Supply Chain Risk

and
Performance Management.
By : Hemant Kale. 1
 What does these Companies Logo
mean to you ?

24-04-2018 We School - Hemant Kale 2 2

 GARTNER SUPPLY CHAIN TOP 25

• Apple* & Procter & Gamble* -

• They moved up to Master Supply Chain

1. Amazon.com 2. McDonald's
3. Unilever 4. Intel
5. Inditex 6. Cisco
7. H&M 8. Samsung
9. Colgate-Palmolive 10. Nike
11. The Coca-Cola Company 12. Starbucks
13. Wal-Mart Stores 14. 3M

24-04-2018 We School - Hemant Kale 3 3

GARTNER SUPPLY CHAIN TOP 25

• 15. PepsiCo
• 16. Seagate Technology
• 17. Nestlé
• 18. Lenovo
• 19. Qualcomm
• 20. Kimberly-Clark
• 21. Johnson & Johnson
• 22. L'Oréal
• 23. Cummins
• 24. Toyota Motor
• 25. Home Depot

24-04-2018 We School - Hemant Kale 4 4

 Supply Chain Management:

What is Supply Chain

Management ?

24-04-2018 We School - Hemant Kale 5 5

What is Supply Chain Management ?

6
Supply Chain Management: Definition.

• Supply Chain Management is an Upstream & Downstream flow

of information and Downstream value added flow of materials
to fulfill the need of the customer.

7
Supply Chain As Defined & Implemented

• According to the Council of Supply Chain Management

Professionals (CSCMP) : supply chain management encompasses the
planning and management of all activities involved
in sourcing, procurement, conversion, and logistics management.
• It also includes coordination and collaboration with channel partners,
which may be suppliers, intermediaries, third-party service providers,
or customers.
• Supply chain management integrates supply and
demand management within and across companies.
• More recently, the loosely coupled, self-organizing network of
businesses that cooperate to provide product and service offerings
has been called the Extended Enterprise.

8
Supply Chain: Evolution

How the concept of Supply Chain

has got evolved ?

9
Supply Chain Management : Evolution…

• It actually started during World War with supply of Food and

Medicines to soldiers by soldiers , The Term Logistics came
then.
• Keith Oliver of Booze Allen Hamilton phrased it as “ Supply
Chain” in 1982.
• In 1990’s it got discussed , practiced and conceptualized.
• By 2000 it had got caught on with leading organizations.
Then…
• Through the last decade, The Organization Structure & Titles
in the Organization were changed.

10
Supply Chain Management – Key Functions

Planning Purchasing

Distribution &
Manufacturing
Logistics

11
Supply Chain Management: Domain 1.

Planning

• It is the Brain of Supply Chain.

• It is the Nervous System of the Supply Chain.

12
Supply Chain : Planning – Domain 1

• Why Planning is the Brain ?

• It directs and co-ordinates activities.

• Planning Functions Consist of :

• Central Planning.
• Demand Planning.
• Supply Planning. ( MRP I )
• Factory Planning. ( MRP II )
• Financial Planning.
• Man Power Planning ( Employed and Contracted )

13
Supply Chain : Planning – Domain 1

Demand
Planner

Distribution Central Supply

Planner Planner
Planner

Factory
Planner

14
Supply Chain : Planning – Domain 1

Takes inputs from Sales

Demand
Planner

Coordination
with FG w/h
&Transportation
Distribution Central Supply
Planner Planner
Planner
Inputs to and
Interaction with
Purchasing

Makes
Factory
Manufacturing Plans Planner
and updates daily
15
Progress
Supply Chain : Purchasing –Domain 2

Purchasing / Procurement

• Live Wire or Pumping Station

• Is the Heart of the System

16
Supply Chain : Purchasing –Domain 2

• The Primary Role of a Purchasing Function Could be :

• Source , Negotiate , Place Purchase Order’s.
• Ensure Replenishment of Raw , Packing Material and
Consumables.
• Budget and Plan for Capex Items and Other Services.
• The Purchasing Function is the largest Money Spend Function
within the Organization.
• A Buyer plays a very important role of connectivity of the
outside world with the internal needs.

17
Supply Chain : Logistics – Domain 3

Logistics and Distribution

Stores or Finished Goods Warehousing :

• This is an important function & are the hands and feet for the
Organization
• They make the product Move , Change Hands , Change Location
• And the hands and feet work towards converting challan and
invoices to cheques and money transfers .

18
Supply Chain : Logistics – Domain 3

• Logistics and Distribution – Domain 3

• This functions role would primarily include :
• Stores or Warehouse Operations of Finished Goods or Company
Product.
• Primary Movement of FG from W/h to DC ‘s or Depot or
Distributor W/h.
• Would deal with Transportation Extensively – It is a Major Spend
Item.
• Most Important Role of – Demand Planning and Supply to Sales.
• Plays an important role in Goods movement thus Customer
Service

19
Supply Chain : Manufacturing – Domain 4

Manufacturing

• It is basically converting raw and packing materials in to finished

goods.
• If it is one plant ,life is comfortable under one roof.
• If it is Multiple Locations then complexity starts and Standardization
is needed.
• Basis we got to have a Manufacturing Strategy in place.
• Manual / Semi Automatic / Fully Automatic / Robotic / Control Room
• One Shift / Two Shift / 24 x 7 Operations
• Capacity Utilization / Productivity / Losses
• Safety / Security / Environmental Needs
• IR / HR Policy.
• ISO or Other Standards.
• E.H.S. and Sustainability Needs
20
Supply Chain Management: Domain 5

Supply Chain Performance Measurements :

Do Not Measure if you Do Not Want To Improve.

But if you want to Improve – Measurement is the only
way.

• What to Measure ?
• When to Measure ? At What Frequency ?
• Who should Measure ?

21
Supply Chain Management: Domain 5

Supply Chain Measurements 1. Plan Deviations

2. RM / PM Quality
3. RM / PM Service
4. Cost Variance
5. Production Rate
Quality 6. Production Loss
7. Manning OH
8. FG Quality
No Deviation
No Compromise 9. E H S
10.FG Movement
11. Fill Rate
Service Cost 12. Customer Service

22
Supply Chain Bold Objectives :

Cost Product
Availability Q

Lead
time
Flexibility Service
v/s
Capability
v/s
Reliability

System / Technology / Relationship or Interfaces 23

Supply Chain: Interactive & Market Responsive

What Do We Mean By Interactive & Market

Responsive Supply Chain ?

24
Where does Risk in Supply Chain comes from…?
Uncertainty

Capability of
Reliability
People &
Processes In Service
Quality Cost

Variability
in a safe and environment friendly manner
25
Supply Chain Risk…

• How do you define Risk ?

• “It is situation involving exposure to danger”

• “ It is to expose someone or some value to danger, harm or loss ”

• Risk implies future uncertainty

• It is about deviation from the expected Results or An Outcome

• ISO defines risk as effect of Uncertainty or Objectives 26

Supply Chain Risk…

• To Summarize :

• Risk Co-relates with Failure, Money Loss, Any Deficit to an extend Loss of Life !!

27
Supply Chain Risk…

• Can you zero down or nullify the Risk completely ?

