Time for new supply chain Icon

Gilmore SAYS:

I think very highly of P&G’s supply chain, and think the company is especially good at continuous improvement. It has continued to thrive. Still, I’ve also heard from some people in the know that there’s been some things to learn from the Gillette supply chain team post acquisition about sales and operations planning, collaboration and some other supply chain processes.

By Dan Gilmore - Editor-in-Chief

As most of our readers know, I travel quite a bit on the supply chain and logistics conference and seminar circuit.

Almost always, someone cites examples of great supply chains, and about 98% of the time the references are to Wal-Mart and Dell, and occasionally one or two others (e.g., Procter & Gamble). In April 2005, for example, I participated at a Supply Chain Management conference at Penn State , during which a panel of supply chain pundit types was asked specifically to name some great supply chains besides Dell and Wal-Mart. I recall the panel managed to cite P&G and not a whole lot more.

Dell, Wal-Mart and P&G are great companies all, with excellent supply chains. That said:

• Dell and Wal-Mart have had their troubles recently. Relative troubles, for sure, meaning they are still growing revenue and profits, just not at the clip they once did. In both cases, I’ll argue supply chain plays some role in the challenges (see below).
• We just need some “new blood”
• Many pundits can’t articulate why these companies have great supply chains. I often ask the people citing these leaders that very question. Generally, the answer is “the build-to-order model” for Dell, and hardly any clear response for Wal-Mart, other than that its prices are so low, its supply chain must be great.

I’ll repeat again that Dell and Wal-Mart are great companies with great supply chains (I own the stock of one – you’ll have to guess which). But their supply chains are arguably not delivering the competitive advantages they once did. Innovation is eventually matched, and operating conditions change.

In Dell’s case, competitors have simply caught up from a supply chain effectiveness and cost perspective. That’s in part why we’ve seen both IBM and HP very active and public about their supply chain stories in the past couple of years. They want the market and Wall Street to know Dell isn’t the only computer firm with an impressive supply chain.

The advantages Dell had in terms of make-to-order model are also reduced as the price of finished units and individual components continues its relentless drive south. The cost of inventory and the dynamics of component pricing just have less of an impact. There is also some evidence that the make-to-order model is less attractive in some global markets, and in the growing category of notebooks. Notebooks also require more R&D today than desktops and many servers, and Dell’s generally small level of R&D spend versus sales may be hurting them there.

Wal-Mart has also had some troubles internationally, having major stumbles in Germany and South Korea , and a tough time in the U.K. versus Tesco. Some have stated that the centralized “command and control” model that drove store operations and the supply chain in North America may not be effective in other parts of the globe. Wal-Mart itself is now moving in part to a more decentralized operating model in the U.S. (see In Search of More Growth, Wal-Mart Follows Best Buy in Move to Tailor Stores to Individual Markets). The company had also allowed inventory to grow at a much faster rate than sales growth for a couple of years, leading to this year’s Inventory DeLoad program (which appears to be having a positive effect in reversing this trend).

I think very highly of P&G’s supply chain, and think the company is especially good at continuous improvement. It has continued to thrive. Still, I’ve also heard from some people in the know that there’s been some things to learn from the Gillette supply chain team post acquisition about sales and operations planning, collaboration and some other supply chain processes.

So while giving these companies their due, I think we need to find some additional icons, and be more explicit about why any of them are “in the club.” I’d love to hear from our readers about their companies, or other companies our readers would cite. A very imperfect list of new icon candidates is offered below, some of them “likely suspects,” maybe some others that will surprise.

