Module 2 Supply Chain Performance

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Distribution and modifications of the content is prohibited.
MODULE 2: Supply Chain Performance:

 2.1: Bullwhip effect and reduction, Performance measurement: Dimension,
Tools of performance measurement, SCOR Model. Demand chain
management, Global Supply chain- Challenges in establishing Global
Supply Chain, Factors that influences designing Global Supply Chain
Network.
 2.2: Supply Chain Risk Management (Risks involved in supply chain which
includes – Supplier Financial Risk, Performance Risk, Compliance Risk,
Country specific Risk, Cyber Security
 2.3: Supplier performance measurement – (Delivery & Quality performance,
schedule adherence, Goods receipt compliance etc), Supplier Capacity
Analysis, Supplier Score card.
St. Francis Institute of Technology Logistics and Supply Chain Management

Department of Mechanical Engineering Dr. Ravindra Garmode 1
The material in this presentation belongs to St. Francis Institute of Technology and is solely for educational purposes. Distribution and modifications of the content is prohibited.
The bullwhip effect
 Small change at one end causes large change at another end.

 Mismatch in demand forecast that extends along SCM.
 Inaccurate information can cause minor fluctuations in demand for
the product to be amplified as one moves further back to supply
chain.
 Minor fluctuation in retail sales for a product can create excess
inventory for distributors , manufacturers and suppliers.

The bullwhip effect (a whip with a long heavy lash)

The bullwhip effect
Multi-tier Wholesale
Suppliers Manufacturer Distributors Retailers Consumers
Sales
Sales
Sales
Sales
Time Time Time
Time
Bullwhip Effect

Causes of the Bullwhip Effect:

 Lead time issues due to delay in manufacturing.
 Lack of communication in Supply Chain.
 Over or under reacting demand.
 Discount / Price variation – disrupt buying patterns.
 Inaccurate forecast.

Factors Contributing to the Bullwhip

• Demand forecasting practices
– Min-max inventory management (reorder points to bring inventory up to
predicted levels)
• Lead time
– Longer lead times lead to greater variability in estimates of average
demand, thus increasing variability and safety stock costs
• Batch ordering
– Peaks and valleys in orders
– Fixed ordering costs
– Impact of transportation costs (e.g., fuel costs)
– Sales quotas
• Price fluctuations
– Promotion and discount policies
• Lack of centralized information
Solution to the Bullwhip Effect:
 Foster supply chain communication and collaboration: Better

allignment, customer need/ Electronic data Interchange.
 Use better forcasting and visibility tools: Demand sensing
software/forecasting software/ Inventory optimization software/
analytics tools like AI, IoT.
 Explore demand driven approach to SCM: collaboration/
communication/visibility.

Supply Chain Performance (Approach to judge the performance of SC system)
Classified broadly:
 Qualitative measures: related to product quality and customer satisfaction
 Quantitative measures: flexibility, resource utilization, delivery performances
 Non - Financial Measures
 Cycle Time (Lead time)
 Supply chain lead time
 Order-to-delivery lead time
 Customer Service Level:
 Order fill rate - easily satisfied from stock.
 Stock out rate - portion of order lost
 Backorder level – number of order waiting to be filled.
 Probability of on time delivery- within the agreed upon due date.
Supply Chain Performance

 Inventory Levels: essential to carry sufficient inventory to meet customers demand
 Raw materials
 Work-in-process, i.e., unfinished and semi-finished sections
 Finished goods inventory
 Resource Utilization
 Manufacturing resources − Include the machines, material handlers, tools, etc.
 Storage resources − Comprise warehouses, automated storage and retrieval
 systems.
 Logistics resources −Engage trucks, rail transport, air-cargo carriers, etc.
 Human resources − Consist of labor, scientific and technical personnel.
 Financial resources − Include working capital, stocks, etc.

