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Chapter 2: Supply Chain Design ‘This chapter is designed to ‘+ Understand how business strategy is translated into supply chan network design 4+ Show how supply chain network optimization depends on 2 ‘company's stage of supply chain development and has implications for the types of technology it can use ‘+ Deseribe the design process and identify the contribution of design toproduct cost and delivery cost + Contrast traditional “over-the-wall” design with collaborative design forthe supply chain ‘+ Explain the features, benefits, and tradeoffs of various approaches todesign, including design for logistics ofthe supply chain, and design approaches that focus on standardization, simplification, ceustomization, quality, and sustainability considerations {8 Describe the levels of supplier involvement in product design and explain the trend toward supplier integration ‘¢ Describe the role of selling throughout a product's lifecycle 4 Explain the need for and basic approaches to matching customer orders to supply ‘Describe the SCOR® model and its use for improving supply chains ‘¢ Identity SCOR performance attributes and Level-l metrics. ‘When it comes to designing a supply chain, there are standard factors to take into consideration, shown by how they are broken down into the twpics in this chapter: + Topiet » Translating strategy into design Supply chain network design Network configuration + Topic? Inventory location and levels Supply chain technology + Metrics design 4 Topic 3: Balancing efficiency with responsiveness 4+ Tople 4: Product design 4 Topic 5: Network optimization Collectively the decisions made regarding each ofthese factors should always support the organizational strategy and the supply chain strategy: 7 @ semenDt ete hahha eee eee eee a Section 8: Design the Supply Chain Topic 4: Supply Chain Design and Configuration Translating ‘Moving forward from the various business considerations from the strategy into prior chapter, the next step is to translate the supply chain strategy design discussed in Section 8,Develop the Supply Chain Strategy" into a more tactical, granular level of planning: supply chain design and configuration ‘The APICS Dictionary, 14th edition, defines supply chain design as ‘the determination ofhow to structure a supply cain, Design decisions include the selection of partners, the location and eapacity of warehouse and production faces, the products, the modes of transportation, and supporting information systems.” ‘After developing business, organizational, and supply chain strategies, the organization—or the trading partners collectively—need to support the broad strategies by defining measurable objectives for teach manager along the supply chain. To borrow from the SCOR model, the process is stil n the “plan” phase, when objectives are define, ‘This phase sts the direction forall the other processes—source, make, | deliver, return, and enable. Strategy and objectives are developed frst at top management levels and filter down through the levels of ‘management on each trading partner's organization chart. be based on organizational and supply chain strategies, But it's more | realistic to say thatthe decisions and strategy should be consistent, because this is analogous to the “which came first~the chicken or the egg” puzzle. Whichever way you look at the matter, however, priorities must be set strategically. We'll look at the way tha strategie decisions | are made in regard to customers and markets, technology, key | processes, and sourcing. ‘Customer and Supply chains should be configured to reflect customers’ needs as well ‘market decisions as trading partners’ capacities. There is no universally appropriate supply chain strategy. One example of this variability is Inditex, which holds several fashion brands including Pall & Bear, Massimo Dutt Stradivarius, Oysho, and notably the Spanish clothier Zara, As one of five Inditex brands with a similar model, Zara has two distinet supply chains: one for its more functional products and the other for Its fashion products. A company with multiple product lines needs to ‘conduct careful market assessment and match multiple supply chains Testing sy ttl eonareing the supply chan shou | tothe strtey tats right for ech market ‘e201 Fes ~ ‘is ‘Vesion 40, 2036 Eaton ‘tens reseved QD rent renedule: Supply Coin Design Technology decisions Process decisions Since technology has become the powerful force that extends supply chain visibility across multiple tiers while providing world-shrinking velocity, it always deserves serious consideration as an aid to achieving strategic objectives. It's beneficial to weigh the advantages and disadvantages of technology or conduct cost-benefit analysis. Since technology is expensive to install or lease, sometimes difficult to learn, nd, for some, downright threatening, t's Important to make informed choices. When analyzing and comparing different vendor soRware packages to determlneifthey area good fitfor your particular needs, = ‘good rule of thumb is that you should look for packages that meet at least 80 percent of your needs “out of the box’ by way of standard configuration. The