SlideShare a Scribd company logo
1 of 47
Download to read offline
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Chapter 3 
Supply Chain Drivers and Metrics 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Learning Objectives 
• Describe key financial measures of firm performance. 
• Identify the major drivers of supply chain performance. 
• Discuss the role of each driver in creating strategic fit between 
the supply chain strategy and the competitive strategy. 
• Define the key metrics that track the performance of the supply 
chain in terms of each driver. 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Financial Measures Of Performance 
• From a shareholder perspective, return on equity (ROE) is the 
main summary measure of a firm’s performance 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Financial Measures of Performance 
• Return on assets (ROA) measures the return earned on each 
dollar invested by the firm in assets 
Earnings before interest 
Average total assets 
ROA  
  
Average total assets 
Net income  Interest expense(1– Tax rate) 
 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Financial Data for Amazon 
Table 3-1 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Financial Measures Of Performance 
• An important ratio that defines financial leverage is accounts 
payable turnover (APT) 
Cost of goods sold 
Accounts payable 
APT  
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Financial Measures Of Performance 
• ROA can be written as the product of two ratios—profit margin 
and asset turnover 
(Profit margin) 
Earnings before interest 
Sales revenue 
ROA 
(Asset turnover) 
Sales revenue 
 
Total assets 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
• ART= Sales revenue/Accounts Recievable 
• PPET= Sales revenue/PP & E 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Financial Measures of Performance 
• Cash-to-cash (C2C) cycle roughly measures the average amount 
time from when cash enters the process as cost to when it 
returns as collected revenue 
C2C = – days payable (1/APT) 
+ days in inventory (1/INVT) 
+ days receivable (1/ART) 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Drivers of Supply Chain Performance 
• Facilities 
The physical locations in the supply chain network where 
product is stored, assembled, or fabricated 
• Inventory 
All raw materials, work in process, and finished goods within a 
supply chain 
• Transportation 
Moving inventory from point to point in the supply chain 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Drivers of Supply Chain Performance 
• Information 
Data and analysis concerning facilities, inventory, 
transportation, costs, prices, and customers throughout the 
supply chain 
• Sourcing 
Who will perform a particular supply chain activity 
• Pricing 
How much a firm will charge for the goods and services that it 
makes available in the supply chain 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
A Framework for Structuring Drivers 
Figure 3-1 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Facilities 
• Role in the supply chain 
The “where” of the supply chain 
Manufacturing or storage (warehouses) 
• Role in the competitive strategy 
Economies of scale (efficiency priority) 
Larger number of smaller facilities (responsiveness priority) 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Facilities 
• Components of facilities decisions 
Role 
 Flexible, dedicated, or a combination of the two 
 Product focus or a functional focus 
Location 
 Where a company will locate its facilities 
 Centralize/decentralize, macroeconomic factors, quality of 
workers, cost of workers and facility, availability of 
infrastructure, proximity to customers, location of other 
facilities, tax effects 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra 
Contd…
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Facilities 
• Components of facilities decisions 
Capacity 
 A facility’s capacity to perform its intended function or functions 
 Excess capacity – responsive, costly 
 Little excess capacity – more efficient, less responsive 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Facilities 
• Components of facilities decisions 
Facility-related metrics 
 Capacity 
 Utilization 
 Processing/setup/down/idle time 
 Production cost per unit 
 Quality losses 
 Theoretical flow/cycle time of production 
 Actual average flow/cycle time 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Facilities 
• Overall trade-off: Responsiveness versus efficiency 
Cost of the number, location, capacity, and type of facilities 
(efficiency) and the level of responsiveness 
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 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Overall Trade-Off 
• Responsiveness versus efficiency 
Cost of the number, location, capacity, and type of facilities 
(efficiency) 
Level of responsiveness 
Increasing number of facilities increases facility and inventory 
costs, decreases transportation costs and reduces response 
time 
Increasing the flexibility or capacity of a facility increases 