• IBM: For the massive and impressive job they have done under the leadership of Bob Moffat in building an integrated supply chain organization on a huge global scale.
• Cisco: Sometimes mentioned as an icon, Cisco impresses with its ability to run a huge, almost totally outsourced supply chain with a relatively small team and heavy infusions real-time information and visibility.
• Zara: This European retailer is also cited a bit but not nearly enough in North American circles, probably from a lack of familiarity and U.S. store presence. Zara has implemented the demand-driven, “Quick Response” supply chain that many hoped was the future for the industry 15 years ago but which has largely failed to materialize.
• Tesco: Powerful global retailer coming soon to U.S. shores, it adopted lean principles throughout its supply chain, and seems very savvy in its approach to RFID.
• The Limited Brands: Seems under-recognized to me, probably in part because (of necessity) its supply chains are tightly aligned with its many individual store brands. But the specialty retailer seems always on the supply chain move, and is known for the quality of its supply chain and logistics development programs.
• Frito-Lay: A division of PepsiCo, the snack team has leading edge distribution processes, is an advanced user of supply chain technology, and is one of the few companies performing true continuous network optimization. Like The Limited, it is also one of the “farm teams” for the rest of the industry.
• Canadian Tire: This Canadian retailer does outstanding work letting demand drive the rest of the supply chain, and has shown strong operating results competing north of the border against Wal-Mart.
• Ashley Furniture: This rapidly growing furniture manufacturer and retailer does one of the best jobs we’ve seen managing a long global supply chain like a just-in-time one.
• Wegmans: This smaller profile, privately held grocery chain doesn't get enough credit for seemingly always being in the forefront and driving real value from initiatives like CPFR and data synchronization.

We’ll be providing more detail on many of these stories in the near term – but would love to hear your company’s story or your suggestions for others.

Do we need some “new blood” in terms of our supply chain role models? What companies would you suggest and why – including your company? Let us know your thoughts.

GILMORE SAYS: I think very highly of P&G’s supply chain, and think the company is especially good at continuous improvement. It has continued to thrive. Still, I’ve also heard from some people in the know that there’s been some things to learn from the Gillette supply chain team post acquisition about sales and operations planning, collaboration and some other supply chain processes. What do you say? Send us your comments As most of our readers know, I travel quite a bit on the supply chain and logistics conference and seminar circuit. Almost always, someone cites examples of great supply chains, and about 98% of the time the references are to Wal-Mart and Dell, and occasionally one or two others (e.g., Procter & Gamble). In April 2005, for example, I participated at a Supply Chain Management conference at Penn State , during which a panel of supply chain pundit types was asked specifically to name some great supply chains besides Dell and Wal-Mart. I recall the panel managed to cite P&G and not a whole lot more. Dell, Wal-Mart and P&G are great companies all, with excellent supply chains. That said: Dell and Wal-Mart have had their troubles recently. Relative troubles, for sure, meaning they are still growing revenue and profits, just not at the clip they once did. In both cases, I’ll argue supply chain plays some role in the challenges (see below). We just need some “new blood” Many pundits can’t articulate why these companies have great supply chains. I often ask the people citing these leaders that very question. Generally, the answer is “the build-to-order model” for Dell, and hardly any clear response for Wal-Mart, other than that its prices are so low, its supply chain must be great. I’ll repeat again that Dell and Wal-Mart are great companies with great supply chains (I own the stock of one – you’ll have to guess which). But their supply chains are arguably not delivering the competitive advantages they once did. Innovation is eventually matched, and operating conditions change. In Dell’s case, competitors have simply caught up from a supply chain effectiveness and cost perspective. That’s in part why we’ve seen both IBM and HP very active and public about their supply chain stories in the past couple of years. They want the market and Wall Street to know Dell isn’t the only computer firm with an impressive supply chain. The advantages Dell had in terms of make-to-order model are also reduced as the price of finished units and individual components continues its relentless drive south. The cost of inventory and the dynamics of component pricing just have less of an impact. There is also some evidence that the make-to-order model is less attractive in some global markets, and in the growing category of notebooks. Notebooks also require more R&D today than desktops and many servers, and Dell’s generally small level of R&D spend versus sales may be hurting them there. Wal-Mart has also had some troubles internationally, having major stumbles in Germany and South Korea , and a tough time in the U.K. versus Tesco. Some have stated that the centralized “command and control” model that drove store operations and the supply chain in North America may not be effective in other parts of the globe. Wal-Mart itself is now moving in part to a more decentralized operating model in the U.S. (see In Search of More Growth, Wal-Mart Follows Best Buy in Move to Tailor Stores to Individual Markets). The company had also allowed inventory to grow at a much faster rate than sales growth for a couple of years, leading to this year’s Inventory DeLoad program (which appears to be having a positive effect in reversing this trend). I think very highly of P&G’s supply chain, and think the company is especially good at continuous improvement. It has continued to thrive. Still, I’ve also heard from some people in the know that there’s been some things to learn from the Gillette supply chain team post acquisition about sales and operations planning, collaboration and some other supply chain processes. So while giving these companies their due, I think we need to find some additional icons, and be more explicit about why any of them are “in the club.” I’d love to hear from our readers about their companies, or other companies our readers would cite. A very imperfect list of new icon candidates is offered below, some of them “likely suspects,” maybe some others that will surprise. IBM: For the massive and impressive job they have done under the leadership of Bob Moffat in building an integrated supply chain organization on a huge global scale. Cisco: Sometimes mentioned as an icon, Cisco impresses with its ability to run a huge, almost totally outsourced supply chain with a relatively small team and heavy infusions real-time information and visibility. Zara: This European retailer is also cited a bit but not nearly enough in North American circles, probably from a lack of familiarity and U.S. store presence. Zara has implemented the demand-driven, “Quick Response” supply chain that many hoped was the future for the industry 15 years ago but which has largely failed to materialize. Tesco: Powerful global retailer coming soon to U.S. shores, it adopted lean principles throughout its supply chain, and seems very savvy in its approach to RFID. The Limited Brands: Seems under-recognized to me, probably in part because (of necessity) its supply chains are tightly aligned with its many individual store brands. But the specialty retailer seems always on the supply chain move, and is known for the quality of its supply chain and logistics development programs. Frito-Lay: A division of PepsiCo, the snack team has leading edge distribution processes, is an advanced user of supply chain technology, and is one of the few companies performing true continuous network optimization. Like The Limited, it is also one of the “farm teams” for the rest of the industry. Canadian Tire: This Canadian retailer does outstanding work letting demand drive the rest of the supply chain, and has shown strong operating results competing north of the border against Wal-Mart. Ashley Furniture: This rapidly growing furniture manufacturer and retailer does one of the best jobs we’ve seen managing a long global supply chain like a just-in-time one. Wegmans: This smaller profile, privately held grocery chain doesn't get enough credit for seemingly always being in the forefront and driving real value from initiatives like CPFR and data synchronization. We’ll be providing more detail on many of these stories in the near term – but would love to hear your company’s story or your suggestions for others. Do we need some “new blood” in terms of our supply chain role models? What companies would you suggest and why – including your company? Let us know your thoughts.

