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CHANGES TO WORLD ECONOMY Globalization of economy Entry of Multiple players. Shortening of product lifecycles Corporate mergers and acquisitions
Supply Chain Management
1
2
Need for Supply Chain Management From the traditional approach to Materials Management----
In SCM raw material are procured, items are manufacture, move to warehouses for storage then move to sell.
PurchasesVendor Decisions Scheduling Requirements Compliance Inbound Logistics
Production Scheduling Raw Material Requirements Capital Needs Quality
Warehousing Inventory Levels Re-order Quantities Safety stock Needs Inventory Management
Accounting Profit/loss Inventory Investments Parts Picking Financial Agreements
Distribution Customer Service Outbound Logistics Channel Service
Marketing Sales Goals Market Research Product Strategies Financial Agreements
Manufacture
Procure
Moving
What is SCM?Functions rather than processes Does not control more than a few steps Duplicating and competing functions Focus on function and assigned completion Emergence of functional silos3
Selling
Ware housing
4
Supply Chain Management
Why need to be managed ? Increases Profitability Reduced Costs Increase in service quality Improvement in Financial performance Increase in Customer satisfaction Customer retention
Supply Chain Management involves the flows between and among stages in a supply chain to maximize total profitability. (Chopra and Meindl, 2001)5
Exploring supply chain requires a thorough under standing of FUNCTIONING OF SUPPLY CHAIN6
A GENERIC STRUCTURE OF THE SUPPLY CHAIN
THE SUPPLY CHAIN Supply chain is network of various business entities and processes linking Suppliers, Operations and CustomersSuppliers Operations Customers
Suppliers
Operations
Distributors D1
Retailers
S1 D2 S2 D3 S3 Flows Material Information Money D4
R1 R2 R3
Objective is to optimize the over all performance of the entire network7
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ASSESSMENTS in Supply ChainTRADITIONAL APPROACH Independent inventory management policies Minimization of firm costs Short-term focus Information sharing limited to current transaction Corporate philosophies not relevant Each to their own success or failure Independent actions and information systems INTEGRATED APPROACH Joint reduction of channel inventories Channel-wide cost savings Long-term perspective As required for planning and monitoring Compatible corporate philosophies Sharing of risks and rewards
Supply Chain Activities are ChangingTraditional procurement vs. Strategic SCM
Adversarialrelationship with suppliers Multiple sources Item-based purchasing/ inventory policies Churning of the supplier base/bid mentality
Long-term mutually beneficial supplier relationships Single source Commodity-based purchasing/inventory policies Long-term contract (quality and fair price)
9
Supply Chain Activities are ChangingTraditional procurement vs. Strategic SCM Mission of the Supply Chain: Enhancing the customers experience through excellence in delivering the right products, services, resources and information seamlessly to the right place at the right time!
Just in casepurchasing (build inventory) Large batch purchases and monthly deliveries
Just in time purchasing (minimize inventory) Small batch deliveries tied to large batch purchases, focused on manufacturing timelines Electronic payment upon receipt of goods Focus on lowest total cost of ownership
Pay upon match ofinvoice, PO and receiving report Focus on lowest
12
Why Improve??? Increased competition puts downward pressure on prices Increased requirements for mass customization Increased demand for better service levels Outsourcing an ever increasing number of processes13
Values That End Customers Are Looking For Today High product variety Customized products Detailed product information Choice - opportunity to select Rapid order fulfillment Excellent service (assumed) Quality/reliability (assumed) Low price (assumed)14
External Drivers of Supply Chain ManagementMore demanding customers Shortening of product life cycle
Description of SCMDemand Planning Supply Planning Demand Fulfillment
Government Regulation
Supply Chain Management
Globalization of business
Develop an accurate, reliable view of market demand by identifying market trends and predicting changes in customer preferences.
Advanced Information and communication practices
Increased competitive environment
15
Description of SCMDemand Planning Supply Planning Demand Fulfillment
Description of SCMDemand Planning Supply Planning Demand Fulfillment
Ensure that the enterprise is prepared to meet the forecasted demand by generating a constrained, optimal supply plan into RESPONSE BUFFERS
Provide fast, accurate, and reliable delivery commitments to customer orders based on planned supply into RESPONSE BUFFERS. Monitor and Manage Order commitments in a profitable way.
Traditional Material Flow System
Material Flow Integration Stage I
Procurement
Operations
Distribution
Procurement
Operations
Distribution STAGE I
Manufacturing firms had three separate material flow systems Buffered each system with inventory
STAGE I Integration - Physical Distribution Management- integration within The Distribution Loop Integration of finished goods transportation, warehousing, inventory and customer service function
425
426
Material Flow Integration Stage II= Logistics
Material Flow Integration - Stage III = Supply Chain Management
Procurement
Operations
Distribution
Vendor
Procurement Operations
Distribution
Retailer
STAGE II = LOGISTICSSTAGE III = SUPPLY CHAIN MANAGEMENT
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Integration of materials across procurement/ operations/distribution sub-systems of the firm Requires elimination of inventory buffers through better information interfaces Does not require change in organizational structure of firm427
Manage inventory flow from vendor through firm all the way to retailer Primary Resource Transformation is trading information for inventory as in EDI, ECR, JIT etc. Focus on BOTH level and velocity of inventory
428
Integrated Supply Chain ApproachSalesS U P P L I E R S
C U S T O M E R S
Supply chain is network of various business entities and processes linking Suppliers, Operations and Customers
Distribution Manufacturing Purchasing
Suppliers
Operations
Customers
Looks at the entire chain Global rather than local focus Integrated rather than fragmented approach
Objective is to optimize the over all performance of the entire network
Sample definitions of Supply Chain Beamon (1999): an integrated process where raw materials are transformed into final products then delivered to customers. Berry (1995): a system whose constituent parts include material supplies, production facilities, distribution services and customer linked together by feed forward flow of materials and feed back flow of information. Ganeshan and Harrison (1999): a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products and distribution of products to customers. Johnson (1995): a process of strategically managing the movement and storage of materials, parts, and finished inventory from suppliers through the firm and on to the customers. Kalakota (2000): an integrating process based on flawless delivery of basic and customized services.
