Supply Chain Performance Measures PDF

SCOR – Supply Chain Operations Reference Model Metrics Drivers -2 -   The five distinct management processes link together (the chain in supply-chain) seamlessly from supplier to customer Plan Deliver...

SCOR – Supply Chain Operations Reference Model Metrics Drivers -2 -   The five distinct management processes link together (the chain in supply-chain) seamlessly from supplier to customer Plan Deliver Source Make Deliver Source Make Deliver Source Make Deliver Source Return Return Return Return Return Return Return Return Your Company Customer’s Suppliers’ Supplier Customer Customer Supplier Internal or External Internal or External SCOR Model -3 -  Process frameworks deliver the well-known concepts of business process reengineering, benchmarking, and best practices into a cross-functional framework – Standard processes: Plan, Source, Make, Deliver, Return, Enable – Standard metrics: Perfect Delivery, Cash Cycle Time, Supply-Chain Cost, etc – Standard practices EDI, CPFR, Cross-Training, etc Pre-defined relationships between processes, metrics and practices -4 -  Level 1 Level 2 Level 3 Level 4 Level 5 Scope Configuration Activity Workflow Transactions S1 EDI Supply-Chain S1.2 Source Source Receive Product XML Stocked Product Differentiates Differentiates Names Tasks Sequences Steps Links Business Complexity Transactions Defines Scope Differentiates Links, Metrics, Job Details Details of Capabilities Tasks and Automation Practices Framework Framework Framework Industry or Technology Language Language Language Company Specific Specific Language Language CxO SVP VP, Director Manager Team Lead EvP, SVP VP Line Manager Team Lead Individuals Standard SCOR definitions Company/Industry definitions -5 -  Internal Facing ◦ Cost  Total logistics management cost, Value-added productivity , Warranty cost ◦ Assets  Cash-to-cash cycle time, Inventory days of supply, Asset turns  Customer facing ◦ Reliability  Order fulfilment performance ,Perfect order fulfilment ◦ Flexibility  Supply-chain response time, Production flexibility Best-in-class companies have an advantage in total supply-chain management cost Total Supply-Chain Management Cost Source: Supply-Chain Council  SCOR metrics: Standard Level 1 Metrics Attribute Metric (level 1) Reliability Perfect Order Fulfillment Responsiveness Order Fulfillment Cycle Time Agility (Flexibility) Supply Chain Flexibility Supply Chain Adaptability † Cost Supply Chain Management Cost Cost of Goods Sold Assets Cash-to-Cash Cycle Time Return on Supply Chain Fixed Assets Return on Working Capital † upside and downside adaptability metrics -8 -  Diagnostic  3 Levels of predefined metrics  Level 1: Diagnostic for overall health of the SC  Level 2: Diagnostic of Level 1  Level 3: Diagnostic of Level 2  Analysis of performance of metrics from level 1 through 3: decomposition ◦ Helps identify the processes that need to be studied in the future Best practice: "A current, structured, proven and repeatable method for making a positive impact on desired operational results." – Current Must not be emerging and can not be antiquated – Structured Has clearly stated Goal, Scope, Process, and Procedure – Proven Success has been demonstrated in a working environment and can be linked to key metrics – Repeatable The practice has been proven in multiple environments. - 11 -  Total length of the chain: = DRM + DWIP + DFG ◦ DRM = RM * 365/ CRM, DWIP = WIP*365/ CP, DFG = FG * 365 / CS  DRM , DWIP , DFG = Days of RM, WIP and FG Inventory, respectively  CS = Cost of Goods Sold, CP= Cost of Production, CRM = Cost of Raw Materials  Supply chain inefficiency ratio: ◦ SCC = DC + INV * ICC & SCI = SCC / NS  SCC = SC mgmt. costs , ICC= Inv. Car. cost SCI = SC inefficiency ratio, DC = Distbn. Costs, NS = Net Sales  Supply chain working capital productivity: ◦ SWC = SC working capital, SWCP = SC working capital productivity ◦ SWC = INV +AR–AP SWCP = NS / SWC  A/Cs Payable Turnover (APT) CS / AP A/Cs Receivable Turnover (ART) Sales / AR Inventory Turnover (INVT) CS / Inventory Asset Turnover (AT) Sales / Assets Cash-to-cash (C2C) cycle roughly measures the average amount time from when cash enters the process as cost to when it returns as collected revenue C2C = – days payable (365/APT) + days in inventory (365/INVT) + days receivable (365/ART)  Data* (FY2015) ◦ CRM=557.8, CP =670.1, CS : 904 ◦ RM= 50.1,WIP=9.2, FG=86.5, INV=145.8 ◦ AR=238.2 , AP=181.8, NS= 1122.2, DC=89.5, ICC=0.2  Time in chain DRM = 50.1*365/557.8 = 33 ,DWIP = 9.2 *365/670.1 = 5 , DFG = 86.5 *365/ 904 = 35 Total Length of chain =33+5+35=73 days  Supply chain inefficiency ratio: SCC = 89.5 + 145.8*0.2 =118.66, SCI =118.66 /1122.2=10.6 %  Supply chain working capital productivity: SWC = 145.8+ 238.2 - 181.8 =202.2 SWCP = 1122.2/202.2 = 5.55 Assumption : ICC=0.2 Other Expenses  Cost reduction achieved by: ◦ Reducing Inventory, Reducing logistics expenses, Reducing direct material expenses, Reducing indirect material expenses  Improved revenue and profitability by: ◦ Selling higher margin products, Achieving higher market share, Reducing backorder and lost sales, Attacking new markets, Decreasing time to market  Improved Operational efficiency by: ◦ Reducing procurement expenses, Increasing assets utilization, etc  Reducing working capital by ◦ Reducing inventory, Reducing accounts receivables  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) Components of facilities decisions Capacity Location ▪ A facility’s capacity to perform its ▪ Where a company will locate its intended function or functions facilities ▪ Excess capacity – responsive, ▪ Centralize/decentralize, costly macroeconomic factors, quality of ▪ Little excess capacity – more workers, cost of workers and efficient, less responsive facility, availability of Role infrastructure, proximity to ▪ Flexible, dedicated, or a customers, location of other combination of the two facilities, tax effects ▪ Product focus or a functional  Overall trade-off: Responsiveness versus efficiency Cost of the number, location, capacity, and