Supply Chain Analytics

Introduction
to
Supply Chain
What is a Supply Chain?

• The system of suppliers, manufacturers, transportation,

distributors, and vendors that exists to transform raw materials to
final products and supply those products to customers.

• That portion of the supply chain which comes after the

manufacturing process is sometimes known as the distribution
network.
 What Is a Supply Chain?

Flow of products and services from:

• Raw materials manufacturers
• Intermediate products manufacturers
• End product manufacturers
• Wholesalers and distributors and
• Retailers

• Connected by transportation and storage activities

• Integrated through information, planning, and integration activities

• Cost and service levels

1.1 What Is Supply Chain?

• Supply Chain is a set of approaches utilized to efficiently integrate

suppliers, manufacturers, warehouses, and stores, so that

merchandise is produced and distributed at the right quantities, to

the right locations, and at the right time, in order to minimize

system wide costs while satisfying service level requirements.

 Two Other Formal Definitions

The design and management of seamless, value-added process

across organizational boundaries to meet the real needs of the end
customer

Institute for Supply Management

Managing supply and demand, sourcing raw materials and parts,

manufacturing and assembly, warehousing and inventory tracking,
order entry and order management, distribution across all channels,
and delivery to the customer

The Supply Chain Council

 What is a Supply Chain?
Customer wants
P&G or other Jewel or third Jewel
detergent and goes
manufacturer party DC Supermarket
to Jewel

Chemical
Plastic Tenneco
manufacturer
Producer Packaging
(e.g. Oil Company)

Chemical
Paper Timber
manufacturer
Manufacturer Industry
(e.g. Oil Company)
 PC Industry Supply Chain
Tracing back the screen you stare at for the bulk of your time.
Tools and Strategies for Optimization

• Decision Support Systems

• Inventory Control
• Network Design
• Design for Logistics
• Cross Docking
 Customers,
Field demand
Sources: Regional Warehouses: centers
plants Warehouses: stocking sinks
vendors stocking points
ports points

Supply

Inventory &
warehousing
costs
Production/
purchase Transportation Transportation
costs costs costs
Inventory &
warehousing
costs
Conflicting Objectives in the Supply Chain

1. Purchasing
• Stable volume requirements
• Flexible delivery time
• Little variation in mix
• Large quantities
. Manufacturing
• Long run production
• High quality
• High productivity
• Low production cost
Conflicting Objectives in the Supply Chain

3. Warehousing
• Low inventory
• Reduced transportation costs
• Quick replenishment capability
4. Customers
• Short order lead time
• High in stock
• Enormous variety of products
• Low prices
Logistics in the Manufacturing Firm

Profit
• Profit 4%

• Logistics Cost 1% Logistics

Cost

• Marketing Cost 7% Marketing

Cost

• Manufacturing Cost 48%

Manufacturing
Cost
Importance of Supply Chain
Supply Chain: The Magnitude

• Compaq computer estimates it lost $500 million to $1 billion in

sales in 1995 because its laptops and desktops were not available
when and where customers were ready to buy them.

• Boeing aircraft, one of America's leading capital goods producers,

was forced to announce write downs of $ .6 billion in October 1997,
due to “Raw material shortages, internal and supplier parts
shortages…”.
Supply Chain: The Potential

• Procter & Gamble estimates that it saved retail customers $65

million through logistics gains over the past 18 months.

“According to P&G, the essence of its approach lies in

manufacturers and suppliers working closely together …. jointly
creating business plans to eliminate the source of wasteful practices
across the entire supply chain”.
(Journal of business strategy, Oct./Nov. 1997)
Supply Chain : The Potential

• In 10 years, Wal-Mart transformed itself by changing its logistics

system. It has the highest sales per square foot, inventory turnover
and operating profit of any discount retailer.