Supply Chain Performance

 Financial Measures: fixed and operational cost
 Cost of raw materials.
 Revenue from goods sold.
 Activity-based costs like the material handling, manufacturing,
assembling rates etc.
 Inventory holding costs.
 Transportation costs.
 Cost of expired perishable goods.
 Penalties for incorrectly filled or late orders delivered to customers.
 Credits for incorrectly filled or late deliveries from suppliers.
 Cost of goods returned by customers.
 Credits for goods returned to suppliers.

How to measure supply chain performance –Case Study
1. Inventory Investment
2. Inventory Efficiency
3. On-Time Supplier Delivery
4. Forecasting Accuracy
Average Deviation
Average Absolute Deviation
Root Mean Squared Deviation
5. Lead Time
6. Unplanned Orders
7. Schedule Changes


8. Overdue Backlog 9. Material Availability
10. Excess & Obsolete Inventory
11. Customer Service Targets
12. Perfect Order
Order Entry Accuracy: 99.5%
Warehouse Pick Accuracy: 99.4%
On-Time Delivery: 95.0%
Shipped w/o Damage: 97.5%
Invoiced Correctly: 99.8%
In this example the perfect order measure would be 91.43%.
(0.995 X 0.994 X 0.950 X 0.975 X 0.998 = 0.9143 or 91.43%).
13. Gross Profit Margin
14. Asset Efficiency 15. Return on Assets (ROA)
16. Gross Margin Return on Investment (GMROI)


 Inventory
 working capital
 Time
 promise time,
 lead time,
 cycle time,
 transit time,
 delivery time,
 unloading time,
 processing time,
 queue time,
 quality assurance time,
 processing time,
 turnaround time,
 receiving time,
 shipping time

Supply Chain Operation Referance (SCOR) Model
 It evaluate SC for effectiveness and efficiency of sales and

operational planning.
 SCM is complex, and S&OP implimentation can be difficult but
the SCOR model is intended to help standardize the S & OP
process and create a measurable way to track the result.
 With the help of SCOR model, supply chain can achieve the
business goal.

SCOR’s six primary processes
 Plan
 Demand and supply planning and management.
 Processes that balances aggregate demand & supply to develop a course of action
which best meets sourcing, production & delivery requirements.
 Source
 Sourcing the material and payment.
 Processes that procure goods and services to meet planned or actual demand.
 Make
 Manufacturing and production
 Processes that transform product to a finished state to meet planned or actual
demand

SCOR
 Deliver
 Delivery includes order management, warehousing, and transportation.
 Processes that provide finished goods and services to meet planned or actual
demand, including order management, transportation management, and
distribution management
 Return
 To handle the return of containers, packaging, or defective product.
 Processes associated with returning or receiving returned products for any
reason. These processes extend into post-delivery customer support.
 Enable
 This includes processes associated with SCM such as business rules,
facility performance, data resources, contracts, compliance and risk
management.

SCOR

SCOR
 SCOR HAS DEVELOPED 11 PERFORMANCE MEASURES
 Delivery performance
 Order fulfillment performance
 Fill rate
 Order fulfillment lead time
 Perfect order fulfillment
 Supply chain response time
 Production flexibility
 Total logistics management cost
 Value added productivity
 Warranty cost
 Cash to cash cycle time
 Inventory days of supply
 Asset turns

SCOR Metrics – Case Study
Perspective Metrics
Reliability On-time delivery

Order fulfillment lead time
Fill rate (fraction of demand met from stock)
Perfect order fulfillment
Flexibility Supply chain response time

Upside production flexibility
Expenses Supply chain management costs

Warranty cost as a percent of revenue
Value added per employee
Assets/utilization Total inventory days of supply

Cash-to-cash cycle time
Net asset turns

Demand Chain Management
 DCM is the management of relationship between suppliers and customers

to deliver the best value to the customer at the least cost to the demand
chain as a whole.
 It is simillar to SCM but only for customers.
 DCM software tools bridge the gap between the customer relationship
management and the supply chain management.
 DCM improves overall performance.