• Can we nullify all risks always ?
• Sometimes , May not be Always , Depends on once Capability.
• Thus it is always “ Risk Mitigation ” or “ Mitigating the Risk ”
• Now , how much can you Mitigate a Risk or The Risk ?
• As much as you can break down Risk bearing activities in to smaller
manageable and controllable activities , that much risk could be mitigated.
• In doing so we have to always evaluate “Cost v/s Risks ”

28
Supply Chain Risk…

• Risk could be Avoidable Risks or Non Avoidable Risks.

• What are avoidable risks ?

• Those risks that could be mitigated
• Where factors influencing risks could be worked upon
• These factors could be brought under control one by one

• What are unavoidable risks ?

• Those risks which cannot be mitigated
• In such cases analyse the exposure
• Create back ups and minimize losses.
29
Supply Chain Risk…

• Some examples & how do you mitigate them…

• Natural Calamities
• Disaster Management
• Occurrence of fire
• Fire Safety , Fire proof equipment's , Quick Fire Control Mechanisms
• Risk of Theft
• Ensure adequate controls
• Risk of Malpractices
• Audit Controls , Authority Controls , Severe Punishments
30
Supply Chain Risk…

• Some more examples in Supply Chain…

• Single source vendors
• Vendor Development , Alternate vendors
• Cost Monopolies
• Alternate Formulations
• Transport Strike
• Carry higher inventory
• Transport Hazards
• Insurance Cover
• Risk of Maintaining Relations
• Review it , Sort out the differences 31
Risk Management…

• Risk Management is Identification , Assessment and Prioritization of actions

and activities to mitigate the Risk

32
Risk Management Process…

Assess
Risk

Risk Control or
Identify
Risk
Management Mitigate
Process Risk

Review
Controls
33
How do you define a Risk ….

• Name it
• Make a risk statement
• List down likely events thus the scope of risk
• Risk classification and its nature on timescale potential
• List down People involved or those who have exposure to this risk – Internally
and Externally
• Measure the Magnitude of the event
• Existing Controls , Desired Controls , Exposure beyond these controls
• Auditing Risk Compliance.

34
Types of Risk…

• Risks are broadly divided in to three categories :

• Hazard or Pure Risks
• Has only negative outcomes, These are Operational or Insurable Risks.
• Example : Theft in an organization

• Control or Uncertainty Risks

• There is a uncertainty of the outcome. The working Managers Control them.
• Example : Completing a Project on time and within the money budgeted

• Opportunity or Speculative Risks

• Risks which are taken by design to enhance the performance or to get positive
results.
• An organization has to adopt Risk classifications as per their nature of
business.
35
Risk Evaluation…

Low Occurrence High Occurrence

But And
M High Magnitude High Magnitude
a
g
ni
tu
d
e
Low Occurrence High Occurrence
And But
Low Magnitude Low Magnitude

Occurrence or Likelihood
36
Steps and Principles of Risk Management
• Organization faces very wide range of risk that can impact desired outcome.
• The events that can impact an organization may inhibit :
• What it is seeking to achieve – Hazard Risk
• Enhance that Aim – Opportunity Risk or
• Create uncertainty about outcomes – Control Risk
• Risk Management need to provide an integrated approach to –
• Evaluation / Control & / Monitoring of above three types.
• Risk Management cannot happen in isolation it needs support of organization
• Risk Management Frame work could be : RASP.
• Risk Architecture or Risk reporting structure e.g 26/11 reporting
• Risk Strategy or Over all Risk Management Strategy e.g. A plan in place.
• Risk Protocols or Over all guidelines and procedures e.g. Do’s and Don’t’s 37
Features of Risk….

• In order to be successful, Risk Management Initiatives should be :

• Proportionate
• Aligned
• Comprehensive
• Embedded and
• Dynamic
• P A C E D ( PACED)

38
Decisions with Certainty & Uncertainty related with Risk

• Decisions are based on facts …

• Facts are based on certain data …
• Data is formatted out of “ certain ” information …
• Information is gathered out of some observations …
• Observations could be Right / Wrong / Authentic / False / Manipulated …
• Thus Decisions could be ….?
• Example a New Manufacturing Plant Project .
• What is certain and what is uncertain ?
• Thus the control risk have to be incorporated as acceptable tolerances.
39
Risk and Reward…

Matured or
Growth
Established
Potential
Reward

Start of
Decline
Operations

Risk Exposure…
40
Risk Ignorance

• Risk Ignorance done Knowingly

• Risk Ignorance done Unknowingly
• What are the outcomes ?

41
Risk in Supply Chain…

• Supply Chain Management in any Business Operations be it manufacturing or

services is gained vital importance.
• As simply failure in SC leads to poor Customer Service and Credibility.
• Further:
• Uncertainties in Supply and Demand
• Global Competition
• Shorter Life Cycles
• Rapid change in Technology

• All these have only led to Higher and Higher Risks in SC. Thus importance of
Risk Management in Supply Chain.
42
Risk in Supply Chain…

• Some examples to discuss:

• Cost v/s Quality
• Safety v/s Agility
• Unique v/s Collaborative
• Sharing v/s Confidentiality
• Service v/s Effectiveness
• Top Line v/s Bottom Lines
• Governance v/s Employee Trust
• Single Unit v/s Multiple Unit
• Flat Org Structure v/s Adequate Manning
• Lean Management v/ s Flexibility
• Capacity v/s Flexibility 43
Risk in Supply Chain…

• Due to Integration :

• Due to Cost Reduction :

• Due to Agile Logistics :

• Due to E Business :

• Due to Globalisation :

• Due to Outsourcing : 44
Risk in Supply Chain…Due to Outsourcing.

• What are Advantages of Outsourcing ?

• The Main Organization focuses on core competency
• Reduction in Cost of Manufacturing and Logistics Proximity to Markets
• Manning Costs , Own Labour issues lessen
• Flexibility
• Reduced Capital Costs and Enhanced Cash Flow.
• What are Risks of Outsourcing ?
• Scope , Duration and Nature of Contract
• Meeting the Quality and Service Mark as per main client or market
• Auditing , Controls and Losses reporting
• Handling Disputes
• Confidentiality, Privacy and Security of Formulations, Technology and Information45
7 R’s and 4 T’s of Hazard Risk Management…

1. Recognition or Identification of nature of risk and likely hood.

2. Ranking or Evaluation in terms of magnitude and occurrence.
3. Responding to it :
1. Tolerate
2. Treat
3. Transfer
4. Terminate
4. Resource availability for Control activities.
5. Reaction Planning or Disaster Recovery.
6. Reporting and Monitoring Risk Performance Management thro’ Architecture
7. Reviewing the complete risk management system. 46
SC strategy and Risk ( Points to Ponder )

• Example of Pears as hub for SE Asia manufacturing.

• Same picture tube manufacturer but different LCD , LED TV Brands.
• Arrow and Bombay Dyeing tie up.
• Nike Outsourcing from China – Labour Trouble
• Most of the Organizations going in for Regional Hubs
• J & J , Colgate , Hyundai , HUL , Nokia …
• Risks in …
• Privatization of PSU’s
• Promoting , Discounting v/s Proper Pricing
• JV’s , Strategic Partnerships
• Make In India !!!
47
Think and Let us discuss next time…

• Anticipate the Un-Anticipated !!!

