Module 3: Supply Chain Improvement and Best Practices

MODULE 3: SUPPLY CHAIN
IMPROVEMENT
AND BEST PRACTICES
▪ Section C: Measure, Analyze,

and Improve the Supply
Chain
Section C
Section C Introduction
Key Processes for Section C:
▪ Gathering performance data
▪ Analyzing performance
▪ Improving performance
Module 3, Section C ■ 2 © 2020 APICS Confidential and Proprietary

CHAPTER 1: SUPPLY CHAIN
METRICS
Topic 1: Supply Chain Strategy and Metrics Selection
Relationship Between Strategy and Metrics
Strategy Metrics
No matter what strategy is being tracked and

measured, meaningful metrics are essential
because “you get what you measure.”
Module 3, Section C, Chapter 1 ■ 4 © 2020 APICS Confidential and Proprietary
Topic 2: Customer and Financial Metrics
Customer-Focused Metrics
Attribute Metric
• Stockout frequency
• Fill rate
Availability
• Orders shipped complete
• Backorders
• Speed of performance
• Supply chain cycle time
Time needed to deliver
• Delivery consistency
customer order
• Flexibility
• Malfunction recovery
• Response time to inquiries
Product support • Response accuracy
• Customer complaints
• Repeat purchases
Overall satisfaction
• Referrals to other potential customers

Topic 2: Customer and Financial Metrics
Supply Chain Financial Metrics

Supply chain management cost reduction and efficiency efforts
Supply chain profit
impact profit.
Supply chain Cost areas include order processing, inventory, transportation,

cost warehousing and materials handling, and facility network integration.
Supply chain An aggregation of the costs of all organizations that participate in a

total cost given supply chain.
Cash-to- cash cycle

time How well an organization is managing its saleable assets.
Altman A combination of four or five weighted ratios to measure bankruptcy

Z-score risk.
Customer The goal of monitoring customer creditworthiness is to ensure that

creditworthiness invoices are paid on time.

Topic 3: Operational Metrics
Operational Metrics
How well are day-to-day
operations functioning?
PRODUCTIVITY
ASSET MGMT
QUALITY
• Accuracy • Output of • Ability of

• Manufacturing production organization to
goods to • Resource maximize its
quality inputs used as operational
standards efficiently and assets
• Avoidance of effectively as • Primary
damage to possible concerns are
goods inventory and
facility capacity

CHAPTER 2: MEASURING
PERFORMANCE AND CUSTOMER
SERVICE
Topic 1: Measuring and Communicating Performance
Measuring Performance
Internal measurement benefits Performance measures
Reporting to
 Objective, consistent, and
Control of quantified
managers and
processes and
external
employees
sources  Measure at least 2
parameters (e.g., quality,
Communication Learning and time)
of expectations continuous  Set targets to gauge
and problems improvement
relative success
 Customize

Balanced Scorecard (BSC)

Customer Perspective Innovation & Learning Perspective
Goal Measure Target Actual Goal Measure Target Actual
Present performance, future prospects Training and product development
Business Process Perspective Financial Perspective

Goal Measure Target Actual Goal Measure Target Actual
Productivity, prospecting, flexibility, etc. Traditional, historical only, necessary

Key Elements in a Balanced Scorecard (BSC) Initiative
Communicate strategic purpose of scorecard

to partners.
Develop goals and measures consistent with

internal and SC strategies.
Create schedules and assign responsibilities.

Custom Scorecard for a 3PL (Service Quality)

Category Target Jan Feb
ASN Compliance
% Shipments Received Without ASN: Supplier A 0% 100% 100%
% Shipments Received Without ASN: Supplier B 0% 50% 50%
Inventory Count
# of Parts Physically Counted — 28 28
Inventory Accuracy Based on Physical Count 100% 80% 85%

Performance Metrics
Average actual is
about 50%, target
is 5%, so:
• Review
measurement
and target to see
if accurate and
feasible
• Mandate
supplier process
correction and/or
set more realistic
target.

