SUPPLY CHAIN

RELATIONSHIPS &
PERFORMANCE
MANAGEMENT
 SUPPLY CHAIN RELATIONSHIP

• Supply chain relationship management is the systematic approach to evaluate

vendors that supply goods, materials and services to an organization,
determining each supplier’s contribution to success and developing strategies
to improve their performance.

• Also known as Supplier Relationship Management (SRM) that refers to the

process of managing suppliers.
• The supplier management involves assessing company’s relationships with
external suppliers and creating a plan to improve on those areas that need
improvement.
IMPORTANCE OF SUPPLY CHAIN RELATIONSHIP (SRM)

• Supplier Relationship Management (SRM) is defined as:

“The strategy employed by an organization in which a continuous
level of engagement is maintained between the organization and its
audience”.
• For companies that are just starting out, SRM can be especially important
as it provides a way to assess the quality of suppliers, identify areas where
improvement are needed, and set clear expectations for the future.
• SRM can help to manage time better by ensuring that all of suppliers
communication takes place at the right time and in the right place.
TYPES OF SUPPLY CHAIN RELATIONSHIP
Five basic forms of relationships among supply chain participants:
Contracting
• Adds time dimension to traditional buying & selling.
• E.g., price, service & performance expectations over
specific period.
• E.g.: A manufacturer may contract with a materials or
parts supplier to purchase a particular item or items
for a specified period at a specified price
• The suppliers agree to deliver the specified item(s)
according to negotiated terms and delivery
requirements.
• Failure of either party to perform will lead to
sanctions, probable re-negotiation or possible
termination
Outsourcing
• the focus shifts from buying or selling a product
or material to performing a specific service or
process.
• E.g.: transportation or warehousing.
• Involve a degree of info sharing, primarily
operational info, but limited joint planning
among the firms involved, generally specific
periods for rebidding or terminating the
relationships.
Administered / Management
• A dominant firm assumes leadership responsibility
and seeks collaboration with trading partners
and/or service suppliers.
• E.g.: frequently sharing of operational information
and to a limited degree, strategic information.
• Additionally, limited joint planning, to the extent that
independent firms have an understanding that they
will be better off if they collaborate and follow the
leader.
Alliance
• the relationships is that they are governed by the
participants’ long-term desire and willingness to
voluntarily work together in an intellectual and
operational manner.
• E.g.: integration of human, financial, operational, or
technical resources to create greater efficiency
• Ultimately, through collaboration, participating firms
create joint policies and integrate operations
• Includes extensive joint planning and expected to be
continuous for the least the intermediate term and
potentially the very long term
Enterprise
• To expand managerial influence and control
beyond the ownership boundaries of a single
enterprise to facilitate joint planning and
operations with customers and suppliers.
• Enterprise extension - the extreme of
interdependence and information sharing.
• E.g.: two or more firms willingly integrate to
the extent that they essentially can be viewed
from a performance perspective as a single
entity.
SUPPLY CHAIN INTEGRATION
 SUPPLY CHAIN INTEGRATION

 Supply chain integration is a process where all the parties involved with
the fulfillment of a product are integrated into a single system.
 This requires significant coordination and alignment in order to ensure
everyone is effectively working toward the same goal at all times.
 Also recognized as an important factor to attain superior supply chain
performance, as it offers a host of competitive advantages – including
complete transparency all the way from supplier to customer.
 This can seem like a very complex process, and in many ways, it really is.
 Once the initial integration is completed, the system should run very
smoothly for years to come.
 Traditional
Organizational Most business organizations seek to align authority and
(functional) responsibility on the basis of functional work – department budgets
structure

Traditional
measurement and Most reward systems are based on functional achievement and
reward system performance – make cross-functional coordination difficult

PROCESS Inventory
leverage
As inventory can be leveraged to facilitate functional performance.
Traditional positioning supports functional performance
INTEGRATION
BARRIERS
Infocratic Information content and flows of information follow traditional
structure functions

Knowledge
Limits to share the knowledge – functional experts hoard power
hoarding
 DEVELOPMENT AND MANAGEMENT OF SUPPLY CHAIN
RELATIONSHIP

• A supply chain perspective shifts the relevant business model from a

loosely linked group of independent businesses to a multi-enterprise
coordinated effort focused on supply chain efficiency improvement
and increased competitiveness.
• While not all supply chain collaborative arrangements involve
logistics, attention shifts from firm-based logistical management
to the coordination of supply chain performance.
 DEVELOPMENT AND MANAGEMENT OF SUPPLY CHAIN
RELATIONSHIP

• Two beliefs facilitate this drive for efficiency and competitiveness :

1. Fundamental belief:
• cooperative behavior will reduce risk and greatly improve efficiency
of the overall logistical performance
• high degree of cooperation it is necessary for supply chain
participants to share strategic information
• Information sharing is essential to positioning and coordinating
participating firms to jointly do the right things faster and more
efficiently.
DEVELOPMENT AND MANAGEMENT OF SUPPLY CHAIN
RELATIONSHIP

