Unit 1 Lectures 78 Supply Chain Management Metrics

8/18/2019 Unit 1 Lectures 78 Supply Chain Management Metrics

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Supply ChainManagement

MetricsUNIT 1 LECTURE 7 &8


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Per !rmance Management "Strategic !#$ecti%es

Pr! ts"a#s!lute an' gr!(thSales" a#s!lute an' gr!(th

Mar)et share"a#s!lute an' gr!(th

Supply chain per !rmance

Cust!mer satis acti!n Pr!'uct *uality an' ser%ice Pr!'uct 'e%el!pment" time t! mar)et


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,hy measure supply chainper !rmance

C!mpetiti%e en%ir!nment calls !r spee'y- c!st e.cient an'relia#le supply chain

Supply Chains ha%e a huge le%erage !n creati!n ! cust!mer%alue

T!'ay/s c!mpetiti!n is 0supply chain %ersus supply chain/ ,hat gets measure'- gets impr!%e'

MEASUREMENT is the )ey t! per !rmance managementsince

I y!u cannot measure s!mething- y!u cannot control it

I y!u cannot control s!mething- y!u cannot manage it

I y!u cannot manage s!mething- y!u cannot improve it


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Supply Chain Per !rmance Management 3 )eyp!ints

All businesses need performance management Supply chains constitutes costs to organizations

Measurement, control, review and corrective methods needed

Cost-effectiveness and performance effectiveness are vital

Strength and performance only as good as weakest link Performance measures needed specific to firm to enable

improvements! and to industry"competitors to enable

benchmarking!


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Per !rmance Management

Tra'iti!nally- per !rmance management has #een 'e%el!pe' asa #asis !r m!nit!ring an' c!ntr!lling an !rgani5ati!n 6ut these ha%e #een primarily #ase' !n nancial rati!s li)e R I-EPS an' R

,hile these are %alue #ase' - they are lagging in'icat!rs- an''! n!t pr!%i'e help !r planning uture in%estments n!r pr!%i'e

clues !r per !rmance impr!%ement They s!lely c!ncentrate !n minimi5ing c!sts an' increasingla#!r e.ciency #ut neglecting !perati!nal per !rmancemeasures li)e *uality- !n time an' ull 'eli%ery am!ngst !thers


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Per !rmance %is":"%is C!mpetiti!n SCM c!mpetiti%eness is 'eri%e' r!m success le%els;criteria in Pr!'uct;eli%ery;Resp!nsi%eness C!mpetiti%eness

?ey is t! see (hat cust!mers e@pect- h!( y!ur c!mpetiti!n is '!ing an' (hat'! (e nee' t! '! t! #ri'ge an' e@cee' that gap


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Raising the Per !rmance 6ar !rc!mpetiti%e a'%antage


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Per !rmance Measures "!%erall BSC R #asis

C!st 3internal acing

ssets Utili5ati!n" internal acing

Relia#ility 3 cust!mer acing

Dle@i#ility 3 cust!mer acing

SC R Supply Chain perati!ns Re erence #asis BSupply Chain C!uncil


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Per !rmance Measures "Dinancial

#aw material and other ac$uisition costs %acilities investment costs &irect and indirect manufacturing costs &irect and indirect distribution costs 'nventory holding costs

(ransport costs- inbound and outbound Activity based costs like material handling, assembling,outsourcing etc)

Costs due to customer returns" re*ects" replacements #atio of net sales to assets employed


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Per !rmance Measures "N!n"Dinancial Measures

Customer satisfaction levels, periodic customer surveys Conformances to agreed performance $uality specs, $uantity, schedule etc 'nventory level days of sale! Cash to cash cycle time days of receivable and days of inventory less day

outstanding payables!

+ead times- production, procurement) Cycle times- production, procurement, customer order fulfillment)


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Per !rmance Measures "L!gistics

Dreight c!sts per unit (eight;unit %!lume ,areh!using c!sts per unit ! thr!ughput L!gistical pac)aging c!sts per unit pr!'uct;%!lume;(eight La#!r c!st per pr!'uct;(eight ;%!lume L!gistics assets utili5ati!n L!gistics pr!'ucti%ity per !rmance L!gistics cycle time per !rmanceRe%erse l!gistics relate' c!sts;returns;'amage' st!c)s

All such costs to be fnally measured as percent o sales and per unitvolume and per unit weight


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Per !rmance Measures "In%ent!rynventory turnover ratio !T"#!$# %Total investment in inventory&Annual sales '())

nventory turns !TN# !number#%Annual sales&Total investment in inventory

Total inventory days !T *# ! number#%Total investment in inventory&Annual Sales ' +,-

*ays o sales outstanding !*S"# ! number#%Accounts receivable&Annual sales ' +,-

*ays o payable outstanding !*."# !number#% Accounts payable&/alue o rawmaterials consumed ' +,-

0ash to cash cycle !00*# !days#% T *1*S"2*."