Cycle View of Supply ChainIt defines the processes involved and the owners of each process. It is very useful when considering operational decisions, because it clearly specifies the roles and responsibilities of each member of the supply chain and the desired outcome for each process
Customer Order Cycle
Replenishment Cycle
Customer Arrival
Customer Order Receiving
Retail Order Trigger
Retail Order Receiving
Customer Order Entry
Customer Order Fulfilment
Retail Order Entry
Retail Order Fulfilment
Manufacturing Cycle
Procurement Cycle
Order Arrival
Receiving
Order based on Manufacturers Production Schedule or Suppliers Stocking Needs
Receiving at Manufacturer
Production Scheduling
Manufacturing and Shipping
Supplier Production Scheduling
Component Manufacturing and Shipping
Push/Pull View of Supply ChainPush/Pull view of supply chain process categorizes processes based on whether they are initiated in response to a customer order (pull) or in anticipation of a customer order (push). This view is very useful when considering strategic decisions relating to supply chain designPUSH PROCESSES PULL PROCESSES
Procurement, Manufacturing and Replenishment cycles
Customer Order Cycle
Customer Order Arrives
ESSENTIALS OF SCM
Views on SCM
SUPPLY MANAGEMENT MANUFACTURING MANAGEMENT DEMAND MANAGEMENTKEY ELEMENTS IN SCM STRATEGY SOURCING DISTRIBUTION INVENTORY INTEGRATION SERVICE
Academic View Industry View
Modeling for Distribution, Inventory Service
Integration Implementation Bottom Line Improvement
Functional Domain of a SC ManagerForecasting demand Selecting suppliers Ordering materials Inventory control Shipping & delivery Information management Quality management Customer service
Uncertainty In Supply ChainErroneous forecasts Late deliveries Poor quality Canceled orders Erroneous information Problems in Transportation network Impact of government policies
Design of Supply Chain Strategic issue Benchmark to learn what is possible Work with suppliers & customers to achieve goals Control inventory Manage Distribution network effectively Meet customer Expectations!!!
Select Examples of SC in IndiaType of Industry Select Examples Apparel Madura Coats, Reliance
Automobile
Maruti, Hero-Honda, Telco, Mahindra & Mahindra
Chemicals/Paints
Reliance, Asian Paints, Goodlass Nerolac
Consumer Durables
Samsung, LG, Godrej
Fast Moving Consumer Goods
Hindustan Lever, Proctor & Gamble, Coca-Cola, Pepsi
Food
Godrej, Cadbury, Parle, Amul, Dabur
Computers
Wipro, HCL
Newspaper
Bennett Coleman & Co(Times of India,) HT Media Ltd (Hindustan Times)
Supply Chain Building Blocks
Structural Building BlocksSuppliers Manufacturing / Assembly Plants Warehouses Distribution Centers Retailers / Customers Logistics Network Inbound Outbound
Logical Structural
IT / ITEC Informational
Customers Orders
Logical Building Blocks
Examples of DecisionsSupplier Selection (Tactical) Plant Location (Strategic) Product Line Selection (Strat) Inventory Control (Tactical) Production Scheduling (Ops) Dynamic routing (Ops) MTO vs MTS vs BTO (Str)
STRATEGIC
TACTICAL OPERATIONALProcurementLogistics
Manufacturing
Distribution
Logistics
Mathematical Models Optimization Models (LP, ILP, MILP, CO, DP) Stochastic Models (Markov chains, Queuing networks, etc.) Statistical Models Game Theory Simulation Machine learning Auctions and Mechanism Design
Information Building Blocks IT : MRP, ERP, EDI Internet Technologies Sensor Networks E-Commerce, E-Markets E-CRM Decision Support Software Standards
Competitive and Supply Chain Strategy A companys competitive strategy defines the set of customer needs that it seeks to satisfy through its products and services A supply chain strategy determines the nature of procurement of raw materials, transportation of materials to and from the company, manufacture of the product or operation to provide the service, and distribution of the product to the customer, along with any follow-up service Strategic fit means that both the competitive and supply chain strategies have the same goal
StrategyAction plan to achieve mission Shows how mission will be achieved Company has a business strategy Functional areas have strategies
Strategy ProcessCompany Mission Business Strategy Functional Area Functional Area Strategies Marketing Decisions OperationsSCM/Decisions
Six Strategic Objectives..1 Operational excellence: - Improving the efficiency of business operations to achieve higher profitability. E.g. Wal-Mart New products, services and business models: - E.g. Apple Inc. transformed old business model.
Finance/Accounting Decisions
Six Strategic Objectives..2 Customer & supplier intimacy: - Make use of IS to satisfy and delight the customer. Improved decision making: - Many managers operate in information fog ; - Dont have the right information at the right time to make an informed decision. - Result is overproduction of goods/services; misallocation of resources etc. - Increase in cost and loss of customers.
Six Strategic Objectives..3Competitive advantage: - Organization achieve competitive advantage doing things better than competitors; - Charging less for superior products; - Responding to customers and suppliers in real time; Survival: - Necessities of doing business; - Driven by industry level changes;
Porters Classic Model
Porters Classic ModelDevelop strategies to confront five competitive forces: Competitors: All organizations share market space with other competitors. New market entrants: In free economy, new companies are always entering the market place. Substitutes: In every industry, there are substitutes that customers might use if prices become high.
Porters Classic Model Customers: Profitable company depends on its ability to attract and retain customers. Power of customers grows if they can easily switch to competitors products and services. Suppliers: - The market power of suppliers can have significant impact on firms profits. - The more different suppliers a firm has, the greater control over suppliers in terms of price, quality and delivery schedules.
Competitive Strategies..1Five basic competitive strategies to counter the threat of competitive forces: Cost leadership strategy: by becoming a low cost producer of products/ services. Differentiation strategy: developing ways to differentiate products/services form competitors.Flexibility Reliability Timeliness
Innovative strategy: involves finding new ways of doing business; development of unique products or entry into unique markets/market niches.
Competitive Strategies..2 Growth strategy: Expanding a companys capacity to produce goods and services, expanding into global markets, diversifying into new products and services. Alliance strategy: Establishing new business linkages and alliances with customers/suppliers, competitors/consultants.
Competitive Strategies..3In addition to this, other competitive strategies: Locking customers/suppliers: By building valuable relationships, which deters them from abandoning the org. for its competitors. Building switching costs: E.g. by use of IT, Wal-Mart has made customers dependent on continued use of innovative IS.
Business Value Chain
Business Value ChainThese activities can be grouped as: Primary activities- mostly related to production and distribution of goods/services. -Include inbound logistics, operations, outbound logistics, sales and marketing. Support activities- make the delivery of primary activities possible;
Business Value Chain Support activities- Comprises of human resources (employee hiring, recruiting and training); technology (improving products and process); procurement ( purchasing I/P). At each stage of value chain, how IS can be used to improve operational efficiency, customer-supplier intimacy, value addition etc. can be analyzed.