Supply Chain Strategy .ppt

By Chase, Jacob Aquilano

Harward Business Review - Supply Chain Management .pdf

Markov process and Stochastic process

Markov chain

In mathematics, a Markov chain, named after Andrey Markov, is a discrete-time stochastic process with the Markov property. Having the Markov Property means for a given process knowledge of the previous states is irrelevant for predicting the probability of subsequent states. In this way a Markov chain is "memoryless", no given state has any causal connection with a previous state.
At each point in time the system may have changed states from the state the system was in the moment before, or the system may have stayed in the same state. The changes of state are called transitions. If a sequence of states has the Markov property, then every future state is conditionally independent of every prior state.

Markov property
In probability theory, a stochastic process has the Markov property if the conditional probability distribution of future states of the process, given the present state and all past states, depends only upon the present state and not on any past states, i.e. it is conditionally independent of the past states (the path of the process) given the present state. A process with the Markov property is usually called a Markov process, and may be described as Markovian. See in particular


Markov chain
Continuous-time Markov process
(In probability theory, a continuous-time Markov process is a stochastic process { X(t) : t ≥ 0 } that satisfies the Markov property and takes values from a set called the state space )
Mathematically, if X(t), t > 0, is a stochastic process, the Markov property states that
0.">
Markov processes are typically termed (time-) homogeneous if
0,">
and otherwise are termed (time-) inhomogeneous (or (time-) nonhomogeneous). Homogeneous Markov processes, usually being simpler than inhomogeneous ones, form the most important class of Markov processes.
In some cases, apparently non-Markovian processes may still have Markovian representations, constructed by expanding the concept of the 'current' and 'future' states. For example, let X be a non-Markovian process. Then define a process Y, such that each state of Y represents a time-interval of states of X, i.e. mathematically,
If Y has the Markov property, then it is a Markovian representation of X. In this case, X is also called a second-order Markov process. Higher-order Markov processes are defined analogously.
An example of a non-Markovian process with a Markovian representation is a moving average time series.
The most famous Markov processes are Markov chains, but many other processes, including Brownian motion (to a close approximation), are Markovian.