 Create visibility for all parties (Responsiveness)
 Real time visibility to the total demand, supply, and capacity picture to be more
responsive to changes in demand, available capacity, and supply continuity issues.
 Promote Process Orchestration (Effectiveness)
 Provide the ability to manage and automate complex supply chain processes across
multiple tiers of partners, driving shared value and common metrics.
 Reduce Information Latency (Speed)
 Create the ability to plan, execute, and make decisions from real time information shared
across the supply chain.
 Data Synchronization (Accuracy)
 All partners working off of the same demand, supply, and capacity information.
 Single Version of the Truth (Transparency)
 Ability to work together to identify root causes and operational process improvements
increasing productivity, efficiency, and perfect order performance.


An observation on how the various entities plan demand flows & stockholding
Retailer Stores Retailer Warehouse Supplier Warehouse
DC DC DC
Order Order Order
` ` `
Sales Delivery Delivery Delivery
Forecast Forecast Forecast
Stock on Stock on Stock on

Hand Hand Hand
Replenishment Plan Replenishment Plan Replenishment Plan
Replen. Stock on Replen. Stock on Replen. Stock on

Policy Safety Policy Safety Policy Safety
Order Order Order
Stock Stock Stock
Let’s investigate the impact of Demand, Supply and Lead-time variability on the ability to optimise
stock and service levels through the supply chain
1. Demand Variability
70 % 60 - 70 % 30 – 40 %


2. Supply variability


3. Lead-time variability (leading to data latency)
Day 1 - 13 Day 3 - 14
Day 0 Day 2 - 14
Day 1 - 6 Day 3 - 14


A systems-enabled best class view
DC DC DC
Order Order Order
` ` `
Sales Delivery Delivery Delivery
Collaboration
Platform
1
Shared Forecast 2 Collaborative Replenishment Planning 3
Transport Planning

Global Supply Chain
 Primary reason is to obtain lower prices.

 International purchasing can result in cost savings, but
there’s a lot more to consider.
 Many companies classify suppliers based upon geographic
capabilities.
 Local, domestic, regional, multi-regional, and global.

Global Supply Chain
 Global supply chains involve the flow of information, processes

and resources across the globe.
 Global supply chains are networks that can span across multiple
continents and countries for the purpose of sourcing and supplying
goods and services.
 Intranet is used by firms to improve coordination among their
internal supply chain process and they use extranet to coordinate
among business partners and customers.

Goals of Global SCM
 Develop and maintain strategic and operational aspects of global

supply chains
 Identify and leverage industry globalization drivers that affect
global supply chains.
 Have knowledge of and leverage the worldwide infrastructure for
global supply chains
 Manage coordination and integration of global supply chains.

Global Supply Chain - Objective
 Manufacturing cost
 Inventory cost
 Replenishment lead time
 Transportation cost
 Shipping and receiving cost
 Level of product availability
 Profitability

Challenges in establishing Global Supply Chain:
 Material Scarcity: shortage of various kinds of parts and

material in GS chain.
 High Freight prices: demand for shipping has exceeded the
industry capacity. (limited supply- high demand-increase in fright
price)
 Port congestion: high demand but limited port capacity
 Difficulty in forecasting demand: Pandemic - how much to
stock or manufacture?

Global Supply Chain Challenges
 Increasing more complex

 Language
 Culture
 Currency fluctuations
 Political
 Transportation costs
 Local capabilities
 Finance and economics
 Environmental

Factors that Influences Designing Global Supply Chain

Network:
 Strategic Factors:
• low cost (labor / raw material),
• Location of plant,
• Market-easy access to customer/ Convenience store network,
• variety of products,
• Low value products that sell in large amount
 Technological Factors: eg. Bottling plant / computer chip
 Macroeconomic Factors: taxes, tariff, exchange rates,
shipping cost

Factors that Influences Designing Global Supply Chain

Network:
 Infrastructure Factors: availability of good infrastructure,

proximity to transportation terminals, labor/ local utilities.
 Competitive Factors:
raw material, labor availability,
competing retail stores eg. Suzuki -manufacturing plant in India.
 Customer response time and local presence: Discounts,
nearby stores
 Logistic and Facility cost: need to consider inventory,
transportation and facility cost.