Business Value ChainFirms value chain is linked with value chain of its suppliers, distributors, and customers. Performance depends also on how well the firm co-ordinates with direct/indirect suppliers, customers etc.
IntroductionTypes of Decisions1. Strategic or long-range decisions 2. Tactical or medium- range decisions 3. Operational planning and control or shortrange decisions Why is facility location so important? Facility location has a long-term impact on the supply chain & must be part of the firms strategy. Companies can locate anywhere in the world due to increased globalization, technology infrastructure, transportation, communications, & open markets, Location still matters- clusters in many industries show that innovation & competition are geographically concentrated.
Facilities Location Critical Decision long lasting impact on financial, employment and distribution patterns. Factors affecting Location Decision Capital Banking facilities , loans etc Raw Material Availability, suppliers Labor supply , skills , costs Competition Economic aspects Wages to staff, taxes profits Non economic impacts- Ecological , environmental and social. Political Considerations
SOURCING DECISIONS
Why Sourcing important??? For many organizations Inbound logistics involves more time as compared to outbound. Potential area for price reduction TV supply chain inbound is 68 days Riken (Piston ring manufacturer)- -- 12 TOYOTA plants (Financial times,2007) Fire at Philips semiconductor Nokia and Ericsson ($400 Million loss), (SloanManagement Review, 2007)
Process of Buying
Obtaining the right material In Right quantities With right delivery (time and place) From the right source and at the right price
Type of Sourcing
How Many Suppliers to UseReasons Favoring a Single Supplier To establish a good relationship Less quality variability Lower cost Transportation economies Proprietary product or process Volume too small to split
a) Single Sourcing: Planned decision to select one supplier for an item where several suppliers are available b) Multiple sourcing: More than one supplier for an item.
Reasons Favoring More than One Supplier Need capacity Spread risk of supply interruption Create competition Information Dealing with special kinds of business
Supplier Selection and evaluationThe process of selecting suppliers, is complex and should be based on multiple criteria:
Technical ability Manufacturing capability Quality Cost Reliability
Order System and cycle time Capacity Price Location Service
Some Trends : Global Sourcing
OTHER PRACTICAL CONSIDERATIONS
Examples of Global Strategies Boeing both sales and production are worldwide. Sony purchases components from suppliers in Thailand, Malaysia, and around the world. GM is building four similar plants in Argentina, Poland, China, and Thailand
Management of Suppliers and Distributors Plans to help achieve company mission Affect long-term competitive position Strategic options Few suppliers Keiretsu network Local/Global Suppliers
Strategic Alliance and Supplier Certification ProgramsSupplier certification programs -one way to identify strategic alliance candidates.
B2B example :: www.alibaba.comEstablished by Jack Ma, a English teacher (1999) Today:: is the world's leading B2B e-commerce company Together our marketplaces form a community of more than 27 million registered users from over 200 countries and regions. HQ: Hangzhou in eastern China with 5200 fulltime employees
Early supplier involvement (ESI) is perhaps one of the most effective supply chain integrative techniques.
Lessons:: Key for successful partnerships Building Trust Shared Vision and objectives Personal Relationships Mutual benefits Commitment and Top management Support Change Management Information Sharing Shared Measurements Continuous Improvements
Lessons Managing supply chain is treated as strategic weapon. This era can be referred as a business war between supply chains and supply chains not between organizations and organizations
Traditional Planning ApproachCharacterized by Sequential, Decomposed, SlowProcurement (Material) Manufacturing (Capacity) Sales & Distribution (Demand)
Aggregate Production Planning
C U S T O M E R Optimize to Mfg objectives Optimize to Logistics obj Optimize to Sales & Mktg obj
Overview of Planning Levels Long-range plans
The integration through information is aimed to address: Flexibility and Variety Quality Responsiveness Low cost Edging towards agility
Product and service design Location / layout Long term capacity
Intermediate plans (General levels) Employment Output and inventories Subcontracting and backorders
Short-range plans (Detailed plans) Machine loading Job assignments Production lot size and order quantities
Aggregate PlanAggregate Plan: A statement of a companys production rates, workforce levels, and inventory holding based on estimates of customer requirements and capacity limitations
Aggregate Production Planning (APP) Determines resource capacity to meet demand For intermediate time horizon, 6-12 months Not feasible to build new facility May be feasible to hire/lay off workers, overtime, or subcontract Adjusting capacity OR managing demand
Service Industry Staffing Plan Regarding staffs and labor related factors
Manufacturing Industry Production Plan Regarding production rates and inventory
Aggregate Plan Managerial InputsOperationsCurrent machine capacities Plans for future capacities Workforce capacities Current staffing level Distribution and marketing Customer needs Demand forecasts Competition behavior
Aggregate Plan OutputsAggressive Alternatives Complementary Products Reactive Alternatives Competitive Pricing
Materials Supplier capabilities Storage capacity Materials availability
Aggregate plan
Accounting and finance Cost data Financial condition of firm
Size of Workforce and Workforce Adjustment
Aggregate plan
Units or dollars Of Backlogs, backorders , or stockout
Engineering New products Product design changes Machine standards
Human resources Labor-market conditions Training capacity
Inventory Levels
Production per month (in units or $)
Units or dollars subcontracted
Aggregate Planning Strategies Proactive Alter demand to match capacity
Demand Options Pricing Promotion Back orders
Reactive Alter capacity to match demand
Mixed Some of eachBalancing demand and capacity over the entire planning horizon
New demand
Capacity Options Hire and layoff workers Overtime/slack time Part-time workers Inventories SubcontractingUnits
Chase DemandDemand
Production
Time
Chase Approach Advantages Investment in inventory is low Labor utilization in high (overtime)Units
Level ProductionDemand Production
Disadvantages The cost of adjusting output rates and/or workforce levelsTime
Level Approach Advantages Stable output rates and workforce
Mixed StrategyDemand
Disadvantages Greater inventory costs Increased overtime and idle time Resource utilizations vary over time
UnitsProduction
Time
Aggregate Planning StrategiesStrategy1. Chase #1: vary workforce level to match demand 2. Chase #2: vary output rate to match demand 3. Level #1: constant workforce level
Aggregate Plan to Master ScheduleAggregate Planning
Possible Alternatives during Slack SeasonLayoffs Layoffs, undertime, vacations No layoffs, building anticipation inventory, undertime, vacations Layoffs, building anticipation inventory, undertime, vacations
Possible Alternatives during Peak SeasonHiring Hiring, overtime, subcontracting No hiring, depleting anticipation inventory, overtime, subcontracting, backorders, stockouts Hiring, depleting anticipation inventory, overtime, subcontracting, backorders, stockouts
Disaggregation
4. Level #2: constant output rate
Master Schedule
Disaggregating the Aggregate Plan
Disaggregating the Aggregate Plan Master schedule: The result of disaggregating an aggregate plan; shows quantity and timing of specific end items for a scheduled horizon. Rough-cut capacity planning: Approximate balancing of capacity and demand to test the feasibility of a master schedule.