• Dell Computer has outperformed the competition in terms of

shareholder value growth over the eight years period, 1988-1996, by
over 3,000% (see Anderson and Lee, 1999) using
• Direct Business model
• Build-to-Order Strategy.
 Unit I : Introduction to Supply Chain Analytics

Introduction to supply chain analytics -Evolution of

Supply chain analytics -Supply chain planning -Different Views

of supply chain - Analytics in Supply chain

 According to Capgemini Analytics, “Supply Chain Analytics

brings data-driven intelligence to your business, reducing the overall

cost to serve and improving service levels.

 Supply chains typically generate massive amounts of data.

Supply chain analytics helps to make sense of all this data

uncovering patterns and generating insights.

 Different types of Supply Chain Analytics include:

•Descriptive analytics. Provides visibility and a single

source of truth across the supply chain, for both internal and
external systems and data.

•Predictive analytics. Helps an organization understand the

most likely outcome or future scenario and its business
implications.
For example, using predictive analytics can project and
mitigate disruptions and risks.
Prescriptive Analytics. Helps organizations solve problems and

collaborate for maximum business value. Helps businesses

collaborate with logistic partners to reduce time and effort in

mitigating disruptions.
•Cognitive analytics. Helps an organization answer complex

questions in natural language — in the way a person or team of

people might respond to a question.

•It assists companies to think through a complex problem or issue,

such as “How might we improve or optimize X?”

Supply chain analytics is also the foundation for applying cognitive

technologies, such as artificial intelligence (AI), to the supply chain

process.

Cognitive technologies understand, reason, learn and interact like a

human, but at enormous capacity and speed

• This advanced form of supply chain analytics is helping in a new
era of supply chain optimization.

• It can automatically examine through large amounts of data to help

an organization improve forecasting, identify inefficiencies,
respond better to customer needs, drive innovation and pursue
breakthrough ideas
 External Supply Chain

Hospitals

Domestic
Dealers

Part Meditech Meditech

suppliers Assembly Warehouse
Hospitals

Int’l
Meditech
Affiliates
 Internal Supply Chain

Parts Inventory Assembly Bulk Inventory Packaging &

Sterilization FG Inventory

- 16 1
weeks weeks week
 Production Planning
Annual
Forecast

Monthly
Revision

Transfer
Requirements

Monthly
Plan

MRP

Parts Weekly
Procurement Assembly
Plan Schedule
 Production Planning
Monthly
Plan

MRP

Order point;
Material
Order quantity
Plan

Parts Inventory Assembly Bulk Inventory Packaging & FG inventory

Sterilization
 FIVE BASIC COMPONENT OF SUPPLY CHAIN
MANAGEMENT

1. Planning:

• The strategic portion of supply chain management.

• A strategy for managing all the resources that goes toward meeting customer
demand for your product or service.

• Balances aggregate demand and supply to develop a course of action which best
meets the requirements for:
-Sourcing
- Production, and
-Delivery
 BASIC COMPONENT OF SUPPLY CHAIN MANAGEMENT
(contd)

. Sourcing:

•Choose the suppliers that will deliver the goods and services you need to create
your product or service.

•Develop a set of pricing, delivery and payment processes with suppliers and
create metrics for monitoring and improving the relationships.

•Put together processes for managing the inventory of goods and services you
receive from suppliers.
 BASIC COMPONENT OF SUPPLY CHAIN MANAGEMENT
(contd)
3. Making: (The manufacturing step. )

•Schedule the activities necessary for production, testing, packaging and

preparation for delivery.

•Is the most metric-intensive portion of the supply chain, it measures

- Quality levels
- Production output, and
- Worker productivity

4. Delivering: ( The "logistics” portion of SCM. )

It Involves:
- Coordinating the receipt of orders from customers
- Developing network of warehouses
- Picking carriers to get products to customers, and
- Set up an invoicing system to receive payments.
 BASIC COMPONENT OF SUPPLY CHAIN
MANAGEMENT (contd)

5. Return: (The problem part of the supply chain. )

• Create a network for receiving defective and excess

products back from customers

•Supporting customers who have problems with

delivered products.
Evolution of Supply Chain Analytics

1. First important revolution which is in the beginning of 0th century around 1910 and 19 0
that time and this is characterized by the ford supply chain
Right from birth to death of the car ford supply chain is known to be one of the most efficient
supply chain, on one side Ford used to have its own Iron ore and on the other side they used
to distribute the cars, finished car on the market, so on one side they were having the mining
business, they were used to process the iron ore to get the screen use that is steel in making
the car and then distribute the car.