Topic 2: SCOR Performance Measures
SCOR® SC Operations Reference Model

Level 1 SCOR Management Processes

Plan Demand/supply plans for operating SC: gather requirements, collect
resource data, balance requirements and resources to find capabilities
and gaps
Source Ordering (scheduling) and receipt of incoming goods and services: POs,
schedule, receive, validate, store, and accept invoice
Conversion of materials/creation of service content: assembly,
Make
maintenance, repair, etc. (1+ items go in → 1+ different items come
out)
Deliver Creation, maintenance, and fulfillment of customer orders: validate
receipt; create order; schedule delivery; pick, pack, ship; and invoice
Return Reverse flow of goods: identify need, ship, and return (does
not include repair, recycling, or refurbishment)
Establish, maintain/monitor information, relationships, resources,
Enable assets, business rules, compliance and contracts required to operate
the supply chain
SCOR Level 2 Process Types
Process Type Description

Planning • Balance aggregated demand and supply
Aligns expected resources • Generally occur at regular, periodic intervals
to meet expected demand • Consider consistent planning horizon
requirements • Can contribute to SC response time
Execution • Generally involve:
Process triggered by Scheduling/ Transforming Moving product
planned or actual demand sequencing product to next process
that changes state of
• Can contribute to order fulfillment cycle time
materials

Possible Capabilities in the Execution Process

Driven by Driven by Driven by
inventory customer customer
(plan) orders requirements
Standard Configurable Sourcing new
Make-to-order
Engineer-to-order
Make-to-stock
material orders materials materials

High fill rate, Longer turn- Longest lead
short turn- around times times, low fill
around rates

Levels of Process Details in SCOR

• Scope, high-level configuration
Level 1 • Plan, source, make, deliver, return,
enable
Level 2 • Differentiates Level 1 strategies

• Make-to-stock, make-to-order…
• Steps to execute Level 2, sequence
Level 3 influences process performance
• Schedule production, issue product…
• Organizations and industries develop
Level 4 own Level 4 processes
• Print pick list, pick items (bin)…
*Use of bold text indicates a running example per level.

SCOR 12.0 Performance Attributes and Metrics

Performance Performance Attribute Level 1
Attribute Definition Metric
Supply chain Correct product, place, time, condition, packaging, quantity, Perfect order fulfillment
reliability documentation, and customer
Supply chain Speed at which SC provides products to customer Order fulfillment cycle time
responsiveness
Supply chain Ability of SC to respond to marketplace changes to gain or Upside SC adaptability
agility maintain competitive advantage Downside SC adaptability
Overall value at risk
Supply chain Costs associated with operating supply chain Total supply chain
costs management cost
Cost of goods sold
Supply chain Effectiveness in managing assets to support demand Cash-to-cash cycle time
asset satisfaction; includes fixed assets and working capital Return on SC fixed assets
management Return on working capital

Supply Chain Reliability and Responsiveness
SCOR Level Definition Calculation

1 Metric
Perfect Percentage of orders meeting

Reliability
delivery performance with Total Perfect Orders

order
fulfillment complete and accurate Total Number of Orders
documentation and no
delivery damage.
Order Average speed at which
Responsiveness
fulfillment the supply chain delivers

cycle time products to customers. Order Fulfillment Process Time
+
Cycle time is the sum of
process time and dwell Order Fulfillment Dwell Time
time.

Supply Chain Agility

SCORLevel
SCOR Level1 Metric Definition
Definition Calculation
Calculation
1 Metric
Upside SC adaptability Amount of increased Largest sustainable
production an quantity increase
organization can achieve considering source,
and sustain in 30 days make, and deliver
components
Downside SC Amount of decreased Least reduction
adaptability production an sustainable when
organization can achieve considering source,
and sustain in 30 days make, deliver, and return
components
Overall value at risk Evaluation of SC agility Sum of the SC’s values
(VAR) based on at risk
selected performance
measures
Supply Chain Costs (Financial Metrics)

SCOR Level 1 Definition Calculation
Metric
The sole metric at Level TSCMC = Sales – Profits

Total supply
chain 1 for measuring the costs – Cost to Serve
management of operating the supply
cost chain
(TSCMC)
Time required for an

Cash-to-cash invest- Days of Sales Outstanding +
cycle time ment in raw materials to Inventory Days of Supply –
flow back in an Days of Payables Outstanding
organization

Supply Chain Asset Management

SCOR Level 1 Definition Calculation
Metric
Return an organization
Return on receives on capital invested in
(SC Revenue – COGS – SC Management Costs)
SC fixed supply chain fixed assets used
assets SC Fixed Assets
in plan, source, make, deliver,
and return activities
Return on Magnitude of an investment

relative to a company’s working (SC Revenue – COGS – SC Management Costs)
working
capital position versus the
capital revenue generated from an SC (Inventory + A/R – A/P)

Topic 3: Measuring Operational and Financial Performance
Key Operational Measurements

▪ % MPS completed as scheduled
▪ # of time fence violations
▪ Standard vs. actual production yield
▪ Quality metrics
▪ Inventory turnover by raw material turns, WIP turns,
etc.

