Think Again » SCM

Integrated Supply Chain Metrics

山之岚 — Thu, 31 May 2007 07:22:46 +0000

If you are studying on SCM, it is necessary to know what metrics are usually used to evaluate a SCM or do comparison between companies. The following content are extracted from Manufacturing Planning & Control Systems for Supply Chain Management (Fifth edition):

The supply chain council has developed many metrics to measure the performance of the overall supply chain. It has used these standardized measures to develop benchmarks for comparisons between companies.

Measure	Description	Best in class	Average or medium
Delivery performance	What percentage of orders is shipped according to schedule?	93%	69%
Fill rate by line item	Orders often contain multiple line items. This is the percentage of the actual line items filled	97 %	88%
Perfect order fulfillment	This measures how many complete orders were filled and shipped on time	92.4%	65.7%
Order fulfillment lead time	The time from when an order is placed to when it is received by the customer	135days	225days
Warranty cost of % of revenue	This is the actual warranty expense divided by revenue	1.2%	2.4%
Inventory days of supply	This is how long the firm could continue to operate if all sources of supply were cut off	55days	84days
Cash-to-cash cycle time	Considering accounts payable, accounts receivable, and inventory, this is the amount of time it takes to turn cash used to purchase materials into cash from a customer	35.6days	99.4days
Asset turns	This is a measure of how many times the same assets can be used to generate revenue and profit	4.7turns	1.7turns

Source: supply chain council

Cash-to-cash cycle time integrates the purchasing, manufacturing, and sales/distribution cycles. It is a measure of cash flow. Cash flow indicates where cash comes from (its source), where cash is spent (it use), and the net change in cash for the year. Understanding how cash flows through a business is critical to managing the business effectively. Accountants use the term operating cycle to describe the length of time that it takes a business to convert cash outflows for raw materials, labors, etc. into cash inflows. This cycle time determines, to a large extent, the amount of capital needed to start and operate a business.

Cash-to-cash cycle time is calculated by:

Cash-to-cash cycle time=inventory days of supply + days of sales outstanding – average payment period for material.

评论1:

1.2007.12.22.12:23.pm. lightpig: 哈哈，发现你也是学供应链管理的嘛，我女朋友也学这个的，昨天叫她来看了，不过她说有点区别呵呵，她研究TAC/SCM的

2007.05.31.6:04.pm. ICIEA2007 May 23-25 Harbin CHINA (2)

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2005.10.22.7:39.pm. SCM(Supply Chain Management)—3 (0)

2005.10.16.4:20.pm. SCM(Supply Chain Management)—2 (0)

2005.10.06.11:37.pm. SCM（Supply Chain Management）–1 (0)

SCM(Supply Chain Management)—3

山之岚 — Sun, 23 Oct 2005 03:39:04 +0000

Continuing…

Right Supply Chain for your product

1^st Step:
Determine the nature of your product
Functional v.s. Innovative:
◆ Functional products: Stable predictable demand & long life cycles
Ex.) Staples, Detergent, Long lead time steel
◆ Innovative products: Unpredictable & short life cycle
Ex.) High Fashion, Entirely New Electronic devices.

Correlation Between nature of products and other Attributes

Attributes Functional Innovative
Product Lifecycle > 2 years 3 months. to 1 year
Product margin Low High
Avg. forecast error 10% 40%~100%
Avg. stockout rate 1%~2% 10%~40%
Avg. forced season- 0% 10%~25%
end markdown

2^nd Step:
Determin Structure of the Supply Chain
Supply Chain Strategy Fitting

Factors related to Respondsiveness v.s. Efficiency
Responsiveness Efficiency
Primary Purpose Respond quickly Lowest possible cost
Manuf. Focus Deploy excess capacity High utilization
Inventory Strategy Deploy significant Generate high tums
Buffer or safety stock
Lead time Focus Invest in order to decrease Shorten if no cost increase
Supplier Selection Speed, Flexibility, Quality Price and Quality
Product Desigh Modular Design Minimize Cost, High
Postponement Performance

Example
Supply Chain Types & Design Requirements

Factor	Efficient Supply Chains	ResponsiveSupply Chains
Operations strategy	Make-to-stock or standardized services; emphasize high volume, standardized products, or services	Build-to-order,make-to-order, or customized services; emphasize product or service variety
Capacity cushion	Low	High
Inventory investment	Low; enable high inventory turns	As needed to enable fast delivery time
Lead time	Shorten, but do not increase costs	Shorten aggressively
Supplier selection	Emphasize low prices; consistent quality; on-time delivery	Emphaseize fast delivery time; customization; volume flexibility; High-performance desigh quality

3^rd Step:Positioning your supply chain

Functional Products Innovative Products
Efficiency Supply Chain Match Mismatch
Responsive Supply Chain Mismatch Match

Other Supply Chain Design Factors

・Location
・Transportaion and logistics
・Inventory and forecasting
・Marketing and channel restructing
・Sourcing and supplier selection
・Information and electronic mediated environments

・Product design and new product introduction
・Service and after sales support
・Reverse logistics and green issues
・Outsourcing and strategy alliances
・Metrics and incentives
・Global issues

Supply chain network design (1)

(Ex.) National Semiconductor’s facility network:
Production:
Produces chips in six different locations: four in the US, one in Britain and one in Israel. Chips are shipped to seven assembly locations in Southeast Asia.
Distribution:
The final product is shipped to hundreds of facilities all over the world.
20,000 different routes, 12 different airlines are involved, 95% of the products are delivered within 45 days, 5% are delivered within 90 days.