This model is fixed in nature

Iron / Ore Mining Vendors Sales

Japanese revolution which came around 1950s and 1960s

 Japanese revolution which came around 1950s and 1960s after Second World War

 Now what they did, Toyota developed a pool of vendors and these pool of vendors they

used to supply different types of products, components, assemblies, sub-assemblies to

Toyota.

 Toyota used to distribute these finish cars to the customers, so instead of doing all things on

its own.

 Toyota started developing the capabilities of the vendors and actually this is a model which

nowadays most of the companies follow, now it is very rare though the example.

 Ford is always known as always popular for its very high level of efficiency.
 Iron-ore and
19 0 Ford Customers Fixed
Mining

1950 Vendors Toyota Customers Flexible

1960 Customers Dell Vendors Company Complete

 Evolution of Supply Chain Management
Activity fragmentation to 1960 Activity Integration 1960 to 2000 2000+

Demand forecasting

Purchasing

Requirements planning
Purchasing/
Production planning Materials
Management
Manufacturing inventory

Warehousing
Logistics
Material handling

Packaging

Finished goods inventory Supply Chain

Physical Supply Chain
Management
Distribution Management
Distribution planning

Order processing

Transportation

Customer service

Strategic planning

Information services

Marketing/sales

Finance
The Third Revolution > 1960’s
Supply Chain Planning
 What is Supply Chain Planning ?

Supply Chain is a set of activities (e.g. purchasing,

manufacturing, logistics, distribution, marketing) that
perform the function of delivering value to end customer

Traditionally, all the business units along a supply chain

have their own objectives and these are often conflicting

There is no single plan to carry out supply chain activities

 What is Supply Chain Planning ?

There is need for a mechanism through which the

execution of various business activities along a supply
chain can be planned in an integrated fashion.

The supply chain planning is an effort to achieve the

primary goal of “producing and distributing the
merchandise at the right quantity, to the right
locations, and at the right time with minimum system
wide cost” in the presence of conflicting goals of various
business units
 Dynamics of Material Flow

Supplier Plant Warehouse Logistics Retailer

 Dynamics of Order Flow

Supplier Plant Warehouse Logistics Retailer

 Supply Chain Planning Processes
Demand Forecasting
Material Requirement Planning Demand Planning

Component Production
Requirement Plan

Supplier Plant Warehouse Logistics Retailer

Order Management
Supply Chain planning of MNC

original equipment manufacturer

 Supply Chain Planning Decisions

STRATEGIC

TACTICAL

OPERATIONAL

Procurement Manufacturing Distribution Logistics

The View of Supply Chain
Process View of a Supply Chain

Cycle View: processes in a supply chain are divided

into a series of cycles, each performed at the
interfaces between two successive supply chain stages

Push/pull view: processes in a supply chain are divided

into two categories depending on whether they are
executed in response to a customer order (pull) or in
anticipation of a customer order (push)
11
Cycle View of Supply Chains

Customer

Customer Order Cycle

Retailer
Replenishment Cycle

Distributor

Manufacturing Cycle

Manufacturer
Procurement Cycle
Supplier

50
 Cycle View of a Supply Chain

Each cycle occurs at the interface between two successive stages

Customer order cycle (customer-retailer)

Replenishment cycle (retailer-distributor)

Manufacturing cycle (distributor-manufacturer)

Procurement cycle (manufacturer-supplier)

Cycle view clearly defines processes involved and the owners of each
process.