remaining 20 percent can be met through customi- zation ofthe product by your company. Realize that most vendor packages are built based on best-known industry methods, so look hard ‘at your own business processes and whether they need to be changed prior to customizing. Customizing is expensive and will increase the total cost of ownership to you over the lifetime ofthe product, due to additional testing, upgrade difficulties, etc, Many companies have faced expensive technology issues because they customized software when they should have updated and changed their business processes. “There is lotto choose rom, including technology that can increase the velocity and accuracy of information flows, cash flows, checkout processes, inventory tracking, production scheduling—virtually any process of any length inside the supply chain, Whatever the process {you're aiming to improve, technology can almost certainly help. Butt hnas to be selected by specialists who know what is current and can guide process stakeholders {a choosing the right hardware and software atthe ight price to conform to averal strategy. The collateral effects of new twehnology have to be taken into account as well. The theory of ‘constraints tells us that there is no point in buying expensive hardware and software to speed up the Now of information, materials, or payments if they will just be sent speeding into a bottleneck (or constrain) that will stop their progress, Most importantly, each organization needs the right technology applied tothe right process by the right people. You will learn more about technology available for supply chains in Chapter 3, [A supply chain isa set of processes, and they can be fine-tuned to suit each customer segment. When planning improvement initiatives, select the pracesses thatare central to the supply chain strategy ‘measure and benchmark them, and focus your attention on ane process ora small manageable number of processes. 482 ‘Version £0, 2016 Eaton wernteee UTR RUSTE TEU EEEE EEE Sourcing Flow of inventory, funds, and information ene AL rghc raced Seaton B: Design te Supply Chain ‘The APICS Dictionary, 14th edition, Semeur "the process of Identifying a company that provides ai service Sourcing, Involves complea, challenging decisions, Manufactured goods, compo- nents, and services can be acquired by purchasing from a company that delivers them by an arm’s length transaction or by outsourcing. ‘The trend in the latter decades ofthe 20th century and early in this century has been toward contracting out non-core activities to supply ‘chain partners. These partners may be located near at hand or offshore. As supply chains grow in length and global dispersion, they can locate each partner in the country or region best sulted by climate, culture, resources, tax policy, et, to support each specific atvity. Atthis time It remains to be seen whether rising fuel and transportation costs will puta limit on the length of supply chains. ‘Outsourcing was initially a strategy in manufacturing supply chains. However, advances in computer hardware and software and global broadband networking has enabled global outsourcing of service activities, such as help desks, accounting, and medical testing. Accounting activities for ecample, can be carried out across multiple ‘time zones. Working halfa world away with immediate internet file ‘transfers, a day-shift accountant can perform services during the ‘customers nighttime hours. Documents can be e-mailed across oceans faster than they can be printed out and carried to an office down the hall You will learn more about contracting (including outsourcing) in Module 2, Section A, Chapter 4 “Supply Management: Four basic flows connect the supply chain entities together: ‘The flow of information back and forth along the supply chain (also back and forth within the entities and between the chain and external entities, such as governments, markets, and competitors) + The primary product flow, including physical materials and services from suppliers through the intermediate entitles that transform them {nto consumable items for distribution tothe final eustomer + The primary flow of casi from the customer back upstream toward the raw material supplier + The reverse flow of products returned for repairs, recycling, remanufacturing, or disposal (Thisis called the reverse supply chain, and itis handled by reverse logistic, which involves different arrangements than the forward logistics that carried materials and products in the other direction. This topic is discussed in more detail in Module 2, Section C, ‘Manage Reverse Logistics”) 8 8Module & Suply Chain Design Customer information lows through the organization and extended enterprise via orders, sales activity, and forecasts. As products and ‘materials are procured, a value-added flow of goods begins. Exhibit 1- 33 illustrates thatthe organization's information system architecture (defined below) must have internal process integration and collaboration between functions as well as alignment and Integration across the supply chain, [Exhibit 4-33: Goods and information Flows in an Integrated Enterprise Understanding how these lows touch many internal and external Parties