Lessons Aggregate production planning is a powerful tool for resources management Suitable aggregate production planning strategy for an organization depends on various organizational and environmental factors
Management of Inventories
CHANGES TO WORLD ECONOMY Globalization Accelerated Pace of Change Transition to Market Driven Rapid Growth of Knowledge based service sector Change in demographic profile
Impact On Business ..? Intense Competition Survival of the Fittest Need To know Knowledge in Power Customer in Control Ability to Change fast enough to Meet Emerging ChallengesCustomer cant wait if the goods as demanded are not available he will shift to the competitor
Why we need inventories To meet anticipated demand To smooth production requirements To protect against stock-outs To help hedge against price increases To take advantage of quantity discounts
Disadvantages of InventoryHigher costs
Item cost (if purchased) Ordering (or setup) costCosts of forms, clerks wages etc.
Holding (or carrying) costBuilding lease, insurance, taxes etc.
Difficult to control Hides production problems
Objective of Inventory Control To achieve satisfactory levels of customer service while keeping inventory costs within reasonable bounds Level of customer service Costs of ordering and carrying inventory Customer ??? Internal External or Both
Scope of Inventory ManagementMaterials Requirement Planning & Control Procurement Inventory control Receiving and Inspection (Time and cost) Transportation Material handling Disposal of materials Value analysis (Gears in watch; Eye drops)
Responsibilities of Inventory Management Cost Reduction Optimum Service Level Quality Assurance Low Level of Capital tied up
Why control materials ?Rs @2% Lakhs saving on matl. Materials Labour Overhead Profit Total 70.00 16.00 26.00 18.00 130.00 68.60 16.00 26.00 19.40 130.00 @ 2% saving on labour 70.00 15.68 26.00 18.32 130.00
Coordinated Inter-departmental Effort
Typical Costs.. Costs of purchasing Packing costs Transportation costs Insurance premium Cost of Receiving Inspection costs Material Handling costs Loss caused by scrap, rework Inventory carrying costs Cost of Paper work
Key Inventory Terms Lead time: time interval between ordering and receiving the order Holding (carrying) costs: cost to carry an item in inventory for a length of time, usually a year Ordering costs: costs of ordering and receiving inventory Shortage costs: costs when demand exceeds supply
What is Inventory?Stock of materials Stored capacity
Inventory Classifications
Inventory
194-1994 T/Maker Co.
Process stage
Number & Value
Demand Type
Other
1995 Corel Corp.
Raw Material WIP Finished Goods
A Items B Items C Items
Independent Dependent
Maintenance Operating
Inventory:: Demand basedInventory: a stock or store of goodsIndependent Demand
Inventory :: Demand based..2 Independent demand finished goods, items that are ready to be sold E.g. a computer
A
Dependent Demand
B(4)
C(2)
D(2)
E(1)
D(3)
F(2)
Dependent demand components of finished products E.g. parts that make up the computer
Independent demand is uncertain. Dependent demand is certain.
Inventories :: Process stage Raw materials & purchased parts Partially completed goods called work in progress Finished-goods inventories
Inventories:: Others Replacement parts, tools, & supplies Goods-in-transit to warehouses or customers
(manufacturing firms) or merchandise (retail stores)
Factors contributing to high inventory difficulty in standardization frequent modifications difficulty in disposing of items No scientific policy upgradation of technology hence items become obsolete Inability to predict the consumption pattern overbuying of items inability to decide on critical/non-critical items few suppliers sending items in more than desired quantities
Selective Inventory Control :Pareto Analysis or ABC analysis Pareto analysis (sometimes referred to as the 80/20 rule and as ABC analysis) is a method of classifying items, events, or activities according to their relative importance. ABC analysis is used to prioritize the items.
Classifying Items as ABC
Selective Inventory Control ABC (Based on Price and volume of use) VED (Vital, Essential, and Desirable) FSN (Fast, Slow, and Normal). HML (High, Medium, and Low) SDE (Scarce, Difficult, and Easy to Obtain) GOLF (Government, Ordinary, Local, and Foreign)
% Annual Rs Usage100 80 60
Class A B C
% Rs 80 15 5
% Items 15 30 55
A40
B20 0 0
C % of Inventory Items50 100
Inventory management : some mathematical models Economic order quantity (EOQ) model The order size that minimizes total annual cost
Assumptions of EOQ Model Only one product is involved Annual demand requirements known Demand is even throughout the year Lead time does not vary Each order is received in a single delivery There are no quantity discounts
Economic production model Quantity discount model
Total CostAnnual Annual Total cost = carrying + ordering cost cost TC = Q H 2 + DS Q
Figure 12.4C
Cost Minimization GoalThe Total-Cost Curve is U-ShapedTC = Q D H+ S 2 Q
Annual Cost
Ordering CostsQO (optimal order quantity) Order Quantity (Q)
JUST IN TIME (JIT)
Some trends in Inventory Management
JIT is a philosophy of continuous improvement in which non-value-adding activities (or wastes) are identified and removed for the purposes of: Improving Delivery Adding Flexibility Increase innovativeness
Reducing Cost Improving Quality Improving Performance
JIT/Lean Production Just-in-time (JIT): A highlycoordinated processing system in which goods move through the system, and services are performed, just as they are needed,
Sources of Waste Overproduction Waiting time Unnecessary transportation Processing waste Inefficient work methods Product defects
JIT JIT
lean production pull (demand) system
JIT operates with very little fat
Different Kinds of Waste Waste from Over-production Waste of Motion Transportation waste Processing waste Defective Products Excess Inventory Information waste Energy waste Manpower waste
Reducing waste: Increase Problem Visibility Lower the Water to Expose the Rocks
Missed Due Dates Late Deliveries
Too Much Space
Inventory
Too much paperwork Engineering Change Orders Long queues
Scrap & ReworkPoor Quality 100% inspection
Machine Downtime
Comparison of JIT and TraditionalFactorInventory Deliveries Lot sizes Setup; runs Vendors Workers
Select benefits of JIT Systems Reduced inventory levels Flexibility Reduced lead times Increased productivity Increased equipment utilization Reduced space requirements
TraditionalMuch to offset forecast errors, late deliveries
JITMinimal necessary to operate Many, small Small Many, short runs
Few, large Large Few, long runs
Long-term relationships are unusual Necessary to do the work
Partners
Assets
Conventional Inventory ManagementCustomer
monitors inventory levels places orders
Vendor Managed Inventory (VMI)
Vendor
manufactures/purchases product assembles order loads vehicles routes vehicles makes deliveries
Problems with Conventional Inventory ManagementLarge variation in demands on production and transportation facilities workload balancing utilization of resources unnecessary transportation costs
Vendor Managed Inventory Customer