Examples of Markov chains
DMP
Memorylessness
Semi-Markov process
Andrey Markov
Continuous-time Markov process
Markov chain
Markov decision process

Poisson process
The Poisson arrival process or Poisson process counts the number of arrivals, each of which has a exponentially distributed time between arrival. In the most general case this can be represented by the rate matrix,
In the homogeneous case this is more simply,
Here every transition is marked.
Markov arrival process
The Markov arrival process (MAP) is a generalisation of the Poisson process by having non-exponential distribution sojourn between arrivals. The homogeneous case has rate matrix,
An arrival is seen every time a transtion occurs that increases the level (a marked transition), e.g. a transition in the D1 sub-matrix. Sub-matricies D0 and D1 have elements of λi,j, the rate of a Poisson process, such that,
and
There are several special cases of the Markov arrival process.


Stochastic process
A stochastic process, or sometimes random process, is the counterpart of a deterministic process (or deterministic system) considered in probability theory. Instead of dealing only with one possible 'reality' of how the process might evolve under time (as it is the case, for example, for solutions of an ordinary differential equation), in a random process there is some indeterminacy in its future evolution described by probability distributions. This means that even if the initial condition (or starting point) is known, there are more possibilities the process might go to, but some paths are more probable and others less.
In the simplest possible case ('discrete time'), a stochastic process amounts to a sequence of random variables known as a time series (for example, see Markov chain). Another basic type of a stochastic process is a random field, whose domain is a region of space, in other words, a random function whose arguments are drawn from a range of continuously changing values. One approach to stochastic processes treats them as functions of one or several deterministic arguments ('inputs', in most cases regarded as 'time') whose values ('outputs') are random variables: non-deterministic (single) quantities which have certain probability distributions. Random variables corresponding to various times (or points, in the case of random fields) may be completely different. The main requirement is that these different random quantities all have the same 'type'.[1] Although the random values of a stochastic process at different times may be independent random variables, in most commonly considered situations they exhibit complicated statistical correlations.
Familiar examples of processes modeled as stochastic time series include stock market and exchange rate fluctuations, signals such as speech, audio and video, medical data such as a patient's EKG, EEG, blood pressure or temperature, and random movement such as Brownian motion or random walks. Examples of random fields include static images, random terrain (landscapes), or composition variations of an inhomogeneous material.
//(an algorithm is a finite list of well-defined instructions for accomplishing some task that, given an initial state, will terminate in a defined end-state.
Logistics is the art and science of managing and controlling the flow of goods, energy, information and other resources like products, services, and people, from the source of production to the marketplace. It is difficult to accomplish any marketing or manufacturing without logistical support. It involves the integration of information, transportation, inventory, warehousing, material handling, and packaging. The operating responsibility of logistics is the geographical repositioning of raw materials, work in process, and finished inventories where required at the lowest cost possible.
Logistics and Supply Chain services are provided by a wide range of 3rd party suppliers.
A supply chain, logistics network, or supply network is a coordinated system of organizations, people, activities, information and resources involved in moving a product or service in physical or virtual manner from supplier to customer. Supply chain activities (aka value chains or life cycle processes) transform raw materials and components into a finished product that is delivered to the end customer. Supply chains link value chains.[Today,the ever increasing technical complexity of standard consumer goods, combined with the ever increasing size and depth of the global market has meant that the link between consumer and vendor is usually only the final link in a long and complex chain or network of exchanges.
This supply chain begins with the extraction of raw material and includes several production links, for instance; component construction, assembly and merging before moving onto several layers of storage facilities of ever decreasing size and ever more remote geographical locations, and finally reaching the consumer.
Supply chain management (SCM) is the process of planning, implementing, and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption. The term supply chain management was coined by consultant Keith Oliver, of strategy consulting firm Booz Allen Hamilton in 1982.
The definition one America professional association put forward is that Supply Chain Management encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies.
Lean manufacturing is a generic process management philosophy derived mostly from the Toyota Production System (TPS)[1] but also from other sources. It is renowned for its focus on reduction of the original Toyota 'seven wastes' in order to improve overall customer value. Lean is often linked with Six Sigma because of that methodology's emphasis on reduction of process variation (or its converse smoothness). Toyota's steady growth from a small player to the most valuable and the biggest car company in the world has focused attention upon how it has achieved this, making "Lean" a hot topic in management science in the first decade of the 21st century.
For many, Lean is the set of TPS 'tools' that assist in the identification and steady elimination of waste (muda), the improvement of quality, and production time and cost reduction. To solve the problem of waste, Lean Manufacturing has several 'tools' at its disposal. These include continuous process improvement (kaizen), the "5 Whys" and mistake-proofing (poka-yoke). In this way it can be seen as taking a very similar approach to other improvement methodologies.
There is a second approach to Lean Manufacturing which is promoted by Toyota in which the focus is upon implementing the 'flow' or smoothness of work (opposite of mura, unevenness) through the system and not upon 'waste reduction' per se. Techniques to improve flow include production levelling, "pull" production (by means of kanban) and the Heijunka box.)