Specifies the roles and responsibilities of each member and the desired
outcome of each process.
51
 Customer Order Cycle

Involves all processes directly involved in

receiving and filling the customer’s order

Customer arrival

Customer order entry

Customer order fulfillment

Customer order receiving 54

 Replenishment Cycle

All processes involved in replenishing retailer

inventories (retailer is now the customer)
Retail order trigger
Retail order entry
Retail order fulfillment
Retail order receiving
55
 Manufacturing Cycle

All processes involved in replenishing

distributor (or retailer) inventory
Order arrival from the distributor, retailer,
or customer
Production scheduling
Manufacturing and shipping
Receiving at the distributor, retailer, or customer

56
 Raw
Material

Part
Designing
Production

Warehouse Assembling

Testing QC
 Procurement Cycle

All processes necessary to ensure that materials are available

for manufacturing to occur according to schedule

Manufacturer orders components from suppliers to replenish

component inventories

However, component orders can be determined precisely

from production schedules (different from retailer/distributor
orders that are based on uncertain customer demand)

Important that suppliers be linked to the

manufacturer’s production schedule
59
Request for Quotation
Push/Pull View of Supply Chains

Customer Order
Procurement, Cycle
Manufacturing and
Replenishment cycles

PUSH PROCESSES PULL PROCESSES

Customer
Order Arrives
62
Push/Pull View of Supply Chain Processes

Supply chain processes fall into ONE OF TWO

categories depending on the Timing Of Their
execution relative to customer demand

Pull: execution is initiated in response to a customer

order (reactive) ex. DELL
Push: execution is initiated in anticipation of customer
orders (speculative) ex.TOYOTA
Push/pull boundary separates
 Supply Chain in a Firm

All supply chain processes can be classified into

◦ Customer relationship management

◦ Internal supply chain management

◦ Supplier relationship management

The three macro processes manage the flow of

information, product, and funds required to
generate, receive, and fulfill a customer request.
67
 Supply Chain Macro Processes

Supplier Firm Customer

Supplier Relationship Internal Supply Chain Customer
Management Management Relationship
Management
Source Strategic planning Market Price
negotiate buy, Demand Forecasting, Sell ,
Supply Collaboration Supply Planning fulfillment, Call Center
Field Service Order Management

68
Analytics in Supply chain
 Logistics
• Ease in tracking and material handling, movement of inventory can
be guaranteed by analytics.

• Finding areas of concern will be easier for them.

 Analytics in Supply Chain

• Data is used extensively in Supply Chain for following

• Planning, Product Launches to Replenishment planning
• Scheduling of resources and assets
• Landed Costing , Transportation Analysis
• Demand Planning
• Fulfillment Process Analysis
• Vendor Analysis
• Purchase Order Analysis
• SKU (stock keeping unit ) Rationalization
• Supply Chain Network Design
• Facility Design, Simulation and Layout Planning
1. Demand forecasting

2. Inventory planning

3. Inventory management (threshold, replenishment etc..)

4. Inventory control

5. Routing and optimization

6. Sensor Data(Truck GPS, Warehouse Camera’s, Proximity Sensors,

etc..) Analytics

7. Quality management

8. Equipment failure

9. Space optimization
 Critical Key Performance Indicators

• Total Delivered Cost • Operating Costs

• Customer Service • Performance to Plan

• Supply Variability • Lead Time

• Demand Variability

Lead-time is the interval between the initiation and

completion of a process
 DRIVING VISIBILITY:

• Globalization has led to an explosion of manufacturers, dealers,

suppliers and distribution areas.

• While this amplifies business growth, it also demands unfaltering

management of a complex network of the regional supply chain.

• Thus, organizations are looking for ways to improve visibility into

their operations, across departments and beyond boundaries of

locations.
• Real-time monitoring of demand, critical events, KPI and

transactions, not only improves control and cost efficiency but

renders the business more agile by enhancing responsiveness to

situations and ultimately minimizing customer impact.

• Take a look at how a leading jewelry manufacturer leveraged a

business intelligence solution, enabled with automated KPI

notifications, to gain complete visibility into stock levels and

accordingly streamline their processes.

Driving Volatility Management:
• Inaccurate forecasting is plaguing businesses everywhere – especially
the ones in industries like healthcare, consumer goods, retail,
automotive, and logistics.