helps supply chain managers determine who will be affected by ‘supply chain design and thus who needs tobe involved in the design effort. Supply chain Supply chain network design and configuration includes information network design flow design, major soureing decisions, including the number, locations, and size of warehouses and the proximity of retail outlets. The goal of network design and configuration isto promote efficiency. Ths is done by positioning and managing inventory effectively and utilizing resources appropriately, Since the information system architecture ‘enables various departments and external partners to become a ‘unified whole, supply chain network design is addressed first. However, since information strategy is closely tied to network design ‘and configuration, tis section will show how organizations may goin different directions with thei information systems depending on whether thelr competitive basis is efficient (Le, cost-basis or lean), responsive, customer-focused, and/or some other mix of priorities. Information systems Evhibit 1-34 on the next page provides an overview of how the architecture elements ofthe information systems are designed in parallel to the organization's strategic and tactical plans forthe organization and extended supply chain. ‘aparesones eae Cee anRADIATA SASL ESA SASL EEE Section 8: Design th Supa Chain — _ Exhibit 424: Organizational Architecture and Information Systems Areitecture Organizational Architecture] > information Systeme AraCaUS”] [Drwanizaiona’ Stateay > Information Statogy ison, von tategy # ove competencies + Sopmertaton stand Supply Cain Stategy + Eicon elective, Node sytem 4 Paria: car campatensee + Lowel ft an inegation * Conmient pins, gale + Protos: Etfcen responsive customoriven # Vision of neston system euce tnd Supply Chin notion Sitegy 4 Vision andmode ef xtnded rcntockre + Gop analyis| Information Contant Deiniton > Information Poloios and Controle * Data ent, aseuney, and how bg re + Werte eb, wo can acon, howto sees ‘+ How tis wed ae analyzed to make decisions sted Supply Chain Bushes Node + Sratoaic modal of eeatgyitageton 4 Maret segment and roduntsenoe gals 4+ rani! golemeasorments prof ction {+ Distreuten satay logistic and iegation "+ Speale poder and conta, nuding governance moths and sardad to ‘nou dala nest ae systam usetuness ‘tended Supply Chain Communications ‘+ Each hanna partner onatlos requ lof networking 2nd communist + Ineration of pater pies, werk prose, stsks andro insormaton nfaatctire Design > Saabs Nant Sea Cae] "Database ceign + Networking + seteere + Configraton (hava, clase) tended Supply Chain Process Md + Date of ly etal proesses ‘+ nich paar does unin processes 4+ ogre of proaossintaracon (ea, vito) + Spode numberype of atabasce # Networking species (9. data consruicaons) 4 Spocfe stare 4 Contgwaion oct (nttaces) Extended Supply Chan Nebering, + Tecnology ereraqisies # Inieracae obo tcrncogbe + System reorgienring and change mnagerer Tnfornailon ifasiwcure Change | [Action Plan, Schedule, Promtzation Trohange Requremons| stonded Supply Chin Requomants TTactin Pen Extended Supp Chain IF ton Pan The information system architecture is defined as Amodel of how the organization operates rogarding information, ‘The model considers four factors: (1) organizational functions, (2) ‘communication of coordination requirements (3) data modeling needs, and (4) management and control structs, The architecture ofthe information system should be aligned with and ‘match the architecture ofthe organization (APICS Dictionary, 4th edition). ‘gn econo 2036 AAS ~ aes rion 9,058 Caton Q reinmnemeon omensModule: Supply Chain Design Organizational strategy Information strategy SaoLeanes ‘rigs eso ach ofthe categorles in Exhibit 1-34 is explained further. Like all other parts ofthe supply chain, supply chain network design. for all information systems and technology should be based on, and align with, an organization's overall strategy. Ifa company’s focus changes, the information system architecture should then be changed for upgraded to facilitate the new supply chain strategy. Setting strategy is the subject of Module 1, Section A, “Develop the Supply Chain Strategy,” and includes decisions on competitive basis, core competencies, value proposition, and soon. “The information strategy translates the organization’ strategy into commnitments to treat information systems as strategic investments, and ‘sets guiding principles, priorities, and common goals for network design. ‘The results ofthe information strategy are reflected ina high-level en: tovend vision ofthe information system structure. Similarly, the tetended supply chain strategy Is ranslated into a strategic vision for the extended supply chain. A gap analysis is performed with key willing partners to compare the existing systems of supply chain partners with ‘what is envisioned, anda model fr the extended enterprise is developed in consultation with partners to resolve existing gaps. ‘Acase study involving a razor blade manufacturer wil illustrate this Stage and each of the remaining stages of supply chain network design. Case study: Generic razor blade manufacturer azex is a fictional) razor blade manufacturer