facility costs, decreases inventory costs and response time 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Inventory 
• Role in the supply chain 
Mismatch between supply and demand 
Satisfy demand 
Exploit economies of scale 
Impacts assets, costs, responsiveness, material flow time 
Material flow time: The time that elapses between the point at 
which material enters the supply chain to the point at which it 
exits 
Throughput, the rate at which sales occur 
Little’s law 
I = DT 
where, I = flow time, T = throughput, D = demand 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Inventory 
• Role in competitive strategy 
Form, location, and quantity of inventory allow a supply chain to 
range from being very low cost to very responsive 
Objective is to have right form, location, and quantity of 
inventory that provides the right level of responsiveness at the 
lowest possible cost 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Components of Inventory Decisions 
• Cycle inventory 
Average amount of inventory used to satisfy demand between 
shipments 
Function of lot size decisions 
• Safety inventory 
Costs of carrying too much inventory versus cost of losing sales 
Inventory held in case demand exceeds expectations 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Components of Inventory Decisions 
• Seasonal inventory 
Inventory built up to counter predictable variability in demand 
Cost of carrying additional inventory versus cost of flexible 
production 
• Level of product availability 
The fraction of demand that is served on time from product 
held in inventory 
Trade off between customer service and cost 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Components of Inventory Decisions 
• Inventory-related metrics 
Cash-to-cash cycle time 
Average inventory 
Inventory turns 
Products with more than a specified number of days of inventory 
Average replenishment batch size 
Average safety inventory 
Seasonal inventory 
Fill rate 
Fraction of time out of stock 
Obsolete inventory 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Inventory 
• Overall trade-off: Responsiveness versus efficiency 
Increasing inventory generally makes the supply chain more 
responsive 
A higher level of inventory facilitates a reduction in production 
and transportation costs because of improved economies of 
scale 
Inventory holding costs increase 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Transportation 
• Role in the supply chain 
Moves the product between stages in the supply chain 
Impact on responsiveness and efficiency 
Faster transportation allows greater responsiveness but lower 
efficiency 
Also affects inventory and facilities 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Transportation 
• Role in the competitive strategy 
Allows a firm to adjust the location of its facilities and inventory 
to find the right balance between responsiveness and efficiency 
• Components of transportation decisions 
Design of transportation network 
 Modes, locations, and routes 
 Direct or with intermediate consolidation points 
 One or multiple supply or demand points in a single run 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Transportation 
• Choice of transportation mode 
Air, truck, rail, sea, and pipeline 
Information goods via the Internet 
Different speed, size of shipments, cost of shipping, and 
flexibility 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Transportation 
• Transportation-related metrics 
Average inbound transportation cost 
Average income shipment size 
Average inbound transportation cost per shipment 
Average outbound transportation cost 
Average outbound shipment size 
Average outbound transportation cost per shipment 
Fraction transported by mode 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Transportation 
• Overall trade-off: Responsiveness versus efficiency 
The cost of transporting a given product (efficiency) and 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 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Information 
• Role in the supply chain 
Improve the utilization of supply chain assets and the 
coordination of supply chain flows to increase responsiveness 
and reduce cost 
Information is a key driver that can be used to provide higher 
responsiveness while simultaneously improving efficiency 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Information 
• Role in the competitive strategy 
Right information can help a supply chain better meet customer 
needs at lower cost 
Improves visibility of transactions and coordination of decisions 
across the supply chain 
Share the minimum amount of information required to achieve 
coordination 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Components of Information Decisions 
• Push versus pull 
Different information requirements and uses 
• Coordination and information sharing 
Supply chain coordination, all stages of a supply chain work 
toward the objective of maximizing total supply chain 
profitability based on shared information 