Role of IT in Global Supply Chain Management
 Global positioning system tracking location of delivery trucks

 Satellite communication channels
 Transmitting material requirements through Web based software
 Capturing demand and replenishment data through bar code technology
 RFID tags, bar codes. Scanners, robotic arms and computers for real
time material and product movement
 ERP software from SAP, MM modules
 FULL Network connectivity with its partners

USE OF INTERNET IN SCM

Planning
and Suppliers
Order scheduling
processing
Procurement
Customers
Logistics
service
Shipping
Production
Retailers
Inventory Distributors

SCM addresses challenges through several areas
Supply chain
strategy
Logistics
Logistics Supply
chain
planning
Product life SC Supply

cycle M chain
management enterprise
application
Procurement Assets
management

Why Study Global Supply Chain & Logistics?
 Global Supply Chains and Logistics operations are essential

to National Security.
 Global Supply Chains are big business and a critical source
of competitive advantage.
 To develop a broader understanding of integrated logistics
and business processes.
 To prepare the use of Global Supply Chain & Logistics
concepts and practices in future leadership positions.

Global Supply Chain Management Factors
 Costs
 Local labor rates / International freight tariffs
 Currency exchange rates
 Customs Duty
 Duty rates differ by commodity and level of assembly
 Export Regulations & Local Content

 Denied parties list / Export licenses
 Local content requirement for government purchases
 Time
 Lead time /Cycle time /Transit time /Customs clearance
 Taxes on Corporate Income

 Tax
 Make vs. buy effect

Advantages of GSCM
 The main reason for any business to exist is to increase sales and profits.
 When you go global, then the likelihood of increasing sales goes up as you open up your
market to consumers all over the world.
 This allows businesses to reduce dependence on their local and national economies.
 With the number of Internet users on the rise, global businesses are able to do business at all
hours of the day with consumers from every point on the globe.
 The potential for expansion for businesses increase as they enter into more markets.
 Diversified business and trading
 Lower supply chain costs
 Reduced cycle time
 Competitive advantage
 Untapped markets
 Enhance speed and efficiency

Disadvantage GSCM
 When entering the global market, businesses need to be aware that the gains may not be
seen in the short term.
 It may be many years before they start reaping the rewards of their efforts.
 Another disadvantage is that they have to hire additional staff to help launch their companies
in the global markets they expand into.
 Companies usually have to modify their products and packaging to suit the local culture,
preferences and language of the new market.
 Travel expenses are sure to increase for the administrative staff, as they will now be expected
to travel all over the world to oversee their business outlets in other countries.
 Also, companies need to know the regulations and tax laws in foreign countries, which take
time and money, and they may need to hire professionals in those countries to help with legal
and financial issues.

Linking global supply chain and business
performance
 Impact of various supply chain initiative can be estimated in terms
of costs and benefits using the following broad groupings.
 Cost reduction is achieved by –

 Reducing inventory
 Reducing logistics expenses
 Reducing direct material expenses
 Reducing indirect material expenses

performance
 Improving operational efficiency by

 Reducing procurement expenses
 Increasing asset utilization
 Delaying capital expenditure
 Reducing working capital by

 Reducing inventory
 Reducing accounts receivable

performance
 Improving revenue and profitability by -

 Selling higher margin products
 Achieving higher market share
 Reducing lost sales
 Attacking new markets

Global Supply Chain Network Design

V18
V13 V7
V6 R2
R1
P3 V1
D1
V14 V11
D2 R3
V19 P1
CM1 W1
V2 R4
V8
P4 D3
V20 R5
V15 V9 V4
D4 R6
CM2 P2
V3 W2
V16 V12
V5 R7 R8
V17
V10
V21
Vendors Contract Manufacturer Plants Warehouses Distributors Retailers

Supply Chain Risk Management
 It is the process of identifying, assessing and mitigating the

risk of an organization’s supply chain.
 Supply chain risk evaluation can protect business resources.
 The evaluation instruments should upgrade with combination
of supply chain and professional business risk .