RM inventory !days#% Raw material inventory&/alue o raw materials consumed ' +,-

3 . inventory !days#%3 . inventory&/alue o production ' +,-

45 inventory! days#% 45 inventory&Annual sales ' +,-


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SCM Per !rmance 6ene ts "t!

Cust!mers uicker response to demands etter products"services Competitive pricing of products"services %aster supplies reducing inventories

ALL LEADING TO CUSTOMER DELIGHT


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SCM Per !rmance 6ene ts " t!Suppliers

More business growth #educed operational costs %aster communication for timely decisions 'mproved business .partner relationships

/rganizational effectiveness and efficiency

ALL LEADING TO BOTTOM LINE GROWTH


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Measurement ppr!aches

Supply Chain C!uncil/s Supply Chain perati!ns Re erence BSCRe erence M!'el 3 e@amining c!st- assets- relia#ility an' He@i#ility metri

6alance Sc!recar'" assessment #ase' !n nancial- cust!mer- internal

#usiness & learning;gr!(th perspecti%es


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Pr!cess Re erence M!'el This contains6 Standard descriptions o management processes

A ramewor7 o relationships among the standard processes

Standard metrics to measure process per ormance

Management practices that produce best2in2 class per ormance

Standard alignment to eatures and unctionality

"nce captured as a standard process re erence model can be6 mplemented purpose ully to achieve competitive advantage

*escribed unambiguously and communicated

Measured8 managed and controlled

Tuned and re2tuned to a specifc purpose


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SCM Pr!cess Re erence M!'el >ra(s r!m #est in #usiness pr!cess reengineering-#enchmar)ing an' #est practices analysis as applie' t! SCM Captures the as 3isJ state ! SCM pr!cesses an' 'eri%es the'esire' t!"#eJ uture state


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SC R M!'el" 9 C!re Management Pr!cesses


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SC R is urther 'i%i'e' !r each entity insupply chain


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SC R M!'el " 9 C!re Management Pr!cesses .lan 2 pr!cesses that #alance aggregate 'eman' an' supply t! 'e%el!p ac!urse ! acti!n (hich #est meets s!urcing- pr!'ucti!n an' 'eli%eryre*uirements

Source 3 pr!cesses that pr!cure g!!'s an' ser%ices t! meet planne' !ractual 'eman'

Ma7e 3 pr!cesses that trans !rm pr!'uct t! a nishe' state t! meet planne'an' actual 'eman'

*eliver 3 pr!cesses that pr!%i'e nishe' g!!'s an' ser%ices t! meet actualan' planne' 'eman'- typically inclu'ing !r'er management- transp!rtati!nmanagement an' 'istri#uti!n management

Return 3 pr!cesses ass!ciate' (ith returning !r recei%ing returne' pr!'ucts!r any reas!ns- (hich e@ten's t! p!st 'eli%ery cust!mer supp!rt


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SC R M >EL "Meth!'!l!gyB1

Le%el 1 naly5e 6asis ! C!mpetiti!n Le%el + C!n gure Supply"Chain

Le%el 2 lign Per !rmance Le%els- Practices an'Systems

Le%el 4 Implement Supply"Chain Pr!cesses an'Systems


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SC R M >EL "Sc!pe


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SC R M >EL "Meth!'!l!gyB+

Phase 1" 'e%el!p a SC R car' listing c!mpetit!rs an'c!llecti!n ! c!mpetiti%e per !rmance measures 'ata Phase +" 'etaile' analysis ! material H!(s t! i'enti yimpr!%ement sc!pe t! cl!se c!mpetiti%e gap

Phase 2"mapping material H!(s al!ng (ith (!r) an'in !rmati!n H!(s t! un'erstan' pr!cesses an'acti%ities


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SC R M!'el Measures "internal acingB C!st

T!tal l!gistics c!st =alue a''e' pr!'ucti%ity ,arranty c!st ssets

Cash t! cash cycle time In%ent!ry 'ays ! supply sset turns


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SC R M!'el Measures "internal acing T!tal l!gistics c!st" c!ntri#uti!n ! l!gistics c!st t! t!tal re%enue as K age

=alue a''e' pr!'ucti%ity" is calculate' #y the 'i%isi!n ! the 'i erence#et(een re%enue an' material c!st #y t!tal empl!yment

