Chapter 4-5-6 - Good to know basic knowledge from the test asdasdfkmasdflkmasdfşlmasdfşlmasdfşlamsdşflmasdşlfmaşsldfmaşlsdfmşlasdf PDF

Preview

Summary

Good to know basic knowledge from the test asdasdfkmasdflkmasdfşlmasdfşlmasdfşlamsdşflmasdşlfmaşsldfmaşlsdfmşlasdf msadflm asldşfm şasdf mşasdfm alşsdfm ds afşlksamdflşksamdfşlsmadf masldfkmaşsldfmşsladfm asdfmşlasdf...

Description

Chapter 4: Supply Chain Relationships



Logistics Relationships: o Vertical relationship

these refer to the traditional linkages between firms in the supply chain such as retailers, distributors, manufacturers, and parts and materials suppliers. These firms relate to one another in the ways that buyers and sellers do in all industries, and significant attention is directed toward making sure that these relationships help to achieve individual firm and supply chain objectives o Horizontal relationship includes those business agreements between firms that have “parallel” positions. A horizontal relationship may be thought of as a service agreement between two or more independent logistics provider firms based on trust, cooperation, shared risk and investments, and mutually agreeable goals. 

Range of relationship types: (Relationship perspectives) o Transactional (Vendor) – arm’s length a vendor is represented simply by a seller or provider of a product or service, such that there is little or no integration or collaboration with the buyer or purchaser. o Collaborative (Partner) – modify their business objectives o Strategic (Alliance) relationship suggested by a strategic alliance is one in which two or more business organizations cooperate and willingly modify their business objectives and practices to help achieve long-term goals and objectives.



Supply Chain Relationships (Informal (unpredictable product quality and supply) – Functional (sub-optimizes) – Internal process integration (world-class performance) – The expanded enterprise (Core competencies)) (supply chain stage)



Strategic vs Tactical/Operational Relationships (tactical partner highly focused on cost – service partner right solutions – Strategic partner)

In the role of strategic partners, customers treat 3PLs as key strategic resources, and both parties are expected to invest in the relationship and share the returns on their investments. Additionally, shippers view their 3PL providers as critical elements of their businesses and competitive positioning, and are willing to share their long-term plans with 3PLs that manage the functioning of its supply chain. It is this type of relationship where both 3PLs and customers make sure there is alignment of business and operational goals.



Collaborative relationships: o Collaboration – work for mutual benefit – sum of the pars is greater than the whole

Collaboration may be thought for the benefit of all as a “business practice that encourages individual organizations to share information and resources.” Collaboration allows companies to “leverage each other on an operational basis so that together they perform better than they did separately.” While this approach creates a synergistic business environment in which the sum of the parts is greater than the whole, it is not one that comes naturally to most organizations, particularly those offering similar or competing products or services. Collaboration requires the following: •Parties involved to dynamically share and interchange information •Benefits experienced by parties to exceed individual benefits •All parties to modify their business practices •All parties to conduct business in a new and visibly different way •All parties to provide a mechanism and process for collaboration to occur

COLLABORATIVE PLANNING, FORECASTING, AND REPLENISHMENT (CPFR) is a business practice that combines the intelligence of multiple partners in the planning and fulfillment of customer demand. Sellers and buyers in a supply chain may collaborate along any or all of the following: •Strategy and planning: The partners determine the scope of the collaboration and assign roles, responsibilities, and clear checkpoints. In a joint business plan they then identify significant events such as promotions, new product introductions, store openings/closings, and changes in inventory policy that affect demand and supply. •Demand and supply management: A collaborative sales forecast projects the partners' best estimate of consumer demand at the point of sale. This is then converted to a collaborative order plan that determines future orders and delivery requirements based on sales forecasts, inventory positions, and replenishment lead times. •Execution: As forecasts become firm, they are converted to actual orders. The fulfillment of these orders then involves production, shipping, receiving, and stocking of products. •Analysis: The key analysis tasks focus on identifying exceptions and evaluating metrics that are used to assess performance or identify trends.



Third Party Logistics (3PL)

A third-party-logistics firm may be defined as an external supplier that performs all or part of a company’s logistics functions. Depending on the firm and its positioning in the industry, the terms contract logistics and outsourcing are sometimes used in place of third-party logistics. While some industry executives take care to distinguish among terms such as these, each of these terms refers to the use of external suppliers of logistics services. Council of Supply Chain Management Professionals Definition: "A firm [that] provides multiple logistics services for use by customers. Preferably, these services are integrated, or "bundled" together, by the provider. Among the services 3PLs provide are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding." – solutions to logistics and supply chain problems



Profile of Logistics outsourcing activities (Outsourced activities)

Logistics Activities Outsourced: A recent study showed that the logistics services most frequently outsourced are those that are more operational, transactional, and repetitive in nature. Looking at the results over all of the regions studied, the most frequently outsourced services include transportation (90%), warehousing (74%), customs clearance and brokerage (70%), and forwarding (54%). The responses provide support that the services outsourced less frequently tend to be customer related, involve the use of information technology, and are more strategic in nature.

