managing supply chain presentation
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8/13/2019 Managing Supply Chain Presentation
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WHAT ABOUT MEASURING SUPPLYCHAIN PERFORMANCE
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Ingredients for measuring on
going performance
Continuous improvement in an
organization relies on measuring,
measuring and measuring again
Organization should choose a limited
number of metrics and align executiveto management- level measures
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Historical background
Using measurements to support
manufacturing operations has its root
back to late 19thand 20thcentury
espoused by Frederick W. Taylor
Running the business by stop watch
Over the time exaggerated types ofmonitor and control methods were
replaced by a focus on a measuring
business performance rather than that
of individual
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Following Questions are
addressed
Why is performance measurement important?
What general approaches are available to measure
supply chains?
What advice can be followed when selectingperformance measures?
What methods are available for setting performance
targets?
What are application vendors doing to supportsupply chain performance measurement?
How should a company get started
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Why is performance
measurement important?
Measurement is important as it affects the behavior
that impacts supply chain performance
The importance of using measures to help ensure
that a supply chain is performing well can be
illustrated by anecdotal story
Driving a supply chain based on after the fact
measures, like loosing an important customer or
having poor financial performance is not very
effective
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What general approaches are available
to measure supply chains
Traditionally, companies have tracked performance
based largely on financial accounting principles
These measures tend to be historically oriented
and not focused on providing a forward lookingperspective
These measures do not directly tie to operational
effectiveness and efficiency
Balanced score card Supply chain councils score model
Logistics score board
Activity based costing
Economic value analysis
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Balanced score Card
Recommends the use of executive information
systems. That track a limited number of balanced
metrics that are closely aligned to strategic
objectives
Financial perspective ( Cost of manufacturing and
cost of warehousing)
Customer perspective( On time delivery and order
fill rate)
Internal business perspective( manufacturing
adherence to plan and forecasting errors)
Innovative and learning perspective( APICS-
Certified employees and new product development
cycle time)
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Supply chain Councils
SCOR Model
Cycle time metrics( Production cycle time and cash
to cash cycle)
Cost metrics( Cost per shipment and Cost per ware
house pick) Service/ Quality metrics( On time shipment and
defective products)
Asset metrics( Inventories)
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Logistics Score Board
Logistics Productivity measures(Orders shipped per
hour and transport container utilization)
Logistics Financial Performance( Expenses and
Return on assets) Logistics quality measures( inventory accuracy and
shipment damage)
Logistics cycle time( in-transit time and order entry
time) Applications
TCS and DHL etc
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Others
Activity Based CostingMethod involves breaking down activities into
individual tasks or cost drivers, while estimating the
resources ( time and cost) for each one. Costs areallocated based on these cost drivers.
Economic value addedFinancial analysts advocate estimating a
companys return on capital or economic value
added. These are based on premise that share
holder value is increased when company earns
more than its cost of capital
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What advice can be followed when
selecting measures?
Approaches described above, Provide less help in
assessing specific metrics to be used
Measures should be aligned to strategic objectives
Functional excellence Enterprise wide integration
Extended enterprise integration
Do not focus only on Function based measures
Align Executive to Management level measures
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What methods are available for
setting Performance targets
Historically Based targets
External Benchmarks
Internal Benchmarks
Theoretical targets
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What are application vendors doing
to support Supply chain Performance
measurement
APS ( Advanced planning and scheduling)
applications focus on the future rarely concerned
with what went on in the past
Traditionally SCM application vendors havefocused their development efforts on enabling
planning, scheduling and execution, targeted
towards supporting decision making, not tracking
historical performance
VIT, which offers the See Chain software
application suite that consists of 5 modules:
Demand accuracy, Raw materials, Production
Performance, Finished goods and Fulfillment
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Contd Some ERP vendors also offering SCM functionality
have put more focus on historical performance
measurement
SAP( Walldorf , Germany) has been offering a
logistics-related performance reporting product
Oracle a data base vendor that has always
provided some performance measurement
functionality, has plan to expand it. Similar to SAP,
it will offer ABC Costing functionality, having
recently purchased Price Water house-CoopersLLPS
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How Should A Company Get Started
Have Executive articulate the strategic Supply
Chain vision and Company Objectives
Define Executive level measures for each objective
for their scorecard Establish Managerial level objectives and measures
that align to the executive level ones
Identify Supply Chain initiatives that specifically
address the executive and managerialperformance improvement objectives
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Contd
Establish targets for all metrics defined, using a
combination of historical performance,
external/internal benchmarks and theoretical
estimates
Implement new initiatives in concert with a formal
measurement system to keep track of performance
improvement over time
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