Cost – Responsiveness Efficiency Frontier

Supply chain network design (2)
Logistics Cost related Trade-offs

Supply chain network design(3)
Logistics Costs and Required Respones Time

Supply chain integration (1)

Integration involves:
◆ Functional Integration (of purchasing, manufacturing, transportation, warehousing)
◆ Spatial Integration (across geographically dispersed vendors, facilities, markets)
◆ Hierarchical Planning (coherence and consistency among overlapping supply chain decisions at various levels of planning)

Supply chain integration (2)
Process integration : Cycle view

Supply chain integration (3)

Information Sharing & Decision support
Need for information technology & system
Intra-firm information systems;
Warehouse management systems;
Transportation management systems;
Intranet/Extranet;
MRP/ERP systems;
CRM systems.
MRP: material requirement planning, ERP: enterprise resource planning, CRM: customer relationship management.

Decision making in supply chain (1)
◆ Strategic level decision – (long term)
Location, capacity, new product development, technology management, modes of transportation.
Scale: Years.
◆ Tactical level decision – (medium term)
Inventory policies, distribution channel, resource and product allocation, subcontracting, promotion.
Scale: Month – year.
◆ Operational level decision – (short term)
Scheduling, vehicle assignments and routing, sourcing and production orders.
Scale: Minute, hour and days.

Decision making in supply chain (2)

Information system in SCM
◆ Plan driven production management
(1) Master planning system MPS
(2) Material requirement planning MRP
(3) Capacity requirement plaining CRP

◆ Demand driven production management
(1) Forecast / Demand planning
(2) Distribution requirement planning DRP
(3) Production planning & scheduling
(4) Fulfilment planning

Supply chain management function MAP

Information system fuction MAP

Supply chain collaboration

□ Cometitive model
Cost in chain are assumed fixed, and manufacturer and retailer compete through price negotiation
□ Cooperative model
Cooperate to cut costs throughout the chain. Each company in the SC, has a part in the establishment of the price, quality and customer satisfaction aspects.
□ Inter-and intra-company integration is essential.
□ Building synergies by integrating business functions, departments and companies.

Internet – Enabled suppy chain

Business to business (B2B)
Product ordering
Sharing product information
Creating display space
Defining customer information
Co-developing products
Business to customer (B2C)
Sharing packing, shipping, inventory, product movement trends and forecasts with the supply chain partners.

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SCM(Supply Chain Management)—2

山之岚 — Mon, 17 Oct 2005 00:20:16 +0000

Continuous…

Category of industry (or products) that especially needs SCM
1) many sort and small amount production
2) products which need wide area logistic networks
3) large temporal fluctuation of demand change
4) short lifecycle products

Types of Supply Chains

(1) Push vs. Pull

A simple supply chain
A——-B A: Manufacturer B: Finished Goods Inventory (FGI) Buffer

Push system: Completed A products are sent (pushed) to B regardless of system condition.
Pull system: Removal of a product from the finished goods buffer signals the execution of inventory change, and trigger the execution of supply from A.

The production and distribution decisions with Push or Pull strategies
◆ Push supply chains:
Long term forecasts
More time to react to changing market place
Bullwhip effect
◆ Pull supply chains:
Demand driven
Elimination of inventory, reduction of bullwhip effect and increased service levels
Difficult to keep service level for longer lead time

Bullwhip Effect in push type SCM

Procter and Gamble, manufacturers Pampers
The supply chain for Pampers is broadly as follows:

Suppliers—Manufacture—Distributer—Retailer—Customer
The following demand curves are observed in PG’s supply chain:

Production Distribution Models

Push-Pull Supply Chain:
Hybrid of the Push & Pull systems
Initial stages – Push-based strategy
Final stages – Pull-based strategy
The push part – where long-term forecasts have small uncertainty and variability.
The pull part – where uncertainty and variability are high

Types of Supply Chains (2)

Lean supply chain (LSC):
Lean supply chain employs lean production and time compression in paralled. Not adapatable to future market requirements.

Agile supply chain (ASC):
Agile supply chain responds to unpredictable market changes and capitalizes on them and exploits a dynamic type of alliance known as a “virtual organization”. A virtual organization is the integration of core competencies distributed among a number of carefully chosen but real organizations.

