Role in the Competitive Strategy

Allows supply chain to become more efficient and more responsive at the

same time (reduces the need for a trade-off)

Information technology

What information is most valuable?


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Components of Information Decisions

Push (MRP) versus pull (demand information transmitted quickly

throughout the supply chain)

Coordination and information sharing

Forecasting and aggregate planning

Enabling technologies

EDI

Internet

ERP systems

Supply Chain Management software



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Considerations for Supply Chain Drivers

Driver Efficiency Responsiveness

Inventory Cost of holding Availability

Transportation Consolidation Speed

FacilitiesConsolidation /

Dedicated Proximity / Flexibility

InformationWhat information is best suited for each

objective


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Obstacles to Achieving Strategic Fit

Increasing variety of products

Decreasing product life cycles

Increasingly demanding customers

Fragmentation of supply chain ownership

Globalization

Difficulty executing new strategies


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Major Obstacles to Achieving Fit

Multiple owners / incentives in a supply chain

Increasing product variety / shrinking life cycles / customer fragmentation

Increasing implied uncertainty

Local optimization and lack of global fit


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Summary

What are the major drivers of supply chain performance?

What is the role of each driver in creating strategic fit between supply

chain strategy and competitive strategy (or between implied demand

uncertainty and supply chain responsiveness)?

What are the major obstacles to achieving strategic fit?


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LSM-306SupplyChainManagement

Role of Information Technology in a Supply Chain

Information is the driver that serves as the glue to create a coordinated

supply chain

Information must have the following characteristics to be useful:

Accurate

Accessible in a timely manner

Information must be of the right kind

Information provides the basis for supply chain management decisions

Inventory

Transportation

Facility


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Characteristics of Useful Supply Chain

Information

Accurate

Accessible in a timely manner

The right kind

Provides supply chain visibility


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Use of Information in a Supply Chain

Information used at all phases of decision making: strategic, planning,

operational

Examples:

Strategic: location decisions

Operational: what products will be produced during todays production

run

Inventory: demand patterns, carrying costs, stockout costs, ordering

costs

Transportation: costs, customer locations, shipment sizes Facility: location, capacity, schedules of a facility; need information

about trade-offs between flexibility and efficiency, demand, exchange

rates, taxes, etc.


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Role of Information Technology in a Supply

Chain

Information technology (IT)

Hardware and software used throughout the supply chain to gather andanalyze information

Captures and delivers information needed to make good decisions Effective use of IT in the supply chain can have a significant impact

on supply chain performance

The Importance of Information in a Supply Chain

Relevant information available throughout the supply chain allowsmanagers to make decisions that take into account all stages of the

supply chain Allows performance to be optimized for the entire supply chain, not just

for one stage leads to higher performance for each individual firm inthe supply chain


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Role of Information Technology in a Supply Chain (2)


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Business Processes Mapped to an IT Solution


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Enterprise Applications along the Value Chain


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Information and Technology: Application of SCM

In the development and maintenance of Supply chain's information

systems both software and hardware must be addressed.

Software includes the entire system and application programme used for

processing transactions management control, decision-making andstrategic planning.

Recent development in Supply chain management are:

Electronic Commerce

Electronic Data Interchange (EDI)

Bar coding and Scanner Data warehouse

Enterprise Resource planning (ERP) tools


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The Future of IT in the Supply Chain

At the highest level, the three SCM macro processes will continue todrive the evolution of enterprise software

Software focused on the macro processes will become a larger share of

the total enterprise software market and the firms producing thissoftware will become more successful

Functionality, the ability to integrate across macro processes, and thestrength of their ecosystems, will be keys to success


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Analytical Applications for SCM

Demand/Supply Match Sales values

Inventory

Order lead times

Issues/Receipts

Forwarding Agent Efficiency Total transportation lead time

Carrier efficiency

Transportation time

Transportation waiting time

Forwarding Agent Requirement Analysis Shipment values

Time efficiency

Shipment weights and volumes

Global Capacity Utilization Global capacity utilization

Capacity utilization by plant and week

Capacity details - comparison


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Analytical Applications for SCM (2)

Global Inventory View Inventory per product (pieces)

Inventory details per selected product

Inventory value per product

Days of supply per selected product

Inventory per selected product

Order Analytics Order status

Existing orders versus sales target by customer

Existing orders versus sales target by sales organization

Existing orders by customer (pieces)

Existing orders by key account (pieces)

Supplier Rating Monitor Top 10 suppliers by order volume

Supplier rating by product for selected supplier

Supplier alerts

Alerts for selected product


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Analytical Applications for SCM (3)

Warehouse Workload Historical View

Quantities delivered

Outbound deliveries by line item

Delivery detail

Stocks

Total receipts/issues by month

Receipts/issues variance


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Supply Chain Information Technology in Practice

Select an IT system that addresses the companys key success factors

Take incremental steps and measure value

Align the level of sophistication with the need for sophistication

Use IT systems to support decision making, not to make decisions

Think about the future


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Transactional vs. Analytical IT


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LSM-306SupplyChainMa

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What are Enterprise Systems?


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Integrated Enterprise

Organization

Processes

Technology

INFORMATION

Information is a Key Enabler!


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Enterprise Resources Planning (ERP) Definition

Enterprise Resource Planning A method for the effective planning and controlling of ALL these sources needed

to take, make, ship and account for customer orders in a manufacturing,distribution or service company

It Includes: Typical MRP II Functions

Quality Functions

Sales Force Automation

Field Service Functions

Engineering Function / PDM

Complete Financial Functions

Advance Manufacturing Function Human Resources Functions

Distribution / Logistics Functions

Management Reporting

ERP is a System for the Entire Company A Global Tightly IntegratedClosed-Loop System

Source: APICS Complex Industries Special Interest Group


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ERP Functionality


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Typical ERP Functionality

System Wide Elements

Project Management & Project

Costing (EVM)

Executive Management

Information System

Work Flow Management

Multi-Company

Multi-Currency

Multi-Lingual

Multi-Mode

EDI / Electronic Commerce

Web Enabled / Internet

Communications

Imaging & Multi Media


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Typical ERP Technology


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Why ERP ?

To improve the profitability of the company

To solve problems of legacy systems (year 2000)

To be able to cope with new production requirements

To provide the architectural anchor for rationalization of acquisitions

To provide interoperability of its organizations

To provide the means for Supply Chain Management

There are several reasons why a company will consider theImplementation of a New Backbone Business System:


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Why ERP ? (2)

Fully integrated systems where everyone has instant access to the latest

accurate information One data base, date is added only once and used by All

The system allows interoperability of the internal and external supplychain

On line (vs Batch) systems elements data is there automatically

Work flow is managed efficiently through system action messages androuting of decisions

Paperless systems allow efficient on-line approvals

Reduce Costs How will ERP Help?

Enable Reduced Resource Requirements due to:


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ERP Systems View of Functionality


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Supply Chain Management and the Internet


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Internet-based supply chain management

applications

Two main categories

Supply chain planning systems

Supply chain execution systems

Supply chain planning systems Demand planning

Order planning

Advanced scheduling and manufacturing planning

Distribution planning

Transportation planning

Supply chain execution systems

Manage flow of products through distribution centers and warehouses to ensureproducts delivered to right locations in most efficient manner

Order commitments

Final production

Replenishment

Distribution management

Reverse distribution


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The Future Internet-Driven Supply Chain

Documents

Unit 8C Revised