• The instability in demand is driving businesses to adopt tools to gain

real-time forecast ability, to respond to highly volatile markets that
have no tolerance for bottlenecks.

• For example – while healthcare businesses cannot afford to be

understocked, overstocking can lead to costly wastage for those that
deal with consumer goods.

• Investing in real-time supply chain analytics can help businesses gain

Driving Cost Optimization

Increasing operational costs inevitably affect budgets,

working capital, cost of end-product and cash flow.

Systematic and timely analysis of critical data can help to achieve

cost optimization in areas including material sourcing, load planning,
fleet sizing, route and freight costing.

Detailed analysis of finances, capability constraints and potential

supplier risk can minimize monetary loss in the later stages of supply
chain management.

For understanding fleet size

https://www.mahindrajeeto.com/models-choose-your-jeeto.aspx
 Role of Business Analytics
in
Supply Chain Management
 Forecasting Future Demand

• Companies these days are investigating much deeper into their data to

get a brief understanding and learn from past as well as current

data.

• Analytics will help define the future demand, thereby ensuring lesser

storage costs or scarcity of raw materials to fulfill the demand.

• Balance between supply and demand will ensure that clients are

satisfied and goodwill is maintained in the market for prompt

delivery of services with lesser lead time

 Materials

• Ease in availability of data can ensure information available at their

fingertips, which makes ordering for materials quite smooth, thus,

ensuring that material ordered are Just-in-Time and other materials

that can be held as per the.

 Supplier Analytics

• Analytics can study your supplier’s plan and forecast availability of

raw materials.

• This can again reduce excess inventory storage costs, non-

availability of materials for production, track defective pieces, etc.

 UNIT II
Supply Chain Strategies
• Supply Chain Strategy

• Supply Chain Drivers

• Developing a Supply Chain Strategy

• Strategic Fit in Supply Chain

• Demand Forecasting in Supply Chain

Supply Chain Strategy

Strategic Supply Chain Management is defined as: "A

strategy for how the supply chain will function in its environment to

meet the goals of the organization’s business and organization

strategies".
 Supply chain strategy is an iterative process that evaluates the
cost- benefit trade-offs of operational components.
Business strategy involves leveraging the core competencies of the
organization to achieve a defined high-level goal or objective.
Supply Chain Drivers
• The five drivers provide a useful framework for thinking about

supply chain capabilities.

• Decisions made about how each driver operates will determine the

blend of responsiveness and efficiency a supply chain is capable of

achieving.

• The five drivers are illustrated in the diagram below

Supply Chain Drivers
 PRODUCTION

1. This driver can be made very responsive by building factories that

have a lot of excess capacity and use flexible manufacturing
techniques to produce a wide range of items.

2. To be even more responsive, a company could do their production

in many smaller plants that are close to major groups of customers
so delivery times would be shorter.
1. If efficiency is desirable, then a company can build
factories with very little excess capacity and have those
factories optimized for producing a limited range of
items.
2. Further efficiency can also be gained by centralizing
production in large central plants to get better
economies of scale, even though delivery times might
be longer.
INVENTORY –
• Responsiveness can be had by stocking high levels of inventory for a
wide range of products.
• Additional responsiveness can be gained by stocking products at
many locations so as to have the inventory close to customers and
available to them immediately.
• Efficiency in inventory management would call for reducing
inventory levels of all items and especially of items that do not sell
as frequently.
• Economies of scale and cost savings can be gotten by stocking
inventory in only a few central locations such as regional distribution
centers (DCs).
LOCATION –

A location decision that emphasizes responsiveness would be one

where a company establishes many locations that are close to its
customer base.
For example, fast-food chains use location to be very responsive to
their customers by opening up lots of stores in high volume markets.
Efficiency can be achieved by operating from only a few locations
and centralizing activities in common locations.
An example of this is the way e-commerce retailers serve large
geographical markets from only a few central locations that perform a
wide range of activities.
 TRANSPORTATION –

Responsiveness can be achieved by a transportation mode that is fast

and flexible such as trucks and airplanes.

Many companies that sell products through catalogs or on the Internet are

able to provide high levels of responsiveness by using transportation to

deliver their products often within 48 hours or less.