2. Opportunity belief:
• To eliminate waste and duplicate effort.
• Through collaboration, substantial inventory deployed in a
traditional channel can be eliminated.
• eliminate or reduce risk associated with inventory speculation.
inventory deployment should be driven by economic and service
necessities and not traditional anticipatory practices
MANAGING SUPPLY CHAIN RELATIONSHIPS OVER TIME

• The management of relationships represents a responsibility that is often

difficult for logistics managers.
• Unlike internal management situations, individuals who represent their
firms in a supply chain collaboration often do not work for the organization
that is leading the initiative.

• This section discusses some of the challenges and goals involved in

initiating, implementing, maintaining, and terminating supply chain
relationships.
• Initiating
• Critical need for initiating firm to perform an in-depth assessment of its
internal practices, policies, and culture
• The initiating firm should evaluate its ability to make any necessary
internal changes to implement and support a successful
relationship.
• E.g.:, in manufacturer / material supplier alliances, manufacturers have
to examine their ability to redefine the importance of purchase price.
• Integration capability also needs to be evaluated if the alliance
involves a number of partner plants, warehouses, and/or stores that
operate under different conditions, capabilities, or competitive
requirements.
• Implementing
• Successful implementation derived from choosing a partner
wisely.
• The partners should have compatible cultures, a common
strategic vision, and supportive operating philosophies.
• The attraction between the partners is based, to a considerable
degree, on the service suppliers’ ability and willingness to provide
creative, innovative operational and information-based solutions to
the manufacturer’s problems and on the service suppliers’ desire.
• Maintaining
• Long term continuity depends on three key activities:
1. Mutual strategic and operational goals,
2. Two-way performance measurements
3. Formal and informal feedback mechanism
• Strategic and operational goals must be mutually determined when
the alliance is implemented.
• Performance measurement - these goals must be tracked, reviewed,
and updated frequently to gain improvements over the long term; role in
new product introduction and acceptance.
• Feedback on performance can be provided through formal and
informal methods.
• Terminating
• An important part of relationship management.
• Firms must anticipate and plan that at some future point in
time the alliance that appears so promising when being
organized will no longer meet expectations.
• The point where they no longer meet the requirements of
one or more participants, or they no longer embody
leading-edge practices
 PERFORMANCE MEASUREMENT
 Use to evaluate the effectiveness and efficiency of
organizational structures, processes and
resources not only for one firm but also for the
entire supply chain.

 It provides some basis for understanding the whole

system, influence the behavior and supply information
about the performance of the supply chain participants
and stakeholders.

 The usage of performance measurement systems also

supports the objectives of transparency and a mutual
understanding of the whole supply chain.
PERFORMANCE MEASUREMENT

 The main objective of performance

measurement is to provide valuable
information which allows firms to improve
the fulfillment of customers’ requirements
and to meet firm’s strategic goals.
 It is important to measure how effectively the
customers’ requirements are met and how
resources are efficiently used to reach a
certain level of customer satisfaction.
 MEASUREMENT SYSTEM OBJECTIVES
• Effective measurement systems must be constructed to accomplish the three objectives of
monitoring, controlling, and directing logistical operations:

MONITORING
- accomplished by the establishment of appropriate metrics to track
system performance for reporting to management.

- E.g.:, typically, metrics are developed, and data gathered to report basic
service performance related to fill rates and on-time deliveries and for
logistics costs such as transportation and warehousing.
 MEASUREMENT SYSTEM OBJECTIVES

CONTROLLING
- accomplished by having appropriate standards of performance
relative to the established metrics to indicate when the logistics
system requires modification or attention.

- E.g.:, if fill rates fall below standards, logistics managers must identify
the causes and make adjustment to bring the process back into
compliance.
 MEASUREMENT SYSTEM OBJECTIVES

DIRECTING
- related to employee motivation and reward for performance.

- E.g.:, some companies encourage warehouse personnel to achieve

high levels of productivity. They must be paid for eight hours of work,
on the basis of standard measures of picking or loading. If the tasks
are completed in less than eight hours, they may be allowed personal
time off
 COST Actual cost incurred to accomplish specific operations – need
to monitor cost data for each individual functions

CUSTOMER Basic logistics service was identified as availability,

SERVICE operational performance & service reliability

TYPES OF
PERFORMANCE QUALITY Overall quality performance can also be measured in a variety
of ways.
MANAGEMENT
Five categories of supply chain
The relationship between output of goods, work completed,
performance metrics; PRODUCTIVITY and/or services produced, and quantities of inputs or
resources utilized to produced the output

ASSET Utilization of capital investments in facilities and equipment as

MANAGEMENT well as working capital invested in inventory is the concern
 SUPPLY CHAIN PERFORMANCE
MEASURES
• In the domain of supply chain management, a body of
best practices has emerged that enables this kind of
analysis to assess the performance of internal processes,
suppliers, and service providers.