48
• HW - Review 41 and 45

49
Identifying and Analysing Risks…

• Types and Classifications:

• Avoidable and Unavoidable
• Hazardous or Pure / Control or Uncertainty / Opportunity or Speculative
• Risks classification as per their Occurrence and Magnitude
• Further Classification could be basis the nature of attributes of the Risk :
• Such as timescale for impact
• Nature of impact or likely magnitude of impact
• It could be impacting financial position or it could impact the infrastructure
• Risks even may impact the organizations reputation.

• The source of risk also could be classification – where it originates from?

Each Organization decides on what classification suits them the best depending on the exposure and nature .
50
Identifying and Analysing Risks…

• Tools for analysing past events and collecting opinions :

• What is the Best event for this ?
• Audits , Audit Reports , Audit Actions and Audit Closures
• Processes and Controls.
• Importance of Processes , Counter Controls , Reporting Controls , Authority Controls

• ISO Audit , Process Audit , Systems Audit , Financial Health Audit , Operations
Audit , Safety Audit , Environment Audit ,
• Analysing Operations :
• Its nature – hazardous , non hazardous
• Environmental , Health and Safety Aspect
• Controls & Checks.
51
Identifying and Analysing Risks…

• Likelihood of Risk Occurrence

• Basis Risk and its Consequences : HML
• Alternatives of handling an activity or performing a task or an operation
• Secondly what alternatives do you have on hand ?
• Analysing the Options on hand for the Organizations .
• Do’s and Don’ts , Methods and Processes , Audits and Controls
• Responses :
• What responses an organization take to an event ?
• Can they respond in a particular manner ?
• What are its implications ? Out comes ? Financial , Social , Environmental ?
• All these would come in defining and building the risk architecture. 52
Identifying and Analysing Risk Maturity …

• Risk Maturity could have 4 levels of Organization :

• Level 1 = Naïve / Level 2 = Novice / Level 3 = Normalized / & Level 4 = Natural
• Level 1 organizations are unaware of the need for the mgmt. of risk or do not recognize the value of
structured approaches to dealing with uncertainty. Management processes are repetitive and
reactive with insufficient attempt to learn from the past or even prepare for future threats or
uncertainties.
• Level 2 organizations are aware of the potential benefits of managing risks, but have not
implemented risk process effectively and thus are not gaining the full benefits. The organization is
either experimenting with risk mgmt. or operating a risk mgmt. with fundamental weaknesses.
• Level 3 organizations have the mgmt. of risk in the routine business processes and have implemented
the risk mgmt. system throughout the organization. Generic risk mgmt. processes are formalised and
benefits understood at all levels although they may not be always achieved.
• Level 4 organizations have a risk aware culture with a proactive approach to risk mgmt. in all
activities. Risk information is actively used and communicated to improve processes and gain
competitive advantage. It’s a continuous improvement process. 53
Styles of Risk Management:

• We have seen that there are 3 styles of Risk Management related to nature of risk
under consideration:
• Namely Hazard , Control and Opportunity Management.
• Hazard will always have a negative outcome with the risk. Thus the maximum
exposure to the risk that is acceptable to the organization is Hazard Tolerance.
• Similarly Control Risk will have costs associated with managing the risk , this is cost
of control acceptance.
• Lastly Opportunity Risk will have a range of possible outcomes – Highly positive or
negative. The resources put behind the Opportunity risk are said as Opportunity
Investment.
• Each of these risks are involved in unique or together in an organization.
• Hazard could be associated with Insurance , while control with audit and
opportunity with strategic planning. 54
Styles of Risk Management:

• Hazard tolerance + Control Acceptance + Opportunity Investment =

• Value that organization is ready to put in to Risk Management or

• Risk Appetite of the organization.

55
Risk Management Information System - RMIS

• It is mandatory for any organization to have RMIS and Technology governing

RMIS to be in place and continuous usage.
• What does RMIS stores or handles , manages or communicates across :
• Risk Management policy and protocols
• Risk profile data, values and information
• Emergency contact arrangements and contact details
• Insurance values and cost of risk data
• Insurance claims handling management protocols
• Historical data of loss , claims and any relevant information
• Risk management action plan
• Business continuity plans and roles and responsibilities
• Disaster recovery plans , roles and responsibility
• Lastly Corporate Governance and Responsibility of every employee and visitor.
56
Risk Aware Culture in the organization : LILAC

• Strong Leadership within the organization in relation to strategy , projects

Leadership and operations.

• Involvement of all stake holders in all stages of the risk management

Involvement process.

Learning • Emphasis on Training in Risk Management procedure and learning from

events.

Accountability Absence of an automatic blame culture ,but appropriate accountability

for actions.

Communication and Openness on all risk management issues and lessons

Communication learnt
57
Risk Assessment Techniques : As per FDIS
( Final Draft International Standards )

• Use of questions and checklist to collect information that will assist with recognition of the risks
Questionnaires and Checklists

• Collection and Sharing of ides at workshops to discuss the events that could impact the objectives ,
Workshops and Brain Storming core processes or key dependencies.

Inspections and Audits • Physical inspection of premises and activities and compliance audits for systems and procedures.

Flow Charts and Dependency • To identify critical components that are key to success or where dependency is very large.
Analysis

• Hazard and Operability Studies and Failure modes effects analysis are quantitative techniques for
HAZOP and FMEA failure analysis.

• Strengths Weaknesses Opportunities and Threats ( SWOT ) and Political ,Economical ,Social ,
SWOT AND PESTLE Analysis Technological , Legal and Environmental analysis.
58
Risk Appetite for an Organization:

• An organization could be risk Averse

• Or An Organization could be risk Aggressive

Reduced Risk
I Concerned Zone Zone
M Or Risky Zone
P
A Cautious
C Zone
T

Increased
Com Comfort
fort Zone
Zone

59
Likelihood
Risk Classification Systems:

• Broadly can be classified as Short ,Medium and Long Term Risk.

• But they do not give the fullest picture of the risk and impact.
• Short Term Risks have an ability to impact the objectives , key dependency
and Core Processes . It would disrupt the operations immediately.
• Mischief on the shop floor , Sudden On Line Rejection
• Medium Term Risk have an ability to impact an organization following a short
delay after the event occurs. These are related with management positions ,
projects , developments , product launches…
• Crude prices going up or down
• Long Term Risk has an ability to impact the organization between one to five
years after the incidence has happened. These are Strategic Impacts
• Nokia / Android , Fiat /Huyndai , Kodak / Mobile Cameras. 60
Risk Classification Systems:

Standard or COSO ERM IRM BS 31100 FIRM Risk PESTLE

Framework Frame work Scorecard

Classifications Strategic Strategic Strategic Financial Political

Operations Operational Operational Infrastructure Economic

Reporting Financial Financial Reputational Sociological

Compliance Hazard Programme Marketplace Technological

Project Legal

Environmental

61
Detailing PESTLE Classification System :

• Tax Policy, Employment Laws, Environmental Regulations, Trade restrictions, Tariffs , Political Instability or
Political Stability

• Economic Growth /Decline , Interest Rates , Exchange Rates , Inflation , Minimum Wages , Employment ,
Economic Credit Availability, Cost of Living

Sociological • Cultural Norms , Health awareness ,Population growth , age distribution , safety , career attitude

Technological • Technological changes , entry barriers , Investing in Technology or Buying it out , Outsourcing

Legal • Changes in Legislation , Quota and Reservations , Imports Exports Taxation

Environmental • Ecological and environmental aspects , Global Warming , Green Revolution