FedEx and UPS are two companies that can provide very responsive

transportation services. And now Amazon is expanding and operating its

own transportation services in high volume markets to be more responsive

to customer desires.
• Efficiency can be emphasized by transporting products in larger

batches and doing it less often.

• The use of transportation modes such as ship, railroad, and

pipelines can be very efficient.

• Transportation can also be made more efficient if it is originated

out of a central hub facility or distribution center (DC) instead of

from many separate branch locations.

INFORMATION –

• The power of this driver grows stronger every year as the technology
for collecting and sharing information becomes more wide spread,
easier to use, and less expensive.

• Information, much like money, is a very useful commodity because it

can be applied directly to enhance the performance of the other four
supply chain drivers.

• High levels of responsiveness can be achieved when companies

collect and share accurate and timely data generated by the operations
of the other four drivers.
• An example of this is the supply chains that serve the electronics market; they are

some of the most responsive in the world.

• Companies in these supply chains, the manufacturers, distributors, and the big

retailers all collect and share data about customer demand, production schedules,

and inventory levels.

• This enables companies in these supply chains to respond quickly to situations

and new market demands in the high-change and unpredictable world of

electronic devices (smartphones, sensors, home entertainment and video game

equipment, etc.).
• When to be Efficient and
• When to be Responsive
 Efficiency is Good

• Efficiency drove the economy of the 10th century.

• The push for efficiency increased productivity and lowered the prices of
products from automobiles to home appliances thus making them available to
a wide segment of the population.

• Yet efficiency requires Two Things that are becoming much harder to find.

• The first thing is predictability.

• To efficiently plan and manage production and distribution of products you

need to know what the demand will be for those products, and you need to
know what the cost of raw materials will be and what the is the inventory
Efficiency requires one more thing — stability

You need to know that demand and prices will remain relatively stable for

some number of years (5 or 10 years or more).

Because then you can build factories and stores and transportation

infrastructure to enable your efficient operating model.

Efficiency is best when producing relatively simple commodity products

and services that sell in more predictable and stable markets

Responsiveness is better

• Responsiveness is what drives the economy.

• Responsiveness is what drives continuous innovation in products and

technology and continuous change in the ways we organize businesses

and serve customers.

• The big companies of the 0th century were efficient manufacturing

companies (Ford, GM, US Steel, Kodak, Whirlpool etc.), but the big

companies of the 1st century are responsive service and technology

companies (Alibaba, Amazon, Apple, Facebook, Google, Starbucks,

Tencent, etc.).
• All these 21st century companies certainly need to be efficient, but their success

is based mostly on their ability to sense and respond quickly to changing markets

and evolving customer desires.

• Lowest price is not always the deciding factor in purchasing decisions; people

want what they want.

• They want products and services that respond quickly and meet their needs and

desires.

• Apple and Starbucks do not sell the lowest priced laptops or cups of coffee, nor

does Porsche make the lowest priced cars, but as long as people value the quality

and innovation offered by those companies and others like them they will pay
Developing a supply chain strategy
Business Elements
Structural Infrastructural
(Tangible) (Intangible)
• Buildings  People
• Equipment  Policies
• Computer systems  Decision rules
• Other capital  Organizational
assets structure
 Definition

• Strategies - The mechanisms by which businesses coordinate their

decisions regarding their structural and infrastructural elements.

• Mission Statement - Explains why an organization exists and what

is important to the organization (its core values) and identifies the

organization’s domain.
 Definitions

• Business Strategy - The strategy that identifies a firm’s

targeted customers and sets time frames and
performance objectives for the business.

• Functional Strategy - A strategy that translates a

business strategy into specific functional areas.

• Core Competency - An organizational strength or

ability that customers find valuable and competitors
find difficult or impossible to copy.
A Top-Down Model of Strategy
Supply Chain Strategies

The Supply Chain Strategy is a Functional Strategy that

indicates how the structural and infrastructural elements within the
operations and supply chain areas will be acquired and developed to
support the overall business strategy.