• Sales and operations planning (S&OP) 
The process of creating an overall supply plan (production and 
inventories) to meet the anticipated level of demand (sales) 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Components of Information Decisions 
• Enabling technologies 
Electronic data interchange (EDI) 
The Internet 
Enterprise resource planning (ERP) systems 
Supply chain management (SCM) software 
Radio frequency identification (RFID) 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Components of Information Decisions 
• Information-related metrics 
Forecast horizon 
Frequency update 
Forecast error 
Seasonal factors 
Variance from plan 
Ratio of demand variability to order variability 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Information 
• Overall trade-off: Complexity versus value 
Good information helps a firm improve both efficiency and 
responsiveness 
More information is not always better 
More information increases complexity and cost of both 
infrastructure and analysis exponentially while marginal value 
diminishes 
Evaluate the minimum information required to accomplish the 
desired objectives 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Sourcing 
• Role in the supply Chain 
Set of business processes required to purchase goods and 
services 
Will tasks be performed by a source internal to the company, or 
a third party 
Globalization creates many more sourcing options with both 
considerable opportunity and potential risk 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Sourcing 
• Role in the competitive strategy 
Sourcing decisions are crucial because they affect the level of 
efficiency and responsiveness in a supply chain 
Outsource to responsive third parties if it is too expensive to 
develop their own 
Keep responsive process in-house to maintain control 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Components of Sourcing Decisions 
• In-house or outsource 
Perform a task in-house or outsource it to a third party 
• Supplier selection 
Number of suppliers, evaluation and selection criteria, direct 
negotiations or auction 
• Procurement 
The supplier sends product in response to customer orders 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Components of Sourcing Decisions 
• Sourcing-related metrics 
Days payable outstanding 
Average purchase price 
Range of purchase price 
Average purchase quantity 
Supply quality 
Supply lead time 
Fraction of on-time deliveries 
Supplier reliability 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Sourcing 
• Overall trade-off: Increase the supply chain surplus 
Increase the size of the total surplus to be shared across the 
supply chain 
Impact of sourcing on sales, service, production costs, inventory 
costs, transportation costs, and information cost 
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 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Pricing 
• Role in the supply chain 
Pricing determines the amount to charge customers for goods 
and services 
Affects the supply chain level of responsiveness required and the 
demand profile the supply chain attempts to serve 
Pricing strategies can be used to match demand and supply 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Pricing 
• Role in the competitive strategy 
Firms can utilize optimal pricing strategies to improve efficiency 
and responsiveness 
Pricing strategies vary to meet different customer 
responsiveness requirements 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Components of Pricing Decisions 
• Pricing and economies of scale 
The provider of the activity must decide how to price it 
appropriately to reflect these economies of scale 
• Everyday low pricing versus high-low pricing 
Different pricing strategies lead to different demand profiles that 
the supply chain must serve 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Components of Pricing Decisions 
• Fixed price versus menu pricing 
If marginal supply chain costs or the value to the customer vary 
significantly along some attribute, it is often effective to have a 
pricing menu 
Can lead to customer behavior that has a negative impact on 
profits 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Components of Pricing Decisions 
• Pricing-related metrics 
Profit margin 
Days sales outstanding 
Incremental fixed cost per order 
Incremental variable cost per unit 
Average sale price 
Average order size 
Range of sale price 
Range of periodic sales 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Pricing 
• Overall trade-off: Increase 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 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. 
Summary of Learning Objectives 
• Describe key financial measures of firm performance 
• Identify the major drivers of supply chain performance 
• Discuss the role of each driver in creating strategic fit between 
the supply chain strategy and the competitive strategy 
• Define the key metrics that track the performance of the supply 
chain in terms of each driver 
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra

More Related Content

What's hot

Supply chain management ch05 chopra
Supply chain management ch05 chopraSupply chain management ch05 chopra
Supply chain management ch05 chopraJamil Ahmed AKASH
 
Supply Chain Management chap 15
Supply Chain Management chap 15Supply Chain Management chap 15
Supply Chain Management chap 15Umair Arain
 
Supply Chain Management chap 1
Supply Chain Management chap 1Supply Chain Management chap 1
Supply Chain Management chap 1Umair Arain
 
Supply Chain Management chap 3
Supply Chain Management chap 3Supply Chain Management chap 3
Supply Chain Management chap 3Umair Arain
 
Supply Chain Management chap 13
Supply Chain Management chap 13Supply Chain Management chap 13
Supply Chain Management chap 13Umair Arain
 
Supply Chain Management chap 17
Supply Chain Management chap 17Supply Chain Management chap 17
Supply Chain Management chap 17Umair Arain
 
Supply Chain Management chap 11
Supply Chain Management chap 11Supply Chain Management chap 11
Supply Chain Management chap 11Umair Arain
 
Supply Chain Management chap 10
Supply Chain Management chap 10Supply Chain Management chap 10
Supply Chain Management chap 10Umair Arain
 
Supply Chain Management chap 4
Supply Chain Management chap 4Supply Chain Management chap 4
Supply Chain Management chap 4Umair Arain
 
Supply chain management ch04 chopra
Supply chain management ch04 chopraSupply chain management ch04 chopra
Supply chain management ch04 chopraJamil Ahmed AKASH
 
Supply Chain Management chap 5
Supply Chain Management chap 5Supply Chain Management chap 5
Supply Chain Management chap 5Umair Arain
 
Supply Chain Management chap 12
Supply Chain Management chap 12Supply Chain Management chap 12
Supply Chain Management chap 12Umair Arain
 
Supply Chain Management chap 8
Supply Chain Management chap 8Supply Chain Management chap 8
Supply Chain Management chap 8Umair Arain
 
Chapter 1 understanding the supply chain
Chapter 1 understanding the supply chainChapter 1 understanding the supply chain
Chapter 1 understanding the supply chainsajidsharif2022
 
Supply Chain Management chap 14
Supply Chain Management chap 14Supply Chain Management chap 14
Supply Chain Management chap 14Umair Arain
 
Supply chain management ch03 chopra
Supply chain management ch03 chopraSupply chain management ch03 chopra
Supply chain management ch03 chopraJamil Ahmed AKASH
 

What's hot (20)

Chopra Meindl Chapter 8
Chopra Meindl Chapter 8Chopra Meindl Chapter 8
Chopra Meindl Chapter 8
 
Supply chain management ch05 chopra
Supply chain management ch05 chopraSupply chain management ch05 chopra
Supply chain management ch05 chopra
 
Supply Chain Management chap 15
Supply Chain Management chap 15Supply Chain Management chap 15
Supply Chain Management chap 15
 
Supply Chain Management chap 1
Supply Chain Management chap 1Supply Chain Management chap 1
Supply Chain Management chap 1
 
Supply Chain Management chap 3
Supply Chain Management chap 3Supply Chain Management chap 3
Supply Chain Management chap 3
 
Supply Chain Management chap 13
Supply Chain Management chap 13Supply Chain Management chap 13
Supply Chain Management chap 13
 
Supply Chain Management chap 17
Supply Chain Management chap 17Supply Chain Management chap 17
Supply Chain Management chap 17
 
Supply Chain Management chap 11
Supply Chain Management chap 11Supply Chain Management chap 11
Supply Chain Management chap 11
 
Supply Chain Management chap 10
Supply Chain Management chap 10Supply Chain Management chap 10
Supply Chain Management chap 10
 
Supply Chain Management chap 4
Supply Chain Management chap 4Supply Chain Management chap 4
Supply Chain Management chap 4
 
Supply chain management ch04 chopra
Supply chain management ch04 chopraSupply chain management ch04 chopra
Supply chain management ch04 chopra
 
Supply Chain Management chap 5
Supply Chain Management chap 5Supply Chain Management chap 5
Supply Chain Management chap 5
 
Supply Chain Management chap 12
Supply Chain Management chap 12Supply Chain Management chap 12
Supply Chain Management chap 12
 
Supply Chain Management chap 8
Supply Chain Management chap 8Supply Chain Management chap 8
Supply Chain Management chap 8
 
Chapter 1 understanding the supply chain
Chapter 1 understanding the supply chainChapter 1 understanding the supply chain
Chapter 1 understanding the supply chain
 
Chapter-14.pdf
Chapter-14.pdfChapter-14.pdf
Chapter-14.pdf
 
Supply Chain Management chap 14
Supply Chain Management chap 14Supply Chain Management chap 14
Supply Chain Management chap 14
 
Supply Chain Drivers & Metrices
Supply Chain Drivers & MetricesSupply Chain Drivers & Metrices
Supply Chain Drivers & Metrices
 
Chopra4 ppt ch02
Chopra4 ppt ch02Chopra4 ppt ch02
Chopra4 ppt ch02
 
Supply chain management ch03 chopra
Supply chain management ch03 chopraSupply chain management ch03 chopra
Supply chain management ch03 chopra
 

Similar to Chopra Meindl Chapter 3

Supply Chain Management Chapter0 9
Supply Chain Management Chapter0 9 Supply Chain Management Chapter0 9
Supply Chain Management Chapter0 9 Alina Zulfiqar
 