62
Supply Chain Evolution Stages :

• 1. Manufacturing Partners
• 2. Logistics Re-engineering
• 3. Process re-design
• 4. BPR – Business Process Re-engineering
• 5. Channel Distribution Management
• To
• Efficient or Effective Supply Chain – KPI monitoring
• Robust Supply Chain- Could absorb changes to an extent
• Sustainable Supply Chain – For the next generation , legacy
• Resilient Supply Chain ??
• We will discuss on last two types in next two sessions. 63
What is this SC Evolution:

• In todays business environment the organizations have formed new networks for sourcing raw
materials , manufacturing products , creating services , or storing and distributing goods – ultimately
to have economical and on time and complete supply of products to customers and consumers.
• This is in short Supply Chain Management and the focus is moving internally as well as externally.
• The organizations today should learn how to balance stake holders interest in a short term mean as a
means to maximizing shareholder value in long term.
• Partnering , Collaborative working , Usage of Advance data systems , Globalization , Regional Hub
manufacturing , Seamless way of doing operations are gaining rapid pace or already have come in to
existence.
• Cutting Barriers that drive costs up and service down are no more to be used.
• Shared thinking and commitment must replace fear , distrust and arrogance if a company expects to
create and maintain an efficient supply chain that dominates its markets. It has to have a cutting
edge.
• Retailing giant Wal- Mart has been working with Warner – Lambert for over two years to improve the
accuracy of sales forecast . Product cycle time for was reduced to six weeks from twelve weeks.
64
What is this SC Evolution: From Costs view point.

• While there is Total cost of making and selling the SC costs are broken down
in to smaller elements and then are focused at :

• Purchase Spend – 50 to 65 % of NNS

• Transportation Spend – 5 to 8 %
• Labour / Employee Cost – 3 to 7 %
• Inventory Costs – 3to 9 %
• System and Admin Costs – up to 3 %
• Facilities Costs – up to 2 %

• These costs are analysed for a Cost Reduction Program. 65

Four Levels in SC Evolution:

• Level 1 – Focus on effective Sourcing and Logistics ( Cost savings angle )

• Level 2 – Focus on Internal Excellence (BPR ,Benchmarking ,Activity based

costing )

• While first two levels are internal third and fourth level are external

• Level 3 – Focus is on Network Construction ( Business unit leaders ,

Forecasting , Planning , Customer service orientation , total organization)

• Level4- You are a Industry Leader( Top Supply ,Customer & Mgmt Networks
Demand Supply Linkage and quick on time responses , Global Market) 66
Supply Chain Vulnerability

• We should strive to identify vulnerabilities by asking questions such as:

• What has disrupted operations in the past?
• What known weaknesses do we have?
• What ‘near misses’ have we experienced?
• What would be the effect of a shortage of a key material?
• What would be the effect of the loss of our distribution site?
• What would be the effect of the loss of a key supplier or customer?

67
67
Creating a Resilient Supply Chain …

• resilient
• adjective
1. (of a substance or object) able to recoil or spring back into shape after
bending, stretching, or being compressed.
2. "a shoe with resilient cushioning“
3. (of a person or animal) able to withstand or recover quickly from
difficult conditions.
• "babies are generally far more resilient than new parents realize"
synonyms:
flexible, pliable, pliant, supple, plastic, elastic, springy, rubbery

synonyms: strong, tough, hardy

68
Resilience

• “The ability of a system to return to its original [or desired] state

after being disturbed”

• The core concept of resilience is:

• It encourages a whole system perspective

• It explicitly accepts that disturbances happen

• It implies adaptability to changing circumstances

69
69
Changing Times & An Uncertain World

• In a complex inter-organizational supply chain it would be difficult if

not impossible for anyone to identify every possible hazard or point
of vulnerability
• ‘Known’ problems are only part of the picture
• What About
• Known Knowns, Known Unknowns and Unknown Unknowns
• Y2K: The Millennium Bug
• 26.7.2005 rains in mumbai
• Post 9/11 Security Matters
• 26/11 at Taj, CST and other places
• Harshad Mehta , Raju Stayam…Corporate Scandals,
• Operational Risk and Business Continuity
70
70
Changing Times & An Uncertain World :

• Known knowns
• We know that there exist uncertainties, which we know how to solve
• ‘Known known’
• Knowable Unknowns
• There are some uncertainties which we don’t know how to solve, We may
choose ignore or face it
• Unknowable Unknowns
• However, there are still uncertainties that we don’t know that we don’t know

71
71
Changing Times & An Uncertain World :

• What hasn’t happened is interesting

• There are known known’s
• Things we know we know

• There are known unknowns

• We know that we don’t know
• Y2K

• There are unknown unknowns

• We don’t know we don’t know
• 9/11 , 26/7 , 26/11 ,
• THESE ARE USUALLY THE DIFFICULT MATTERS

72
Supply Chain wicked problems

• Level 1: Value stream/product/processes gets impacted

• Flow of work, material, information, money
• Level 2: Asset & infrastructure dependencies
• Fixed & mobile assets
• Level 3: Organizations & inter-organizational network power dependencies
• Commercial wellbeing, contractual & stakeholder relationships
• Level 4: Social & natural environment
• Society, economy & natural environment

73
Level 1: Process Engineering & Inventory Management

• Flows within and between organizations

• Underlies lean manufacturing
• End-to-end perspective of agile manufacturing
• RISK MANAGEMENT
• Improved visibility of demand, inventory
• Velocity (reduce likelihood of obsolescence)
• Tight monitoring and control (TQM, 6 Sigma)
• Mastery of process control facilitates identification, management and
elimination of risk
• But need to consider rest of system

74
Level 2: Asset & Infrastructure dependencies

• Nodes (facilities) & links (roads, trucks, etc.)

• Asset-based RISK MANAGEMENT
• Catastrophes
• IT, supply chain system disruption
• Loss of key skills

• Impact on operations of loss of links or nodes through network modeling

• Mitigating impacts through business continuity planning

75
Level 3: Organization & Inter-Organizational Networks

• Financial consequences of events or decisions

• Loss of sole supplier or customer
• Impact on budget or shareholders
• Strategic management
• Conflicts of interest
• RISK MANAGEMENT
• Partnering
• Dual sourcing
• Outsourcing
• Contractual obligations
• UPSIDE
• Look for competitive advantage in core competencies
76
Level 4: Macro-Environment : PESTLE

• Political
• Green movement
• Wars
• Economic
• Social
• Technological
• RISK MANAGEMENT
• Risk avoidance
• Contingency planning

77
Supply Chain Risk Categories or 6 sources OF Risks
CATEGORY RISK
NATURE External Natural disaster, plant fire, disease & epidemics
POLITICAL SYSTEM “ War, terrorism, labor disputes, regulations
COMPETITOR & MARKET “ Price, recession, exchange rate
Demand, customer payment
New technology, obsolescence substitutes
AVAILABLE CAPACITY Internal Capacity cost, supplier bankruptcy
INTERNAL OPERATION “ Forecast inaccuracy, safety
Bullwhip, agility, on-time delivery
Tradeoff: inventory/fill rate
Quality
INFORMATION SYSTEM “ System breakdown
Distorted information
Integration
Viruses/bugs/hackers
78
Specific Risk-mitigation Steps Contextual risks

RISK MITIGATION

Environmental risk & compliance Environment team creation , Audit Committee reporting.
Proactive anticipation of regulations. Lead Free. Asbestos.

