The Role Of Effectiveness &

Efficiency in Supply Chain

Optimization

JOHAN K. RUNTUK, ST, MT.

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Agenda

 Basic Concepts of SCM

 SC Performance Measures & Metrics
 Effectiveness & Efficiency in SC
 Conclusion

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Basic Concepts of SCM

 Supply chain: all stages involved, directly or

indirectly, in fulfilling a customer request
 Includes manufacturers, suppliers, transporters,
warehouses, retailers, and c ustomers
 Within each company, the supply chain includes all
functions involved in fulfilling a customer request
(product development, marketing, operations,
distribution, finance, c ustomer service)

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 Basic Concepts of SCM

 Supply chain stages

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 Basic Concepts of SCM

 Stages of a detergent supply

chain

Source:Chopra & Meindl (2016)

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Basic Concepts of SCM

 The objective of a supply chain is to maximize

overall value created
 SC Surplus =Customer Value –SC Costs
 Effective SCM is the management of flows
between and among supply chain stages to
maximize total supply chain surplus

supply chain optimization

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SC Performance Measures & Metrics

 Finance & Cost Performance

 Sustainable Performance
 Order Planning
 SC Collaboration
 Operational Performance
 Delivery Performance
 Customer Service & Satisfaction

Source:Chand, et.al. (2020)

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SC Performance Measures & Metrics
 Finance & Cost Performance
 manufacturing cost, warehouse cost, ROA, ROI, etc.
 Sustainable Performance
 energy used per unit product, resource consumption per
unit product, emission and waste, etc.
 Order Planning
 customer order processing time, planning process cycle
time, demand variability, etc.
 SC Collaboration
 supplier delivery performance, collaborative planning,
strategic costing, supplier engagement, etc.

Source:Chand, et.al. (2020)

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SC Performance Measures & Metrics
 Operational Performance
 percentage of defects, adherence to manufacturing
schedule, capacity utilization, etc.
 Delivery Performance
 Quality of delivery infrastructure, reliability and
repeatability of delivery, On-time delivery of goods,
etc.
 Customer Service & Satisfaction
 the flexibility of service systems to meet c ustomer
needs, Level of c ustomer perceived value, Level of
customer service by competitors, etc.

Source:Chand, et.al. (2020)

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 Effectiveness & Efficiency in SC

 Effective: do the right things  Effic ient: do things right

 Accomplish a purpose  Performing in the
 Focus on the outputs best possible
manner
 Focus on the inputs

SC Effectiveness
SC Efficiency
Meeting the expectations
Meeting the goals for cost
and demands of investors,
savings, process optimization,
customers, and suppliers
etc
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Effectiveness & Efficiency in SC

 The responsiveness spectrum

Source:Chopra & Meindl (2016)

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Effectiveness & Efficiency in SC
 Finding the zone of strategic fit

Source:Chopra & Meindl (2016)

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Effectiveness & Efficiency in SC
Efficient Supply Chains Responsive Supply Chains

Primary goal Supply demand at the lowest cost Respond quickly to demand

Create modularity to
Product design Maximize performance at a
allow postponement of
strategy minimum product cost
product differentiation
Lower margins because price is Higher margins because price is
Pricing strategy
a prime customer driver not a prime customer driver
Manufacturing Maintain capacity flexibility to
Lower costs through high utilization
strategy buffer against demand/supply
uncertainty
Maintain buffer inventory to
Inventory Minimize inventory to lower cost
deal with demand/supply
strategy
uncertainty
Lead-time Reduce, but not at the expense of Reduce aggressively, even if the
strategy costs costs are significant

Select based on speed,

Supplier strategy Select based on cost and quality
flexibility, reliability, and
quality
Source:Chopra & Meindl (2016)
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Effectiveness & Efficiency in SC
SC Decision Making Framework

Source:Chopra & Meindl (2016)

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Conclusion

 The supply chain manager must identify the

performance and c ritical metrics that are
appropriate for the company
 The role of performance metrics is the feedback in
one’s supply chain
 Every system or organism uses feedback for
continuous learning and adaptation
 Monitoring metrics reveals the gap between plan and
execution and helps to identify and correct potential
problems and issues

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Conclusion

 Effectiveness and efficiency are the key drivers

for a supply chain optimization
 The supply chain strategy determines how the
supply chain should perform with respect to
efficiency and responsiveness

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 Thank You
PRODUCTIVITY ACADEMY

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