Transcript File
Chapter 2
1
Supply Chain Strategy and Performance
Measures
Content…….
Customer service and cost trade offs
Supply chain performance measures
Linking
supply chain and business
performance
Enhancing supply chain performance
Cost Versus Service
A firm must ensure a smooth fit between its business
strategy and supply chain strategy
Business strategy: the firm decides the market
segment in which it wants to operate and the level of
customer services it wants to offer
Supply chain strategy: issues of costs that the firm
has to incur to provide the targeted level of customer
service
Cost of service
Supply Chain Performance Measures
Low
High
Service Level
Managing Supply Chains Efficiently
Inefficient Practices
.
Cost
Existing Position
Low
High
Service Level
Impact of Service Level on
Revenue Costs and Profits
Supply Chain Performance
Measures: Cost Versus Service
Cost
Service
Order delivery lead time
Responsiveness
Delivery reliability
Product variety
Order delivery lead time
It is the time taken by the supply chain to complete
all the activities from order to delivery
Order penetration point/
decoupling point
Customer order
Order delivery lead time
Supply chain lead time
Supply Chain Typology
Order Penetration Point/ Decoupling Point
Make to Stock
Make to Order
Configure to Order
Supply Chain Focus
Efficiency
Responsiveness
Supply Chain Typology: Order Penetration
Point/ Decoupling Point
Push-Pull Boundary of Supply Chains
Supply Chains responsiveness
Responsiveness captures the firm’s ability to handle
the uncertainty of market demand
Functional products are those that satisfy the basic
needs of a customer and therefore have low variety,
stable and predictable demand, long life cycles and
low profit margins
Innovative products are those that try to satisfy a
broad rand of customers’ wants and have the high
variety, unstable, very hard to predict demand, short
life cycles, high profit margins and frequent stock
outs and markdowns
Physical function is the
process of converting
materials into parts, then to finished products and
then transporting them across the various stages of
the chain
Market mediation function ensures that the variety
of products reaching the market matches the needs
of the customers
Functional Versus Innovative
Products: Differences in Demand
Aspects of demand
Functional (predictable
Demand)
Innovative
(Unpredictable Demand)
Product Life cycle
More than 2 years
3 months to 1 year
Contribution margin ( % of 5% to 20%
sales price)
20% to 60%
Product variety
Low ( 10 to 20 variants per High ( often thousands of
category)
variants per category)
Likely forecast error
5% to 20%
40% to 100%
Average stock-out rate
1% to 2%
10% to 40%
End-of-season mark
markdown
0%
10% to 30%
Match Supply Chain Design with Product
Category
Delivery reliability
It is the degree to which a firm is able to service its
customers within the promised delivery time
Product variety
The quantum of variety offered by a firm
Variety explosion
Supply Chain Performance Measures:
SCOR Model
Internal Facing
Cost
Total logistics management cost, Value-added productivity ,
Warranty cost
Assets
Cash-to-cash cycle time, Inventory days of supply, Asset
turns
Customer facing
Reliability
Order fulfilment performance ,Perfect order fulfilment
Flexibility
Supply-chain response time, Production flexibility
Benchmarking Supply Chain
Performance Using Financial Data
Total length of the chain: = DRM + DWIP + DFG
DRM = RM * 365/ CRM, DWIP = SFG*365/ CP, DFG = FG *
365 / CS DRM , DWIP , DFG = Days of RM, WIP and FG
Inventory
Supply chain inefficiency ratio:
SCC = DC + INV * ICC
& SCI = SCC / NS
SCC = SC mgnt. costs , ICC= Inv. Car. cost SCI = SC
inefficiency ratio
Supply chain working capital productivity:
SWC = SC working capital, SWCP = SC working capital
productivity SWC = INV +AR–AP
SWCP = NS / ISWC
The Strategic Profit Model
Impact of supply Chain Intiative on Business
Performance
Cost reduction achieved by:
Reducing Inventory, Reducing logistics expenses, Reducing
direct material expenses, Reducing indirect material expenses
Improved revenue and profitability by:
Selling higher margin products, Achieving higher market
share, Reducing backorder and lost sales, Attacking new
markets, Decreasing supply time to market
Improved Operational efficiency by:
Reducing procurement expenses, Increasing assets utilization,
Delaying capital expenditure
Reducing working capital by
Reducing inventory, Reducing accounts receivables
Enhancing Supply Chain Performance
Enhancing Supply Chain Performance
Supply Chain Integration
Toyota, Ford Motor Company (1910-1920),
The Dubbawallas of Mumbai
Supply Chain Optimisation
Use of Quantitative models in supply chain design and
operations
Supply Chain Reconfiguration
Dell, TVS Scooty