Supply Chain Chapter 09
Supply Chain Chapter 09  Supply Chain Chapter 09
Supply Chain Chapter 09 Alina Zulfiqar
 
# Procurement Performance Indices (PPI's) - Measures to Improve Performance -...
# Procurement Performance Indices (PPI's) - Measures to Improve Performance -...# Procurement Performance Indices (PPI's) - Measures to Improve Performance -...
# Procurement Performance Indices (PPI's) - Measures to Improve Performance -...SN Panigrahi, PMP
 
GitaCloud SAP IBP Webinar Response & Supply July 25th 2017
GitaCloud SAP IBP Webinar Response & Supply July 25th 2017GitaCloud SAP IBP Webinar Response & Supply July 25th 2017
GitaCloud SAP IBP Webinar Response & Supply July 25th 2017Ashutosh Bansal
 
Cv Dharmveer
Cv  DharmveerCv  Dharmveer
Cv DharmveerDharmveer
 
understanding SCM.pdf
understanding SCM.pdfunderstanding SCM.pdf
understanding SCM.pdfifuchfuhg
 
Lean_Manufacturing.ppt
Lean_Manufacturing.pptLean_Manufacturing.ppt
Lean_Manufacturing.pptssuser2cc0d4
 
Lean_Manufacturing.ppt
Lean_Manufacturing.pptLean_Manufacturing.ppt
Lean_Manufacturing.pptADHILRASHEED4
 
Lean_Manufacturing.ppt
Lean_Manufacturing.pptLean_Manufacturing.ppt
Lean_Manufacturing.pptAhmadKhalifa21
 

Similar to Chopra Meindl Chapter 3 (20)

chapter-8
chapter-8chapter-8
chapter-8
 
Supply Chain Management Chapter0 9
Supply Chain Management Chapter0 9 Supply Chain Management Chapter0 9
Supply Chain Management Chapter0 9
 
Supply Chain Chapter 09
Supply Chain Chapter 09  Supply Chain Chapter 09
Supply Chain Chapter 09
 
SCM Chapter 1.pptx
SCM Chapter 1.pptxSCM Chapter 1.pptx
SCM Chapter 1.pptx
 
# Procurement Performance Indices (PPI's) - Measures to Improve Performance -...
# Procurement Performance Indices (PPI's) - Measures to Improve Performance -...# Procurement Performance Indices (PPI's) - Measures to Improve Performance -...
# Procurement Performance Indices (PPI's) - Measures to Improve Performance -...
 
Agile into Finance 2014-02
Agile into Finance 2014-02Agile into Finance 2014-02
Agile into Finance 2014-02
 
POM Chap2
POM Chap2POM Chap2
POM Chap2
 
GitaCloud SAP IBP Webinar Response & Supply July 25th 2017
GitaCloud SAP IBP Webinar Response & Supply July 25th 2017GitaCloud SAP IBP Webinar Response & Supply July 25th 2017
GitaCloud SAP IBP Webinar Response & Supply July 25th 2017
 
Cv Dharmveer
Cv  DharmveerCv  Dharmveer
Cv Dharmveer
 
Savitha Chauhan
Savitha ChauhanSavitha Chauhan
Savitha Chauhan
 
SCM-13 (1).pdf
SCM-13 (1).pdfSCM-13 (1).pdf
SCM-13 (1).pdf
 
understanding SCM.pdf
understanding SCM.pdfunderstanding SCM.pdf
understanding SCM.pdf
 
Management ch9
Management ch9Management ch9
Management ch9
 
Planning tools and technique
Planning tools and  techniquePlanning tools and  technique
Planning tools and technique
 
Lean manufacturing (1)
Lean manufacturing (1)Lean manufacturing (1)
Lean manufacturing (1)
 
Lean_Manufacturing.ppt
Lean_Manufacturing.pptLean_Manufacturing.ppt
Lean_Manufacturing.ppt
 
Lean_Manufacturing.ppt
Lean_Manufacturing.pptLean_Manufacturing.ppt
Lean_Manufacturing.ppt
 