that supplies major retailers with generic shaving products, so Razex’s strategy isto be the lowest cost provider in the marketplace. Razex has currently completed internal department optimizations and intends to develop integrated planning and sales & operations planning (SOP) and other brganizationwide endeavors, Therefore itis at Stage 2 of supply chain development and wants ta reach Stage 3, the integrated enterprise. However, its five-year strategy includes steps that will eventually help the organization reach Stage 4, the extended enterprise. Ithas three ‘major goals for its supply chain strategy: ‘+ Efficient (lean). Manage costs and increase productivity and value ‘using lean philosophy. To meet this goal, its vision of an end-to-end supply chain information system Is one thatretalns only those processes that customers perceive as valuable and can be changed in response to continuous improvements. Part ofthis lean effort will include developing demand management and S&OP functions to Ta66 ‘erin 4, 2006 aonBSITEEESASASE LEAL S PERSIST PEST Eo G Information content definition Szo1e Ame Aras ose ton Design the Supply Chain ensure the organization as a whole is ean, It will realign department ‘management incentives to encourage internal collaboration, ‘Responsive. Manage demand variability by belng flexible in, ‘supply. To meet this goal, its information system should adapt to changes in customer demand for products or services by providing ‘operations management, demand management, S&OP, outsourcing, and flexibility to alter supply chains. ‘¢ Customer-focused. Transform from a push toa demand-pall system. To meet this goal, its system should supply long-term competitive differentiation by actively responding to actual demand and keeping retailers as ifetime customers. Razex ets each goal asa sequential phase in a five-year strategy. Its intial information infrastructure investments must be capable of eventually achieving all ofthese goals. It starts working with its steet and plastic suppliers on point-to-point planning integration as well as ‘with ts retailers to agree on information infrastructure investments and overall strategy. Since they are starting with only transactional Interactions with suppliers and corporate customers, thelr first steps are relationship building steps such as meetings and plant tours between executives and key contacts. These meetings generate mutual Interest for closer partnerships. Several key suppliers and customers agree to develop thelr own long-term strategies for laser integration and data sharing. Even though the organization is not yetinternally +eady for fll external integration, it plants the seeds for closer integration now so that their potential collaboration partners alsa hhave time to grow. Information content definition involves making decisions on what data needs to be collected, how it willbe collected, how its accuracy will be, maintained, and how It willbe stored, accessed, controlled, and analyzed, For the extended supply chain it involves business modeling, which maps ‘out the dynamics and interactions of each supply chain partner. Extended supply chain business modeling includes decisions such as what market segments are being targeted, how performance will be measured, how profits will be shared among partners, and how products will be distributed. Supply chain infrastructure is evaluated based on these decisions; this includes determining ‘+ The appropriate number of facilities (warehouses, plants) + The size and location ofeach facilityedule 3: Supply Chin Desir ‘Module 3: SupplyOhein Desi Information poticies ‘and controls ‘ea0ibancs ‘4 Theallocation of space for products within the feilty 4 Sourcing requirements ‘Distribution strategies. “These decisions will be addressed in greater detall later in these materials formation polices and controls are the agreed-upon methods to be ‘used in information infrastructure design, daly operations, and ‘continual Improvement initiatives to ensure thatthe organization's data and software systems perform as expected. Information systems ‘use data and cost collection to see ithe supply chain isan efficient ‘channel for product or service distribution. Controls provide oversight against system misuse and assist with auditing, Governance of information systems and policy compliance will require training and ongoing management support. For the extended supply chain the issue ison enabling the desired level of communications and security. Collaboration between partners involves coming to agreements on how networking and data sharing ‘will occur by settling on common information policies, work processes, and the roles of partners in establishing data repositories land communications methods. Plans should he designed t0 be reviewed and adapted as situations change. case study azex sets policies and controls to support each ofits systems goals: 4+ Efficient, Create comprehensive data integrity polices and train users. Pursue policies to promote systemwide cost savings over ‘suboptimization, Ensure feedback is used to improve SOP ‘processes Use Six Sigma to ensure process quality. Follow industry Standard processes whenever possible. Identify bottlenecks such as batch and queue processing. 