Regulation compliance Use of reputable auditors . Even PWC failed in Satyam case.

Exchange rates Use of futures , Forward cover.

Euros used in Central & Eastern Europe or Use always USD

Financial risk Strategic restructuring;

Transparent financials

Systems risk Data center backed up in different locations

Cultural differences In-house training , Team Building , Common Forums

79
Sustainability in the Supply Chain

Environmental Management System

• Part of a management system of an organization in which specific

competencies, behaviors, procedures and demands of the
implementation of an operational environmental policy of the
organization are defined.

• ISO 14000 standards define EMS, Environmental auditing,

Environmental labeling, Life Cycle Assessment

80
Sustainability in the Supply Chain

Sustainable Supply Chain Management reinforces shareholder value

➢ Ecological challenge – Intense global competition for natural resources forcing companies to
improve eco-effectiveness of their supply chains

➢ Social challenge – Organization of your global challenge enables exercise of greater control,
i.e.. Minimum pay or avoidance of child labor

➢ Economic challenge – Optimum SCM favorably impacts environment by consolidating

freight capacity as one example

➢ Integration challenge – Position SCM within SSCM

81
Sustainability in the Supply Chain

Triple Bottom Line for Booz Allen

3 P’s

• People
• Planet
• Profit
• “The movement towards sustainable supply chain management is rooted in
the concept of sustainability…

82
Resilient Supply Chain :

• “Resilience is the ability of a global supply chain to reorganize and deliver its
core function continually, despite the impact of external and or internal
shocks to the system.”
• The design of a resilient supply chain is one that is not vulnerable to risks. This
is generally achieved by normal practices of good logistics management.

• The balancing point here is : How far you can move in direction of a Lean
Supply Chain and keep on removing the slack in the system . The potential
coverages for disruptions has to be methodically considered.

• Thus a Good Logistics management would include both Efficiency and

Resilience . 83
Importance of Design:

• Its designing of whole supply chain.

• The design of the Supply Chain does affect the level of Risk – Very Important.
• A long and a narrow chain is more risk prone than a short and wide one.
• When the organization work in isolation they carry higher risk than when all
are in tandem .
• A chain with no visibility is more risky than one where information flow is
open and transparent.

• Thus it is evident that the basic design of the SC is primary factor in

determining its Vulnerability and Resilience.

84
Principles of Designing a Resilient Supply Chain :

• 1. Start within the organization.

• 2. Take a strategic view.
• 3. Understand the concept of SC Risk.
• 4. Consider these risks in designing.
• 5. Understand well that the chain is as strong as its weakest link.
• 6. Look for Good Collaboration ( ideally in your advantage more ).
• 7. Prevention is Better than Cure
• 8. Create Agility
• 9. Look at Emergency procedures and Back up Plans.
• The Design has to match the Demand
The Design has to match the Demand
85
Features of Resilient SC:

• The resilient Supply Chain may best be categorised on the basis of :

• Physical Features : Length , Breadth , Capacity or Physical attributes

• Relationships : Collaboration, Visibility , Process Integration , Transparency and

Trust

86
Use of Parallel Paths or Using Alternatives :
Resilience is High
• It reduces Vulnerability and increases Resilience much better than when the
operations are put in one sequence:
• When Reliability is HIGH , Probability of failure is Low.
• Multiple Sourcing :
• Vendor Share and Customer Dependency balancing.
• More Logistics Channels to the customer :
• Regular Distribution
• Direct Selling , E trading , Home Delivery Models , Locational or Mobile
• Outsourcing :
• Could be a back to internal activities
• e.g : HR Payroll , Transport , Catering , Auditing , Packing, Internal Surveys
87
Resilient Supply Chain : A view…

• More than 80% of companies are concerned about supply chain resilience.
Supply chain managers traditionally focus on reducing cost and increasing
reward. As a result organizational standards may not be aligned with building
resilience. Executives are struggling to find a balance between managing risk
and building resilience across organizations. − Public policies can be further
developed to incentivize resilience across supply chain actors. − A blueprint
for resilience offers a practical framework for joint action.

88
Resilient Supply Chain : What If ?

• What happens when fire strikes the manufacturing plant of the sole supplier
for the brake pressure valve used in every Toyota?

• When a hurricane shuts down production at a Unilever plant?

• When Dell and Apple chip manufacturers in Taiwan take weeks to recover
from an earthquake?

• When the U.S. Pacific ports are shut down during the Christmas rush?

• When terrorists strike?

89
Resilient Supply Chain :

Stages of Disruption

Any significant disruption will have a typical profile in terms of

its effect on company performance, whether that performance
is measured by sales, production level, profits, customer service
or another relevant metric. The nature of the disruption and the
dynamics of the company’s response can be characterized by
the following eight phases.

90
Resilient Supply Chain : Stages of Disruption

1. Preparation In some cases, a company can foresee and prepare for disruption,
minimizing its effects. Warnings range from the 30-minute tornado alert General
Motors Corp. received in Oklahoma on May 8, 2003, to the several months of
deteriorating labor negotiations at West Coast ports that preceded the October
2002 lockout. In other cases, such as 9/11, there is little or no warning.
2. The Disruptive Event The tornado hits, the bomb explodes, a supplier goes out
of business or the union begins a wildcat strike.
3. First Response Whether there’s a physical disruption, a job action or an
information technology disruption, first response is aimed at controlling the
situation, saving or protecting lives, shutting down affected systems and
preventing further damage.

91
Resilient Supply Chain : Stages of Disruption

4.Initial Impact The full impact of some disruptions is felt immediately. Union Carbide Corp.’s chemical plant in
Bhopal, India, went off-line immediately after the gas leak disaster in December 1984. Other disruptions can
take time to affect a company, depending on factors such as the magnitude of the disruption, the available
redundancy, and the inherent resilience of the organization and its supply chain. When inventories of critical
parts ran out during the 2002 West Coast port lockout, it took New United Motor Manufacturing Inc., the joint
venture of General Motors and Toyota, four days to halt production. During the time between the disruptive
event and the full impact, performance usually starts to deteriorate.
5. Full Impact Whether immediate or delayed, once the full impact hits, performance often drops precipitously.
6. Recovery Preparations Preparation for recovery typically start in parallel with the first response and
sometimes even prior to the disruption, if it has been anticipated. They involve qualifying other suppliers and
redirecting suppliers’ resources (as Nokia Corp. did in the aftermath of the 2000 fire in a Royal Philips Electronics
NV manufacturing plant that disrupted its chip supply; finding alternative transportation modes (as NUMMI did
when it used airfreight to get parts during the 2002 West Coast port lockout) and determining what parts are
available and selling products built from those parts (as did Dell Inc. after the 1999 earthquake in Taiwan;(See
“Supply Chain Elements.”)

92
Resilient Supply Chain : Stages of Disruption

7. Recovery To get back to normal operations levels, many companies make up for lost production by
running at higher-than-normal utilization, using overtime as well as suppliers’ and customers’
resources. After the West Coast port lockout, NUMMI made up for its one-week plant closure and
posted record sales by year’s end despite the work stoppage.

