Supply Chain Management: Key Concepts and Performance Metrics

CHAPTER 1 — Supply Chain

Flow of goods/services, money, and information from need identification through the final customer

Supply Chain Management (SCM)

Managing sourcing/procurement, conversion, and logistics while coordinating supply chain partners

Supply

SCM area involving suppliers, purchasing, sourcing, and supplier relationships

Operations

SCM area involving transforming inputs into products/services

Logistics

Movement and storage of goods through the supply chain

Integration

Coordinating supply chain members, processes, goals, and information

SOLI

Supply, Operations, Logistics, Integration

Reverse Logistics

Flow of products from the customer back toward the company

Bullwhip Effect

Amplification of demand variation as you move upstream in the supply chain

Core Competency

Capability or skill providing an advantage competitors cannot reasonably replicate

Sustainability

Meeting current needs without limiting future generations' ability to meet their needs

Triple Bottom Line

Framework measuring social, environmental, and financial performance

Three Ps

People, Planet, Profits

Supply Chain Analytics

Using supply chain data to draw conclusions and make predictions

Agility

Ability of a supply chain to respond and scale quickly to change

Resilience

Ability of a supply chain to withstand disruption and recover

Visibility

Ability to know the location and status of products throughout the supply chain

SCOR

Supply Chain Operations Reference model

SCOR Processes

Plan, Source, Make, Deliver, Return, Enable

Plan

SCOR process that balances resources with supply chain requirements

Source

SCOR process involving suppliers, purchasing, receiving, and supplier evaluation

Make

SCOR process involving production, scheduling, testing, and packaging

Deliver

SCOR process involving orders, warehousing, transportation, shipping, and invoicing

Return

SCOR process involving reverse product flows

Enable

SCOR process supporting information, relationships, resources, rules, and compliance

Lean / JIT

System focused on reducing waste and inventory while improving flow

MRP

Material Requirements Planning; manages component requirements, inventory, purchases, and production schedules

Six Sigma

Quality improvement approach developed at Motorola in the 1980s

BPR

Business Process Reengineering; rethinking and redesigning processes to reduce waste and improve performance

End Customer

Ultimate source of income for organizations throughout the supply chain

Collaborative Supply Chain

Supply chain characterized by cooperation, trust, and information sharing

CHAPTER 14 — Performance Measurement

Quantifying the efficiency and effectiveness of activities

Performance Standard

Expected level of performance used for comparison

Performance Variance

Difference between actual performance and the performance standard

Productivity

Ratio of output to input

Single-Factor Productivity

Output compared with one input

Multifactor / Total Productivity

Output compared with multiple or all inputs

World-Class Performance Measurement

System linking strategies and operating decisions to customer requirements

Non-Value-Added Activity

Activity that consumes resources without creating customer value

Supply Chain Performance Measurement

Measurement across the entire supply chain with emphasis on end-customer value

Total SCM Costs

Costs of processing orders, purchasing/managing inventory, and information systems

Cash-to-Cash Cycle Time

Average days between paying for materials and receiving payment from supply chain partners

Production Flexibility

Average time required to provide an unplanned 20% increase in production

Delivery Performance

Percentage of orders filled on or before the requested delivery date

Perfect Order Fulfillment

Percentage of orders arriving on time, complete, and undamaged

E-Business Performance

Percentage of electronic orders received among supply chain members

Environmental Performance

Measures of supply chain environmental practices and results

Green Supply Chain Management

Integration of environmental thinking into supply chain management

Balanced Scorecard (BSC)

Performance system aligning measures with strategic plans and goals

Balanced Scorecard Origin

Developed in 1992 by Kaplan and Norton

BSC Financial Perspective

Measures financial performance

BSC Customer Perspective

Measures performance from the customer's perspective

BSC Internal Business Process Perspective

Measures effectiveness of internal processes

BSC Learning and Growth Perspective

Measures ability to learn, develop, and improve

Performance Dashboard

Web-based application used to display and manage performance measures

SCOR Performance Attributes

Reliability, Responsiveness, Agility, Cost, Asset Management

Reliability

SCOR attribute concerning consistent and correct supply chain performance

Responsiveness

SCOR attribute concerning speed of providing products to customers

Agility

SCOR attribute concerning ability to respond to external changes

Cost

SCOR attribute concerning costs of operating the supply chain

Asset Management

SCOR attribute concerning effective use of supply chain assets

ISO 14000

Environmental management standards/certifications

Carbon Footprint

Total carbon emissions associated with activities or supply chain configurations

CHAPTER 5 — Forecasting

Estimating future demand for products or services

Qualitative Forecasting

Forecasting based primarily on judgment, opinions, and intuition

Quantitative Forecasting

Forecasting using mathematical models and historical data

Jury of Executive Opinion

Qualitative method using opinions of senior managers

Delphi Method

Qualitative method using repeated rounds of expert opinions and revisions

Sales Force Composite

Forecast created from estimates provided by salespeople

Consumer Survey

Forecasting method asking customers about future purchases, needs, or opinions

Time Series Forecasting

Forecasting that assumes the future is an extension of the past

Cause-and-Effect Forecasting

Forecasting using one or more independent variables to predict demand

Trend Variation

Long-term increasing or decreasing movement over many years

Cyclical Variation

Wave-like movement lasting longer than one year, such as a business cycle

Seasonal Variation

Peaks and valleys repeating at consistent intervals

Random Variation

Variation caused by unexpected or unpredictable events

Naïve Forecast

Next period's forecast equals demand from the immediate past period

Simple Moving Average (SMA)

Forecast using an average of historical demand; works well with stable demand

Weighted Moving Average (WMA)

Moving average assigning different weights to historical periods

Exponential Smoothing

Time-series method that updates forecasts using prior forecasts and actual demand

Forecast Error

Actual demand minus forecast demand

MAD

Mean Absolute Deviation; average absolute forecast error

MAPE

Mean Absolute Percentage Error; forecast error expressed as a percentage

MSE

Mean Squared Error; average squared forecast errors

RSFE

Running Sum of Forecast Errors; indicates forecast bias

Tracking Signal

RSFE divided by MAD

Forecast Bias

Tendency for forecasts to be consistently above or below actual demand

CPFR

Collaborative Planning, Forecasting, and Replenishment

CPFR Information Sharing

Supply chain partners share information to improve planning and forecasts

Artificial Intelligence (AI)

Self-learning machines used to process data and improve predictions

Machine Learning (ML)

Type of AI using algorithms to learn from data and improve predictions

AI Forecasting

Using AI and ML on structured and unstructured data to predict future outcomes and trends

Predictive AI

Uses reliable past/current data to predict future demand and trends

Demand Sensing

Uses real-time data to understand current market conditions and adjust forecasts

Demand Sensing Data

POS data, social media trends, weather patterns, and other real-time inputs

Cloud-Based Forecasting

Supplier-hosted/SaaS forecasting applications provided on a subscription basis

CHAPTER 6 — Resource Planning

Determining production capacity required to meet demand

Capacity

Amount of output a process or system is capable of producing during a period

Aggregate Production Plan (APP)

Long-range plan for product families, generally covering about one year or more

Master Production Schedule (MPS)

Medium-range plan specifying exact end items, quantities, and timing