1+ Responsive (and resilient). Integrate information system policies with risk management polices so systems can quickly respond! to ‘changes in business risks. Set policies to promote information visibility and velocity, which should reduce supply chain variability, Create a policy exception process for emergencies to ‘add resilience + Customer-focused. Develop information policies that require timely analysis and response to actual customer demand signals from specified business units and partners. @ aoePSSSRREAS IIIT TITERS aD ‘Section 8: Design the Supply Chain Information Infrastructure design Databases, networks, software, {and configuration ‘e216 trgntsresevod For extended supply chain business modeling, the organization plans to form a collaboration committee once its internal SOP processes arein place. The collaboration committee will start by pursuing ‘external lean objectives among willing suppliers and customers. The long-term strategy isto agree on incentives and penalties that are aligned with the organization's systemwide process cost minimization strategy, including profit sharing, department manager performance measurements, and scorecards. Inomaton nrroucur dein ioltecernninghow 9 See ae eee een ties corde aie das lees teerasr one a hierar naa een epee aan ciaiendeaiar Caco rutile raises eis te ara Maree Wi foes 0 we Sa ee aaa oa Gane Sateen Lene, ee ae een uaa Inaude how wleveape cing syne aps he co and Sena a eateg webu arcane aang replecng nite alinmena acinomae nes ee Specific decisions on databases, networks, software, and configuration are made following design approval, including use of existing systems, decisions to upgrade or add technologies, specific vendor search and selection ee Decisions on databases and database management systems (DBMS) ave critical tothe ability ofthe organization to maintain integrity, availabilty, and usefulness of data for decision making, Data for extended supply chains must allow fait access while remaining synchronized, Depending on how databases are designed, dhey can enable or hinder internal and external integration and external collaboration. Quality data repositories can bea true source of competitive advantage. Poor data can cause users to distrust and discredit otherwise useful sofware systems. Similarly, networking, sofware cholces, and configuration decisions, ‘should be selected to fulfill business requirements while providing a positive ROL, a leet| | | Module 1: Supply Chain Design Information infrastructure change Action plan, schedule, and prioritization ‘ea0ib anes ‘args esr Case study Razex pursues lean philosophies in its information infrastructure design and finds that ithas some internal database consolidation to do. Iecurrently has an enterprise resources planning (ERP) system database, a customer relationship management (CRM) database, and databases for other systems. It develops a plan with a database vendor ‘to consolidate the information in these databases, cleanse and validate data, and once these steps are complete, to improve data sharing ability among external partners using spectal distributed servers (loud computing), web services, and service-oriented architecture (SOA), This will leave its information architecture poised to pursue its later goals of being responsive and customer-focused. For extended supply chain process modeling it pursues lean by ‘mapping the end-to-end processes internally and plans to repeat the ‘process for all supply chain partners. When this process occurs, the collaboration committee finds a number of redundancies. Some of ‘these redundancies are eliminated by one partner agreeing to take responsibility for the process. Also, one supplier also agrees to make ‘upgrades so that it will be able to communicate using web services and SOA. Razex also promises ts primary retaller to adopt radio-frequency Identification (RFID) at the pallet and case level as part oftheir agreement to use vendor managed inventory (VMI) tthe software level, Razex decides to upgrade its ERP system toa ‘newer version and install an advanced planning and scheduling (APS) system atthe same time. When this is complete, they and their partners agree to subscribe to supply chain event management {(SCED), warehouse and transportation management systems (WMS and TMS) available a software-as-a-service (SaaS, le, leased software) to speed up their goals to be responsive and customer- Focused. These technologies are the subject of Chapter 3 in this section Supply chain network design should include plans for continual system change and improvement for the internal and extended supply networks, For more information, see Modul’3, Section C, Chapter 3, “Continuous Improvement and Change Management. ‘The results of regular strategy upliate sessions, tactical system improvement sessions, and operational gap analyses should result in IT action plans and extended supply chain IT action plans. These plans should prioritize development efforts and expenditures, create projects and tasks, and Include feedback mechanisms to assess project success, yao ~=~=~SCSS~S~S~*CU 4, Dn QcASST E ERAS IATA Te Network configuration ‘S208 wes ‘Ags ese ‘Section