• Here are five supply chain management KPIs that can

help supply chain to be more effective, efficient, and
prosperous organization:
 CASH-TO-CASH CYCLE TIME
 Represents the average length of time required to convert resources
into cash flows, starting from the moment to pay for inventory to the
time collect money for the sale of that inventory.
 The cash conversion cycle looks at the amount of time a company
takes to sell its inventory, collect its receivables and the time it takes to
pay suppliers.

 The metric indicates how efficiently a company is managing its

working capital and generating cash flows.
 The smaller that number is, the better. Some companies have even
managed to achieve a negative cash to cash cycle time.
 E.g.: Apple famously reached an average of around negative 70 days
over a four-year period, meaning that they consistently collected the
funds for the goods they sold over two months before they ever paid
for those goods.
 PERFECT ORDER RATE
 This metric is quite simple to understand,
although it can be a bit difficult to track on a
routine basis simply because it incorporates a
handful of variables related to processing and
delivering orders to your customers.
 Briefly stated, the perfect order rate represents
the percentage of orders that are delivered in
full, on time, without incident, and with
documentation that is accurate and complete.
 FILL RATE
 Another important metric that impacts
customer satisfaction is the fill rate.
 This represents the percentage of orders that
are successfully completed with the first
shipment.
 In other words, it is the percentage of orders
that do not require a second, third, or fourth
shipment, and so on.
 CUSTOMER ORDER CYCLE
TIME
 The customer order cycle time refers to the
average amount of time (in days) that lapses
between the date the customer places an
order and the actual delivery date.
 If the cash-to-cash cycle is increasing but
customer order cycle time is decreasing or
staying the same, then there may be issues
with the management of payables,
receivables, or inventory.
 ON-TIME DELIVERY
 On-time delivery is generally measured as a
percentage of orders delivered on or before
the date by which they were promised.
 Both commercial customers and consumers,
the ability to deliver products promptly is an
increasingly important factor in purchasing
decisions.
 If we can’t deliver what the customer needs
when they need it, they’ll will find somewhere
else.
 This has the benefit of being relatively simple;
either delivered the order on time, or not.
 LOGISTIC PERFORMANCE
MEASURES
• A logistics performance measures is a performance
measurement that is used by logistics managers to
track, visualize and optimize all relevant logistic
processes in an efficient way.

• Among others, these measurements refer to

transportation, warehouse and supply chain aspects.
• Here the list most important of logistic KPI:
 SHIPPING TIME
• The On-Time Shipping performance refers to the ratio of orders that have been shipped on
or before the requested ship date divided by the total number of orders.

• This is a first logistics performance measure to help measure the supply chain
performance.
• Indeed, if the amount of time between the moment the customer placed his order and the
moment that order is prepared to be shipped is too long, that can show some trouble in the
process that need to be fixed.
 ORDER ACCURACY
• The Perfect Order Rate is another highly important logistics metric when it comes to
your supply chain efficiency.

• It measures the amount of orders that are processed, shipped and delivered without any
incidents on its way.

• The shipping time as well as the delivery time are both respected, the order is not a
wrong one and the goods are not damaged
 PICKING ACCURACY
• The picking accuracy is another warehouse
performance measures related to the quality of the
pick & pack process.
• The aim of this metric is to track the percentage of
orders picked without errors from the total number of
orders.
• This metric directly affects customer satisfaction levels
since it ensures customers will receive the correct
item from their order.
• Additionally, a higher picking accuracy will save
significant costs on relocating wrong shipped items,
therefore companies should make sure to monitor it
constantly.
 DELIVERY TIME
• The Average Time Delivery is measured from the moment the order is placed to be shipped and the
moment it is delivered to the customer/post office.
• After benchmarking and having an idea of the average delivery time from the warehouse to anywhere,
the goal would be to decrease it when possible - offering special delivery services for instance - but more
importantly, to precise it.

• Additionally, the precise the delivery hours (between 13h and 15h rather than between 8h and 18h), it is
even better as customer knows when he should be home to pick the package up, increasing the order
picking accuracy rate and avoiding returns.
 TRANSPORTATION & WAREHOUSING COST

• The Average Transportation Costs calculates an overall of the

expenses involved in processing an order from the beginning
to the end.
• It will break down all the costs related to this logistics
performance measures according to distinct categories: the
order processing, the administrative, the inventory carrying,
the warehousing and finally the actual transportation costs.

• Warehousing is the management of space and time.

• The Warehousing Costs refer to the money allocated to the
goods moved into or outside the warehouse.
• These expenses cover equipment and energy costs like
ordering, storing and loading the goods, as well as more
human costs like labor, shipment, or delivery.
THANK YOU