Supply asset utilization

Finally, SCM has a direct impact on production and logistics assets utilization and on the entire inventory level, which represents on average around ten to 20 percent of sales. An improved supply chain performance, such as a potential ten to 20 percent increase in production asset utilization and/or a ten to 15 percent reduction in inventory levels, enables companies to postpone or even cancel planned capital expenditure. 

Companies also find, as they mature, that it is difficult to get the complement of metrics necessary to view the supply chain as a system. There are six metrics in supply chain management that are tightly woven with intrinsic trade-offs. These metrics are asset utilization, days of inventory (or inventory turns), forecast accuracy, customer service (on-time delivery of orders shipped complete), cost of goods, and revenue growth. 

So, who does supply chain best There are many attempts in the market to crown a supply chain leader and while there are many methodologies attempting to define who does supply chain the best, they are inadequate. One methodology throws all companies into a spreadsheet and compares them on growth, inventory, and asset utilization and asks peers to rate the companies. This methodology has a number of problems. Supply chain excellence cannot be determined this simplistically. Instead, it needs to be evaluated in a stepwise holistic manner based on three criteria ... 

Year-over-year performance. This is a year-over-year comparison of how a company performed against its peer group on the supply chain financial measurements of growth, revenue/ employee, asset utilization, days of inventory, and cost of sales as a percent of revenue. To determine supply chain excellence, companies need to compare year-over-year performance of a similar company to its peer group for at least three to five years. 

Changes in geoeconomic policy made expansion possible. Global brands were a new reality. While the first generation of supply chain professionals focused on the first brick of the supply chain—asset utilization—the second generation led the charge for the second brick of... 

Stage 1 The supply chain drives the efficient response. In this stage, the supply chain focuses on efficiency or asset utilization. The forecasting process is nascent. Companies model demand using basic forecasting technologies based on shipments and order data as inputs. The goal is to forecast future shipments. The data model represents what a manufacturer should make or a retailer should buy. 

As shown in Figure 4.6, the evolution of manufacturing had three distinct phases. In the beginning, it was local. Products were manufactured close to market. Factories were the nexus of the supply chain. Companies organized to improve quality and maximize asset utilization. 

These are also the easiest supply chains to outsource to a third party. However, not all industries have viewed this opportunity the same. For high-tech leaders that defined the best use of their manufacturing capacity to be focused on the launch of new products (with less of a focus on internal asset utilization), they quickly outsourced products in this quadrant to third-party manufacturers. For consumer products leaders with a myopic focus on internal asset utilization, they keep the production of products in quadrant II for internal production, and outsource products in quadrants I and IV. As a result, consumer products companies reduce manufacturing costs but increase total costs of the supply chain. 

As inventory levels climbed during the first part of 2009, tension grew in supply chain discussions, and horizontal processes (discussed in Chapter 5) grew in importance. This was the most problematic— even desperate—for some companies that defined high-asset utilization as supply chain excellence. Those companies that rewarded high-asset utilization took five times longer to sense the downturn and align their supply chains. 

The results are substantial. Companies reaching stage 2 of supply chain maturity in sales and operations planning are able to drive an average improvement of 2 percent increase in growth and a 3 to 7 percent improvement in asset utilization. Other benefits include reductions in inventory and improvements in new product launch success. S OP allows companies to make the right trade-offs in metrics based on the supply chain strategy. 

The last step of the framework is to develop a supply chain strategy that will allow the company to identify the steps required to become a demand driven supply chain. This development should be performed aligned with the company strategic business planning process, as supply chain is a key enabler of business improvement and can help the company achieve top level business goals like revenue growth, increase asset utilization and profitability, improve customer service, just to name a few examples. 

Medium-Term Weekly buckets for 52 weeks Monthly Leader OPG Leader Team Demand Planner OPG team Issue Resolution President Identify medium-term supply/ demand imbalances Evaluate performance of past short- and medium-term plans Develop and implement corrective actions Demand forecasts Basehne Promotion NPIs Supply forecasts and constraints Customer service Inventory investment Asset utilization Total supply chain costs... 

Supply chain and operations—outsourcing, asset utilization, inventory management, commodity purchasing, supplier relationships, and distribution. 

Production planning is a key part in planning since it impacts utilization of capital-intensive assets and the overall offered supply. Production planning requirements are comprehensive addressing two key tasks for planning commodity production... 

In contrast, the supporting members of a supply chtiin are comptmies that simply provide resources, knowledge, utilities, or assets for the primary members of the supply chtiin. 

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