Hybrid supply chain (HSC):
A hybrid supply chain helps to achieve mass customization by postponing product differentiation until final assembly. The lean supply chain is utilized for component productions. The agile part of the chain establishes a company-market interface to understand and satisfy requirements by being responsive and innovative.

What Makes SCM Difficult?

◆ Variations Over Time
Environment changes over time
◆Conflicts
Achieving Global Optiimization vs. Local Optimization
Minimizing the cost and maximizing the service level is frequently a difficult task for a single facility. SCM tries to optimize these globally.
◆ Uncertainty
Customer demand can never be forecasted exactlly, travel times will never be certain, machines and vehicles will breakdown.

Variations Over Time
Supply Chain evolves over time.
Customer demand and supplier capatilities change over time. Cumstomer-supplier relationship changes over time (customer power increases, …etc.)
Seasonality
Competitors pricing strategies
Advertising and Promotions
Promotions destroy the simplicity of a predictable demand for a good product at a reasonable price.

Conflicting Objectives in the Supply Chain

1. Puurchasing
◆ Stable volume requirements
◆ Flexible delivery time
◆ Little variation in mix
◆ Large quantities

2. Manufacturing
◆ Long run production
◆ High quality
◆ High productivity
◆ Low production cost

3. Warehousing
◆ Low inventory
◆ Reduced transportation costs
◆ Quick replenishment capability

4. Customers
◆ Short order lead time
◆ High in stock
◆ Enormous variety of products
◆ Low prices

Uncertainty (examples)
Compaq computer estimates it lost $500 million to $1 billion in sales in 1995 because its laptops and desktops were not available when and where customers were ready to buy them.
Boeing Aircraft, one of America’s leading capital goods producers, was forced to announce write downs of $2.6 billion in October 1997. The reason? “Raw material shortages, internal and supplier parts shortages…” (Wall Street Journal, Oct. 23. 1997)

Uncertainty in Supply Chain
◆ Demand uncertainty: uncertainty of customer demand for a product
◆ Implied demand uncertainty:
the uncertainty that exists due to the portion of the demand the supply chain must handle and attributes the customer desires.
ex.) Firms, which sell same products to different customer segments who have different attributes face a different implied demand uncertainty (parts for manufacturing or maintenance, personal use or business use, etc.)

Impact of Customer Needs on Demand Uncertainty

Customer Need	Causes implied demand uncertainty to increase
Range of quantity increases	Wider range of quantity implies greater variance in demand
Lead time decreases	Less time to react to orders
Variety of products required increases	Demand per product becomes more disaggregated
Number of channels increases	Total customer demand is now disaggregated over more channels
Rate of innovation increases	New products tend to have more uncertain demand
Required service level increases	Firm now has to handle unusual surges in demand

Supply Chain Challenges

Achieving Global Optimization under:
Conflicting Objectives
Complex network of factilities
System Variations over time

Managing Uncertainty
Matching Supply and Demand
Demand is not the only source of uncertainty (delivery lead times, component availability, machine breakdowns, natural disasters…etc.)

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2007.05.31.3:22.pm. Integrated Supply Chain Metrics (1)

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2005.10.06.11:37.pm. SCM（Supply Chain Management）–1 (0)

SCM（Supply Chain Management）–1

山之岚 — Fri, 07 Oct 2005 07:37:36 +0000

Global competition is not between the companies but between the supply chains.

Supply Chain Management Network:
SCM network includes all the companies involved in all the upstream and downstream flows of products, services, finances, and information from the initial supplier to the ultimate customer.

SCM network includes:
Raw material and semi-finished products suppliers, distributors and warehouses, manufacturing centers, consumers.

Main processes in Supply Chain:
*Production planning & inventory control
*Distribution and logistics

Supply chain value(supply chain profitability) is difference between revenue generated from the customer and the overall cost across the supply chain

Supply Chain Costs:
Acquisition, storage, transportation, repair, maintenance, production operation, information, salvage/resale, disposal, recycle, etc.

Supply Chain Management Objectives
*Minimize the cost and making profits while keeping a reasonable service level customer satisfaction/quility/on time delivery,etc.
*Supply chain management is a set of approaches utilized to efficiently integrate suppliers, manufactures, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize system wide costs while satisfying service level requirements.

Logistics VS. Supply Chain Management
Logistics Management
Logistics is that part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption in order to meet a customer’s requirments.[Council of Logistics Management, 1998]
Supply Chain Management
Supply chain management is the integration of key business processes from end user through original suppliers, that provides products, services, and information that add value for customers and other stakeholders.[Global Supply Chain Forum, 1998]

Global optimum in major decisions in:
Process & information system development, structuring the distribution networks, price policies, procurement policies, production planning, performance evaluation..etc.

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2007.05.31.3:22.pm. Integrated Supply Chain Metrics (1)

2005.10.22.7:39.pm. SCM(Supply Chain Management)—3 (0)

2005.10.16.4:20.pm. SCM(Supply Chain Management)—2 (0)