type of facilities (efficiency) and the level of responsiveness Increasing the number of facilities increases facility and inventory costs but decreases transportation costs and reduces response time Increasing the flexibility or capacity of a facility increases facility costs but decreases inventory costs and response time Role in the supply chain Mismatch between supply and demand Satisfy demand Exploit economies of scale Role in competitive strategy Form, location, and quantity of inventory allow a supply chain to range from being very low cost to very responsive Objective is to have right form, location, and quantity of inventory that provides the right level of responsiveness at the lowest possible cost Impacts assets, costs, responsiveness, material flow time Material flow time: The time that elapses between the point at which material enters the supply chain to the point at which it exits Throughput, the rate at which sales occur Little’s law I = DT where, I = Inventory, T = Flow Time, D = Throughput  Cycle inventory Average amount of inventory used to satisfy demand between shipments Function of lot size decisions Safety inventory Costs of carrying too much inventory versus cost of losing sales Inventory held in case demand exceeds expectations Seasonal inventory Inventory built up to counter predictable variability in demand Cost of carrying additional inventory versus cost of flexible production Level of product availability The fraction of demand that is served on time from product held in inventory Trade off between customer service and cost Cash-to-cash cycle time Average inventory Inventory turns Products with more than a specified number of days of inventory Average replenishment batch size Average safety inventory Seasonal inventory Fill rate Fraction of time out of stock Obsolete inventory Responsiveness versus efficiency Role in the supply chain Moves the product between stages in the supply chain Impact on responsiveness and efficiency Faster transportation allows greater responsiveness but lower efficiency Also affects inventory and facilities Role in the competitive strategy Allows a firm to adjust the location of its facilities and inventory to find the right balance between responsiveness and efficiency Components of transportation decisions Design of transportation network Mode, Stages, etc  Average inbound transportation cost Average income shipment size Average inbound transportation cost per shipment Average outbound transportation cost Average outbound shipment size Average outbound transportation cost per shipment Fraction transported by mode Efficiency versus Responsiveness Role in the supply chain Improve the utilization of supply chain assets and the coordination of supply chain flows to increase responsiveness and reduce cost Information is a key driver that can be used to provide higher responsiveness while simultaneously improving efficiency Role in the competitive strategy Right information can help a supply chain better meet customer needs at lower cost Improves visibility of transactions and coordination of decisions across the supply chain Share the minimum amount of information required to achieve coordination  Push versus pull Different information requirements and uses Coordination and information sharing Supply chain coordination, all stages of a supply chain work toward the objective of maximizing total supply chain profitability based on shared information Sales and operations planning (S&OP) The process of creating an overall supply plan (production and inventories) to meet the anticipated level of demand (sales) Enabling technologies Electronic data interchange (EDI) The Internet Enterprise resource planning (ERP) systems Supply chain management (SCM) software Radio frequency identification (RFID)  Forecast horizon Frequency update Forecast error Seasonal factors Variance from plan Ratio of demand variability to order variability Overall trade-off: Complexity versus value Good information helps a firm improve both efficiency and responsiveness More information is not always better More information increases complexity and cost of both infrastructure and analysis exponentially while marginal value diminishes Evaluate the minimum information required to accomplish the desired objectives  Role in the supply Chain Set of business processes required to purchase goods and services Will tasks be performed by a source internal to the company, or a third party Globalization creates many more sourcing options with both considerable opportunity and potential risk Role in the competitive strategy Sourcing decisions are crucial because they affect the level of efficiency and responsiveness in a supply chain Outsource to responsive third parties if it is too expensive to develop their own Keep responsive process in-house to maintain control  In-house or outsource Perform a task in-house or outsource it to a third party Supplier selection Number of suppliers, evaluation and selection criteria, direct negotiations or auction Procurement The supplier sends product in response to customer orders Days payable outstanding Average purchase price Range of purchase price Average purchase quantity Supply quality Supply lead time Fraction of on-time deliveries Supplier reliability Overall trade-off: Increase the supply chain surplus Increase the size of the total surplus to be shared across the supply chain Impact of sourcing on sales, service, production costs, inventory costs, transportation costs, and information cost Outsource if it raises the supply chain surplus more than the firm can on its own Keep function in-house if the third party cannot increase the supply chain surplus or if the outsourcing risk is significant  Describe key financial measures of supply chain performance Identify the major drivers of supply chain performance Define the role of each driver in creating strategic fit between the supply chain strategy and the competitive strategy Define the key metrics that track the performance of the supply chain in terms of each driver