1. Supply Chain Strategy and Performance Measures
10th September 2007
Chapter 2 1
Supply Chain Strategy and Performance Measures

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
10th September 2007
Supply Chain Performance Measures
Cost of service
Low
High
Service Level

5. Managing Supply Chains Efficiently
10th September 2007
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
10th September 2007
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
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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
10th September 2007
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
Aspects of demand
Functional (predictable Demand)
Innovative (Unpredictable Demand)
Product Life cycle
More than 2 years
3 months to 1 year
Contribution margin ( % of sales price)
5% to 20%
20% to 60%
Product variety
Low ( 10 to 20 variants per category)
High ( often thousands of variants per category)
Likely forecast error
40% to 100%
Average stock-out rate
1% to 2%
10% to 40%
End-of-season mark markdown 0%
10% to 30%

15. Match Supply Chain Design with Product Category
10th September 2007
Match Supply Chain Design with Product Category

16. Delivery reliability Product variety
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
10th September 2007

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
10th September 2007
Enhancing Supply Chain Performance

22. Enhancing Supply Chain Performance
10th September 2007
Enhancing Supply Chain Performance
Supply Chain Integration
Toyota, Ford Motor Company ( ),
The Dubbawallas of Mumbai
Supply Chain Optimisation
Use of Quantitative models in supply chain design and operations
Supply Chain Reconfiguration
Dell, TVS Scooty