The Role of Producer-Owned Cooperatives in Dairy Supply Chain:

Click on the link above
Abstract

The dairy industry is the largest among the other agricultural industries in Armenia. According to the 2004 statistical yearbook of Armenia, there are around 566 thousand heads of cattle including 291,000 cows in the country. Since 2000, the number of cows increased by 30,000 heads. The same statistics indicate that milk production has sharply increased as well. In 2004, milk production comprised approximately 555,000 tons, which is 103,000 tons more than that of 2000. Since 2002, the cheese export from Armenia increased by 10 times. This fact is related to the development of dairy industry and increasing competition among the dairy chain actors.
This paper aims at studying and revealing the role of the producer-owned milk marketing cooperatives in the recovery and growth of the overall dairy chain in Armenia. The study reviews and analyzes the outcomes of the Cooperative Development Program implemented by the Center for Agribusiness and Rural Development. The paper also identifies and discusses the forms of vertical integration occurring in the dairy sector of Armenia and concentrates on several important issues like: contractual mechanism between cooperatives and processors, trust and social capital among the cooperative members, problems and challenges milk producers face, financial situation of dairy farmers, farm technology and innovation issues. The research was based on surveys and interviews. Official publications, internal documents, interim and final reports, coops’ financial statements and other materials were also used in the study. Based on findings, certain recommendations have been proposed.

Key words: cooperative, vertical integration, dairy industry, trust.

Statistical Process Control (SPC)

Statistical process control (SPC) is a method for achieving quality control in manufacturing processes. It is a set of methods using statistical tools such as mean, variance and others, to detect whether the process observed is under control.
Statistical process control was pioneered by Walter A. Shewhart and taken up by W. Edwards Deming with significant effect by the Americans during the World War II to improve aircraft production. Deming was also instrumental in introducing SPC techniques into Japanese industry after that war. Classical Quality Control was achieved by observing important properties of the finished product and accept/reject the finished product. As oposed to this statistical process control uses statistical tools to observe the performance of the production line to predict significant deviations that may result in reject products. The underlying assumption in the SPC method is that any production process will produce products whose properties vary slightly from their designed values, even when the production line is running normally, and these variences can be analyzed statistically to control the process. For example, a breakfast cereal packaging line may be designed to fill each cereal box with 500 grams of product, but some boxes will have slightly more than 500 grams, and some will have slightly less, producing a
distribution of net weights. If the production process itself changes (for example, the machines doing the manufacture begin to wear) this distribution can shift or spread out. For example, as its cams and pulleys wear out, the cereal filling machine may start putting more cereal into each box than it was designed to. If this change is allowed to continue unchecked, product may be produced that fall outside the tolerances of the manufacturer or consumer, causing product to be rejected. By using statistical tools, the operator of the production line can discover that a significant change has been made to the production line, by wear and tear or other means, and correct the problem - or even stop production - before producing product outside specifications. An example of such a statistical tool would be the shewart control chart, and the operator in the aformentioned example plotting the net weight in the shewart chart.

