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Supply Chain Strategy and Performance Measures

Chapter 2. Supply Chain Strategy and Performance Measures. 1. Content……. Customer service and cost trade offs Supply chain performance measures Linking supply chain and business performance Enhancing supply chain performance. Cost Versus Service.

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Supply Chain Strategy and Performance Measures

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  1. Chapter 2 Supply Chain Strategy and Performance Measures 1

  2. Content……. Customer service and cost trade offs Supply chain performance measures Linking supply chain and business performance Enhancing supply chain performance

  3. 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

  4. Supply Chain Performance Measures Cost of service Low High Service Level

  5. Managing Supply Chains Efficiently Inefficient Practices . Existing Position Cost Low High Service Level

  6. Impact of Service Level on Revenue Costs and Profits

  7. Supply Chain Performance Measures: Cost Versus Service • Cost • Service • Order delivery lead time • Responsiveness • Delivery reliability • Product variety

  8. Order delivery lead time It is the time taken by the supply chain to complete all the activities from order to delivery Customer order Order penetration point/ decoupling point Order delivery lead time Supply chain lead time

  9. Supply Chain Typology • Order Penetration Point/ Decoupling Point • Make to Stock • Make to Order • Configure to Order • Supply Chain Focus • Efficiency • Responsiveness

  10. Supply Chain Typology: Order Penetration Point/ Decoupling Point

  11. Push-Pull Boundary of Supply Chains

  12. 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

  13. 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

  14. Functional Versus Innovative Products: Differences in Demand

  15. Match Supply Chain Design with Product Category

  16. 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

  17. 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

  18. 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

  19. The Strategic Profit Model

  20. 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

  21. Enhancing Supply Chain Performance

  22. 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

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