Performance Measures and Performance Models for Supply

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98 SUPPLY CHAIN PERFORMANCE MEASUREMENT AND IMPROVEMENT. where new models are introduced every 6 to 9 months under intense competitive. pressure on cost functionality and service All these challenges ultimately result. in managers asking for an outstanding design of the underlying supply chain. which happens to be the backbone of any business company. A supply chain is a network of supplier manufacturing assembly distribution. and logistics facilities that perform the functions of procurement of materials. transformation of these materials into intermediate and finished products and. the distribution of these finished products to customers Supply chains are now. at the centrestage of business performance of manufacturing and service enterprises. The supply chain process is a complex composite business process comprising a. hierarchy of different levels of value delivering business processes Designing a. high performance supply chain is a very challenging task due to the complex. structure of the supply chains and the ever changing business Some of the. important reasons for the complexity of the decision making process are. Large scale nature of the supply chain networks,Hierarchical structure of decisions. Randomness of various inputs and operations, Dynamic nature of interactions among supply chain elements. Because of the inherent complexity of decision making in supply chains there. is a growing need for modeling methodologies that can help identify and innovate. strategies for designing high performance supply chain networks A large number. of manufacturing and service organizations are therefore seeking modeling systems. that can help identify and implement strategies for designing and improving. their supply chain networks This article provides a first level introduction to. decision making in supply chains and succinctly describes the principal modeling. approaches,1 1 Outline of the Paper, In Section 2 we discuss different aspects of supply chain decision making We. classify supply chain decisions according to the time horizon of decisions and. also according to functionality We provide a representative listing of these. Performance Measures and Performance Models for 99. In Section 3 we describe different measures of supply chain performance. under two main categories financial and non financial. Section 4 is devoted to a discussion of performance modeling approaches to. supply chain networks The models discussed are optimization models analytical. models and simulation models, In Section 5 we present an object oriented modeling approach for supply. chain networks We first describe various objects of an object library The objects. belong to two categories structural objects and policy objects We have used. UML Unified Modeling Language 6 for creating generic object models of. supply chain elements We provide an example of a LPG Liquid Petroleum gas. supply chain to illustrate our object modeling approach. Section 6 concludes the paper and provides pointers to important current. literature,2 Decisions in Supply Chains, Supply chain decisions can be classified based on temporal and functional.
considerations,2 1 A Temporal Classification, Supply chain decisions can be broadly classified into three categories strategic. tactical and operational according to the time horizon of the decisions. Strategic decisions target long term objectives of a supply chain and guide. the supply chain policies from a design and planning perspective Typically. these decisions are not reviewed before a time horizon of a few to several. years expires but the time horizon depends on a variety of factors. Tactical decisions are the decisions that are required to effectively manage. the supply chains configured according to strategic level decisions The. time intervals of tactical decisions could range from weeks to months. Operational decisions are short term decisions and are generally focused. on the real time activities of a supply chain, 100 SUPPLY CHAIN PERFORMANCE MEASUREMENT AND IMPROVEMENT. 2 2 A Functional Classification, Functionally there are four major decision areas in supply chain management. procurement manufacturing distribution and logistics In addition there are. also certain global decisions whose scope extends over multiple functions There. are strategic tactical and operational questions in each of these areas We provide. a list of important decisions here,2 2 1 Procurement Decisions. Supplier Selection Where should we source raw materials components. and sub assemblies from strategic, Direct Delivery from Suppliers Can intermediate warehouses be eliminated.
so that materials can be delivered directly into manufacturing plants. Vendor Managed Inventories Should the inventories at the plants be. vendor managed strategic, Optimal Procurement Policy What are the cost and service trade offs in. alternative procurement strategies strategic tactical. 2 2 2 Manufacturing Decisions, Plant Location How many manufacturing plants should be set up and. where should they be located strategic, Product Line Selection What products should be produced at each. manufacturing location strategic tactical, Capacity Planning How much capacity is needed in each plant strategic. Capacity Allocation How do we allocate plant capacity to products. Inventory Decisions What raw materials WIP finished goods inventory. should be stocked in each center strategic tactical. Optimal Manufacturing Strategy What are the cost and service trade offs. in alternative manufacturing strategies For example what would be the. best policy among make to stock make to order and assemble to order. strategic tactical, Performance Measures and Performance Models for 101.
Input Control How do we introduce work into the plant strategic. tactical operational, Production Scheduling How do we schedule the production to maximize. throughput and minimize cycle time tactical operational. Constrained Supply How do we optimize resource utilization when the. supplies are not enough to fulfill the requirements tactical. 2 2 3 Distribution Decisions, Configuration of Distribution Facilities What types of distribution centers. are required Warehouses cross docks drop lots etc strategic tactical. Location Where should distribution facilities be located strategic. Customer Allocation Which customers should a facility service strategic. Facility Configuration What product should be handled by each facility. What products and in how many quantities should be stocked at each. facility What should be the replenishment strategy strategic tactical. Optimal Distribution Strategy What are the cost and service trade offs of. alternative distribution strategies tactical,2 2 4 Logistics Decisions. Logistics Mode Selection What transport modes and lanes should be used. to move products throughout the network strategic, Selection of Ports Which ports should be used to bring product into and. out of a country strategic, Direct Delivery Which products should move directly from manufacturing.