B: Design the Supply Chain case study Razex used its supply network technologies frst to keep its costs low enough to stay profitable despite continual cost pressure from the stores that place their names on its generic products, It worked hard to ‘overcome resistance to internally integrated planning by emphasizing {formal communications channels in addition to its technology ‘improvements to drive this integration. ts continual improvements relate to becoming more responsive and ‘customer-focused. For example, it found that it could leverage the SaaS networkit contracted with to supply ts WMS and TMS. Itused this, network to create new supply chains by finding new material and transportation suppliers quickly on the SaaS network. It worked to ‘create the capabilites to accept automated bids on some supply ‘contracts, Supply chain network configuration isa complex strategic decision that concerns the comprehensive organization of suppliers, production factories, distribution centers, and manufacturing resources. Supply ‘chains should be configured to reflect customers’ needs as well as ‘tading partners’ capacities. Among the many considerations to be factored into the optimal network configuration are ‘+ Number, location, and capacity of warehouses ‘Location of plants and production levels for each product ‘Transportation between all facilites: plant to warehouse, warehouse to retaller or customer. Planning network that provides an optimal retura on all investments requires long-term, strategic thinking, Each decision must be weighed based on its impact on the entire supply chain, not only onthe siagle matter under consideration, Adding to the number of warehouses, for example, may have the benefit of putting goods closer to the customer and thus reducing, delivery time. As possible negative consequence, however, increasing ‘the number of warehouses may add to total inventory and increase the square feet of warehouse space necessary to store.a given amount of ‘goods. Up to a pola, putting goods closer to retall outlets or within ‘customer shipping zones tends to benefit the supply chain by reducing ‘transportation costs. However, transportation costs are a function of| several variables, including total distance between production facilities, warehouses, retall outlets, or customers; bulk discounts for transport; and types of transportation required. To salve the m QieerenieeModule: Supply Chain Dosen optimization problem for the entire network, supply chain managers i must rly upon the most powerful technology available to them. As supply chains grow in length and complexity, these facilities may be spread outamong numerous regions, countries, and continents. A variety of statistics demonstrate how global sourcing and offshore ‘manufacturing can reduce supply chain costs, Employing skilled labor ) at relatively low wage levels, establishing worldwide or regional i centers of competence near major specialized talent pools, savings on ‘materials, and finding new sources of supply are but afew possibilities. | ‘While global expansion is attractive, offshore expansion requires, sufficient due diligence to help ensure success. Specifically, from a logistics perspective, there are many issues related to getting business | done and getting a product shipped. This means being aware of local i infrastructure issues inthe country belng evaluated, as summarized in Exhbit 1-35. Exhibit 4.35: Infrastructure Considerations in Global Expansion Issue (Considerations Prt facties, airport “Specie dete on tho size and qualtyof por facies and airports Fighway sondions “The size and condition of ads #8 wol asthe extent ofthe highway systom [Raines “The avalabilty of routes that will minimize any delay ere ree ‘Sous APCS Gla Sourng Worshoy Sees “The condition and capacity of port facilites, airports, and roads can be major factors in geting goods and supplies shipped reliably and on a timely basis. Different rail track gauges and capacity issues can adversely affect ead times. Additionally, erossing borders involves high volumes of paperwork. : Inventory, Technology, and Metrics Design Topic | ‘This topic briefly addresses design for inventory locations, inventory levels, technology, and metrics. Since there isan entire chapter devoted to inventory management inthe next module, technology is addressed {ndetall in the next chapter, and specific metrics are discussed further in Module 3. Soares i ora 208 en snot canon Q mene ae aMeee eT UU U LULU UUR Inventory location and levels ‘Supply chain technology SCOR model Szm1e APES ‘rts ose ‘Section 8: Design the Supply Chin In addition to determining the number and location of warehouses, supply chain managers in manufacturing enterprises must also consider the stocking of warehouses with an optimal level ofthe right kinds of inventory as they design the supply chain. Managers must establish transportation links that ensure timely arrival at, and departure from, warehouses. In the ideal network, raw materials, components, and resources might never beat rest ina warehouse. Instead, they would always be in motion until arriving justin time, at each location long the chain. One reason this ideal state is ficult to achieve