• What Mix of Structural and Infrastructural Elements ?

• Is the Mix Aligned with the Business Strategy?

• Does it support the development of Core Competencies?

 Functional Strategy

• Translates the business strategy into Functional terms.

• Assures Coordination with other areas.

• Provides Direction and Guidance for operations and supply chain

decisions.
 Key Budgeting.
Finance Analysis.
Interactions Funds.
What IT solutions
MIS
to make it all work together

Sustainability.

Design Quality.

Manufacturability
Supply
Chain Performance measurement systems.
Strategy
Planning and control
Accounting
Entry
Audit
Human
Skills? Training?
Resources
What products?

What volumes?
Marketing Costs?
Quality?
Delivery?
Decisions Guided by the Structural Strategy

Capacity

• Amount, Type, Timing

Facilities

• Services/Manufacturing, Warehouses, Distribution hubs

• Size, location, degree of specialization

Technology

• Services/Manufacturing, Material handling equipment,

Transportation equipment, Information systems
 Decisions Guided by the Infrastructural Strategy
Organization
• Structure, Control/reward systems, Workforce decisions

Sourcing/Purchasing
• Sourcing strategies, Supplier selection, Supplier performance measurement

Planning and Control

• Forecasting, Tactical planning, Inventory management, Production planning
and control

Business Processes and Quality Management

• Six Sigma, Continuous improvement, Statistical process control

Product and service development

• The developmental process, Organizational and supplier roles
 Customer Value

• Value Analysis - A process for assessing the value of a product or service.

• Value Index - A measure that uses the performance and importance scores for

various dimensions of performance for an item or a service to calculate a score

that indicates the overall value of an item or a service to a customer.

Some examples are:

Choosing which home to buy or apartment to rent

Picking a location for a new factory

Selecting the best person for a new position

Deciding which supplier to use other than for lowest price

Deciding which features to include in a new product

Four Performance Dimensions

• Quality

• Time

• Flexibility

• Cost
Four Performance Dimensions

• Quality
• Performance Quality – The basic operating characteristics
of the product or service.

• Conformance Quality – Was the product made or the

service performed to specifications?

• Reliability Quality – Will a product work for a long time

without failing?
 Four Performance Dimensions : 2 Time

• Time

• Delivery Speed - The ability for the operations or supply chain

function to quickly fulfill a need once it has been identified.

• Delivery Reliability – The ability to deliver products or

services when promised.

 Four Performance Dimensions : 3 Flexibility

• Flexibility

• Mix Flexibility – The ability to produce a wide range of products

or services.

• Changeover Flexibility – The ability to produce a new product

with minimal delay.

• Volume Flexibility – The ability to produce whatever volume

the customer needs.

 Four Performance Dimensions

• Cost

• Labor costs

• Material costs

• Engineering costs

• Quality-related costs
Trade-offs among Performance Dimensions

• Generally very difficult to excel at all four performance

dimensions.
• Some common conflicts
• Low cost versus high quality
• Low cost versus flexibility
• Delivery reliability versus flexibility
• Conformance quality versus product flexibility
Order Winners and Order Qualifiers

• Order Winners

A performance dimension that differentiates a company’s

products and services from its competitors.

• Order Qualifiers

A performance dimension on which customers expect a

minimum level of performance to be considered
 The Idea Behind
Prioritizing

“Best in
Class”

Minimum
Needs

Cost Quality Speed Flexibility

Comparing Two Software Development Firms

“Best in
Class”

Minimum
Needs

Cost Quality Speed Flexibility

Measurements

• Performance against
• Customer needs
• Business objectives or standards
• Comparisons to competitors

• Comparisons to “best in class”

 Stages of Alignment Between Supply Chain Strategy

• Stage 1 – Internally neutral

• Minimize negative potential in the operations and supply chain
areas.
• Stage – Externally neutral
• Follow industry practice.
• Stage 3 – Internally supportive
• Align structural and infrastructural elements with business
strategy.
• Stage 4 – Externally supportive
• Seek to exploit core competencies.