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SCM 06 Chapter 3

Supply Chain

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SCM 06 Chapter 3

Supply Chain

Uploaded by

clinton.p
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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SCM

Supply chain drivers & Metrics

- Chapter 3
- JEB
Learnings in this chapter

Describe key financial measures Identify the major drivers of


of a firm’s performance. supply chain performance.

Discuss the role of each driver in


Define the key metrics that track
creating a strategic fit between
the performance of the supply
the supply chain strategy and
chain in terms of each driver.
the competitive strategy.
• The Empowered Customer
Impellers of • Developments in Information
Supply Chain Technology Tools
• Globalization
Financial measures of performance
Financial measures of performance
Financial measures of
performance
Accounts payable Turnover
Framework for
supply chain
decisions
LOGISTICAL DRIVERS CROSS-FUNCTIONAL DRIVERS

• Facilities • Information
• Inventory • Sourcing
• Transportation • Pricing
1.1 - Facilities

Firms can increase responsiveness by increasing the number


of facilities, making them more flexible, or increasing
capacity. Each of these actions, however, comes at a cost.
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. Thus, each supply chain must find the
appropriate trade-off when designing its facilities network.
1.1 - Facilities
• Role/Capability
• Flexible
• Dedicated
• Combination of above
• Location
• Capacity
Facility related metrics
• Capacity
• Utilisation
• Processing/setup/down/idle time
• Quality losses
• Production cost per unit
• Theoretical flow/cycle time of production
• Actual average flow/cycle time
• Product variety
• Volume contribution of top 20% SKU’s and customers
• Average production batch size
• Production service level
1.2 - Inventory

Inventory exists in the supply chain because of a mismatch


between supply and demand. This mismatch is intentional at a
steel manufacturer, where it is economical to manufacture in
large lots that are then stored for future sales. The mismatch is
also intentional at a retail store where inventory is held in
anticipation of future demand or when the retail store builds up
inventory to prepare for a surge in sales during the holiday
season. In these instances, inventory is held to reduce cost or
increase the level of product availability.
Components of Inventory decisions

• Cycle inventory
• Safety inventory
• Seasonal inventory
• Level of product availability
Inventory related metrics

• C2C 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
1.3 - Transportation

• Transportation moves product between different stages in a


supply chain and affects both responsiveness and efficiency.
Faster transportation is more expensive but allows a supply
chain to be more responsive. As a result, the supply chain
may carry lower inventories and have fewer facilities.
• The appropriate choice of transportation 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


• Choice of transportation mode
Transportation related metrics

• Average inbound transportation cost


• Average incoming shipment size
• Average incoming transportation cost per shipment
• Average outbound transportation cost
• Average outbound shipment size
• Average outbound transportation cost per shipment
• Fraction transport by mode
2.1 - Information

Good information can help improve the utilization of


supply chain assets and the coordination of supply
chain flows to increase responsiveness and reduce
costs.
Components of Information Decisions

• Push versus Pull


• Co-ordination and information sharing
• Sales and Operations planning
• Enabling technologies
• EDI
• ERP
• SCM
• RFID
Information related metrics

• Forecast horizon
• Frequency of update
• Forecast error
• Seasonal factors
• Variance from the plan
• Ratio of demand variability to order variability
2.2 - Sourcing

Sourcing is the set of business processes required to purchase


goods and services. Managers must first decide whether each
task will be performed by a responsive or efficient source and
then whether the source will be internal to the company or a
third party. Sourcing decisions should be made to increase
the size of the total surplus to be shared across the supply
chain. Outsourcing to a third party is meaningful if the third
party raises the supply chain surplus more than the firm can
on its own.
Components of sourcing decisions

• Inhouse or outsource
• Supplier selection
• Procurement
• Days payable outstanding
• Average purchase price.
Sourcing • Range of purchase price.
related • Average purchase quantity.
metrics • Supply quality.
• Supply lead time.
• Percentage of on-time deliveries.
• Supplier reliability
2.3 Pricing
Pricing is the process by which a firm decides how much to charge customers
for its goods and services. Pricing affects the customer segments that choose
to buy the product, as well as influencing the customer’s expectations. This
directly affects the supply chain in terms of the level of responsiveness
required as well as the demand profile that the supply chain attempts to
serve. Pricing is also a lever that can be used to match supply and demand,
especially when the supply chain is not very flexible. Short-term discounts can
be used to eliminate supply surpluses or decrease seasonal demand spikes by
moving some of the demand forward. All pricing decisions should be made
with the objective of increasing firm profits. This requires an understanding of
the cost structure of performing a supply chain activity and the value this
activity brings to the supply chain.
Components of Pricing Decisions

• Pricing and economics of scale


• Everyday low pricing versus High-low pricing
• Fixed price vs Menu pricing
Price related metrics

• Profit margin
• Days sales outstanding
• Incremental fixed cost per order
• Incremental variable cost per unit
• Average sales price
• Average order size
• Range of sales price
• Range of periodic sales
Learnings in this chapter

1. Describe key financial measures of a firm’s performance.


2. Identify the major drivers of supply chain performance.
3. Discuss the role of each driver in creating a strategic fit between
the supply chain strategy and the competitive strategy.
4. Define the key metrics that track the performance of the supply
chain in terms of each driver.
Thank you

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