8. Long-Term Impact It typically takes time to recover from disruptions, but if customer relationships
are damaged, the impact can be especially long-lasting and difficult to recover from. For example, the
network of small-scale shoe factories in Kobe, Japan, responsible for some 34 million pairs of shoes a
year, lost 90% of its business in the wake of that city’s 1995 earthquake as buyers shifted to other
Asian factories, and most buyers never came back.

93
THE DISRUPTION PROFILE

94
Resilient Supply Chain :

Supply Chain Elements

In any company’s supply chain, material flows from supplier through a conversion process
through distribution channels and is controlled by various systems, all working in the
context of the corporate culture. Each of those five elements represents an opportunity
to introduce flexibility and, by doing so, create organizational resilience.

95
Resilient Supply Chain : Stages of Disruption

• The Vulnerability Framework

• Vulnerability is highest when both the likelihood and the impact of disruption are high. Rare, low-
consequence events represent the lowest levels of vulnerability and require little planning or action.
Disruptions that combine high probability and low consequences are part of the scope of daily
operations management in the normal flow of business. On the other hand, those characterized by
low probability but high impact call for planning and a response that is outside the realm of daily
activity.

96
A Vulnerability Map For A Single Company

• An enterprise vulnerability map categorizes the relative likelihood of potential threats to an organization and the
company’s relative resilience to such disruptions. Such maps can then direct management attention and
prioritize the planning.

97
Business Continuity Management :

• Having seen and understood Risk , Risk Management ,Risk Mitigation , Robust
Supply Chain , Sustainable Supply Chain , Resilient Supply Chain and we move
on to understand its need . Why all this is needed ?

• The single need is for Business Continuity :

98
Business Continuity Management :

• Some risks are unknowable and not possible to predict and plan always.
• Such events come as a total surprise and the organization may be caught
unaware and at a loss to find further direction may be due to impact or
timing. So what do we do ?
• Thus some organizations do take an approach of actually creating that risk.
• Then to measure the disruption or impact or ways to come out of it like
• Transport strike partial or full
• Key supplier failure or closure
• Or in short create emergencies
• Such events may be termed as “ Disaster Management “ or “ Disaster
Recovery” “ Crisis or Emergency Management” but in a more positive way
called as “ Business Continuity Management ” 99
Business Continuity Management :

• The term “ Business Continuity Management ” describes the method that

ensure the essential business functions continue to work through an
emergency.

• Risk Management and BCM are said to be part of each other and are two
sides of same coin .

• It is also said that Risk Management deals with routine planning whereas
BCM does the repairs when planning fails .

100
Business Continuity Management Features:

• BCM focuses on plans that allow organization to continue its operations and
activity or Recover Quickly after a damaging event has happened .
• The features of BCM could be put as :
• Analyse End to End Supply Chain
• Identify risk prone elements
• Quantify the consequences of each
• Design Work plans on what needs to be done on disruption
• How to ensure key process continuity
• Check for trigger points which could create an emergency
• Rehearse these plans or do mock drills
• Do post mortem after the event has happened and normalcy restored to be
better equipped next time. 101
Business Continuity Management :

• What are Common Types of disruptions rated by the managers:

• IT Failure – 76 %
• Telecom system failure - 67 %
• Fire – 52 %
• Interruption of Utilities – 58 %
• Damage to Corporate Image – 47 %
• Loss of Skilled Labour , Staff – 42 %
• Employee Health and Safety – 41 %
• Supply Chain Disruption – 39 %
• Denial of Access to the facility – 32 %
• Environmental Calamity or Severe Weather Conditions – 27 – 31 %
• Product Safety – 16 %
• Terrorist Threat – 14 %
102
Business Continuity Management :

• Priorities of an Emergency Plan or Crisis Management Plan or Disaster

Recovery Plan :

• Ensure Physical safety of employees , visitors , customers and all associated with
the operations i.e ensure health, safety and welfare of all stakeholders
• Protection of Business facilities and assets. This will ensure resources for quick
recovery.
• Implement those procedures for returning to a minimum acceptable level of
service.
• Having restored normalcy internally work on external partners in supply chain
• Lastly restore full operations in a timely and cost effective way.
103
Business Continuity Management :

• Steps in Business Continuity Management :

• 1. Initiate the process of BCM:

• Top down commitment and approval , Form a team , Get a sponsor , Budget , Allocate Resources
• 2. Define BCM requirements and strategy to achieve them :
• This creates BCM foundation , Options for managing Risks reduction and recovery.
• 3. Asses the risks :
• We have seen this in risk management.
• 4. Prepare a actual Business Continuity Plan :
• This is nothing but RMIS
• 5. Implement the Business Continuity Plan
• 6. Monitor , Test and Amend or Alter as per changing conditions.
104
Performance Measurement – Supply Chain

• Do Not Measure Anything Specific if You Don’t want to Perform and

Improve.

• But

• If you want to Improve then Measurement is the only right Tool…

105
Performance Measurement – Supply Chain

• Why to Measure ??

• To Progress
• To Benchmark
• To Meet Customers Expectations
• To Enhance SC capability
• To Enhance Asset Performance
• To Keep Mind , Body , Soul and Intellect progressing
• To continue creating value for :
• The Product , Employees , Employer , Shareholders and Stakeholders
106
Performance Measurement – Supply Chain

• What you measure is what you get.

• Performance Measures strongly affect the behaviour of managers and

employees.

• Create linkage between SC Measurement and Company Strategy / Goals

107
Performance Measurement – Supply Chain

• Share of Voice of a Customer ( Market Expectations / Need of the Product )

• Share of Voice of an Employee ( Internal View Human Value , Professional Growth ,

Social Need )

• Share of Voice of a CFO ( Financial View , Profit or Loss , Value Created )

• Share of Voice of an Vendor ( Ethical , Financial , Sustainable )

• Share of Voice of a Shareholder ( Growth , Profits , ROI )

All these voices have to Converge to create a balanced Score Card.

108
Operational Metrics
• Goals
• Waste Production
• Time Compression
• Unit Cost Reduction
• Product / Process Innovation
• Inventory Management
• Supplier Performance
• Measures
• SC Cost Ownership
• SC Cycle Efficiency
• Product Finalization
• Inventory Turns
• No. of days of Inventory holding
• Vendor Evaluation
Financial Metrics

• Goals • Measures

• Profit Margins • Profit Margins by SC Partners

• Cash Flows • Receivables and Payables cycle
• ROI or ROA • Customer Growth and
• Return on Equity Profitability
• Turnaround Ratios

110
Customer Metrics :
• Goals
• Flexibility in responses.
• Product / Service Support and
Innovation
• Customer Value
• Customer Satisfaction
• Customer Service
• Measures
• Average response time and
options given or alternatives
• Technology , Safety and Ease
• Order fulfilment rate
• Value for Money
• Delivery Speed , Accuracy and
Reliability.
111
Supply Chain Management: Domain 5

Supply Chain Measurements 1. Plan Deviations

2. RM / PM Quality
3. RM / PM Service
4. Cost Variance
5. Production Rate
Quality 6. Production Loss
7. Manning OH
8. FG Quality
No Deviation
No Compromise 9. E H S
10.FG Movement
11. Fill Rate
Service Cost 12. Customer Service

112
Performance Measurement – Supply Chain

• We will cover four major classes of metrics for supply chains:

• Service Metrics:
• how you meet customer needs
• Inventory Metrics:
• how much inventory you have
• Time / Speed / Flexibility Metrics:
• how quickly can you respond to new developments
• Financial Metrics:
• how supply chain management affects your bottom line

113
Aligning Metrics and Business Strategy
(Value Proposition)

It is essential to have a thorough understanding of a particular business unit's business

strategy and value proposition before selecting appropriate metrics. The value proposition
answers the question:

"Why do customers buy from us?"