Supply Chain Main Risk Factor :

• Financial Risk: no enough Taxonomy of risk
money/loan or credits • Uncertainty
• Performance Risk : outcome • Likelihood
• Strategic Risk : future based
• Operational Risk : upgrade • Vulnerability
measurement tech. • Threat/Hazard
• Human Resources Risk : • Volatility
Absentee of trained person
• Technological Risk: misunderstanding-
• Variation
organizational activity – share holders, • Effect
transport
• Consequences
Supply Chain main Risk factor:

• Fame Risk: increasing capital- to keep organization fame.
• Laws Risk : management can control any kind of risk.
• Supply Risk : cannot meet quantity and quality of parts.
• Demand Risk : fluctuation of the demand ( demand disruption)
• Environmental Risk: Natural disasters/extreme weather/ rise in

sea level
• Political Risk


• Compliance Risk : identifying and assessing legal
penalties, financial losses, and material losses, associated
with an organization's failure.
• Country specific Risk: factors including

political(unstable government- changes in govt policies,
economic, exchange rate or technological influences
• Cyber Security Risk : anyone can be responsible for the

same within the organization or outside of the
organization.
• Qualitative Risk Analysis

• Probability
• High – Greater than <70%> probability of occurrence
• Medium – Between <30%> and <70%> probability of occurrence
• Low – Below <30%> probability of occurrence
• Impact
• High – Risk that has the potential to greatly impact project cost, project
schedule or performance
• Medium – Risk that has the potential to slightly impact project cost, project
schedule or performance
• Low – Risk that has relatively little impact on cost, schedule or performance
Risk Mitigation Techniques

• Single Source Vendors
• Multiple Sourcing: geographically scattered
• Investment in other vendors’ capability improvement
• Primary Supplier
• Balanced supply between primary supplier and back up suppliers
• Option contract with other vendors to reserve capacity


• PPRR Technique
• Preventive, Prepared, Responsive, Recovering
• Methodology can be expanded across product lines and even companies
• Can quickly and routinely calculate risk in an unbiased fashion
• Can bring several operation strategies into focus
• Supplier’s factory location

• Recovery time
• Capacity
• Sourcing splits
• Inventory


• Research and assess possible risks
• Innovative planning
• Reduce potential disruptions
• Prepare responses for negative events
• Flexible, secure supply chains
• Diversified supplier base


• Identify and prioritize all major risks (applicable to this project) that may
impact a successful delivery of the project.
• Risk = not completing on time, not finished within budget, generating

change orders, or sources of dissatisfaction to the owner.
• The risk should be described in non-technical terms and should contain

enough information to understand why the risk is a valid risk. Proposer
must also explain how it will avoid or minimize the risks from occurring.
• Solutions must be nontechnical, logical, easily understood, or contain

verifiable performance information.

Supplier Performance Measurement
 To Plan : Capability
 To Comply
 To Manage
 To Optimize
 To Innovate
Measuring Supplier Performance
 Helps managers base decisions on objective rather than

subjective data
 Motivates those being measured to act in certain ways
 Helps identify performance areas in need of improvement
 Identify rates of change over time, which helps predict future
performance

Effective Performance Measures are SMART

 S PECIFIC
 M EASUREABLE
 A CCOUNTABLE
 R ESULTS-ORIENTED
 T IME-BOUND

Supplier Capacity Analysis
 Elements Include:
 1) Production Capacity : supplier’s abilities and limitations.
 2) Quality: ready to maintain and improve the quality of material.
 3) Performance: ready to manage typical functions.
 4) Risk: minimize the risk throughout the supply chain.
 5) Environmental Impact: Need to check supplier’s strategies on
waste management, waste reduction, material procurement
procedures, harmful material handling process.