trusts the vendor to manage the inventory
Vendor
urgent v/s non-urgent orders setting priorities
monitors customers inventory customers call/fax/e-mail remote telemetry units set levels to trigger call-in controls inventory replenishment & decides when to deliver how much to deliver how to deliver
VMI.. Popularized in the late 1980s by Wal-Mart and Procter & Gamble, VMI became one of the key programs Others Campbell Soup Johnson & Johnson Barilla (the pasta manufacturer) Indian case:; Praxair India (in collaboration with Wipro infotech)
VMI: Advantages Increased customer service Increased revenues Lower inventory levels Lower cost of transactions Reduced supply risk
Praxairs BusinessVMI (Vendor Managed Inventory) Inventory is managed by vendor . WalMart Works on the 3PL model to manage their inventories 3PL service provider not only maintains the inventories at Wal Mart but the same partner maintains for its COMPITITOR (K-Mart)
Praxair is the largest producer and distributor of atmospheric and specialty gases in North and South America and one of the largest players Plants worldwide 44 countries USA 70 plants South America 20 plantsProduct classes packaged products bulk products lease manufacturing equipment Distribution 1/3 of total cost
Efficient supply chains rests on the pillars of TRUST (HBR, 2001)
Praxairs BusinessBulk products Distribution 750 tanker trucks 100 rail cars 1,100 drivers drive 80 million miles per year Customers 45,000 deliveries/month to 10,000 customers Variation 4 deliveries/customer/day to 1 delivery/customer/2 months Routing varies from day to day
VMI Implementation at Praxair Convince management and employees of new methods of doing business Convince customers to trust vendor to do inventory management Pressure on vendor to perform - Trust easily shaken Praxair currently manages 80% of bulk customers inventories Demonstrate benefits
VMI Implementation at Praxair Praxair receives inventory level data via telephone calls: 1,000 per day fax: 500 per day remote telemetry units: 5,000 per day Forecast customer demands based on historical data customer production schedules customer exceptional use events Logistics planners use decision support tools to plan whom to deliver to when to deliver how to combine deliveries into routes how to combine routes into driver schedules
VMI EssentialsTRUST Accurate information provided on a timely basis Inventory levels that meet demands Confidential information kept confidential TECHNOLOGY Automated electronic messaging systems to exchange sales and demand data, shipping schedules, and invoicing
Framework for Transitioning to Effective and efficient system of Inventory Management Get top management commitment Decide which parts need most effort Obtain support of workers Start by trying to reduce setup times Gradually convert operations Convert suppliers to JIT / VMI Prepare for obstacles
Summary and Lessons Management of Inventories in supply chain not only leads to increased profitability but also helps in achieving customer service and responsiveness The management of inventory is complex and no generic model is available for its management.
SUPPLY CHAIN INCLUDES :
Information Management in Supply Chain
MATERIAL FLOWS INFORMATION FLOWS FINANCIAL FLOWS
Information Technology : Internal IntegrationLinking various business functions Purchasing Manufacturing Inventory Finance Marketing Distribution etc Shared data & integrated processes
Information Technology : External Integration Inter-organizational Systems (Extranet) Link firms systems with external entities (Suppliers, distributors, retailers etc.) Shared data & integrated processes
IT for Supply ChainAgilityWarehouse/ Depot
Benefits due to Integrated Information across SC Integrated view of resources and constraintsManufacturing
Customer
Velocity
Improved channel efficiency by sharing of information between suppliers & customers Reduced inventory levels Reduced production costsR. M.
Future Trend Marketing Planning
Enhanced Quality Customer driving the entire chain
Past Sales Record
Typical IT solutions EDI ERP Information sharing with suppliers and distributors Information integrated within the organization
EDI and business cycle
Vendor Customer
Intranet Collaborative working Internet Global linkage of various entities e-commerce/ Managing the money flow e-procurement faster DatawareStorage of data and tracking of housing/ customers Data mining Bar coding Technology Smart Cards RFID
Documents , Images, Purchase orders, queries ,Order entry, Shipment notice, Invoices, etc. EDI service Network EDI destinations
Branch office
Distributors Transportation
Company s Computer with EDI software
Etc.
EDI provides a function known as store and forward
Typical Benefits of EDI Grater effectiveness/efficiency Competitive advantage Reduced transaction costs and time Optimized inventory Reduced costs Improved decision making
What is ERP? ERP stands for: Enterprise Resource Planning systems ERP attempts to integrate all data and processes of an organization into a unified system. A key ingredient of most ERP systems is the use of a unified database to store data for the various system modules.
Select ERP solution Providers Baan People Soft Jd Edwards Oracle SAP (Highest market share)
Select reasons:: ERP Failure Underestimate the cost of implementation. Improper training on modules. No attention to critical modules that connected together processes or were expected to contribute to system payback. Allow shortcuts and offline activity necessary due to missing modules or lack of training.
Implementation Success Must be well planned and thought through. Top down driven, management must take on two roles: Disciplinarian to stick to plan. Compassionate support for stressful issues.
Advantages of Intranet: distributing information with in organization e.g. Design to manufacturing Internet: Information exchanges across web E-procurement solutions E- commerce: Commerce (Business) over web Blue tooth M-commerce
Must have goals and milestones. These must be achievable.
Bar Coding Technology Set of bars with varying widths and spaces between bars Reading through OCR (Optical Character Recognition) Uses photo sensor to convert bar code to electrical signal. Scanner measures relative width of bars and spaces. Bar code symbols can be converted in to codes.
Application area: Bar coding Retails Book land and ISSN numbering (International Standard Serial Numbering) Tradeoff in investing for better information flow and other inventory reduction methods. Saves Time Improves efficiency and cost reduction Reduces error
Smart Cards Looks like credit card with a embedded computer chip (microprocessor with internal memory chip). e.g. RTO License BPCL used for monitoring and control of trucks basically for fuel monitoring.
What is RFID? RFID = Radio Frequency Identification. An ADC (Automated Data Collection) technology that: uses radio-frequency waves to transfer data between a reader and a movable item to identify, categorize, track.. does not require physical sight or contact. Performs the operation using low cost components. Attempts to provide unique identification and
Other ADC technologies: Bar codes, OCR.
