Supply chain performance

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. 

Transparency in supply chain performance is a prerequisite for analyzing performance hitches, prioritizing any improvement efforts, monitoring the impact of the measures taken, and focusing the organization s attention - which by itself can lead to huge improvements. 

In the last few years, we have seen many companies investing in, and relying on, decision support systems. The reason, of course, is these companies are trying to become best-in-class. As observed recently by PRTM Director Mike Aghajanian, For a company with annual sales of 500 million and a 60% cost of sales, the difference between being at median in terms of supply chain performance and in the top 20% is 44 million of additional working capital. ... 

If shippers incorporate TMS as part of their total supply chain execution solution, they will be able to achieve a strategic advantage and improve supply chain performance. Properiy integrated, transportation memagement software, which can cost between 300,000 and 1 million (Cooke 1998), can enhtmce numerous areas within the supply chain. Some common areas for improvement include (Weil 1998) ... 

Hakansson and Snehota (1995) stress that the structure of activities within and between companies is a critical cornerstone of creating unique and superior supply chain performance. Executives in leading companies believe that competitiveness and profitability can increase if internal key activities and business processes are linked and managed across multiple companies. Thus, successful supply chain management requires a change from managing individual functions to integrating activities into key supply chain business processes (Lambert et al. 1997). 

The literature rarely focuses on measuring supply chain performance, for a number of reasons ... 

Some aspects of supply chain performance are difficult to quantify, making it difficult to... 

One measure of supply chain performance is the extent to which the company s tmget market(s) are being satisfied, given the firm s goals and objectives. This would include measures of product availability, adequacy of customer service, and strength of brand image. 

For the individual firm, the goal is to find the most efficient way to offer the desired level of customer service (see Figure 8). For the supply chain, the goal is to improve overall efficiency by reallocating functions, and therefore costs, among its members. The level of customer service offered by the individual member firms, for example, will have a significant impact on other members and total supply chain performance. 

Agami, N., Saleh, M., and Rasmy, M. Supply chain performance measurement approaches Review and classification. Journal of Organizational Management Studies, pages 1-20, 2012. doi 10.5171/2012.872753. 

Gunasekaran, A., Patel, C., and McGaughey, R. E. A framework for supply chain performance measurement. International journal of production economics, 87(3) 333-347, 2004. 

The next step in a supply chain audit is to examine how capacity is deployed by understanding its product-based allocation, which is related to design choices across locations and product types and across locations. Thus, we will first consider how products can be separated based on their demand volumes and consequent impact on capacity requirements. The next step will be to consider if product design specifications can be standardized to improve supply chain performance. Finally, the impact of a consolidation warehouse on required capacity will be considered. 

Such approaches to improving supply chain performance are common in the computer industry, where expensive parts required to fix computer systems are stored in a central location and shipped either overnight or on the next flight out to deal with mainframe failures for critical applications. For example. Federal Express (FedEx) has a division called Critical Parts Supply that permits manufacturers to warehouse product in Memphis with immediate automatic shipment by FedEx on customer demand. 

Thus, the supply chain audit question is Can speculative capacity or inventory be used to improve supply chain performance ... 

This chapter focused on the impact of the chain structure on a supply chains performance. The supply chain links supply locations, intermediaries, and final demand points and thus influences possible adjustments... 

There are many possible proposed measures of supply chain performance. The Supply Chain Operations Reference (SCOR) [80] model is a consensus view across member companies of how to operate a supply... 

One of the key messages in this chapter is that the choice of performance parameter and the level of competition will have a significant impact on supply chain performance. Similarly, the presence of competitors, whose strategies may be unknown, may cause a supply chain to be operated differently than in the absence of such competitors. 

Thus, if the manufacturer could pool demands from many retailers and thus smooth inventories, it may be optimal for inventory to be held at that manufacturer. However, if the manufacturer does not see much demand pooling benefits, possibly due to differing requirements for each retailer, then the retailer may be the pooling location to smooth demands from multiple customers, which will improve supply chain performance. 

Thus the corresponding expected profit for Retailer 1 is 2.178 and the corresponding profit for Retailer 2 is 2.52. These values are obtained by taking the product of the probability and expected profit. Thus, when both retailers offer an advance order discount, they see their expected profits drop from the original values of 2.4 and 2.88 to the new values of 2.178 and 2.52. Thus, competition can improve individual supply chain performance, but when matched by competitors, can create a prisoner s dilemma outcome (bad for all) when both retailers engage in the same action. 

This chapter showed how the choice of metric of competition and the existence of competitors affects the performance of a supply chain. The first part of the chapter examined the many alternate metrics that can determine performance, including costs, profitability, service, variety, and lead time. Each of these alternate metrics implies different choices for supply chain architecture as well as for the details of operation. In addition, in the presence of competitors, agreements that are good for the supply chain in a monopolistic setting may be bad for the supply chain in a competitive environment. Thus one may find an industry supply chain stuck in a bad equilibrium with frequent harmful promotions or advance order discounts, unable to pull itself out of this state due to competitive pressures. This chapter thus su ests that competitiveness can be a significant driver of supply chain performance. 

In other words, it may be worth reconsidering how orders get access to capacity. Tailoring the access to capacity based on product characteristics can improve the overall supply chain performance. 

For supply chains, transportation flows enable products or components to change location, thus enabling them to be used at their demand points. The timing of these transportation flows in turn interacts with transport capacity and chain structure to impact supply chain performance. Given this interaction, the total supply chain impact of a choice of transportation flows has to include transport costs, cycle stock costs, safety-stock costs, and in-transit inventory costs. For each possible transport mode, there are... 

It is clear that the cost associated with inventory depends on the variance of demand during lead time. In such a case, the larger the demand variance, the greater the effect of lead time on safety stock. Now suppose orders to a fadlity came from two sources that differ in their demand variability. Suppose we provide priority to the higher demand variance orders and low priority to the low demand variance order what is the impact Note that, as shown analytically and illustrated with a numerical example in Chapter 4 on capacity management, if one set of orders receives a priority, the lead time for those orders will decrease. But, since the capacity level is unchanged, the lead time for the lower priority orders will increase. Thus, priorities are one mechanism to offer differentiated lead times across order streams and thus improve supply chain performance for spare parts. 

As companies mature, they want to know how their supply chain compares to others. They also want to know whether they are getting better or worse and what good looks like. They are hungry to know if they have reached their supply chain potential. While this sounds simple, the answers to these questions are not easy. The ability to get comparison data on supply chain performance is easier said than done. 

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