Topic 4: Measuring Customer Service Levels
Measures of Customer Service Levels

▪ Is cost of achieving a given ▪ Lead time monitoring
service level a sound – Speed of performance
investment? – Consistency
▪ Fill rates: – Flexibility
– Unit fill rate – Malfunction recovery
– Line item fill rate ▪ Order status reporting
– Monetary value fill rate ▪ Customer satisfaction
▪ Stockout frequency – Establish, then fulfill
expectations.

CHAPTER 3: CONTINUOUS
IMPROVEMENT AND CHANGE
MANAGEMENT
Topic 1: Continuous Improvement
Continuous Improvement Model

Reasons to Adopt Continuous Improvement

Supply chain management is process-oriented.
Basic units of P1b P2b P3b P4b P5b Pnb
SC are process P1a P2a P3a P4a P5a Pna
flows.
P1 P2 P3 P4 P5 Pn
Raw
Suppliers Producers Distributors Retailers End users
materials
Supply chains are dynamic.
Supply chains evolve.
Continuous improvement of supply chain design can reduce
the costs of poor quality.
Appraisal
Internal failure Costs of poor quality External failure
Prevention
Improvement Initiatives
Personnel Improvement Process Improvement
Initiatives Initiatives
▪ Developing knowledge, ▪ Can’t measure all possible

skills and abilities. objectives.
▪ Consider individual learning ▪ Choose reasonable number
styles: visual, tactile, and of KPIs.
auditory. ▪ Consider balanced
scorecard™ and SCOR®
KPIs.

Key Performance Indicators (KPIs)*
KPIs for Product KPIs for Merchandising KPIs for

Introductions Products Replenishment
Internal failure rate Market share Order fill rate
External failure rate Volume growth On-time delivery
Introduction lead Total SC inventory Order fulfillment

time turns (across chain) lead time
*Apply KPIs only to processes and activities based on

corporate and supply chain strategies.

Visibility and Analysis

“You can’t fix what you can’t see.”
Shared Shared
supplier customer
data data
“Facts Are Your Friends”

Topic 2: Continuous Improvement Tools
Goals and Benchmarking
Definition: Setting goals by comparison to another

entity or authoritative definition of excellence
Competitive Best-in-Class Process

Benchmarking Benchmarking Benchmarking
Setting goals by Setting goals by Setting process goals

reference to a reference to the best by reference to an
competitor performer authoritative process
description

Seven Basic Tools of Quality
Process Map


Control Chart
▪ Makes variance visible
▪ Statistical process control
▪ Contains samples from sequences
▪ Reveals spikes indicating process control problems
▪ Examples
– Component measurement
conformance
– Wait time for service
– Percentage of event
occurrence


Pareto Chart Cause-and-Effect Diagram


Check Sheet
Histogram
Scatter Chart

Seven New Tools

Affinity Diagram
Tree Diagram

Seven New Tools

Matrix Diagram
Specification Customer A Customer B Customer C
Width ≤.789 inch ≤.790 inch ≤.785 inch
Length ≤1.11 inch ≤1.20 inch ≤1.01 inch
Thickness ≤.55 inch ≤.575 inch ≤.545 inch
Color (Pantone) #127 #130 #129
Process Decision Program Chart

Seven New Tools

Relationship
Diagram

Seven New Tools

Matrix Data
Analysis Chart
Activity Network Diagram

3 days 2 days 3 days 1 day
Dog house Order and Build walls Assemble Dog house
Build base
design receive and roof components completed
selected
Order paint Paint walls

Concurrent tasks
1 day 2 days
CHAPTER 4:
LEAN AND JUST-IN-TIME
Topic 1: Continuous Improvement Approaches
Types of Waste
Waste:
• Any activity that adds no value in eyes of customer
• Byproduct of process or task needing special control
Type Description
Process Taking unneeded steps in work; inefficiencies
Movement (transportation) Moving products unnecessarily
Methods (motion) Wasted time or efforts by operators
Product defects Products/services that do not meet specifications
Waiting time Queuing delays
Overproduction Making more product than required
Excess inventory Holding stock not required to fulfill customer orders
Unused people skills Waste of knowledge or capabilities