The business strategy answers the question:

"How can we ensure that customers will continue to buy from us?"

114
The table below shows some traditional metrics,
or performance measures, for three functional areas of a typical organization:

Manufacturing Sales & Marketing Engineering / R&D

Unit cost Market share Functions/features

Labor cost Revenue Labor & material cost

Labor productivity Sales growth Time-to-market

Quality, scrap rate New products Award-winning designs

Plant utilization Customer satisfaction Design for

manufacturability,
Plan vs. actual production assembly, etc.

115
Customer service Metrics or Order Fill Rate:

Suppose we set inventory levels so that on average we maintain a 95% Line Item Fill Rate and
suppose there are 14 line items on a typical order. Then what is the probability that a typical order
will be filled completely, without delay?

• Looking at our average 95% line item fill rates, if we had only two lines on an order, then the
probability the first item is in stock is 95%, and the probability the second item is in stock is also
95%. To fill the total order we need to multiply these probabilities:

Probability of complete order fill for 2-line order = .95 * .95 = 0.9025 or 90.25%.

• With 14 items we multiply the probabilities for all 14 items:

Probability of complete order fill for 14-line order = (0.95)14 = 0.4877 or 48.77%.

The probability of complete order fill for a 14-line order is below 50%! The figure below
shows the order fill rate corresponding to a 95% line item fill rate, based on the number of
items in the order:
116
This figure should convince you that if there are a large number of items
on a single customer order, then the chances are good that it won't be
filled completely...

117
 Cash Cycle :

Our final "speed" metric is the so-called cash-to-cash cycle, or cash conversion cycle.

Here we try to approximate the average time between a company's outlay for materials and
labor to build a product and the moment the company gets paid for selling the product.

This length of time is approximated by:

Cash to Cash Cycle = Inventory + Accounts Receivables – Accounts Payable

118
Cash to Cash Cycle :

Recall days of supply of inventory ("days of inventory") from the prior discussion of inventory
metrics; this is the average time inventory waits in a warehouse.

• Accounts receivable is the number of days it takes to collect payment from your customers, an
• Accounts payable is how long you wait to pay your suppliers.

For example:
if a company had 45 days of inventory, and its accounts receivable were 30 days and
its accounts payable were 35 days, then the calculation would be:

Cash-to-Cash Cycle = 45 + 30 – 35 = 40 days

In this case your cash-to-cash cycle is 40 days from the moment you pay for raw materials to
the time you get paid from customers...
119
Presentation’s: 18.3.17, 10 min each + Q&A , Total marks 20
• 1. Radhyesham – Principles of Designing a Resilient SC and its physical features (118)
• 2. Tanush – Main features and differences in robust SC at FMCG,AUTO and Retail (28)
• 3. Tejaswini – Supply Chain Management define and explain roles of key Function domains ( 83 )
• 4. Harshal T – Present Uncertainty , Variability , Capability and Reliability in SC Context ( 57 )
• 5. Harshal D – Define Risk and present all types , ,categories , and classifications of risks with e.g ( 9 )
• 6. Karan – Explain Risk Management process its principles and features ( 5 )
• 7. Dipesh – Explain with examples at least top 6 SC risks in different functions and possible mitigations. ( 81)
• 8. Suhas – Present LILAC as risk aware culture in organization and assessment techniques as per FDIS ( 42 )
• 9. Akshaj – What is BCM and its features ( 9 )
• 10. Umesh – Explain areas of SC measurements in purchase , manufacturing , logistics and distribution with eamples ( 84 )
• 11. Roshani – Explain 7 R and 4 T ( 36 )
• 12. Akshay – Identifying and Analysing risks from past events ( 20 )
• 13. Baruna – Explain with examples Effective, Robust, Sustainable, and Resilient SC with features ( 32 )
• 14. Rohan - BCM its importance and features ( 96 )
• 15. Udit – Demand Planning to Demand Fulfilment complete process( 67 )
• 16. Sandeep – Importance of Order fill rate and cash cycle ( 77 )
• 17. Prassana - Risk of Demonitisation on SCM ( 13 )
• 18. Nachiket – SCM Risks Cost v/s New Technology in 2020 ( 26 )
• 19. Harshad - Risks in Planning and Purchasing Domains of SCM ( 53 )
• 20. Giriraj – Actual Risks in own business and its mitigation.( 54 ) 120
Internal Presentation Marks MMS – Semester II 18.3.17

Name Content Delivery Sub. Knowledge Q & A and in Total out of 20

Class Interaction

121
Internal Presentation Marks MMS – Semester II 18.3.17

Name Content Delivery Sub. Knowledge Q & A and in Total out of 20

Class Interaction

122
Traditional Approaches to Performance Measurement:

• Productivity : or Operations related :

• 1. Production Plan v/s Actual – Daily , Weekly , Fortnightly , Monthly …
• 2. Actual Cycle time v/s Planned Cycle time – shortfall , excess , variances
• 3. Planned labour v/s Actual Labour deployed , Manning Model in all sections
• 4. Consumables usage month on month
• 5. Utilities consumption month on month , year on year , plan on plan
• Regular Power , Generated Power , Power Generation Costs , Steam , Water
• Water recycling ,
• 6. Losses – RM , PM , Labour , Time , Downtime ,
• 7. EHS
• 8. Good Manufacturing Practices 123
Traditional Approaches to Performance Measurement:

• Quality :
• 1. Incoming Quality check of RM , PM , Consumables , Services
• 2. In storage Quality Checks
• 3. In formulation checks
• 4. On line Quality checks
• 5. FG quality checks
• 6. Batch wise checks
• 7. Record sample checks
• 8. In market Quality checks / Customer visits
• 9. Competitive Product Quality Checks
• 10. Reporting , Analysing and Upgrading 124
Traditional Approaches to Performance Measurement:

• Customer Service :
• 1.What is needed and what is offered
• 2. Fill Rate , Cycle Time .
• 3. On Time and Complete
• 4. Product Specifications - Of the right specifications
• 5. Meeting desired Quality
• 6. With proper instructions and How to use , assemble , display , maintain
• 7. SOP’s
• 8. Pre Sale – During Sale and – Post Sale guidance.
• 9. Flexibility and Openness
• 10. Feedback loop . 125
Traditional Approaches to Performance Measurement:

• Cost :

• 1. Lowest is the Best. Very Basic Approach. Finance and Audit view discuss.
• 2. Always focus is on Cost savings or Cost cutting
• 3. Cost per Unit , Cost per Piece , Cost of Labour , Cost of Power , Cost of
Conversion , Cost of Transporting ,Cost of Holding , Inventory Cost ,
Opportunity Cost , Cost of Losses , Cost of Rejection , Cost of Promotion , Cost
of Sales , ….
• 4. Costs are always expressed as positive or negative variances.
• 5. Costs are incurred , it’s a spend , Capex Invested , Interest Accrued.
126
Performance Measurement: On Going Changes….