RFID system components
RFID tags: Smart labelsA paper label with RFID inside
Ethernet
RFID Reader and a chip attached to it
an antenna, printed, etched or stamped ... on a substrate e.g. a plastic foil ...
RFID Tag
RF Antenna
Network
Workstation
Source: www.rfidprivacy.org
Some RFID tags
RFID TagsTags can be attached to almost anything: Items, cases or pallets of products, high value goods vehicles, assets, livestock or personnel
Passive Tags Do not require power Draws from Interrogator Field Lower storage capacities (few bits to 1 KB) Shorter read ranges (4 inches to 15 feet) Usually Write-Once-Read-Many/Read-Only tags Cost around 25 cents to few dollars Battery powered (Cost around 50 to 250 dollars) Higher storage capacities (512 KB) Longer read range (300 feet) Typically can be re-written by RF Interrogators
Active Tags
Source: www.rfidprivacy.org
RFID tag memory Read-only tags Tag ID is assigned at the factory during manufacturing Can never be changed No additional data can be assigned to the tag
Some RFID readers
Write once, read many (WORM) tags Data written once, e.g., during packing or manufacturing Tag is locked once data is written Similar to a compact disc or DVD
Read/Write Tag data can be changed over time Part or all of the data section can be lockedSource: www.buyrfid.org
RFID application points
RFID applications Manufacturing and Processing Inventory and production process monitoring Warehouse order fulfillment
Supply Chain Management
Assembly LineWireless
Inventory tracking systems Logistics management
Retail Inventory control and customer insight Auto checkout with reverse logistics
Handheld Applications
Security Access control Counterfeiting and Theft control/prevention
Shipping Portals
Bill of Lading Material Tracking
Location Tracking Traffic movement control and parking management Wildlife/Livestock monitoring and tracking
Smart groceries Add an RFID tag to all items in the grocery. As the cart leaves the store, it passes through an RFID transceiver. The cart is rung up in seconds.
Smart cabinetReader antennas placed under each shelf 1. Tagged item is removed from or placed in Smart Cabinet Smart Cabinet periodically interrogates to assess inventory Server/Database is updated to reflect items disposition Designated individuals are notified regarding items that need attention (cabinet and shelf location, action required) 2.
3.
4. Passive read/write tags affixed to caps of containers
Source: How Stuff Works
Smart fridge Recognizes whats been put in it Recognizes when things are removed Creates automatic shopping lists Notifies you when things are past their expiration
Smart groceries enhanced Track products through their entire lifetime.
Shows you the recipes that most closely match what is availableSource: How Stuff Works
RFID advantages over bar-codes No line of sight required for reading Multiple items can be read with a single scan Each tag can carry a lot of data (read/write) Individual items identified and not just the category Passive tags have a virtually unlimited lifetime Active tags can be read from great distances Can be combined with barcode technology
Supply Chain of PetrolEvery time we visit petrol pump, we find that it is available every time,all the time. For you, and for countless other motorists.
Think, somebody must have put the petrol into the tank for you to pump from.
Somebody must have prospected for oil, found it, and then dug the well to extract it. Next, somebody must have shipped the oil to a refinery, converted it into Petrol , and then transported the it to your favorite petrol station.
The supply chain for Petrol is indeed quite reliable, so much so that most consumers take it for grantedA) B)
Demand predictions are reliable and effective Distribution system is efficient
Demand pattern:: Analysis..1
Demand assessment: Ordering by retailer
Order Size
Customer Demand
Order Size
Customer Demand Retailer Orders
Time
Time
Demand assessment: Ordering by distributorDistributor Orders
Demand assessment: Production PlanProduction Plan
Distributor Orders
Order Size
Customer Demand Retailer Orders
Order Size
Customer Demand Retailer Orders
Time
Time
Bullwhip Effect in Supply ChainsForrestor: Industrial Dynamics, HBR, 36:4, 1958 BWE describes the increasing amplification of orders occuring within a SCResembles a whip lash
Bullwhip EffectThe bullwhip effect is a phenomenon observed in supply chains wherein the demand variability increases as one moves upstream from retailers to distributors to manufacturers
Occurs even if end-item demand is fairly stable!Forrestor studied a simulation model of the simplest tandem supply chain with four entities: Retailer, DC, W/H, PlantManufacturers Warehouses/ Distributors
Retailers
Bullwhip Effect
Bullwhip Effect Example: P&G Diapers
In 2001, Cisco was forced to write down $2.2 billion worth of obsolete inventory, due to uncertain variations in its demand in its supply chain.
.
Impacts of BullwhipIt distorts the order information & amplifies order variability.
Bullwhip effect - an exampleChronology of company Xs supply chain problem. Higher costs
Impact of Bullwhip Effect:-- Inventory: More safety stock needed -- Transportation: Lower utilization of transportation -- Warehousing: More warehouse capacity needed -- Manufacturing: Lower capacity utilization -- Customer Service: Lower service level, more likely to cause stockouts and lost sales
Company X produces SOAPS for sale on the open market. Customer demand for Company Xs SOAPS become stagnant Retailers offer a sales promotion to boost sales of Company X widgets
Example continued Retailers fail to notify manufacturers of sales promotion Company X recognizes that demand for SOAPS have increased. Company X increases inventory to allow for increased manufacturing of SOAPS Company X notifies part suppliers of increased demand. Suppliers increase inventory to meet demand.
Moral of the storyDistorted information along the supply chain caused inventory levels to increase along the supply chain which may result in increased inventory costs, poor customer service, adjusted capacity and many other problems associated with the bullwhip effect.
Supply Chain in EquilibriumCustomer demand forecast = 10 unitsInformation
Supply Chain DisruptedCustomer Demand forecast = 20 units Information FlowSuppliers Producers Products & Services80 Units 160 Units 80 Units
Suppliers10 Units
Products & Services10 Units
Producers10 Units
Products & Services10 Units
Products & Distributors Services10 Units 10 Units
Retailers
Products & Services40 Units
Distributors Products & Services20 Units 40 Units
Retailers
CashRetailers are selling product at a constant rate and price. Firms along the supply chain are able to set their inventory to meet demand.
Cash FlowAs demand increases, the distributor decides to accommodate the forecasted demand and increase inventory to buffer against unforeseen problems in demand. Each step along the supply chain increases their inventory (double in this example) to accommodate demand fluctuations. The top of the supply chain receives the harshest impact of the whip effect.