5S Workplace Organization

5S is a reference to five Japanese words that describe standardized cleanup:

• Seiri : tidiness, organization. Refers to the practice of sorting through all the tools, materials, etc., in the work area and keeping only essential items. Everything else is stored or discarded. This leads to fewer hazards and less clutter to interfere with productive work.

• Seiton : orderliness. Focuses on the need for an orderly workplace. Tools, equipment, and materials must be systematically arranged for the easiest and most efficient access. There must be a place for everything, and everything must be in its place.

• Seiso : cleanliness. Indicates the need to keep the workplace clean as well as neat. Cleaning in Japanese companies is a daily activity. At the end of each shift, the work area is cleaned up and everything is restored to its place.

• Seiketsu : standards. Allows for control and consistency. Basic housekeeping standards apply everywhere in the facility. Everyone knows exactly what his or her responsibilities are. House keeping duties are part of regular work routines.

• Shitsuke : sustaining discipline. Refers to maintaining standards and keeping the facility in safe and efficient order day after day, year after year.

Often in the west, alternative terms are used to disguise the Japanese origins of the methodology. These are "Sort, Straighten, Shine, Systemise and Sustain" and "Safety" as a 6th optional S. These were arguably derived to prevent 5S from being perceived as yet another Japanese improvement process in an era when western industry was already being overwhelmed by strategies to combat foreign business. Alternative Americanizations have also been introduced, such as CANDO (Cleanup, Arranging, Neatness, Discipline, and Ongoing improvement). Even though he refers to the ensemble practice as "5S" in his canonical work, 5 Pillars of the Visual Workplace, Hirano prefers the terms Organization, Orderliness, Cleanliness, Standardized Cleanup, and Discipline because they are better translations than the alliterative approximations. There is a photo of a Japanese sign in 5 Pillars that shows the latin "5S" mixed with Kanji. Additional practices are frequently added to 5S, under such headings as 5S Plus, 6S, 5S+2S, 7S, etc. The most common additional S is for Safety mentioned above.

Free download "Toyota's Lean Development" a special report.

Lean manufacturing is a generic process management philosophy derived mostly from the Toyota Production System (TPS) but also from other sources. It is renowned for its focus on reduction of the original Toyota 'seven wastes' in order to improve overall customer value.

Lean is often linked with Six Sigma because of that methodology's emphasis on reduction of process variation (or its converse smoothness).

Toyota's steady growth from a small player to the most valuable and the biggest car company in the world has focused attention upon how it has achieved this, making "Lean" a hot topic in management science in the first decade of the 21st century.

To learn more on Toyota's Lean development ,read the special report :Special report

Risk Management: 10 Principles (Paperback)

Book Description
In the same way as the 4Ps of marketing are a fundamental principle of business theory, this book puts forward the 10Ps of Risk Management as a consistent and comprehensive approach to the subject.

The 10Ps of Risk Management offers a holistic approach, bringing together all elements of risk management for managers, safety and environmental consultants, business advisers and students on occupational health and safety and environmental studies courses.

The first comprehensive guide to fulfilling the requirements of new legislation on corporate governance

Brings together all areas of Risk Management in one book

Book Info
Offers a holistic approach, bringing together all elements of risk management for managers, safety and environmental consultants, business advisers and students on occupational health and safety and environmental studies courses. Softcover.

Supply Chain Kpi's - Understanding Supply Chain Metrics And Choosing

Getting your supply chain management right can give your business competitive advantage by lowering costs, greater efficiency and improving customer satisfaction by getting goods to customers faster. The impact of technology with the use of RFID tags to track pallets and shipments electronically and merging this into the stock and order management system is making the SCM aspect of a business an area of substantial opportunity for creating competitive advantage.

Now that all sounds fantastic with the ability to track individual shipments through the supply chain and maintaining data on product, serial codes, description, quantity and so on. Combining RFID data with barcode information creates even more information that can be manipulated and collected.

In truth though, what we have is a KPI nightmare with such a huge choice of metrics to choose from we are at serious risk of KPI overload with metrics duplicating information and business trends leading to information overload for management.