Traditional PMS Innovative PMS

Based on Cost and Efficiency Based on Value

Trade off Between Performances Compatibility of Performances

Profit Oriented Customer centric

Short term oriented approach Takes a Long Term View point

Individual Metrics Prevail Team Metrics Prevails

Functional Metrics prevails Transversal Metrics Prevails

Comparison with standards Continuous Monitoring and Improvement

Aimed at Evaluation Aimed at Evaluation and Involvement

127
Performance Measurement: Score Card concept…

• Supply Chain Balanced Scorecard (SCBS) In 1992, Kaplan and Norton (1992)
introduced the Balanced Scorecard (BSC) as an in dispensable performance
management tool. Since then, it has been recognized as the leading tool for
performance measurement in both research and industry.
• It enables managers to observe a balanced view of both operational and
financial measures at a glance. The authors proposed four basic perspectives
that managers should monitor as follows:
• Financial, Customer, Internal Business Processes and Innovation and Learning
perspectives.
• Managers can translate strategies into specific measures that can monitor the
overall impact of a strategy on the enterprise.
128
Performance Measurement: SCOR

• Supply Chain Operations Reference Model (SCOR) SCOR model was created
by the Supply Chain Council (Stephens, 2001; Huang et al., 2004; Lockamy and
McCormack, 2004).
• The first version was developed in 1996. It is a framework for examining the
supply chain in detail through defining and categorizing the processes that
make up the chain, assigning metrics to such processes and reviewing
comparable benchmarks.
• The SCOR model framework is the only integrated cross functional framework
that links performance measures, best practices and software requirements
to a detailed business process model.

129
Performance Measurement: SCOR

• The SCOR model defines a supply chain as being composed of five main
integrated processes:
• Plan, Source, Make, Deliver and Return.
• Performance of most processes is measured from 5 perspectives:
• Reliability, Responsiveness, Flexibility, Cost and Asset.
• As the model spans the chain from supplier’s supplier to customer’s customer
aligned with operational strategy, material, work and information flows, it is
considered an exhaustive system that requires a well defined infrastructure,
fully dedicated managerial resources and continuous business process re-
engineering to align the business with best practices.

130
131
World Class Manufacturing:

• It’s a Evolution in Production and Manufacturing Operations and Processes

and has all the good things covered in to manufacturing operations.

• Japanese started upon it and today the world follows it with best suited
methodologies.

• The Key theme in World Class Manufacturing is for the Organization to be :

• Lean
• Efficient
• Cost Effective
• Flexible
132
World Class Manufacturing:

• It is all about implementation of Best Practices and revising ,improving and

inventing new practices.

• It is a Process driven approach where various techniques and philosophy are

used in one combination or other.

133
World Class Manufacturing:

• Some of Techniques covered could be :

• Make to Order
• Streamlined Flow of Operations
• Flexibility in making smaller lot sizes and also make in smaller lot sizes
• Collection of Parts
• Do it right the first time ( and every time )
• Cellular or group manufacturing
• TPM – Total Preventive Maintenance
• Quick Replacement
• ZD
• JIT
134
World Class Manufacturing:

• Some of Techniques covered could be :

• Increased Consistency or R & R – Repeatability and Reproducibility
• Higher Employee Involvement
• Cross Functional Teams
• Multi Skilling , Multi Tasking
• Visual Signalling , Visual Inventory
• SPC – Statistical Process Control

135
World Class Manufacturing:

Principles of World Class Manufacturing:

There are three main principles, which drive world-class manufacturing.

§ Implementation of just in time and lean management leads to reduction

in wastage thereby reduction in cost.
§ Implementation of total quality management leads to reduction of
defects and encourages zero tolerance towards defects.
§ Implementation of total preventive maintenance leads to any stoppage
of production through mechanical failure.

136
World class Performance Measurements :
Manufacturing…
• Percentage of quality rejects , in coming , in process stage wise and final check.
• Forecast Accuracy
• Total Inventory Level – Raw , Packing , WIP, Consumables , Finished Goods , Rejected.
• Inventory turns
• Inventory days of supply
• Production to schedule AS PER PLAN.
• Delivery to schedule (procurement) - Service Levels
• Delivery to Schedule ( finished goods ) – FG servicing by SC to Sales
• Exception Messages , Changes , Deviations , Amendments , Corrections
• Capacity Utilization
• Overall Financial margin
• Comparison to budget , Variance with Budget
• Cost of goods sold
• Customer Service , Customer Satisfaction 137
World class Performance Measurements : Organization

• Key Performance Measures for an Organization :

• Profits

• Growth

• Market Share

• Customer Satisfaction

138
European Foundation for Quality Model – EFQM.

• Today there is an increasing pressure to compete globally.

• Resources are not infinite , they are limited.
• In sustainability we need to ensure these resources to the next generations.

• EFQM Excellence model provides a frame work that encourages :

• Cooperation – Collaboration and – Innovation that we need to ensure to achieve
above goal.
• In todays competitive complexity EFQM model is a framework to understand
and manage it.
• It is a pragmatic and practical model developed by leading organisations to
stimulate continuous improvement.
139
EFQM:

• The EFQM model has three integrated components :

• The fundamental concept of Excellence

• This defines the foundation for achieving the sustainable excellence in the
organisation.
• The Criteria
• The criteria provides a framework to help organisations to convert the fundamental
Concepts and RADAR thinking in to practice.
• The Radar
• RADAR is a simple but powerful tool for driving systematic improvements in all areas
of the organisation.

140
8 Fundamental Concepts of Excellence of EFQM Model:

141
Organizational Excellence: EFQM

HOW DO YOU DEFINE EXCELLENCE?

Excellent Organizations achieve and sustain outstanding levels of

performance that meet or exceed the expectations of all their
stakeholders.

142
Organizational Excellence: EFQM 8 Concepts

• There Fundamentals Concepts are:

1. ADDING VALUE FOR CUSTOMERS
• Excellent organisations consistently add value for customers by understanding, anticipating and
fulfilling needs, expectations and opportunities.
2. CREATING A SUSTAINABLE FUTURE
• Excellent organisations have a positive impact on the world around them by enhancing their
performance whilst simultaneously advancing the economic, environmental and social conditions
within the communities they touch.
3. DEVELOPING ORGANISATIONAL CAPABILITY
• Excellent organisations enhance their capabilities by effectively managing change within and beyond
the organisational boundaries.
4. HARNESSING CREATIVITY & INNOVATION
• Excellent organisations generate increased value and levels of performance through continual
improvement and systematic innovation by harnessing the creativity of their stakeholders.
143
Organizational Excellence: EFQM 8 Concepts

5. LEADING WITH VISION, INSPIRATION & INTEGRITY

• Excellent organisations have leaders who shape the future and make it happen, acting as role models
for its values and ethics.
6. MANAGING WITH AGILITY
• Excellent organisations are widely recognised for their ability to identify and respond effectively and
efficiently to opportunities and threats.
7. SUCCEEDING THROUGH THE TALENT OF PEOPLE
• Excellent organisations value their people and create a culture of empowerment for the achievement
of both organisational and personal goals.
8. SUSTAINING OUTSTANDING RESULTS
• Excellent organisations achieve sustained outstanding results that meet both the short and long term
needs of all their stakeholders, within the context of their operating environment.

The Fundamental Concepts of Excellence form the basis for the criteria of the EFQM Excellence Model.
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Supply Chain Risks and Performance Management :

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