Supply Chain Exam 5

Principle SC information requirements:

meet quality standards (accurate), support multidirectional flows (shareable), provide decision support, accessible

Cross-chain visibility

Supports process variability reduction, performance optimization, & cost control.

2. Agility

Support analytics that help to understand volatility and respond appropriately.

3. Velocity

Adjust speeds according to situations.

4. Synchronization

Facilitates data synchronization & real-time information sharing between partners.

5. Adaptability

Enable strategic adaptation of supply chain design & capabilities to evolving conditions.

6. Segmentation

Help define customer segments, understand cost to serve & prioritize service execution.

7. Optimization

Enable consideration of trade-offs, effectively deploy resources, & make decision.

EDI

Electronic data interchange is an older technology. It uses a batch process
to transmit very standardized code between businesses. Expensive to start-up
and people with expertise are retiring each day. Not web based or real time.

API

Application Programming Interface. It transits data between businesses in
real time. Easier for programmers to learn and is web based. Inexpensive to start-up and much more flexible that EDI.

Mitigate Technology Risks

Common risks must be identified and mitigated to maximize the return on

technology investments.

The pitfalls associated with systems adoption or upgrades

• Unrealistic assumption that supply chain technologies will readily

solve or fix flawed supply chains.

• Weak technology-process alignment, leading to ill-fitting solutions

that fail to achieve their promise

• Technology gaps as a result of piecemeal purchases and deployment

of technologies

• Challenges in cross-chain systems integration with suppliers, service

providers, and customers

• Poor planning and preparation for technology implementation

Supply chain planning help organizations shift from autonomous planning activities to…?

synchronized planning processes that use real-time data for collaboration across departments, suppliers & customers.

Supply chain execution: companies use a variety of execution software to facilitate…?

desired performance day-to-day operating tasks required to support customer demand.

Event Management / exception management

SC event management tools collect data in real time from multiple sources

across the network & convert them into information that allows companies to

automate the monitoring of supply chain events as they occur on a day-to-

day basis. Typically focuses on 5 business processes: monitoring, notification,

simulation, control, and measurement

Analytics & Business Intelligence Tools : Capabilities

The data collection & “big data” analytics

Self-service reporting

Performance scorecarding versus goals

Development of graphical dashboards

Activity monitoring supporting event mgmt

Access to data residing on multiple SCIS

Analytics & Business Intelligence Tools: Opportunity Areas

• Generating valuable insights about complex global operations

• Providing more granular visibility of spending

• Improving S&OP & demand forecasting

• Resolving logistics bottlenecks

Facilitating Tools: Enterprise resource planning systems

ERP - incorporate internal and external systems into a single unified solution
that spans the enterprise.

Facilitating Tools: SRM

Supplier relationship management - A controlled and systematic approach to managing an organization’s sourcing activities for goods and services.

Facilitating Tools: CRM

customer relationship management - Focuses on practices, strategies & technologies used to manage & analyze customer interactions & data throughout relationship lifecycle

Facilitating Tools: Automatic identification (auto-ID) & data capture technologies

Recognize objects, collect relevant information, and feed the data directly
into the SCIS.

Successful supply chains achieve

alignment: people, processes, technologies.

Alignment reinforces supply chain goals. Relevant examples:

• Supply chain and organizational strategies

• Supply and demand

• Supply chain and trading partners

Organizations emphasize:

supply chain collaboration

Effective SCM prioritizes:

coordination and integration

Levels of Partnership: Transactional

characterized by minimal integration or collaboration, similar to a vending machine transaction

Levels of Partnership: collaborative

involves cooperation and modification of business objectives for long-term goals.

Levels of partnership: strategic

represents customized relationships producing better results collectively than individually.

How do I decide who to partner with?

#1 perform strategic assessment

#2 decision to form relationship

#3 Evaluate Alternatives: Company needs and priorities, potential partner capabilities

#4 select partners

#5 structure operating model

#6 implementation and continuous improvement

Explanation of Steps of deciding who to partner with : Step 1 Perform Strategic Assessment

Involves the conduct of a logistics audit, which provides a perspective on the firm’s logistics and supply chain needs and a wide range of useful information.

Explanation of Steps of deciding who to partner with : Step 2 Decision to Form Relationship

• Decision involving external logistics service provider focuses on whether or not to have a relationship.

• Decision involving channel partners focuses on type of relationship that works best.

Explanation of Steps of deciding who to partner with : Step 3 Evaluate Alternatives

• Thorough assessment of the company’s needs and priorities in comparison with the capabilities of each potential partner.

• A broad representation and involvement of people throughout the company.

Explanation of Steps of deciding who to partner with : Step 4 Select Partner(s)

• Select a logistics or supply chain partner only after very close consideration of the credentials of the most likely candidates.
• Ensure that everyone involved has a consistent understanding of the decision made.