Lean Supply Chain Thinking

Lean Objectives Lean Principles
• Eliminate waste in value • Create value for the
streams. customer.
• Meet customer demand. • Identify all steps across a
• Increase velocity. value stream.
• Reduce need for working • Create value flow.
capital. • Pull products based upon
• Increase inventory turns. customer demand.
• Gain market share. • Strive for perfection by
continually removing
• Increase profitability.
successive layers of waste.
• Develop the workforce.
• Produce perfect quality.

House of Toyota

Additional Lean Considerations

Value stream Kaizen event/
Five Ss
mapping Kaizen blitz(sm)
• Map • Event • Sort (seiri)
– Steps for broad – Time-boxed • Simplify (set in
range of SC
processes
– Embed in long- order) (seiton)
term plans
– Management and • Scrub (seiso)
information • Blitz
systems • Standardize
– Rapid improve-
• Current vs. (seiketsu)
ment of limited
future state process area • Sustain
• Apply to shop – Implement in (shitsuke)
floor and week or less
administrative
Additional Lean Considerations (continued)
Setup time Total productive Three major

reduction maintenance areas of waste
• Major impact on • Preventive • Muda (consumes

cost and product maintenance. resources, creates
variety. • Efforts to adapt, no value).
• Reduction in time modify, or refine • Mura
and materials. equipment to: (unevenness).
– Increase flexibility • Muri (over-
– Reduce material burdening).
handling
– Promote
continuous flows.

Just-in-Time (JIT)
JIT elements JIT philosophy JIT benefits

1. Have inventory only • Eliminate all waste. • Cycle time reduction
when needed. • Strive for • Inventory reduction
2. Zero defects. continuous • Labor cost reduction
3. Reduce lead times productivity • Quality cost
(setup, queue, lot improvements. reduction
sizes). • Material cost
Applies to job shops,
4. Revise operations. process, repetitive. reduction
5. Strong supplier • Improved vendor
relations. relations
6. Multiskilled labor.
7. Cellular manufacturing.

Just-in-Time (JIT)
JIT basics
Waste Variability Pulling materials
reduction reduction Into production
Elements of JIT
Suppliers JIT layout Inventory reduction
• Deliver on time. • Minimize distances. • Everything must work
• No inspections. • Maximize flexibility. perfectly to have no safety
• Reduce inventory. stock.
Continuous job • Reduce setup times.
Scheduling improvement
• Level • Employee
• Kanban • Job
• Process
Topic 2: Other Continuous Improvement Philosophies
Six Sigma
Six Sigma
initiatives:
• Aim for “zero defects.”
• Tolerate no more than

3.4 defects per million
opportunities (99.9997%
of opportunities with no
defect).

Elements of Six Sigma
Customer Process Employee

• Customer • Take outside-in • Full participation.
expectations (customer) view • Implement from
define quality. of process. below.
• Multiple • Minimize total • Green belt, black
opportunities for errors and belt, master
defects in each variability. black belt.
interaction/item.

Five-Phase Six Sigma Process
D Define the nature of the problem.
M Measure existing performance; record information

about underlying causes.
A Analyze information to determine root causes of

problem.
I Improve process by effecting solutions to problem.
C Control process until solutions become ingrained.

Total Quality Management (TQM)

▪ Management approach to long-term success through
customer satisfaction.
▪ Guiding principles:
– Actions show management commitment.
– Fix processes rather than assigning blame.
– Place customer at center of improvement discussions.
– Suppliers are partners, not adversaries.
– Standard performance measures enable tracking over
time.

Theory of Constraints (TOC)

Any system, such as a supply chain or a production process,
contains at least one element (constraint) that limits its maximum
output.
Five-step TOC process:

1. Identify the constraint.
2. Exploit the constraint.
Drum
3. Subordinate other processes Rope
Buffer
to the constraint.
4. Elevate the constraint.
5. Repeat the cycle.

CHAPTER 5:
CHANGE MANAGEMENT
Topic 1: Change Management Considerations
Managing Change Develop master plan

and project plans.
Communicate
Monitor plans to all
and adjust. Taking participants.
Action
Conduct a
Address change pilot to build
management confidence.
issues.