Lean_Manufacturing.ppt
Lean_Manufacturing.pptLean_Manufacturing.ppt
Lean_Manufacturing.ppt
 
Lean_Manufacturing.ppt
Lean_Manufacturing.pptLean_Manufacturing.ppt
Lean_Manufacturing.ppt
 
Inventarios
InventariosInventarios
Inventarios
 

Recently uploaded

MC Heights construction company in Jhang
MC Heights construction company in JhangMC Heights construction company in Jhang
MC Heights construction company in Jhangmcgroupjeya
 
Entrepreneurship & organisations: influences and organizations
Entrepreneurship & organisations: influences and organizationsEntrepreneurship & organisations: influences and organizations
Entrepreneurship & organisations: influences and organizationsP&CO
 
Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access
 
Building Your Personal Brand on LinkedIn - Expert Planet- 2024
 Building Your Personal Brand on LinkedIn - Expert Planet-  2024 Building Your Personal Brand on LinkedIn - Expert Planet-  2024
Building Your Personal Brand on LinkedIn - Expert Planet- 2024Stephan Koning
 
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdfTalent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdfCharles Cotter, PhD
 
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...IMARC Group
 
MoneyBridge Pitch Deck - Investor Presentation
MoneyBridge Pitch Deck - Investor PresentationMoneyBridge Pitch Deck - Investor Presentation
MoneyBridge Pitch Deck - Investor Presentationbaron83
 
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdf
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdfGraham and Doddsville - Issue 1 - Winter 2006 (1).pdf
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdfAnhNguyen97152
 
BCE24 | Virtual Brand Ambassadors: Making Brands Personal - John Meulemans
BCE24 | Virtual Brand Ambassadors: Making Brands Personal - John MeulemansBCE24 | Virtual Brand Ambassadors: Making Brands Personal - John Meulemans
BCE24 | Virtual Brand Ambassadors: Making Brands Personal - John MeulemansBBPMedia1
 
Ethical stalking by Mark Williams. UpliftLive 2024
Ethical stalking by Mark Williams. UpliftLive 2024Ethical stalking by Mark Williams. UpliftLive 2024
Ethical stalking by Mark Williams. UpliftLive 2024Winbusinessin
 
Mihir Menda - Member of Supervisory Board at RMZ
Mihir Menda - Member of Supervisory Board at RMZMihir Menda - Member of Supervisory Board at RMZ
Mihir Menda - Member of Supervisory Board at RMZKanakChauhan5
 
A flour, rice and Suji company in Jhang.
A flour, rice and Suji company in Jhang.A flour, rice and Suji company in Jhang.
A flour, rice and Suji company in Jhang.mcshagufta46
 
Project Brief & Information Architecture Report
Project Brief & Information Architecture ReportProject Brief & Information Architecture Report
Project Brief & Information Architecture Reportamberjiles31
 
Lecture_6.pptx English speaking easyb to
Lecture_6.pptx English speaking easyb toLecture_6.pptx English speaking easyb to
Lecture_6.pptx English speaking easyb toumarfarooquejamali32
 
Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access
 
Q2 2024 APCO Geopolitical Radar - The Global Operating Environment for Business
Q2 2024 APCO Geopolitical Radar - The Global Operating Environment for BusinessQ2 2024 APCO Geopolitical Radar - The Global Operating Environment for Business
Q2 2024 APCO Geopolitical Radar - The Global Operating Environment for BusinessAPCO
 
To Create Your Own Wig Online To Create Your Own Wig Online
To Create Your Own Wig Online  To Create Your Own Wig OnlineTo Create Your Own Wig Online  To Create Your Own Wig Online
To Create Your Own Wig Online To Create Your Own Wig Onlinelng ths
 
PDT 88 - 4 million seed - Seed - Protecto.pdf
PDT 88 - 4 million seed - Seed - Protecto.pdfPDT 88 - 4 million seed - Seed - Protecto.pdf
PDT 88 - 4 million seed - Seed - Protecto.pdfHajeJanKamps
 
Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access
 

Recently uploaded (20)

MC Heights construction company in Jhang
MC Heights construction company in JhangMC Heights construction company in Jhang
MC Heights construction company in Jhang
 