,arranty c!st" as a K age ! t!tal re%enue

Cash"t!"cash cycle time" time ta)en r!m cash spent !n materials t! cashgenerate' as re%enue

In%ent!ry 'ays " h!( ast in%ent!ry is pr!'uce' an' then s!l' t!cust!mers In%ent!ry turns is the rati! ! t!tal annual sales t! a%eragein%ent!ry

sset Turns " 'i%isi!n ! re%enue #y t!tal assets


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SC R M!'el Measures" "e@ternal acing Relia#ility

>eli%ery per !rmance r'er ul llment per !rmance" ll rate- ul llment lea'time

Per ect !r'er ul llment Dle@i#ility

Supply chain resp!nsi%eness Pr!'ucti!n He@i#ility


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SC R M!'el Measures" "e@ternal acingB+>eli%ery per !rmance" 'e ne' as the Kage ! ship" r!m"st!c)!r'ers shippe' (ithin +4hrs n time 'eli%ery is 'e ne' as thepr!p!rti!n ! !r'ers 'eli%ere' !n !r #e !re the 'ate re*ueste'#y cust!mer

r'er ul llment" Lea' times measure the meantime r!m the'ate ! !r'er is place' t! the 'ate the cust!mer recei%es theshipment

Per ect !r'er ul llment" is reache' (ith the right pr!'uct'eli%ere' t! the right place at the right time- !r cust!mersatis acti!n


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SC R M!'el Measures" "e@ternal acing

Supply chain resp!nsi%eness" as the a#ility ! thec!mplete supply chain t! react acc!r'ing t! thechanges in the mar)etplace

Pr!'ucti!n He@i#ility" num#er ! 'ays nee'e' t! a#s!r#an unplanne' lasting +GK gr!(th in 'eman'


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Typical SC R M!'el ResultsBS!urce ((( supply"chain !rg

SC RMeasures

Unit ! Measurement

Me'ianClass

6est in Class

>eli%eryper !rmance

Percentage 81K FAK

Upsi'eper !rmance He@i#ility

Num#er !'ays

4+ G 8 2

Cash t!cash cycle

Num#er !'ays

AA A +4 7

+F


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Typical SC R M!'el ResultsBS!urce ((( supply"chain !rg

Supply ChainC!st;In'ustry Unit !measurement Me'ianClass 6est inClassC!nsumerpac)age' g!!'s

SCM c!st K t!Re%enue

11 + 9 2

Chemical an'Pharmaceuticals


F 8 4 G

Telec!mE*uipment SCM c!st K t!Re%enue 8 9 2 2>e ense an'in'ustrial


1G + 4 9

C!mputers an'Electr!nics


F 1 4 G2G


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SC R M!'el" 6ene ts

It aligns impr!%ement e !rts (ith the supply chain -an' n!t the !rgani5ati!n It pr!%i'es a c!mprehensi%e analysis ! the supplychain !cusing !n the cust!mer as the en' 3p!int

It ena#les selecti!n ! SCM impr!%ement pr!$ects(hich (ill ha%e ma@imum impact !n the rm/sstrategic !#$ecti%es


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SC R M!'el" limitati!ns >!es n!t c!%er Sales and mar7eting development

R9 *

.roduct development

Elements o post2delivery customer support

>!es n!t a''ress Training

:uality

n ormation technology

Administration


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6alance' Sc!re Car' It is a c!ncept !r measuring (hether the c!mpany ismeeting its !#$ecti%es in terms ! its %isi!n an'strategy

This is '!ne using 4 perspecti%es" nancial- cust!mer-internal #usiness pr!cesses an' learning an' gr!(th

Suggeste' per !rmance in'icat!rs (ithin eachperspecti%e !ll!(


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6alance Sc!re Car' "Per !rmance In'icat!rsDinancial " R I- cash H!(- nancial result- return !n capital empl!ye' an'return !n e*uity

Cust!mer" 'eli%ery per !rmance #y 'ate an' *uantity- cust!mer satis acti!nan' cust!mer retenti!n

Internal pr!cesses" num#er ! acti%ities- !pp!rtunity success rate- acci'entrati!s an' 'e ect rates

Learning an' gr!(th" in%estment rate- illness rate- internal pr!m!ti!ns K-empl!yee turn!%er an' gen'er;racial rati!s

Since these a#!%e measures can #e many an' (ill %ary r!m t!rm- the )ey is t! stri)e a 0#alance/ am!ngst all ! them t! truly

reHect an' measure (hat are the particular rm/s ?ey SuccessDact!rs !r ?ey Per !rmance In'icat!rs