Explanation of Steps of deciding who to partner with : Step 5 Structure Operating Model

• The activities, processes, and priorities that will be used to build and sustain the relationship. Examples of components are:
• Scope and governance of relationship, leadership roles, trust and collaboration, information sharing, financial responsibilities.

Explanation of Steps of deciding who to partner with : Step 6 Implementation and Continuous Improvement

• Depending on complexity of the new relationship, the overall implementation process may be relatively short, or it may be extended over a longer period of time.

Seven Immutable Laws of Collaborative Logistics/Relationships

Real and recognized benefits to all members

Dynamic creation, measurement, and evolution of collaborative partnerships

Co-buyer and co-seller relationships

Flexibility and Security

Collaboration across all stages of business process integration

Open integration with other services

collaboration around essential logistics flow

3PL: External logistics supplier

• Offers various logistics services.
• Includes transportation, warehousing, distribution.
• Manages integrated logistics solutions.
• Contract logistics or outsourcing used interchangeably.
Terms broadly refer to external logistics services.

What services do 3PLs Provide? (Top 5)

Domestic transportation, freight forwarding, International transportation, customs brokerage, warehousing

What are the benefits of using 3PLs?

reduces logistics costs, improve service, innovate logistics effectively

3PL Information Technology Important Services: Shippers

1. Control tower visibility
2. Transportation management (planning)
3. Transportation management (scheduling)
4. Cloud-based solutions
5. Advanced analytics and data mining tools
6. Warehouse/DC management
7. Web portals

3PL Information Technology Important Services: Providers

1. Transportation management (scheduling)

2. Cloud-based solutions

3. Transportation management (planning)

4. Warehouse/DC management

5. Customer relationship management (CRM)

6. Control tower visibility

7. Electronic data interchange (EDI)

Customers Expectations of 3pl providers

Superior service and execution (proven results and performance)

Trust, openness, and information sharing

solution innovation and relationship reinvention

capable information technologies to support the relationship

ongoing executive-level support

service offering aligned with customer strategy and deep industry knowledge

3PL Providers expectations of customers

Mutually beneficial, long-term relationship with company

trust, openness, and information sharing

dedicating the right resources at the right levels, including executives

access to useful data to design solutions and provide desired services to customers

clearly defined service-level agreements

fiduciary responsibility and overall fairness relative to pricing

What does “Value” look like to the Customers?

Based on 3PL user perspectives, there are several areas to consider:

• Meet service-level commitments

• Realize cost reductions

• Avoid “cost-creep” and price increases once relationship commences

• Effective “onboarding” by 3PLs of new customer relationships

• Ability to form meaningful and trusting relationships

• Information technology capabilities

• Global capabilities

• Strategic management capabilities and consultative/knowledge-based skills

Types of Metrics: Measure

• Requires no calculations and with simple dimensions

• Logistics examples: units of inventory, backorder dollars

Types of Metrics: Metric

• Involves a calculation or a combination of measurements, often in
the form of a ratio
• Logistics examples: Inventory turns, return on investment (ROI),
sales dollars per SKU

Types of Metrics: Index

• Combines 2 or more metrics into a single indicator, usually used to

track trends in the output of a process

• Logistics examples: perfect order, cash to cash cycle

Traits of Good Logistics Performance Measurements

• Quantitative

• Easy to understand and calculate

• Encourages appropriate behavior

• Visible

• Well-defined and mutually understood

• Encompasses outputs & inputs

• Measures only what is important

• Multidimensional

• Uses economies of effort

• Facilitates trust

Successfully Developing a Supply Chain Metrics Program

• Is a result of a team effort.
• Involves customers and suppliers (where appropriate).
• Develops a tiered structure.
• Identifies metric “owners” and ties metric goal achievement
to an individual’s or division’s performance evaluation.
• Establishes a procedure to mitigate conflicts.
• Is consistent with corporate strategy.
• Establishes top management support.

How is Performance Being Evaluated? It is different based on whether you are on the supplier/vendor side or the carrier side.

• Sales ($)

• Gross margin (%)

• Inventory Turns (using COGS)

• On-time service

• Utilization by equipment/driver

• Safety event frequency

Margin percentage

• Sales price – costs of goods = Margin (profit) or gross profit
• (Margin / Sales price) x 100 = Margin percentage

Markup Percentage

• Shows how much more your selling price is than the amount the item costs you
• (Cost x Markup Percentage) + Cost

Inventory turnover = COGS/Average Inventory

• Measures how many times a company sells its stock of inventory in a given time period

• One of the best indicators of efficiency of turning inventory into sales

Margin Calculation Example: Calculate margin, margin percentage and mark-up percentage.

• Sell bicycles for $200 each. Cost is $150.

