SCM Metrics -Presentation 4 By K. Sashi Rao Management Consultant.
-
Upload
blanche-kelley -
Category
Documents
-
view
227 -
download
1
Transcript of SCM Metrics -Presentation 4 By K. Sashi Rao Management Consultant.
SCM Metrics-Presentation 4
By
K. Sashi Rao
Management Consultant
Presentation 4- Coverage
Supply Chain AnalyticsOverall SCM Performance Metrics
K.Sashi Rao/2011
Supply Chain Analytics
Business Analytics (BA)
BA makes up the skills, technologies, applications and practices for continuous iterative exploration and investigation of past business performance to drive business planning
A fundamental basis is to use past time series data analysis BA is also seen as the ability to see patterns in vast amounts
of data and extract actionable insights BA makes extensive use of data, statistical and quantitative
analysis, explanatory and predictive modeling, and fact-based management to drive decision making
Business intelligence (BI) is similar but yet different
K.Sashi Rao/2011
Forecasting Methods-time series approach(2)
Static elements: Trend Seasonal Cyclical Random
Adaptive elements:Moving averageSimple exponential smoothingExponential smoothing (with trend)Exponential smoothing (with trend and seasonality)
K.Sashi Rao/2011
Time Series-static elements
Trend component- persistent overall downward or upward pattern; due to population, technology or long term movement
Seasonal component- regular up and down fluctuations due to weather and/or seasons whose pattern repeats every year
Cyclical component- repeated up and down movements; due to economic or business cycles lasting beyond one year but say every 5-6 years
Random component- erratic, unsystematic, residual fluctuations due to random events or occurrences like one –time drought or flood events
K.Sashi Rao/2011
Time Series Patterns(1)
0
10,000
20,000
30,000
40,000
50,000
97,2
97,3
97,4
98,1
98,2
98,3
98,4
99,1
99,2
99,3
99,4
00,1
Time Series Patterns(2)
0
10000
20000
30000
40000
50000
1 2 3 4 5 6 7 8 9 10 11 12
Period
Demand
Dt
Dt-bar
K.Sashi Rao/2011
Time Series Patterns(3)
K.Sashi Rao/2011
Time Series Patterns(4)
K.Sashi Rao/2011
Business Intelligence (BI)
BI traditionally focuses on using a consistent set
of metrics to both measure past performance
and guide business planning
BI is querying, reporting, online analytical
processing (OLAP) and providing ‘alerts’
K.Sashi Rao/2011
BI and BA
BI answers the questions of ‘what happened; how many, how often, where; where exactly is the problem; what actions are needed
BA can answer questions of ‘ why is this happening; what if these trends continue’ what will happen next, what is the best that can happen
Supply chain analytics is a subset of BA
K.Sashi Rao/2011
Supply Chain Analytics
Extracts, analyses and presents SC performance data to provide measurement, monitoring, predictive/analytical modeling, forecasting and SC management
Identifies trends, performs comparisons and highlights opportunities in SC functions even when large amounts of data are involved
Leverages investments in IT enterprise solutions, web technologies, data warehouses and locates patterns amongst transactional, demographic and behavioral data
K.Sashi Rao/2011
Supply Analytics Usefulness
Enables monitoring on end-to-end basis
Covers all SC functions and processes
Alerts problems and exceptions by predefined thresholds, alerts and triggers
Ensures data visibility and transparency
Serves as the performance ‘dashboard’
Identifies problems for trouble shooting
Becomes an analytical decision making tool
K.Sashi Rao/2011
Supply Analytics Benefits
Reduces direct and indirect costs and improve profitability
Enables holistic view by consolidating data from multiple systems
Applies algorithms and decision rules for meaningful procurement information
Minimizes risks of SC disruptionsMaps bought products-suppliers matrix to focus on
supplier-positioning and supplier-perception modelsSupports supplier management decisions on optimal
sourcing strategiesStreamlines SCM thro’ collaborative processes for
information exchange across SC partners
K.Sashi Rao/2011
Overall SCM Performance Metrics
Overall SCM Performance Metrics
All discussions so far on ‘micro’ perspective on SCM metrics
Now, to take a ‘macro’ perspectiveSimple macro model is to look at overall SC operational
costs- less the better !But cutting ‘ too much fat’ can lead to ‘loss of muscle !Cost focus only while gives short term profitability, could
go against desirable market positioning and building competitive advantage
K.Sashi Rao/2011
SCOR/BSC Models revisited
SCOR as a cross-industry and process reference model enables SC performance and benchmarking
It draws attention to process gaps for improvements rather than specific departmental performance
SCOR does not include Marketing and Sales( demand generation), R & D/ Product development and collaborative SC relationships- all now considered essential for SC success
BSC, though takes 4 perspectives( financial, customer, internal processes and learning and growth), still does not answer need for overall SC performance measures
K.Sashi Rao/2011
Seeking Overall SCM Measures
Issue not of having metrics, but choosing those that really matter !
Focus on limited critical measures avoids ‘paralysis by analysis’ !