Key:
= Inventory Levels
Key:
= Inventory Levels
Bullwhip :: Major causes..1..Demand forecasting updating Neglecting to order in an attempt to reduce inventory No communication up and down the supply chain No coordination up and down the supply chain Delay times for information and material flow
Bull whip :: Major causes ..2..Forecasting is often updated based on the order history from immediate customers The longer the lead time, the greater the fluctuation The longer planning horizon, the greater possibility of scheduling changes and demand changes
Demand Forecasting UpdatingNatural economic behavior Periodic ordering - the economics of transportation such as full truckload (FTL) and less-than-truckload rates Push ordering
Remedial measures to counteract bullwhip effect ..1..Avoid multiple demand forecast updates Break order batches Stabilize prices
Remedial measures to counteract bullwhip effect..2..
Summary and Lessons Effective management of demand essentially requires:: Correct and timely forecast Seamless information flow across organization Effective management of resources Relationship with channel partners Commitment towards customer This will lead to productivity and profitability to all channel partners as a whole
Reduce variability and uncertainty.1. POS 2. Sharing information 3. Year round low pricing
Reduce lead times.1. EDI 2. Cross Docking
Alliance arrangements.1. Vendor managed inventory 2. On-site vendor representative
Essentials for effective distribution system Transportation (Accounts for 30-60% of distribution costs)
Transportation and Warehousing
Distribution inventory All finished goods inventory at any point of time and accounts for 25-30% cost of distribution
Warehouses (distribution centers) Material handling Protective packaging Order processing and communication
Transportation Modes Road Freight (Trucks) FTL LTL
Road Freight (Trucks) Advantages Through movement direct from consignor to consignee Flexibility routes and loading routines can be easily altered, operate day and night Less capital costs Fast turn-around Minimum delays
9/29/2008
Rail Air Package Carriers Water Pipeline Ropeways
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Truckload (TL) Low fixed and variable costs Major Issues Utilization Consistent service
Disadvantages Susceptibility to weather and road conditions in spite of the best protection Unsuitability for heavy loads rail transport more economical for bulk loads Unsuitability for long distances again the rail telescopic rates are more favourable
Less Than Truckload (LTL) Major issues: Location of consolidation facilities Utilization Vehicle routing Customer service
Advantages of Rail Economy more so for goods over long distances Efficiency of energy Reliability not affected by weather conditions
Disadvantages Uneconomical for small shipments and short distances Not suitable for remote stations Costly terminal handling facilities Inflexible time schedules
Railways Key issues: Scheduling to minimize delays / improve service Off-track delays (at pickup and delivery end) Yard operations Variability of delivery times
Air Transport Advantages Faster mode Reduction in cost particularly inventory Broad service range Increasing capabilities Disadvantages: High cost Weather affects flight conditions Limitations on heavy consignments
Air Transport Key issues: Location/number of hubs Location of fleet bases/crew bases Schedule optimization Fleet assignment Crew scheduling Yield management
Water Transport Advantages: Mass movement of bulk Lowest freight cost Preferred for long haul of low value commodities Disadvantages: Not for quick transit Suitable for certain types on commodities only
Water Limited to certain geographic areas Ocean, inland waterway system, coastal waters Very large loads at very low cost Slowest Dominant in global trade (autos, grain, apparel, etc.)
Pipeline Movement Advantages:Reliable, continuous, all weather transport Low energy consumption hence low cost Low maintenance and operating costs Underground, no space problem Can traverse difficult terrain Minimal transit losses Operation round the clock, safe Economies of scale double the throughput for only 30% additional cost
Disadvantage is in the high investment cost
Pipeline High fixed cost Primarily for crude petroleum, refined petroleum products, natural gas Best for large and predictable demand Would be used for transferring oils
Ropeways Advantages: In hilly or inaccessible areas Long and circuitous routes with streams / deep valleys For commodities capable of movement in ropeway buckets Short haulages of less than 50 kms Areas where other carriers are uneconomical
Disadvantages: Heavy investments Limitations on size and quantity of haul
Package Carriers Companies like FedEx, UPS, USPS, that carry small packages ranging from letters to shipments of about 150 pounds Expensive Rapid and reliable delivery Small and time-sensitive shipments Preferred mode for e-businesses (e.g., Amazon, Dell, McMaster-Carr)
Sample template chart of Relative MeritsParameter Speed Versatility Reliability Availability Continuity of service Distribution cost Total score Overall ranking Weigh tage 30 10 20 10 10 20 100 10 Rail 5 6 6 7 6 4 5.4 2 Road 6 8 8 8 7 5 6.7 1 Air 8 5 5 5 5 6 6.1 4 Water 4 6 5 6 5 6 5.1 5 Pipe line 3 3 7 3 8 7 5.1 5 Rope way 3 2 4 2 3 8 4.0 6
How to decide on the right carrier?
Trade-offs in Transportation Design Transportation and inventory cost trade-off Choice of transportation mode Inventory aggregation
Choice of Transportation Mode A manager must account for inventory costs when selecting a mode of transportation A mode with higher transportation costs can be justified if it results in significantly lower inventories
Transportation cost and responsiveness trade-off
Inventory Aggregation: Inventory vs. Transportation Cost As a result of physical aggregation Inventory costs decrease Inbound transportation cost decreases Outbound transportation cost increases
Warehouse The warehouse is where the supply chain holds or stores goods. Functions of warehousing include: Transportation consolidation Product mixing Cross-docking Service Protection against contingencies Smoothing
Inventory aggregation decreases supply chain costs if the product has a high value to weight ratio, high demand uncertainty, or customer orders are large Inventory aggregation may increase supply chain costs if the product has a low value to weight ratio, low demand uncertainty, or customer orders are small
Ware house Management Objectives Providing efficient service to users Reduce cost of carrying goods Providing correct, updated stock figures Controlling inventory Preventing damage to or obsolescence of materials Achieve all of the above with good housekeeping
FunctionsWarehouses
Material handling
Customer service
Information transfer
Storage function
Receive goods Identify goods Sort goods Dispatch to storage Hold inventory Recall, select goods Dispatch the shipment Prepare records and advices
Temporary
Permanent
Purpose of Warehousing To provide desired level of customer service at the lowest possible total cost It is that part of the firms logistics system that stores products (RM, Packing Materials, WIP, FG) Stores product between point of origin and point of consumption and provides info to management on the status, condition and disposition of items being stored Distribution warehousing relates mainly to FG
Reasons for WarehousingService relatedMaintain source of supply Support customer service policies Meet changing market conditions Overcome time and space differentials Support JIT programs of suppliers and customers Provide customers with the right mix of products at all times Temporary storage of materials to be disposed or re-cycled
Cost relatedAchieve production economies Achieve transportation economies Take advantage of Quantity Purchase discounts and forward buys Least Logistics cost for a desired level of customer service
Warehouses Support manufacturing Mix products from multiple facilities for shipment to a single customer Break-bulk Aggregate Used more as a flow-thru point than as a hoarding point
Transportation Consolidation
Materials Handling
Supply and Product Mixing
Definition: Efficient short distance movement in or between buildings and a transportation agency. Four dimensions Movement Time Quantity Space
Coordination
Packaging Interest in packaging is widespread Logistics Warehousing Transportation Size
The Role of Packaging Identify product and provide information Improve efficiency in handling and distribution Customer interface Protect product
Marketing Production Legal
Packaging Materials Considerations Basic considerations include: Soft materials Plastic Environmental issues Recycling (reverse logistics)
Reverse Logistics Movement of goods from the market or customer back to the company The need: Increased awareness of the environment Stringent legislation For some it is part of the business Profitability of dealing with scrap, surplus
Surplus, obsolescence can result due to: Over optimistic sales forecasts, change in product specs, errors in estimating material usage, losses in processing or overbuying based on incentives
Summary and lessonsTOTAL COST Total Cost Transportation Transportation Cost CostCost
Transportation and warehousing are essential backbones of effective distribution system. Mode of transportation depends on various parameters including density, weight, fragile nature etc parameters. Cost and inventory tradeoff is subjective and need to be worked out with individual cases
Inventory Material handlingPackaging
Packaging
Number of Ware houses
IntroductionCompanies using performance measurement are more likely to achieve leadership positions & twice as likely to handle a major change successfully. Performance measurements vary from company to company. Adding several tiers of suppliers & customers complicates performance measurement. Performance measures must be visible & communicated to all members of the SC.