Views of Non-customers: The most important reason that organizations have elected not to outsource logistics services is the belief that logistics is a “core competency” at those organizations. Other reasons include the belief and/or expectations that cost reductions would not be realized, control over outsourced function(s) would diminish, service level commitments would not be realized, and they have more logistics expertise than the 3PL providers. 

Customer expectations of 3PL providers and 3PL provider’s expectations of customers

3PLs and approximately two-thirds of the customers think of their 3PLs as providers of tactical or

operational services, while approximately one-third think of them as strategic or integrative. Customer benefits:

The State of Logistics Outsourcing”, shippers report an average of 36% of their total logistics expenditures are related to outsourcing. This compares with an average of 44% reported last year and 42% reported in the previous year. Total logistics expenditures include transportation, distribution, warehousing and value-added services. The above table summarizes the tangible benefits shippers report from their use of 3PL services, including average improvements in order fill rate and order accuracy. The average logistics cost reduction reported by shippers was 9%; the average inventory cost reduction was 5%; and the average fixed logistics cost reduction was 15%. This is the

second consecutive year in which each of these percentage figures was down modestly from those reported in the previous year’s study. This is not unexpected, because both shippers and 3PLs have been working earnestly to attain these efficiencies. It now appears that the magnitude of annual savings of these types has begun to taper off somewhat. This idea is supported by the results of a discussion held during a Capgemini workshop about 3PL usage around the assertion that many big customers already have taken significant cost out of their supply chains.

 3PL Advantages (third party logistics advantages)

Focus on Core Strengths Using 3PL providers allows a company to focus on its core competencies. With corporate resources becoming increasingly limited, it is often difficult to be an expert in every facet of business. However, if logistics is one of the company’s areas of expertise, then outsourcing may not make sense. Provides Technological Flexibility As requirements change and technology advances, the better 3PL providers constantly update their information technology and equipment . Often individual companies do not have the time, resources, or expertise to constantly update their technology. 3PLs can meet different requirements in a quicker, more cost-effective way. Also 3PLs may have the capability to meet the needs of a firm’s potential customers, allowing the firm access to certain retailers that might not otherwise be possible or cost-effective. Provides Other Flexibilities 3PLs may also provide greater flexibility in geographic locations. Increasingly, suppliers are requiring rapid replenishment, which in turn may require regional warehousing. By utilizing 3PL warehousing providers, a company can meet customer requirements without committing capital and limiting flexibility. Also, flexibility in service offerings may be achieved through 3PLS that are equipped to offer retail customers a much larger variety of services. In addition, flexibility in resource and workforce size can be achieved by changing what would be fixed costs into variable costs, in order to react more quickly to changing business conditions.

 3PL disadvantages (third party logistics disadvantages) Loss of control inherent in outsourcing a particular function. This disadvantage may be heightened if outbound logistics 3PLs interact with a firm’s customers. Efforts such as painting company logos on the sides of trucks, dressing 3PL employees in the uniforms of the hiring company, and providing extensive reporting on each customer interaction may help reduce this disadvantage. Logistics is one of the core competencies of a firm If logistics is one the core competencies of the firm, it makes no sense to outsource these activities to a supplier who may not be as capable as the firm’s inhouse expertise.

Chapter 5: Supply Chain Performance Measurement

 

Companies using effective performance measurement systems are more likely to achieve leadership positions in their industry and are more successful in handling major change. Performance measures must be visible and communicated to all member of the supply chain

What is the difference between a measure, a metric, and an index? Traditionally, the term measure was used to denote any quantitative output of an activity or process. Today, the term metric is being used more often in place of the term measure as performance measurement becomes more multifaceted. An index is often used to track trends in the output of a process Index: combines two or more metrics into a single indicator “perfect order” Metrics: Form of ratio, required calculation “Inventory turns, inventory future days of supply, sales dollars per stock keeping unit” Measure: requires no calculations and with simple dimension 

Characteristics of Good Supply Chain Performance Measures

The first question to be asked about a metric is, “Is it quantitative?” While not all metrics are quantitative, this is usually a requirement when measuring the outputs of processes or functions. The second question to be asked about a metric is, “Is it easy to understand?” This question is directly related to the fifth question, “Is it defined and mutually understood?” The third question to be asked about a metric is, “Does it encourage appropriate behavior?” A basic principle of management is that metrics will drive behavior. The fourth question to be asked is, “Is the metric visible?” Good metrics should be readily available to those who use them. The sixth question to be asked is, “Does the metric encompass both outputs and inputs?” Process metrics, such as ontime delivery, need to incorporate causes and effects into their calculation and evaluation. The seventh question to be asked is, “Does it measure only what is important?” The supply chain operation generates huge volumes of transactional data on a daily basis. The eighth question to be asked about a good metric is, “Is it multidimensional?” Although a single metric will not be multidimensional, a firm’s metric program will be. This is where the terms scorecard and key performance indicators (KPIs) will apply. The ninth question to be asked is, “Does the process use economies of effort?” Another way to ask this question is, “Do we get more benefits from the metric than we incur costs to generate it?” The last question to be asked about a good metric is probably the most important: “Does it facilitate trust?” If it does not, complying with the other nine characteristics makes little or no difference for the effectiveness of the metric. Evaluating current or potential supply chain metrics is critical to a sound metrics program. Also important to note is that metrics need to change over time; not only the performance standard but also the individual metric as well. “Internal” metrics focus on the performance of the shipping firm while “external” metrics measure the experience of the customer. Total cost is a measure of efficiency and was the rationale supporting physical distribution management. Least total cost was later used to support the logistics management approach. The focus upon a least total cost system required measuring the tradeoff costs when a suggested change was made in one of the components or elements of the system.