Should set KPIs for each function and process linked to corporate goals and strategies
KPI goals set thro ‘benchmarking’ and/or SMART methodology (specific, measurable, achievable, realistic, time-bound goals)
K.Sashi Rao/2011
SCM Performance Measures revisited
Process-based measures- SCOR modelFunctional- based measures- activities/departments
assessedQCDF measures- performance across boundaries of
suppliers and customersTotal chain measures- or ‘supply chain barometer’
assessing performance of complete SC and across organizational boundaries
All these above are not mutually exclusive but different from the way they are viewed
K.Sashi Rao/2011
Process-based Measures (illustrative)
Forecasting & Demand Management- forecasting accuracy, planning efficiency, standardization index
Procurement & Supplier Management- vendor ratings, RM inventory turns, WIP, material stock-outs
Order Processing- shipment accuracy, order processing time, invoice documentation completion/accuracy
Distribution Management- space utilization index, logistics assets turnover, container utilization, warehouse picking time
K.Sashi Rao/2011
Functional-based Measures (illustrative)
Materials Management- material cost as % of sales, inventory turns, production time lost for no materials
Manufacturing Management- scrap factor, defect rate, plant utilization, % time on rework
Logistics/Transportation- GIT inventory index, cost per ton km, warehouse productivity
Sales/Customer Service- customer order cycle time, invoicing accuracy, % stock returns, speed of complaint resolution
Marketing- % sales from new products, time to market, market expansion/market shares, repeat vs. new customers
K.Sashi Rao/2011
QCDF measures (illustrative)
QUALITY-Raw material quality
-Product quality-Order entry accuracy
-Warehouse picking accuracy
COST-Material cost-Labor cost
-Overhead costs-Storage costs
-Logistics costs
DELIVERY-Order processing time
-Manufacturing lead time-Procurement lead time
-Shipment time-Warehousing picking time
FLEXIBILITY-RM inventory days-FG inventory days-GIT inventory days
-Distributors inventory days
K.Sashi Rao/2011
Post-process and Process Measures
All performance measures can be looked at as post-process or process types
Post-process measures are based on past performance data usually from annual reports/data bases( eg.inventory measures)
Process measures are as in SCOR model
K.Sashi Rao/2011
Evaluation of SCM Measures
Costs, activity times, responsiveness to customers et al have all been used singly or jointly
Weaknesses in each such individual measure is lack of inclusiveness, universality, measurability and consistency
Using low cost as a measure can show up elsewhere as poor customer response time or inflexibility to meet demand fluctuations
Performance measures not always well linked to corporate goals( EVA can distort what managers do for their own benefit vis-à-vis of the firm)
In situations of uncertainty and/or economic downturns, measures unable to correlate effort and performance( though supply chain analytics may give deeper explanations/reasons)
Hence, need for total SCM measures as well
K.Sashi Rao/2011
Total SCM Measures
Total SCM costs- cost of all SCM functions as % of gross sales covering managing of material, information and fund flows( cost focus)
Delivery performance to customer request-% orders fulfilled on or before required (customer focus)
Cash to cash cycle time- number of days between paying for raws and receiving from customer( inventory/working capital focus)
Value added productivity per employee- =(sales –cost of goods sold)/ number of employees( management efficiency focus)
Upside production flexibility- days required to meet + 20% unplanned demand on sustained basis( SC flexibility focus)
K.Sashi Rao/2011
Total SCM Measures using Financial Data
Such data easier to get thro company websites and open data bases (eg. ‘Prowess’ data base of CMIE)
Total supply chain length-(RM+WIP+ FG) inventory days of annual sales; lower the better
Supply chain inefficiency ratio- measures relative efficiency of internal SCM; lower the better
Supply chain working capital productivity- higher the better
K.Sashi Rao/2011
Supply Chain Inefficiency (SCI) Ratio
SCI= SCC/NSSCC= DC+(INV x ICC)Where:SCI= Supply Chain Inefficiency RatioSCC= Supply Chain Costs (Rs)DC= Distribution Cost (annual) (Rs) INV=Inventory Value( RM+WIP+FG) as of date
(Rs) ICC=Inventory Carrying Cost( typically 20% of inventory
value or as 0.20 in above equation)NS= Net Sales( annual) (Rs)
K.Sashi Rao/2011
Supply Chain Working Capital Productivity (SWCP)
SWCP= NS/SWCSWC= INV+(AR-AP)Where:SWCP is Supply Chain Working Capital Productivity
(Ratio)SWC= Supply Chain Working Capital (Rs) INV= Inventory (all) Value (Rs)AR= Accounts Receivables (excluding loans and
advances) (Rs)AP= Accounts Payables (Rs)NS- Net Sales (Rs)
K.Sashi Rao/2011
Linking SCM Measures to Business Performance Cost reduction achieved by Reducing inventory Reducing logistics expenses Reducing direct and indirect material expenses Improving revenue and profitability by Selling higher margin products Achieving higher market share Reducing backorder and lost sales Attacking new markets Decreasing supply time to market Improving operational efficiency by Reducing procurement expenses Increasing asset utilization Delaying capital expenditure Reducing working capital by Reducing inventory Reducing accounts receivables
K.Sashi Rao/2011
Enhancing SC Performance
Balance between cost and customer serviceSC optimization- improving SC elements like demand
management, forecasting, inventory control, and transportation efficiency amongst others
SC integration- better intra- and inter- firm integration thro’ improved organizational structures and processes
SC restructuring- major changes in supply chain configurations for all flows especially for new products
K.Sashi Rao/2011
Achieving SC Excellence
Make cultural and attitudinal change (beyond mere metrics)
Break organizational barriers thro’ better communication, coordination and collaboration
Bring about transparency and visibility
Manage thro metrics and analytics
Enable faster, improved, data-based decision-making
Achieve agility and flexibility thro better responsiveness to external (sourcing/market/competition) and internal (supply processes and systems) factors
Use networking tools like VMI, EDI, CPFR, joint cost reduction and vendor development programs
K.Sashi Rao/2011
Executing SC Excellence
Value impact analysis- evaluating metrics to identify KPIs
Blueprint for future- identifying corporate goals/strategies to suitably configure SC elements for performance
Roadmap for success- building blocks and steps towards the blueprint
Implementation- actually executing plans with time-bound milestones and targets
Measurement/feedback- tracking metrics, periodic reviews and corrective actions
Ultimately, all improvement moves should lead to superior SC performance and consequent successful business performance
K.Sashi Rao/2011
Thank you
All the very best