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A supply chain is defined as the network of manufacturers, suppliers, distributers, retailers.
A supply chain typically involves materials and information flow.
Supply chain from system’s perspective
A supply chain is seen as a system with its sub-systems (entities) and their interactions.
The interactions is known as interdependencies.
Supply chain is said to be complex if the interdependencies among the sub-systems are complex.
The sub-systems in a supply chain could be planning, production and distribution departments.
The information flow and the material flow among the sub-systems are the interactions or the interdependencies.
A typical supply chain system with interdependencies Sales Production Planning General Ledger Purchasing Customers Vendors Inventory Shop Floor execution A/R A/P
Need for a model
A system is modeled for analyzing complex interdependencies.
Some of process models used in systems engineering for modeling are:
Control flow graphs.
Functional flow block diagram.
Binary decision diagram.
SCOR (Supply Chain Operations Reference-Model) is a process reference model used for modeling supply chain system.
SCOR was first developed by Supply Chain Council (SCC).
SCOR is a management tool used for process modeling and performance management.
SCOR has 5 distinct processes for supply chain modeling.
Plan, Source, Make, Deliver and Return are the 5 sub-systems in a supply chain.
SCOR model for a supply chain showing the sub-systems The First level hierarchy of the Supply Chain System with sub systems.
MESTT (Meta Data Enabled Systems Thinking Tool) Reports Database yEd Query ISM Graphml Interpreter Input
Perform Systems Thinking (Source MESTT Project)
Decomposing subsystems into elements Sub systems and its elements as activities as 2nd level hierarchy
Modeling the sub systems and system elements.
Interpretive Structural Modeling
ISM “is used here to refer to the systematic application of some elementary notions of graph theory in such a way that theoretical, conceptual, and computational leverage is exploited to efficiently construct a directed graph, or network representation, of the complex pattern of a contextual relationship among a set of elements.”
Interpretive Structural Modeling
Management and interpretation of input from individuals or groups.
Computer-assisted learning process.
Network analysis / graph theory
Better understanding of direct and indirect relationships among a system’s components
Interpretive Structural Modeling (ISM) analysis Circular layout with the most dependent entity in the whole system
Hierarchical layout in left to right position
Circular layout in single cycle form
Circular layout with the centrality measures calculation
1st order Reachability nodes (elements) in the system
Implications from the ISM study for the complex system
It is evident that by analyzing the interdependencies in the system we can reduce the complexity of the system.
MRP is the most dependent entity among the sub systems of Planning, Sourcing, Making & Delivery.
Increases the visibility in the supply chain system.
Improves communication and co-ordination among the sub systems.
Increases responsiveness in the system and feedback loops are managed efficiently.
Balanced Scorecard (BSC)
BSC is a management tool used for performance management in an organization.
BSC develops performance metrics based on four categories in an organization and they are:
Internal business perspective.
Innovation and learning perspective
Drawbacks of conventional performance management approach
Lack of Balanced approach
Lack of understanding
Lack of distinction of metrics at various organizational levels
Lack of formal structure for metrics
Performance management for supply chain
Gunasekaran et al. (2001) developed metrics three different organizational levels such as strategic tactical and operational levels.
Further, categorized into financial and non-financial metrics.
X Inventory carrying cost X Information carrying cost X Capacity utilization X Manufacturing cost Operational X Product development time X Forecasting methods X Total transportation cost X Extent of cooperation to improve quality Tactical X Customer query time X Buyer/supplier relationship level X Total cycle time X Delivery lead time X Flexibility to meet particular customer needs X Rate on return on investment X Total cash flow time Strategic Non financial Financial Performance metrics Level
BSC for supply chain performance management (Source: Gunasekaran et al., 2001) Supplier rejection rate operational expenses Delivery reliability Supplier cost saving initiatives Delivery performance Supplier relationship level Budget variations Rate of ROI Net Profit vs. Productivity ratio Financial Metrics Defect free deliveries Delivery quality Responsiveness Delivery reliability Invoicing efficiency Delivery performance Delivery lead time Flexibility Order lead time Products range and services customer perception Customer query time Customer satisfaction metrics
(Source: Gunasekaran et al., 2001) Finished goods inventory Scrap value Work in Progress Incoming stock level Total Inventory costs Capacity Utilization MPS Effectiveness Planned process cycle time Purchase order cycle time Product development cycle time Supplier lead time Total cash flow time Total supply chain cycle time Internal Business Process Metrics Flexibility of service systems in meeting customer needs Range of products and services Accuracy of forecasting techniques Order Entry Methods Employee Morale Supplier cost saving initiatives Supplier involvement for problem solving Innovation & Learning Metrics
SCOR application for Supply Chain performance measurement
SCOR is also applied for the performance measurement of the supply chain activities and processes.
SCOR model helps to describe the supply chain in five different dimensions such as reliability, responsiveness, flexibility, and cost and asset management efficiency.
Using SCOR we can have the structured hierarchy for the performance metrics across the whole supply chain.