is the uctuation in demand that occurs all along the supply chain, boginning withthe ultimate customer: Unpredictable demand, along with other factors such as accidents and adverse weather conditions, means that maintaining some levels of inventory at various locations along the chain is generally necessary. The supply chain manager's challenge is gauging future demand as accurately as possible and keeping invent af BE lite winoucdlropons a delvery case In Module 2, you wil earn more about planning and controlling inventories, the related cost categories, how inventory impacts an organization's financial statements, and inventory management and contro. Since technology has hecome such a powerful force that can extend supply ‘chain visibility across multiple tiers while providing world-shrinking. gnc. y4V velocity tt sa critical aspect of the design In addition to thé technology architecture decisions already discussed, some important considerations in this area include '¢ Determining how frequently data should be wansferred and analyzed + Deciding how data will be analyzed and used ‘Determining the impact ofthe internet and e-commerce Designing and setting up infrastructure internally and between supply chain partners ‘+ Integrating I and decision support systems into competitive strategy. ‘Technology isthe subject ofthe next chapter inthis section, You get what you measure, When designing metrics itis important to encourage people to improve what you measure amt'encourage people to ‘ignore or depriortize what vau falta measure.iThe second part ofthis statement references the unintended consequences lurking behind the statement “you get what you measure.” To ensure bustitesses are getting the results they want while nidnimizing unintended consequences, onganizations often turn to well-established process-oriented measurement ‘models because they are thorough yet not overly complex or cumbersome, Tad moA a @ ecoModule 1: Supply Chain Design | the elective wisdom of years of fel-bsed prac and provides i ' unique framework that links business processes, metrics, best practices, ‘The SCOR models used by APICS SCC members to enhance thelr understanding oftheir supply chains and assoclated processes and to improve their supply chain management systems and practices. APICS SCC membership i open tall interested corporations, nonprofit organizations, government and military agencies, consultants, and academicians. The model has been developed and refined by dozens of tnajor companies and applied in initiatives available to APICS Supply Chain Counc membersas case studies The APICS SCC carefully defines the boundaries within which the SCOR process model applies. Specifically, it does not apply to all business processes, only to those involved in the supply chain as the chain extends two tiers in both directions from the company atthe core. This is shown in Exhibit 1-36, Exhibit 4-36: Supply Chain Operations Reference (SCOR®) Model

Quality {+ “Information technology (IT) ‘+ Administration (other than supply chain management administration) Sauer SSS Vernon 4, 2048 Elon ‘Mg ome QD renee enn etoMode: Supply Chain Design “The SCOR model was developed specifically to measure cross- functional, eross-company supply chain processes. Itincludes metrics to calculate numerical values for performance attributes, and ths, allows it tobe used to compare performance against industry-best oF best-in-class performance as well as againsta company’s own previous performance and future goals. | Level-1 SCOR metrics. “To measure performance, the APICS SCC has developed a system of metrics. We're limiting the discussion here to Level-1 metrics, the highest level. This provides a taste of the SCOR measurement system, ‘but beyond Level are several deeper levels with hundreds of more: I) “specific related measurements, The Level-1 metrics explained here are rotted tothe specific SCOR processes in the plan, source, make, deliver, return, and enable model. Instead, they may cut across multiple ‘SCOR processes. Exhibit 1-37 on the next page identifies the Level-1 metrics inthe right- hand column. nthe left-hand and middle columns, it names and explains the supply chain performance attribute measured by each metre ‘These attributes include ‘© Supply chain reliability, which is defined asthe percentage of orders that are filled perfectly (on time, no damage, etc). Ifyour customer orders 1,000 SKUs and they all show up a the designated facility on time, undamaged, and completely documented and packaged, you've delivered a perfect order. ‘+ Supply chain responsiveness, which refers to the amount of time i required to complete a delivery. Reliability and responsiveness are customer-facing’ qualities ofthe chain and are appropriate to measure and, ifnecessary, improve ifthe overall strategy focuses on customer loyalty. . 