Performance metrics:

The implementation of new technologies and the changing business environment have prompted many firms to reexamine their supply chain metrics programs. Another driving influence for this reexamination has been the desire of organizations to change their supply chain focus from a “cost” center to an “investment” center. A company’s supply chain must achieve the balance between responsiveness (customer service) and efficiency(cost) that best supports the company’s competitive strategy. Supply chain performance metrics over time:



Developing supply chain performance metrics (develop supply chain performance metrics)

First, the development of a metrics program should be the result of a team effort. Successful metrics implementations involve development teams comprised of individuals representing functional areas within the firm that will be impacted by the metrics.

Second, involve customers and suppliers, where appropriate, in the metrics development process. Third, develop a tiered structure for the metrics. Many organizations develop a small number of KPIs (Key Performance Indicators) that are viewed at the executive level for strategic decision making. Tied to each strategic KPI are tactical and operational metrics. Fourth, identify metric “owners” and tie metric goal achievement to an individual’s or division’s performance evaluation. This provides motivation to achieve metric goals and use metrics to manage the business. Fifth, establish a procedure to mitigate conflicts arising from metric development and implementation. Sixth, the supply chain metrics must be consistent with corporate strategy. Finally, establish top management support for the development of a supply chain metrics program. 

Drivers of Supply Chain Performance:

Facilities Location •centralization (efficiency) vs. decentralization (responsiveness) •other factors to consider (e.g., proximity to customers) Capacity (flexibility versus efficiency) Manufacturing methodology (product focused versus process focused) Warehousing methodology (SKU storage, job lot storage, cross-docking) Overall trade-off: Responsiveness versus efficiency - Increasing the number of facilities increases facility and inventory costs but decreases transportation costs and reduces response time, increasing the flexibility or capacity of a facility increases facility costs but decreases inventory costs and response time Inventory Cycle inventory •Average amount of inventory used to satisfy demand between shipments •Depends on lot size Safety inventory •inventory held in case demand exceeds expectations •costs of carrying too much inventory versus cost of losing sales Seasonal inventory •inventory built up to counter predictable variability in demand •cost of carrying additional inventory versus cost of flexible production Overall trade-off: Responsiveness versus efficiency •more inventory - greater responsiveness but greater cost: a higher level of inventory facilitates a reduction in production and transportation costs because of improved economies of scale •less inventory - lower cost but lower responsiveness Transportation Mode of transportation: •air, truck, rail, ship, pipeline, electronic transportation •vary in cost, speed, size of shipment, flexibility Route and network selection •route: path along which a product is shipped •network: collection of locations and routes In-house or outsource Overall trade-off: Responsiveness versus efficiency - the cost of transporting a given product (efficiency) versus the speed with which that product is transported

(responsiveness), using fast modes of transport raises responsiveness and transportation cost but lowers the inventory holding cost Information Push (MRP) versus pull (demand information transmitted quickly throughout the supply chain) Coordination and information sharing Forecasting and aggregate planning Enabling technologies •EDI •Internet •ERP systems •Supply Chain Management software Overall trade-off: Good information helps a firm improve both efficiency and responsiveness. More information is not always better, increases complexity and cost of both infrastructure and analysis exponentially while marginal value diminishes. Evaluate the minimum information required to accomplish the desired objectives Sourcing In-house versus outsource decisions Supplier evaluation and selection Procurement process Overall trade-off: Increase the supply chain profits - outsource if it raises the supply chain surplus more than the firm can on its own, keep function in-house if the third party cannot increase the supply chain surplus or if the outsourcing risk is significant Pricing Pricing and economies of scale Everyday low pricing versus high-low pricing Fixed price versus menu pricing Overall trade-off: Increase the firm profits - understand of the cost structure of performing a supply chain activity and the value this activity brings to the supply chain, strategy may support efficiency in the supply chain, lower supply chain costs, defend market share, or steal market share. Differential pricing may be used to attract customers with varying needs. Strategy should help either increase revenues or shrink costs or preferably both



Key performance indicators (KPI)

A key issue in supply chain management is the integration of KPIs. If suppliers are not working to the same targets as their customers, it is unlikely that the end customer will be satisfied. SMART (Specific, measurable, achievable, relevant, time phased) Measure results not activities Can be both quantitative or qualitative

 Performance Categories o Time

o Quality o Cost o Supporting Metrics The text identifies four major categories with examples that provide a useful way for examining logistics and supply chain performance: time, quality, cost, and supporting metrics. A number of approaches can be used to classify supply chain performance metrics. Time has traditionally been given attention as an important indicator of logistics performance, especially...