Remember that using KPI's effectively means that you first must select the right metrics to measure and ensure that managers fully understand what those metrics are actually telling them. The best metrics to use are those that combine in a ratio form and this means that we lose some of the underlying raw data trend that is available. Combining delivery time with order value will give us an index of how well we are at getting our order pipeline to our customer base but the smoothing effect of the ratio will hide long delivery times for low value products which may increase rather than decrease overall customer satisfaction leading to a knock on effect in customer care and contact center KPI's.

With any KPI scorecard system, choosing the right metrics is essential and less is also more. Remember Pareto's Principle, 80% of the benefit will be derived from 20% of the activity - the same applies with your metrics. Scorecards carrying twenty or thirty metrics are going to overload decision makers using the dashboard so keep it simple and reduce the metrics being used to those that are essential.

Allowing the metrics to be reduced means that managers can gain a far more intimate knowledge of what a metric is actually trying to tell them and this makes the difference between using the dashboard for a simple performance against target check and really unleashing the diagnostic and management power of a the KPI metrics. With the massive influx of data that is being collected and collated by an SCM system, it is very tempting to rush headlong into trying to use all of this information. The fact is that in those KPI systems where metric selection is rigorously kept to a minimum, managers tend to make more successful decisions that their counterparts operating a complicated, metric overloaded dashboard.

The adage here is that less is more and following Pareto's Principle, 20% of your metrics are going to give you 80% of the SCM information you really need to make effective management decisions.

Performance Measures of SCM

Introduction

The Council of Logistics Management defines Supply Chain Management as “the process of planning, implementing and controlling efficient and cost effective flow of materials, in-process inventory, finished goods and related information from point-of-orderto point-of-consumption, for the purpose of conforming to customer requirements”. The fundamental objective of a high performance of supply chain is to produce products to match customers’ demand cycle, while producing the greatest value possible to the customers. A number of technologies and managerial attention has gone into improving supply chain performance. The increasingly competitive environment calls for speedy, cost efficient, accurate and reliable supply chains. Supply chain management is no longer a matter of operational and functional areas of the firm. Today, it is a strategic issue demanding top-level management attention. The supply chain can have huge leverage on the creation of customer value. Supply chains will fight the new battle for market dominance; as such measurements around the supply chain are critical. If we look at competition today, it is supply chain versus supply chain. This brings out a situation that competitors might focus on developing superior supply chain Performance. Accordingly, companies will have to find or develop metrics to measure performance of supply chain.

Process measurements

Key Performance Indicator (KPI) is a performance measure, a yardstick for tracking progress and a tool to achieve a goal. KPI encompasses all areas of Business — Demand Management, Supply, Conversion and Delivery.

The best practices of business are:

Key Performance Indicator (KPI) is a performance measure, a yardstick for tracking progress and a tool to achieve a goal. KPI encompasses all areas of Business — Demand Management, Supply, Conversion and Delivery.

The best practices of business are:

• Quantitative and qualitative metrics ;
• Areas include cost, quality, customer satisfaction
• Best-in-class standards for the defined processes
• Used to measure against current business process
The scoreboard indicates the Key Performance Indicators of a supply chain and compares the performance of a typical organisation with that of the best-in-class as a benchmark.

No. Attributes Typical Superior
1. Delivery performance 50% 95%
2. Fill rates 60% 98%
3. Order fulfilment 50% 90%
4. Production flexibility 45 days 20 days
5. Logistics costs to sales 10% 3%
6. Inventory days of supply 60 days 22 days
7. Inventory turns 6.5 12
8. Nett asset turns 3 19

The SCOR Model

The Supply Chain Operations Reference model, better known as SCOR is helping global manufacturers rethink their companies into best-of-class operations. The SCOR model is a process reference model that has been developed and endorsed by the Supply Chain Council, as the cross-industry standard diagnostic tool for supply-chain management. It enables users to address, improve and communicate supply-chain practices within and between all interested parties. It is a management tool spanning from the supplier’s supplier to the customer’s customer and a toolkit that can be used to define, measure and manage supply-cain processes. The SCOR model is a pyramid of four levels that represents the path a company takes on the road to supply chain improvement.

• Level 1 - it provides a broad definition of the plan, source, make and deliver process types and is the point at which a company establishes its supply chain competitive objectives.

• Level 2 - it defines the 17 core process categories that are possible components of a supply chain. A company can configure both its actual and ideal supply chain by selecting from these core processes.