Performance Measurement in supply chain
Performance Measurement should Provide DirectionBy looking at a firms key measures, one should be able to determine the firms direction, determine their strategy. A firm lacking good, consistent measures will tend to be going in all directions.
Different Levels Need Different MeasuresMeasurements should be hierarchical
Upper Management Middle Management Operational Departments
Will need 2-4 measures
Will need 2-4 per area -not all the same Will need 3-5 per dept or process
Measurement Mistakes to AvoidGaps exist where there are no measures for areas deemed strategically important. Examples: Customer satisfaction, employee involvement,
Complex RelationshipsCustomer satisfaction ??? Or Service Quality Customer Loyalty???? Repurchase Intentions??? More business, Competitiveness and Profitability
False Alarms Occur where there are detailed measures for areas which are not strategically important. Examples: many efficiency measuresVollmann and Schmenner, International Journal of Operations & Production Management, 1994
Issues in performance measurement system How well the organization is doing? Is the organization meeting its goals? Are the customers happy? Are the processes in control? If and where improvements are necessary?
Challenges to Performance Measurements Measure only the right things Avoid meaningless efforts Use the results proactively and productively
Principles of PM system designSpeed, reliability , and simplicity are the main criteria for efficient metrics Arranging indicators by priority Visualizing the function content Classifying objectives of the function or team Selecting indicators that deal with quality Formatting the metrics effectively
Characteristics of Effective Metrics Independence Appropriateness Objectivity Regularity Linkage with other indicators Coherence Simplicity Cumulative Realistic
Performance measurement system (PMS): Desirable Features Transparent Simple Self-regulating Objective Motivating and stimulating to all stakeholders
Performance measurement system (PMS): Desirable Features (contd.) PMS should have multiple criteria Primary purpose should not be to reward or to punish Performance-to-schedule measures must use group, not individual results Specific goals must be established and reviewed PM must be understood by those whose performance is being measured. PM data must be available for constant review
Other Useful Performance Guidelines The metrics must be consistent with overall corporate strategy. focus on customer. Focus upon processes not functions. Use a balanced approach in selecting and developing metrics. Precise cost measurement is an important Use technology to achieve efficient performance measurement.
Some operational performance indicators Delivery performance Order fulfillment performance Fill rate (Make-to-stock) Order fulfillment lead time Perfect order fulfillment Supply-chain response time Production flexibility
Financial performance indicators Return on inventory investment Inventory investment/working capital Percentage inventory increase(decrease) vs percentage increase(decrease) in sales Percentage inventory increase(decrease) vs percentage increase(decrease) in cost of sales stock write-offs
Some Other indicators .1 Total supply-chain management cost Value-added productivity Warranty cost or returns processing cost Cash-to-cash cycle time Inventory days of supply Asset turns
Some Other indicators .2 Financial : ROI, Turnover ratio Productivity: Total productivity Efficiency: Realized prodn/Planned Prodn Customer LT: Time from order to delivery Prodn LT: Time from order relapse to finished product Prodn flexibility: ability to respond efficiently to demand variation
Some Non-financial Measures Lead time for customer order delivery Number of Corrections Amount of Time needed to answer a phone Number of Complaints Conformance Quality Time to Respond to Change Request
The Balanced Scorecard Framework
A Balanced Scorecard Customer Perspective How do customers see us?
Financial Perspective GOALS MEASURESHow do we look to shareholders?
Internal Business Perspective GOALS MEASURESWhat must we excel at?
Internal Perspective What must we excel at?
Innovation and Learning Perspective Can we continue to improve and create value?
Financial Perspective How do we look to our stakeholders?Kaplan and Norton, The Balanced Scorecard, 1996
Customer Perspective GOALS MEASURESHow do customers see us?
Innovation & Learning Perspective GOALS MEASURESCan we continue to improve and create value?
Supply Chain Performance FrameworkCustomer Service Metrics Goals Measures
Operational Metrics Goals Waste Reduction Time Compression Unit Cost Reduction
Measures Supply chain cost of ownership Supply chain cycle efficiency % of supply chain target cost achieved Product finalization point Inventory turns & days of inventory Supplier evaluations
Operational Metrics Goals Measures
Financial Metrics Goals Measures
Product/process innovation Inventory Management Supplier performance
Financial Metrics Goals Profit margins Cash flows Revenue growth Return on assets Return on equity
Customer Service Metrics Goals Flexible response Product/service innovation Customer satisfaction Customer value Delivery performance
Measures Profit margin by supply chain partners Cash-to-cash cycle on receivables & payables Customer growth & profitability Return on supply chain asset Return on supply chain equity
Measures Number of choices & average response time Customer contact points and product finalization points Order fulfillment rate Customer profitability Delivery speed & reliability
Summary and lessons Performance measures are not generic They change with time They change with organization and the type of business Large number of performance measures Measure depends on business process Measures change with time Various perspectives (customer, stakeholders and internal need to be considered for PM
Thank You
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