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,hat then is a 6SC

A performance measurement system A strategic management system A change management tool A communication tool

't is A++ or A01 of these and depends on how anindividual firm wants to use it as a singlecomprehensive system"tool or along with othere2isting systems"tools


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,hy implement 6SC T! increase !cus !n strategy an' results T! impr!%e !rgani5ati!nal per !rmance #y measuringper !rmance that matters

T! align !rgani5ati!nal strategy (ith 'ay t! 'ay (!r) !its empl!yees

T! !cus !n 'ri%ers ! uture per !rmance T! c!mmunicate the %isi!n an' strategy t! all its )eysta)eh!l'ers

T! pri!riti5e pr!$ects;initiati%es (ith ma@imum impact

6SC as a measurement system


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y

FinancialTo succeed financiallyhow should we appear

to our shareholders ?

CustomerRelations

To achieve our vision how should we appear

to our customers?

Learning,Innovation and

GrowthTo achieve our vision

how will we sustain ourability to change and improve ?

Internal ServiceProcess

To satisfy our shareholdersand our customers that

what business processeswe must excel

ISI!" #"$STR#T%&'

6SC i


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6SC as a strategic managementsystem

(ranslates strategy into 3/b*ectivesMeasures(argets

'nitiatives4ach of the 5 perspectives will need theseabove attributes

6SC triangle


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g

Desired state

Differentiating activities

What !st "e d#ne

$e%% t# i &%e ent

strategies

H#$ strategic

s!ccess is

eas!red

(ission

isionStrategy)&oals

!b*ectivesIn each perspective

(easuresIn each perspective


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Dinancial Perspecti%e

6hat financial steps are necessary to ensure the e2ecution ofour strategy"goals7 Are the program8s" department8s goals, implementation, and

e2ecution contributing to the bottom line7 Are we meeting operational and financial targets7

&imensions of uality3O4fficiency


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Cust!mer Relati!ns Perspecti%e

6ho are our target customers7

9ow do our customers see us7

9ow do customers rate our performance7

&imension of uality3O AccessibilityO AcceptabilityOContinuity


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Internal Ser%ice Pr!cess Perspecti%e

6hat critical processes must we e2cel at to satisfy ourcustomers"stakeholders7

6hat must be done internally to meet customer e2pectations7&imension of uality3

O4ffectivenessO AppropriatenessOConsistency

O#eliability

Learning- Inn!%ati!n an' r!(th


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Learning- Inn!%ati!n an r!(thPerspecti%e

9ow can we continue to improve76hat capabilities and tools do our employees need to

e2ecute our strategy"goals7

&imension of uality3OCompetenceOParticipationO 'nvolvement and commitment


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,hen '!es 6SC succee'#taine' t!p management sp!ns!rship an' c!mmitment

In%!l%e' a large #ase ! lea'ers- managers an' empl!yees ,!r)e' thr!/ the esta#lishe' %isi!n an' strategy gree' !n the termin!l!gy an' metrics t! #e m!nit!re' >esigne' 6SC m!'el t! suit the rm/s nee'sQa%e a 'e'icate' an' 'etermine' pr!$ect;pr!gram champi!n

=ie( the 6SC as a l!ng term $!urney an' n!t a sh!rt term pr!$ect

Planne' !r an' manage' change Qa%e an interacti%e t(!"(ay c!mmunicati!n pr!cess pplie' a 'iscipline' implementati!n rame(!r) et !utsi'e help especially in the initial 'esign stages t! gi%e it an !utsi'e;!#$ecti%eperspecti%e


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,hen '!es 6SC ail Ill 'e ne' strategy

Lac) ! integrati!n ! all the 4 perspecti%es C!nceptual c!n usi!n an' lac) ! clarity !n metrics ch!sen an' their per !rmancemechanisms

N!t in%!l%ing all sta)eh!l'ers T!p"'!(n management style (hich e@clu'es empl!yees #eing an essential part ! theimplementati!n

Centrali5e' measures (hich (ill n!t #e accepte' #y pe!ple '!(n the line >ata c!llecti!n;analysis ! per !rmance a 'i.cult an' pain ul pr!cess N!t aligning the 6SC (ith !ther !perati!nal pr!cesses an' systemsDailure t! e%!l%e an' change the 6SC as an' (hen strategies change !%er time

Cust!mers Use These Measures t! E%aluate !ur


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Cust!mers Use These Measures t! E%aluate !urPer !rmance

Documents

Unit 1 Lectures 78 Supply Chain Management Metrics