4 Supply chain agility, which refers to the supply chain's ability to respond to unplanned orders in larger amounts (or smaller ‘amounts than expected or earlier than expected. Agility metrics, face both inward to the chain and outto the customer. ‘+ Supply chain costs and supply chain asset management, which bring the overall assessment down to earth with measures of financial effectiveness and profitability. These metrics are useful ifthe strategy focuses on financial returns “e086 Amr 1296 ‘Version 4.0, 2016 Elton ‘gs eserves Qn een reiome manne= — — = = = — -< = = —_ — =< - — 2 —_ — == —_ == — = _ —_ ed _ —_ _ —_ = _ — _ _ —_ — _ = = : Performance ‘atte Section B: Design the Supply Chain Exhibit 37: SCOR 440 Performance Attributes and Metrics Level Metee ‘Supply chain relay ‘Tha performance of he supply chain in| Perfect order amen dalvring the comect produc, othe ‘orect pace, athe correct tin, inthe correct condion and packaging inthe ‘correct quanti, wih the correct ecumentaton othe cect customer ‘Supoly chain “The speed at which a supply chain (Order fitment cyte tine provides products to tho customer ‘Supply chain ‘aly, ‘The abiliy ofa supply chain to respond to | Upside supply chain xiiiy ‘marketplace changes to galn or maintsin | Upside auppy chain adaptabily coreetiry sive Dounsie supply chain adaptabtty (Overall value at sk ‘Supply chain costs “The costs associated with operating the supply chain Total cos to serve ‘Supply hain ect ‘management oe ee Meworocaoneaoone” | eterna not nt Strasser a | Remon ap on _all assets: fixed and working capital irate Once the supply chain hasa percentage score for particular metric tcan then conduct research to determine its ranking among relevant organizations and decide whether to undertake an improvement initiative. {he ssecvon oftetics depends upon the supply chain strata here requirement that all Level-1 metrics have to be applied simafaneously. In fact, the opposite is more likely tobe true. Since the metrics are intended tw apply across boundaries, any initiative will require thorough explanation atthe very least to all those managers affected inthe different functional areas and companies. Improving supply chain responsiveness, for example, might involve multiple suppliers, altered production processes, even product redesign to achieve the ability to put more product into customers’ hhands on short notice or to get the product there fster. ‘To achieve greater overall velocity might require that one linkin the chain actually underperform in the interest of boosting performance elsewhere, Shipping might have to rely on more expensive transportation, for example. ‘These tradeoffs have to be carefully negotiated with those involved, and ‘rewards may have tobe shared in such a way that the interest of each stakeholder is brought into alignment with that ofthe averall enterprise, Strong leadership from above is paramount. pilot project is helpful ifit ory ‘anes econo 97 ‘eran 80,2036 Eaton Qe rer mera cen ntModule 1: Sunpty Chan Desi ———— starts at the most manageable level and has a good chance of quick success. “Applying one metric across two or three supply chain partners is not too ‘modest a project. Remember that underlying the Level-1 metrics are further levels of metries to provide guidance that is more specific and more complex. You will learn more about the specific definitions of the Level-L metrics along with their formulas in Module 3 ‘Topic 3: Fulfillment Strategies Considering Market Requirements Balancing efficiency with responsiveness Dtrghisresenes Organizations often need to balance efficiency (least-cost manufacturing and ‘supply chain) with responsiveness (ability to be flexible in response to changing demand), Since flexibility comes with a cost for example, redundant capacity or equipment that can be changed over for other products, one cannot generally maximize both ofthese objectives ‘Simultaneously. One also cannot ignore either ofthese factors entirely, An ‘organization that chooses ta compete on low cost will maximize efficiency, put will sil need some amount of responsiveness to mitigate demand risk. ‘An organization that is adaptable to large fuctuations in demand or to ‘disruptions. the supply chain will still need some efficiency orit will o out of business. Organizations that serve markets with relatively stable demand and that ean forecast with reasonable accuracy tend to focus primarily on efficiency and ray select a make-to-stock manufacturing strategy (goods are produced and held in warehouse retail locations before customer orders are placed). Organizations that serve markets with more volatile demand and uncertain forecasting need to focus on responsiveness so they can adapt quickly to changes. These organizations tend toward make-to-order manufacturing Strategies (goods are manufactured only ater customer orders are placed) if sales volume is low or assemble-to-order manufacturing strategies (Product components or modules are produced based on forecasts and are assembled ‘when customer orders are placed) ifsales volume is high ‘As supply chalns strive to imprave their performance based on the metrics that are important to their key audiences, they should also be evaluating their abilty to strike the right balance between efficiency and responsive: ness. A supply chain should identify the appropriate level of service, Level of service is defined by the APICS Dictionary, 14th edition, as aoe (usually expressed as a percentage) of satisfying demand Fr al ety amren penionsae tne or suse ay Sarandon ean 0, 2018 ation @ rmemerane nett