centers to customers strategic tactical, Optimal Transportation Strategy What are the cost and service trade offs. of alternative transportation strategies tactical,2 2 5 Global Decisions. Product and Process Selection What product quantities by facility by. process should be produced and stored in each period to support customer. 102 SUPPLY CHAIN PERFORMANCE MEASUREMENT AND IMPROVEMENT. demands What products to sell and to which customers to maximize profits. Planning Under Uncertainty What are the implications associated with. seasonal or cyclical demand capacity availability cost fluctuations or raw. material availability tactical operational, Global Optimization of Operations What are the cost and service trade. offs among procurement manufacturing distribution and logistics. alternative strategies strategic tactical, Real time Monitoring and Control How can the orders be dynamically. routed and scheduled through the supply chain in reaction to occurrence. of real time events operational,3 Supply Chain Performance Measures.
Supply chain performance measures can be classified broadly into two categories. 55 qualitative measures such as customer satisfaction and product quality. and quantitative measures such as order to delivery lead time supply chain. response time flexibility resource utilization delivery performance etc In our. study we consider only the quantitative performance measures. Quantitative metrics of supply chain performance can be classified into two. broad categories Non financial and financial,3 1 Non Financial Performance Measures. Important metrics include cycle time customer service level inventory levels. resource utilization performa bility flexibility and quality There is a detailed. discussion of these in 55 We will focus here on the first four measures. 3 1 1 Cycle Time, Cycle time or lead time is the end to end delay in a business process For supply. chains the business processes of interest are the supply chain process and the. order to delivery process Correspondingly we need to consider two types of. lead times supply chain lead time and order to delivery lead time The order to. delivery lead time is the time elapsed between the placement of order by a customer. and the delivery of products to the customer If the items are in stock then it. Performance Measures and Performance Models for 103. would be equal to the distribution lead time and order management time If the. items are made to order then this would be the sum of supplier lead time. manufacturing lead time distribution lead time and order management time. The supply chain process lead time is the time spent by the supply chain to. convert the raw materials into final products plus the time needed to reach the. products to the customer It thus includes supplier lead time manufacturing. lead time distribution lead time and the logistics lead time for transport of raw. materials from suppliers to plants and for transport of semi finished finished. products in and out of intermediate storage points Lead time in supply chains is. dominated by the interface delays due to the interfaces between suppliers and. manufacturing plants between plants and warehouses between distributors and. retailers etc Lead time compression is an extremely important topic because of. time based competition and the correlation of lead time with inventory levels. costs and customer service levels,3 1 2 Customer Service Level. Customer service level in a supply chain is a function of several different. performance indices The first one is the order full rate which is the fraction of. customer demands that are met from stock For this fraction of customer orders. there is no need to consider the supplier lead times and the manufacturing lead. times Another measure is the backorder level which is the number of orders. waiting to be filled To maximize customer service level one needs to maximize. order full rate and minimize backorder levels Another measure is the probability. of on time delivery which is the fraction of customer orders that are fulfilled on. time i e within the agreed upon due date,3 1 3 Inventory Levels. Since inventory carrying costs can contribute significantly to total costs there. is a need to carry just about enough inventory to satisfy the customer demands. Inventories held in a supply chain belong to four categories Raw materials. work in process unfinished and semi finished parts finished goods inventory. and spare parts Each type of inventory is held for different reasons and there is a. need to keep optimal levels of each type of inventory Thus measuring the actual. inventory levels will provide a useful picture of system efficiency. 104 SUPPLY CHAIN PERFORMANCE MEASUREMENT AND IMPROVEMENT. 3 1 4 Resource Utilization, A supply chain network uses resources of various kinds manufacturing resources.
machines material handlers tools etc storage resources warehouses automated. storage and retrieval systems logistics resources trucks rail transport air cargo. carriers etc human resources labor scientific and technical personnel and. financial working capital stocks etc The objective is to utilize these assets or. resources efficiently so as to maximize customer service levels minimize lead times. and optimize inventory levels,3 2 Financial Measures. There are several fixed and operational costs associated with a supply chain. Ultimately the aim is to maximize the revenue by keeping the supply chain costs. low Costs arise due to inventories transportation facilities operations technology. materials and labor The financial performance of a supply chain can be evaluated. by looking into the following items 2,cost of raw material. revenue from goods sold, activity based costs such as material handling manufacturing assembling etc. inventory holding costs,transportation costs,cost of expired perishable goods. penalties for incorrectly lled or late orders delivered to customers. credits for incorrectly lled or late deliveries from suppliers. cost of goods returned by customers,credits for goods returned to suppliers.
Typically the financial performance indices can be put together using the. following major modules activity based costing inventory costing transportation. Performance Measures and Performance Models for 97 Performance Measures and Performance Models for Supply Chain Decision Making Numerous models algorithms and tools have been deployed in supply chain modeling and decision making These are based on stochastic models optimization models object oriented models and simulation This paper

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