Topic 2: Prepare for Change
Change Process
Step 1: Step 2: Step 3: Step 4:
Prepare Plan Execute Monitor
• Identify need. • Success • Rework • Lead and
• Set vision of criteria. organization manage.
the future. • Determine structures. • Monitor and
• Costs and areas to • Rework control.
benefits. change. workforce
• Develop plans. roles.
• Strengths and
weaknesses. • Ongoing
• Build management
consensus. plans.
• Build • Get approval
enthusiasm. and funding.

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MODULE 3: SUPPLY CHAIN

▪ Section C: Measure, Analyze,

Module 3, Section C ■ 2 © 2020 APICS Confidential and Proprietary

Relationship Between Strategy and Metrics

No matter what strategy is being tracked and

Module 3, Section C, Chapter 1 ■ 5 © 2020 APICS Confidential and Proprietary

Supply Chain Financial Metrics

Supply chain Cost areas include order processing, inventory, transportation,

Supply chain An aggregation of the costs of all organizations that participate in a

Cash-to- cash cycle

Altman A combination of four or five weighted ratios to measure bankruptcy

Customer The goal of monitoring customer creditworthiness is to ensure that

Module 3, Section C, Chapter 1 ■ 6 © 2020 APICS Confidential and Proprietary

• Accuracy • Output of • Ability of

Module 3, Section C, Chapter 1 ■ 7 © 2020 APICS Confidential and Proprietary

Module 3, Section C, Chapter 2 ■ 9 © 2020 APICS Confidential and Proprietary

Balanced Scorecard (BSC)

Present performance, future prospects Training and product development

Business Process Perspective Financial Perspective

Productivity, prospecting, flexibility, etc. Traditional, historical only, necessary

Module 3, Section C, Chapter 2 ■ 10 © 2020 APICS Confidential and Proprietary

Key Elements in a Balanced Scorecard (BSC) Initiative

Communicate strategic purpose of scorecard

Develop goals and measures consistent with

Create schedules and assign responsibilities.

Module 3, Section C, Chapter 2 ■ 11 © 2020 APICS Confidential and Proprietary

Custom Scorecard for a 3PL (Service Quality)

Module 3, Section C, Chapter 2 ■ 12 © 2020 APICS Confidential and Proprietary

Module 3, Section C, Chapter 2 ■ 13 © 2020 APICS Confidential and Proprietary

SCOR® SC Operations Reference Model

Module 3, Section C, Chapter 2 ■ 14 © 2020 APICS Confidential and Proprietary

Level 1 SCOR Management Processes

SCOR Level 2 Process Types

Process Type Description

Module 3, Section C, Chapter 2 ■ 16 © 2020 APICS Confidential and Proprietary

Possible Capabilities in the Execution Process

material orders materials materials

Module 3, Section C, Chapter 2 ■ 17 © 2020 APICS Confidential and Proprietary

Levels of Process Details in SCOR

Level 2 • Differentiates Level 1 strategies

*Use of bold text indicates a running example per level.

Module 3, Section C, Chapter 2 ■ 18 © 2020 APICS Confidential and Proprietary

SCOR 12.0 Performance Attributes and Metrics

Module 3, Section C, Chapter 2 ■ 19 © 2020 APICS Confidential and Proprietary

Supply Chain Reliability and Responsiveness

SCOR Level Definition Calculation

Perfect Percentage of orders meeting

delivery performance with Total Perfect Orders

fulfillment the supply chain delivers

Module 3, Section C, Chapter 2 ■ 20 © 2020 APICS Confidential and Proprietary

Supply Chain Agility

Supply Chain Costs (Financial Metrics)

The sole metric at Level TSCMC = Sales – Profits

Time required for an

Module 3, Section C, Chapter 2 ■ 22 © 2020 APICS Confidential and Proprietary

Supply Chain Asset Management

Return on Magnitude of an investment

Module 3, Section C, Chapter 2 ■ 23 © 2020 APICS Confidential and Proprietary

Key Operational Measurements

Module 3, Section C, Chapter 2 ■ 24 © 2020 APICS Confidential and Proprietary

Measures of Customer Service Levels

Module 3, Section C, Chapter 2 ■ 25 © 2020 APICS Confidential and Proprietary

Continuous Improvement Model