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SUPPLY CHAIN DRIVERS AND METRICS

By- Prof. P.K.Shah

Chapter -3

IMPELLERS OF SUPPLY CHAIN


The empowered customer :
Consumer with access to abundant information about product
availability variety, quality and prices have more demanding than
past arena. Ever demanding need is uniqueness and quick access
Development in information technology tools:
The power of information technology tools has enabled full
visibility in the transaction throughout the supply chain
ERP, POS, MRP
Globalization:
Global partnering opportunity but comes with challenges
By- Prof. P.K.Shah

IMPELLERS OF SUPPLY CHAIN-CONTD


Supply chain concepts
1. System Concept:
Emphasizes interdependence not only between functions within
an organization but also among multiple organizations that
collectively deliver product and services the customer
Trade-off between organizational goals
Companies in which production drives sales , may engage in
large production to minimize set up costs, without realising the
cost involved in inventories
Transportation linking

By- Prof. P.K.Shah

IMPELLERS OF SUPPLY CHAIN-CONTD


2. Total cost concept:
Integrated systems and interconnected chains or networks
involving multiple links that delivers value to the customers by
minimising the cost
The company emphasizes the need for intercompany coordination, co-operation and collaboration in all activities from
design and development to manufacture and distribution in
order to minimize the total cost
3. Trade off concept

By- Prof. P.K.Shah

FINANCIAL MEASURES OF PERFORMANCE


From the shareholders perspective

Return on Equity
The main summary measure of a firms performance

ROE =

Shareholders equity- The portion of the balance sheet that represents the capital
received from investors in exchange for stock
By- Prof. P.K.Shah

FINANCIAL MEASURES OF PERFORMANCE


ROA - Net income+ Interest (1-tax)/Average total sales
ROE-Measures return on investment made by firms shareholders
ROA -Measures return earned on each dollar invested in firm
ROE-ROA=ROFL
The difference can be attributed to financial leverage
Ration for financial leverage
APT- Cost of goods sold/Accounts payable

By- Prof. P.K.Shah

DRIVERS OF SUPPLY CHAIN


PERFORMANCE
Facilities: Actual physical locations in the supply chain
1. Production site
2. Storage site

Inventory: inventory policy decide responsiveness


Transportation : Transportation choices have a large impact
on supply chain responsiveness

By- Prof. P.K.Shah

DRIVERS OF SUPPLY CHAIN


PERFORMANCE-CONTD
Information: consists of flow of data
Sourcing: Motorola outsourced production to contract
manufacturers in china
Pricing: Determines how much a firm will charge for
the goods and services that it makes available
through its supply chain

By- Prof. P.K.Shah

By- Prof. P.K.Shah

INVENTORY
ROLE IN SUPPLY CHAIN
Inventor y
Mismatch between supply and demand
Unintentional Unnecessary cost scope to reduce
Intentional Economical to produce in bulk
I is the number of units contained within the system,
inventory;
T is the time it takes for all the inventor y to go through the
process, flow time;
R is the rate at which the process is delivering throughput,
flow rate or throughput

I=D*T
By- Prof. P.K.Shah

COMPONENTS OF INVENTORY DECISIONS:


CYCLE INVENTORY
Cycle Inventory
It is the average amount of inventor y used to satisfy demand
between receipts of supplier shipments.
Trade-off
Cost of holding larger lots of inventor y when cycle inventor y is
high
Cost of ordering product frequently when cycle inventor y is
low

By- Prof. P.K.Shah

COMPONENTS OF INVENTORY DECISIONS:


SAFET Y INVENTORY
It is the inventory held, in case demand exceeds
expectation, it is held to counter uncertainty

By- Prof. P.K.Shah

COMPONENTS OF INVENTORY DECISIONS:


SEASONAL INVENTORY
It is built up to counter predictable seasonal variability in
demand.
Companies using seasonal inventory build up inventory in
periods of low demand and store it for periods of high
demand when they will not have the capacity to produce
all that is demanded.

By- Prof. P.K.Shah

LEVEL OF PRODUCT AVAILABILIT Y


It is a fraction of demand that served on time from
product held in the inventory
The basic trade-off while determining the level of product
availability is between the cost of inventory to increase
product and the loss from not serving customers on time

By- Prof. P.K.Shah

INVENTORY RELATED METRICS

Cash to cash cycle time: Inventor y


Average inventor y: average amount of inventor y carried
Inventor y turns: number of times inventor y turns over in a year
Products with more than a specified number of days of
inventory: justification to oversupply
Averaged replenished batch size: measures average amount in
each replenishment order
Average safety inventor y - on hand inventor y till order arrives
Seasonal inventor y: inflow to sales
Fill rate: Fraction of orders met on time
Fraction of time out of stock
Obsolete inventory: fraction of older inventor y
By- Prof. P.K.Shah

TRANSPORTATION
Role in SCM
Components of transportation decision
Design of transportation network
Choice of transportation mode
Transportation related metrics

By- Prof. P.K.Shah

TRANSPORTATION RELATED METRICS

Average
Average
Average
Fraction

inbound/outbound transportation cost


shipment size
inbound / outbound cost per shipment
transported by mode

By- Prof. P.K.Shah

INFORMATION
Role in SCM
Components of information decisions
Push v/s Pull
Co-ordination and information sharing
Sales and operations planning
Technology
EDI
ERP
RFID
Information related metrics

By- Prof. P.K.Shah

INFORMATION RELATED METRICS

Forecast horizon
Frequency of update
Forecast error
Seasonal factors
Variance from plans
Ration of demand variability to order variability

By- Prof. P.K.Shah

SOURCING

Role in SCM
Components of sourcing decisions
Inhouse or outsource
Supplier selection
Procurement
Sourcing related metrics

By- Prof. P.K.Shah

SOURCING RELATED METRICS

Payable outstanding
Range of pricing
Supply/purchase quantity
Fraction of on-time delivery

By- Prof. P.K.Shah

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