Supplier Scorecards
Suppler scorecard: also known as vendor scorecard.
It is a performance measurement tool use to capture a summary of a
company.
Supplier Scorecard:
 Report or system that measures suppliers’ performance
 Costs, quality, delivery timeliness, customer service.
Types of Scorecards
 Categorical – simple categorical check offs
 Weighted point systems – variety of performance categories,
weighted based upon importance
 Cost-based systems – total cost of doing business, least used of the
three systems

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The material in this presentation belongs to St. Francis Institute of Technology and is solely for educational purposes.

Distribution and modifications of the content is prohibited.

MODULE 2: Supply Chain Performance:

St. Francis Institute of Technology Logistics and Supply Chain Management

The bullwhip effect

 Small change at one end causes large change at another end.

St. Francis Institute of Technology Logistics and Supply Chain Management

The bullwhip effect (a whip with a long heavy lash)

St. Francis Institute of Technology Logistics and Supply Chain Management

The bullwhip effect

St. Francis Institute of Technology Logistics and Supply Chain Management

Causes of the Bullwhip Effect:

St. Francis Institute of Technology Logistics and Supply Chain Management

Factors Contributing to the Bullwhip

Solution to the Bullwhip Effect:

 Foster supply chain communication and collaboration: Better

St. Francis Institute of Technology Logistics and Supply Chain Management

Supply Chain Performance (Approach to judge the performance of SC system)

Supply Chain Performance

St. Francis Institute of Technology Logistics and Supply Chain Management

Supply Chain Performance

St. Francis Institute of Technology Logistics and Supply Chain Management

How to measure supply chain performance –Case Study

St. Francis Institute of Technology Logistics and Supply Chain Management

How to measure supply chain performance –Case Study

St. Francis Institute of Technology Logistics and Supply Chain Management

How to measure supply chain performance –Case Study

St. Francis Institute of Technology Logistics and Supply Chain Management

Supply Chain Operation Referance (SCOR) Model

 It evaluate SC for effectiveness and efficiency of sales and

St. Francis Institute of Technology Logistics and Supply Chain Management

SCOR’s six primary processes

St. Francis Institute of Technology Logistics and Supply Chain Management

St. Francis Institute of Technology Logistics and Supply Chain Management

St. Francis Institute of Technology Logistics and Supply Chain Management

St. Francis Institute of Technology Logistics and Supply Chain Management

SCOR Metrics – Case Study

Reliability On-time delivery

Flexibility Supply chain response time

Expenses Supply chain management costs

Assets/utilization Total inventory days of supply

St. Francis Institute of Technology Logistics and Supply Chain Management

Demand Chain Management

 DCM is the management of relationship between suppliers and customers

St. Francis Institute of Technology Logistics and Supply Chain Management

Demand Chain Management

St. Francis Institute of Technology Logistics and Supply Chain Management

Demand Chain Management

Forecast Forecast Forecast

Stock on Stock on Stock on

Replen. Stock on Replen. Stock on Replen. Stock on

Demand Chain Management

St. Francis Institute of Technology Logistics and Supply Chain Management

Demand Chain Management

St. Francis Institute of Technology Logistics and Supply Chain Management

Demand Chain Management

St. Francis Institute of Technology Logistics and Supply Chain Management

Demand Chain Management

St. Francis Institute of Technology Logistics and Supply Chain Management

Global Supply Chain

 Primary reason is to obtain lower prices.

St. Francis Institute of Technology Logistics and Supply Chain Management