Decompose the metrics from top which may be called as level 1 metrics to the next level which may be called as level 2 metrics.
Performance Attributes and Level 1 Metrics (Scott Stephens Dec 2001) Inventory days of supply asset turns Effectiveness of an organization in managing assets to support demand satisfaction, this includes the management of all assets like fixed and working capital Supply chain asset management efficiency cash to cash cycle time Costs associated with operating the supply chain Supply chain costs a) Supply chain response time b) Production flexibility c) Cost of goods sold d) Total supply chain management costs e) Value added productivity f) Warranty/returns processing costs Agility of a supply chain in responding to marketplace changes to gain or maintain competitive advantage Supply chain flexibility Order fulfillment lead times Velocity at which a supply chain provides products to the customer Supply chain responsiveness a) Delivery performance b) Fill rates c) Perfect order fulfillment Performance of supply chain in delivering right product to the right place at the right time in the right condition in the right quantity with the right documentation to the right customer Supply chain delivery reliability Level 1 metric Performance attribute definition Performance attribute
Level 1 and Level 2 Metrics Release-to-Ship Time Supply Chain Response Time Total Sourcing Lead Time Supply Chain Response Time Intra-Manufacturing Replan Cycle Time Supply Chain Response Time Replan Cycle ( Sales & Operations Planning ) Time Supply Chain Response Time Forecast Cycle Time Supply Chain Response Time Internal Manufacturing Capacity Upside Production Flexibility Metrics Direct Labor Availability Upside Production Flexibility Metrics Key Components or Material Availability Upside Production Flexibility Metrics Upside Production Flexibility: Principal constraint Upside Production Flexibility Metrics Total Order Fulfillment Lead Time Order Fulfillment Lead Time Customer Receipt of Order to Installation Complete Order Fulfillment Lead Time Order Complete Manufacture to Customer Receipt of Order Order Fulfillment Lead Time Start Manufacture to Order Complete Manufacture Order Fulfillment Lead Time Order Entry Complete to Start Manufacture Order Fulfillment Lead Time Order Receipt to Order Entry Complete Order Fulfillment Lead Time Customer Signature/Authorization to Order Receipt Order Fulfillment Lead Time Fill Rate by Order or Product Line Delivery Performance Perfect Order Fulfillment to Delivery Delivery Performance Delivery Performance to Commit Date Delivery Performance Delivery Performance to Request Date Delivery Performance Scheduled Orders to Customer Request Delivery Performance Level 2 Metrics Level 1 Metrics
Value Added Productivity per Payroll Value Added Productivity Value Added Productivity per Employee Value Added Productivity Net Asset Turns Financial Metrics Sales Growth (1 Year) Financial Metrics Expenses (SG&A) as a Percentage of Revenue Financial Metrics Profitability (EBIT) as a Percentage of Revenue Financial Metrics Year over Year change in COGS Financial Metrics COGS as a Percentage of Revenue Financial Metrics Dollar Forecast Accuracy Forecast Accuracy Unit Forecast Accuracy Forecast Accuracy Cash-to-Cash Cycle Time Cash-to-Cash Cycle Time Inventory Turns Cash-to-Cash Cycle Time Inventory Days of Supply (Raw, WIP, Finished Goods) Cash-to-Cash Cycle Time Total Inventory Days of Supply Cash-to-Cash Cycle Time Average Payment Period for Production Materials Cash-to-Cash Cycle Time Days Sales Outstanding Cash-to-Cash Cycle Time Total Supply-Chain Management Costs Total Supply Chain Management Costs Supply-Chain-Related IT Cost Total Supply Chain Management Costs Supply-Chain-Related Finance and Planning Cost Total Supply Chain Management Costs Inventory Carrying Cost Total Supply Chain Management Costs Material Acquisition Cost Total Supply Chain Management Costs Order Management Cost Total Supply Chain Management Costs Level 2 Metrics Level 1 Metrics
Level 1 and level 2 metrics linking the performance metrics across the whole supply chain
Delivery performance metric and associated metrics
Total order fulfillment lead time metric and associated metrics
Upside Production flexibility metric and associated metrics
Supply chain response time metric and associated metrics
Total supply chain management costs and associated metrics
Financial metric and associated sub level metrics
Cash to cash cycle time metric and associated metrics
Advantages of linking the SCOR metrics to the BSC
Combining SCOR and BSC the performance metrics can be linked to the individual business processes.
Performance metrics in supply chain can be categorized hierarchically so as to track them easily.
Performance measures could be carried not only at the organizational level but also at the process level.
Track the performance linking with the organizational business processes.
We can track the impact of supply chain metrics on the organizational performance.
Reduce complexity in the supply chain system.
Increase visibility in the system.
Increase responsiveness in the system.
Improve communication and co-ordination.
Track the most dependent element in the system.
Manage the information flow and material flow effectively.
Better performance management by integrating SCOR and BSC.
Track performance metrics at both strategic and operations levels.
(Source: Eugene A. Asahara)
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