• $200 - $150 = $50 gross profit (margin)

• ($200-$150)/$200 = 0.25 or 25% profit margin percentage

• For every $1 in sales, you keep $0.25 after paying expenses

• ($200-$150)/$150 = 0.33 or 33% markup percentage

• Sell the bicycle for 33% more than you paid for it

Inventory Turnover Example

• Walmart for FY2020 had sales of $519.9B, COGS of $394.6B and average inventory of $44.44B

• $394.6 billion / $44.44 billion = 8.88

• Walmart’s inventory turns 8.88 times during a year’s time

Different Process Measurement Categories: Time

On-time delivery/ receipt

order cycle time

order cycle time variability

response time

forecasting/planning cycle time

Different Process Measurement Categories: Quality

overall customer satisfaction

processing accuracy

perfect order fulfillment (on-time delivery, complete order, accurate product selection, damage-free, accurate invoice)

forecast accuracy

planning accuracy: budgets and operating plans

schedule adherence

Different Process Measurement Categories: cost

finished goods inventory turns

days sales outstanding

cash-to-cash cycle time

total delivered cost (cost of goods, transportation costs, inventory carrying costs, material handling costs)

all other costs (info systems, administrative)

cost of excess capacity

cost of capacity shortfall

Different Process Measurement Categories: Other / Supporting

approval exceptions to standard (minimum order quantity, change order timing)

availability of information

The Supply Chain & Finance Connection

SCM is a means to improving financial performance.
Cost of providing logistics service not only affects the marketability of the product (via the landed cost, or price), but also impacts its profitability

The Supply Chain & Finance Connection : Inventory Management & Capitol

Logistics techniques such as JIT & VMI reduce inventory levels and capital

required

The Supply Chain & Finance Connection : Lead times & inventory cost and customer service

Consistent and short lead times helps inventories and can build customer
satisfaction and loyalty

The Supply Chain & Finance Connection : order processing time & order-to-cash cycle

Order processing time has a direct bearing on an organization’s order-to-cash
cycle: Longer order-to-cash cycle = higher accounts receivable and higher
investment in “sold” finished goods.

High level relationships

logistics cost up = organizations profit down

Inventory level up = capital down

Supply Chain Strategies and ROA

return on assets = profit / assets utilized

Metric used as a benchmark to compare management and organization performance to that of other organizations

• SC impact to increase ROA

• Inventory management: Minimize safety stock

• Transportation: Improve on-time delivery, optimize mode mix

• Order management: Reduce stockouts

Strategies the increase ROA

Channel structure management, inventory management, order management, transportation management

Cash to Cash Conversion Cycle

• How long is a company’s cash tied up in the production & sales process

before it gets converted back to cash again?

• Calculation is commonly used by analysts to measure the time (usually in

days) between:

Company’s initial investment in working capital (pays cash to its suppliers for inventory) goes hand in hand with company’s cash collection (collects cash from its customers)

Why is Cash to Cash an Important Metric?

Data is relatively easy to gather

• Pull info from Balance Sheet and Income Statement

Accounting

• Measure of liquidity

• Measure of value

Supply chain management

• Bridges across inbound material activities with suppliers, through manufacturing operations, and the outbound sales activities with customers

3 Parts of Calculating C2C : Days of Inventory

focuses on existing inventory level and represents how long it will take (in days) for the company to sell its inventory; generally a lower value indicates better inventory turnover

3 Parts of calculating C2C : Days of Receivables

focuses on the current sales and how long it takes to collect cash from the sales; a lower value indicates a company collects its money in a shorter period of time

3 Parts of calculating C2C : Days of Payables

focuses on the amount of money the company owes its suppliers for the inventory and goods it purchases; a higher value is preferred, indicating a company holds its cash longer, increasing its investment potential

How to calculate Cash to Cash

(+) Days of Inventory (Avg Inv * 365 / COGS)

(+) Days of Receivables (A/R * 365 / Revenue)

(-) Days of Payable ( A/P * 365 / COGS)

= Cash-to-Cash Cycle

What is a Strategy?

Common components
• Thoughtful planning (setting goals)
• Achieve a goal (identifying needed actions)
• Resources or actions (utilizing resources)

Helps decision makers distribute limited resources

Provides a framework for assessing costs and benefits

Key components of a strategy

formulation and implementation

benefits of a strategy

helps achieve goals, allocates resources, clarifies purpose, gives direction for action

7 Principles of Supply Chain Management

1. adapt supply chain based on service needs of each customer segment

2. customize logistics network for each segment

3. align demand planning across the supply chain

4. differentiate product closer to customer

5. outsource strategically

6. develop information technology that support multi-level decision making

7. adopt both service and financial metrics

The seven principles basically survive the test of time. We still have a long way to go on supply chain strategy implementation. Technology and data will be the major game changer going forward.

level of analytics : descriptive