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Financial Performance
Major drivers of supply chain performance
The role of each drivers in creating strategic fit
Key metrics to track performance
Financial Measure of Performance 3-3
Facilities
places where inventory is stored, assembled, or
fabricated
production sites and storage sites
Inventory
raw materials, WIP, finished goods within a supply
chain
inventory policies
Transportation
moving inventory from point to point in a supply chain
combinations of transportation modes and routes
Drivers of Supply Chain Performance 3-7
Information
data and analysis regarding inventory, transportation,
facilities throughout the supply chain
potentially the biggest driver of supply chain
performance
Sourcing
functions a firm performs and functions that are
outsourced
Pricing
Price associated with goods and services provided by
a firm to the supply chain
3-8
A
Framework
for
Structuring
Drivers
3-9
Facilities
Role: flexible/dedicated/combination
Manufacturing methodology (product focused versus process
focused)
Warehousing methodology (SKU storage, job lot storage, cross-
docking)
Location
centralization (efficiency) vs. decentralization (responsiveness)
other factors to consider (e.g., proximity to customers)
Capacity (flexibility versus efficiency)
Capacity measures the maximum amount a
facility can process.
Utilization measures the fraction of capacity that
is currently being used in the facility.
Facility- affects both the unit cost of processing and
the associated delays. Unit costs tend to
related decline (PPET increases) and delays increase
with increasing utilization.
metrics that Processing/setup/down/idle time measures the
influence fraction of time that the facility was processing
units, being set up to process units, unavailable
supply chain because it was down, or idle because it had no
units to process. Ideally, utilization should be
performance limited by demand and not setup or downtime.
Production cost per unit measures the average
cost to produce a unit of output. These costs may
be measured per unit, per case, or per pound,
depending on the product.
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Quality losses measure the fraction of
production lost as a result of defects. Quality
losses hurt both financial performance and
responsiveness.
Theoretical flow/cycle time of production
Facility- measures the time required to process a unit if
there are absolutely no delays at any stage.
related Actual average flow/cycle time measures the
metrics that average actual time taken for all units
processed over a specified duration, such as a
influence week or a month. The actual flow/cycle time
includes the theoretical time and any delays.
supply chain This metric should be used when setting due
dates for orders.
performance
Flow time efficiency is the ratio of the
theoretical flow time to the actual average
flow time. Low values for flow time efficiency
indicate that a large fraction of time is spent
waiting.
3-12
Product variety measures the number of products or
product families processed in a facility. Processing
costs and flow times are likely to increase with
product variety.
Volume contribution of top 20 percent SKUs and
Facility- customers measures the fraction of total volume
processed by a facility that comes from the top 20
related percent of SKUs or customers. An 80/20 outcome, in
metrics that which the top 20 percent contribute 80 percent of
volume, indicates likely benefits from focusing the
influence facility so separate processes are used to process
supply chain the top 20 percent and the remaining 80 percent.
Average production batch size measures the
performance
average amount produced in each production
batch. Large batch sizes will decrease production
cost but increase inventories.
Production service level measures the fraction of
production orders completed on time and in full.
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14
Inventory: Role in the Supply Chain
Cycle inventory
Average amount of inventory used to satisfy demand between shipments
Depends on lot size
Safety inventory
inventory held in case demand exceeds expectations
costs of carrying too much inventory versus cost of losing sales
Seasonal inventory
inventory built up to counter predictable variability in demand
cost of carrying additional inventory versus cost of flexible production
Level of product availability
Overall trade-off: Responsiveness versus efficiency
more inventory: greater responsiveness but greater cost
less inventory: lower cost but lower responsiveness
3-
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Inventory-related metrics that influence
supply chain performance
Push (MRP) versus pull (demand information transmitted quickly throughout the supply
chain)
Coordination and information sharing
Sales and operations planning
Enabling technologies
EDI
Internet
ERP systems
Supply Chain Management software
RFID
Overall trade-off: Responsiveness versus efficiency
3-
Information-related metrics 25
that influence supply chain performance
Forecast horizon identifies how far in advance of the actual event a forecast
is made.
Frequency of update identifies how frequently each forecast is updated. The
forecast should be updated somewhat more frequently than a decision will
be revisited, so large changes can be flagged and corrective action taken.
Forecast error measures the difference between the forecast and actual
demand. The forecast error is a measure of uncertainty and drives all
responses to uncertainty, such as safety inventory or excess capacity.
Seasonal factors measure the extent to which the average demand in a
season is above or below the average in the year.
3-
Information-related metrics 26
that influence supply chain performance