• Level 3 - it provides a company with the information it needs to successfully plan and set goals for its supply chain improvements. Planning elements include process definitions, target benchmarks, best practices and system software capabilities to enable best practices.

• Level 4- it focusses on implementation, when companies put specific supply chain improvements into play. It defines practices to achieve competitive advantage and to adapt to changing business conditions.

Survey of top performers

The Performance Measurement Group (PMG), a subsidiary ofPRTM Management Consultants, have released results of the first survey in its 1900-2000 Supply Chain Management Benchmarking Series. The survey is based on the SCOR model; PMG examined best-in-class industry performance of customer-facing and internal-facing measures in supply-chain management. Customer-facing measures, such as production flexibility and delivery performance, quantify how well a supply chain delivers products to the customer. Internal-facing measures, such as total supply-chain costs and cash-to-cash quantify how effectively an organisation uses resources in creating value for the customer or how efficiently a supply chain operates. These measures help companies to evaluate the full scope of their supply-chain performance against best-in-class. The results are based on data from 110 subscriber organisations from America, Europe, and Asia in chemical and pharmaceuticals, computers and electronic equipment, defence, industrial, telecom equipment and consumer packaged goods sectors. Major findings of the survey are:

• Manufacturers are more accurately adjusting forecasts and production cycles to respond to rapid changes in demand. Best-in-class performers now operate with less than 40 days of inventory throughout the supply chain.

• Leading companies have cut their supply-chain management costs to between 4% and 5% of sales. They are adopting innovative practices such as exploiting the Internet to integrate information and decision-making around the globe.

• Cash-to-cash cycle time for best-in-class companies is less than 30 days. Companies pay their suppliers quickly, collect from thier customers just as quickly and move inventory continuously.

• Best-in-class upside production flexibility has dipped below two weeks and in some industries it is less than a week.

Performance of Indian industries

Prof. M. G. Korgaonkar, Head — School of Management, IIT Bombay, in his article “Logistics and Supply Chain Management in India” has reported his findings as under:

• The total logistics cost in the country is estimated at 4.59% of sales and 10% of value added.

• Nearly 60% of the logistics cost is transportation (35%) and inventory costs (25%); the rest is due to losses (14%), packaging (11%), handling and warehousing (9%) and customers’ shopping (6%).

• A growing number of manufacturers are taking proactive and reactive steps to control logistics cost and improve customer service.

• There are major transportation and other infrastructural bottlenecks related to SCM in India, including roads, railways, ports, shipping, etc.

Several new SCM related activities have started in India; these include, emergence of trucking companies, information technology service, containerisation, private warehousing, multi modal transport operators, inland container depots, container freight stations and third-party logistics providers.

The average inventory turns is 4.5 per year. Over 50% of the inventories are of raw materials, due to inadequate control on the supply side.

Supply chain performance is far from satisfactory, in respect of lead times, inventories and deliveries. However, several action programmes have been undertaken by firms to improve supply chain performance. There is a growing trend to outsource supply chain related services; these include inventory management, transportation, warehousing, forwarding and clearing, information technology, etc. However, service providers with adequate skills, competency and technology are limited.

Conclusion

Indian companies are yet to leverage the supply chain for competitive advantage and as such there are no initiatives to measure the performance of their existing supply chain systems. However, many multi-nationals dealing in FMCG are fully exploiting the benefits and are also moving towards Web-enabled supply chains. In view of globalisation and liberalisation of the economy including EXIM policies, Indian companies are being forced to change their ways of doing business to meet the competitive pressure. In the recent past, many progressive companies are re-engineering their business processes and exploiting the use of Information Technology to challenge the ever-increasing competitive pressures in the market place. In this context. Supply Chain Management initiatives could be a competitive tool and measuring the performances against industry standards would go a long way in achieving international standards.

References

• SCOR Overview : Supply-Chain Council, Inc., USA.

• What’s SCOR : Article by Mr. David Blanchard, Senior Editor, Evolving Enterprise, Winter 1998.

• Survey : Top Performers cut SCM costs to 4% of sales-Article on SCM Survey from the Internet.

• Logistics and Supply Chain Management in India : Article by Prof. M. G. Korgaonkar, IIT, Bombay.