Entrepreneurship & organisations: influences and organizations
Entrepreneurship & organisations: influences and organizationsEntrepreneurship & organisations: influences and organizations
Entrepreneurship & organisations: influences and organizations
 
Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024
 
Building Your Personal Brand on LinkedIn - Expert Planet- 2024
 Building Your Personal Brand on LinkedIn - Expert Planet-  2024 Building Your Personal Brand on LinkedIn - Expert Planet-  2024
Building Your Personal Brand on LinkedIn - Expert Planet- 2024
 
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdfTalent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
Talent Management research intelligence_13 paradigm shifts_20 March 2024.pdf
 
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
Boat Trailers Market PPT: Growth, Outlook, Demand, Keyplayer Analysis and Opp...
 
MoneyBridge Pitch Deck - Investor Presentation
MoneyBridge Pitch Deck - Investor PresentationMoneyBridge Pitch Deck - Investor Presentation
MoneyBridge Pitch Deck - Investor Presentation
 
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdf
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdfGraham and Doddsville - Issue 1 - Winter 2006 (1).pdf
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdf
 
BCE24 | Virtual Brand Ambassadors: Making Brands Personal - John Meulemans
BCE24 | Virtual Brand Ambassadors: Making Brands Personal - John MeulemansBCE24 | Virtual Brand Ambassadors: Making Brands Personal - John Meulemans
BCE24 | Virtual Brand Ambassadors: Making Brands Personal - John Meulemans
 
Ethical stalking by Mark Williams. UpliftLive 2024
Ethical stalking by Mark Williams. UpliftLive 2024Ethical stalking by Mark Williams. UpliftLive 2024
Ethical stalking by Mark Williams. UpliftLive 2024
 
Mihir Menda - Member of Supervisory Board at RMZ
Mihir Menda - Member of Supervisory Board at RMZMihir Menda - Member of Supervisory Board at RMZ
Mihir Menda - Member of Supervisory Board at RMZ
 
A flour, rice and Suji company in Jhang.
A flour, rice and Suji company in Jhang.A flour, rice and Suji company in Jhang.
A flour, rice and Suji company in Jhang.
 
Project Brief & Information Architecture Report
Project Brief & Information Architecture ReportProject Brief & Information Architecture Report
Project Brief & Information Architecture Report
 
Lecture_6.pptx English speaking easyb to
Lecture_6.pptx English speaking easyb toLecture_6.pptx English speaking easyb to
Lecture_6.pptx English speaking easyb to
 
WAM Corporate Presentation Mar 25 2024.pdf
WAM Corporate Presentation Mar 25 2024.pdfWAM Corporate Presentation Mar 25 2024.pdf
WAM Corporate Presentation Mar 25 2024.pdf
 
Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024
 
Q2 2024 APCO Geopolitical Radar - The Global Operating Environment for Business
Q2 2024 APCO Geopolitical Radar - The Global Operating Environment for BusinessQ2 2024 APCO Geopolitical Radar - The Global Operating Environment for Business
Q2 2024 APCO Geopolitical Radar - The Global Operating Environment for Business
 
To Create Your Own Wig Online To Create Your Own Wig Online
To Create Your Own Wig Online  To Create Your Own Wig OnlineTo Create Your Own Wig Online  To Create Your Own Wig Online
To Create Your Own Wig Online To Create Your Own Wig Online
 
PDT 88 - 4 million seed - Seed - Protecto.pdf
PDT 88 - 4 million seed - Seed - Protecto.pdfPDT 88 - 4 million seed - Seed - Protecto.pdf
PDT 88 - 4 million seed - Seed - Protecto.pdf
 
Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024
 

Chopra Meindl Chapter 3

  • 1. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Chapter 3 Supply Chain Drivers and Metrics Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 2. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Learning Objectives • Describe key financial measures of firm performance. • Identify the major drivers of supply chain performance. • Discuss the role of each driver in creating strategic fit between the supply chain strategy and the competitive strategy. • Define the key metrics that track the performance of the supply chain in terms of each driver. Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 3. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Financial Measures Of Performance • From a shareholder perspective, return on equity (ROE) is the main summary measure of a firm’s performance Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 4. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Financial Measures of Performance • Return on assets (ROA) measures the return earned on each dollar invested by the firm in assets Earnings before interest Average total assets ROA    Average total assets Net income  Interest expense(1– Tax rate)  Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 5. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Financial Data for Amazon Table 3-1 Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 6. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Financial Measures Of Performance • An important ratio that defines financial leverage is accounts payable turnover (APT) Cost of goods sold Accounts payable APT  Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 7. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Financial Measures Of Performance • ROA can be written as the product of two ratios—profit margin and asset turnover (Profit margin) Earnings before interest Sales revenue ROA (Asset turnover) Sales revenue  Total assets Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 8. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. • ART= Sales revenue/Accounts Recievable • PPET= Sales revenue/PP & E Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 9. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Financial Measures of Performance • Cash-to-cash (C2C) cycle roughly measures the average amount time from when cash enters the process as cost to when it returns as collected revenue C2C = – days payable (1/APT) + days in inventory (1/INVT) + days receivable (1/ART) Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 10. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Drivers of Supply Chain Performance • Facilities The physical locations in the supply chain network where product is stored, assembled, or fabricated • Inventory All raw materials, work in process, and finished goods within a supply chain • Transportation Moving inventory from point to point in the supply chain Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 11. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Drivers of Supply Chain Performance • Information Data and analysis concerning facilities, inventory, transportation, costs, prices, and customers throughout the supply chain • Sourcing Who will perform a particular supply chain activity • Pricing How much a firm will charge for the goods and services that it makes available in the supply chain Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 12. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. A Framework for Structuring Drivers Figure 3-1 Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 13. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Facilities • Role in the supply chain The “where” of the supply chain Manufacturing or storage (warehouses) • Role in the competitive strategy Economies of scale (efficiency priority) Larger number of smaller facilities (responsiveness priority) Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 14. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Facilities • Components of facilities decisions Role  Flexible, dedicated, or a combination of the two  Product focus or a functional focus Location  Where a company will locate its facilities  Centralize/decentralize, macroeconomic factors, quality of workers, cost of workers and facility, availability of infrastructure, proximity to customers, location of other facilities, tax effects Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra Contd…
  • 15. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Facilities • Components of facilities decisions Capacity  A facility’s capacity to perform its intended function or functions  Excess capacity – responsive, costly  Little excess capacity – more efficient, less responsive Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 16. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Facilities • Components of facilities decisions Facility-related metrics  Capacity  Utilization  Processing/setup/down/idle time  Production cost per unit  Quality losses  Theoretical flow/cycle time of production  Actual average flow/cycle time Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 17. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Facilities • Overall trade-off: Responsiveness versus efficiency Cost of the number, location, capacity, and type of facilities (efficiency) and the level of responsiveness 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 Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 18. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Overall Trade-Off • Responsiveness versus efficiency Cost of the number, location, capacity, and type of facilities (efficiency) Level of responsiveness Increasing number of facilities increases facility and inventory costs, decreases transportation costs and reduces response time Increasing the flexibility or capacity of a facility increases facility costs, decreases inventory costs and response time Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 19. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Inventory • Role in the supply chain Mismatch between supply and demand Satisfy demand Exploit economies of scale Impacts assets, costs, responsiveness, material flow time Material flow time: The time that elapses between the point at which material enters the supply chain to the point at which it exits Throughput, the rate at which sales occur Little’s law I = DT where, I = flow time, T = throughput, D = demand Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 20. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Inventory • Role in competitive strategy Form, location, and quantity of inventory allow a supply chain to range from being very low cost to very responsive Objective is to have right form, location, and quantity of inventory that provides the right level of responsiveness at the lowest possible cost Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 21. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Components of Inventory Decisions • Cycle inventory Average amount of inventory used to satisfy demand between shipments Function of lot size decisions • Safety inventory Costs of carrying too much inventory versus cost of losing sales Inventory held in case demand exceeds expectations Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 22. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Components of Inventory Decisions • Seasonal inventory Inventory built up to counter predictable variability in demand Cost of carrying additional inventory versus cost of flexible production • Level of product availability The fraction of demand that is served on time from product held in inventory Trade off between customer service and cost Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 23. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Components of Inventory Decisions • Inventory-related metrics Cash-to-cash cycle time Average inventory Inventory turns Products with more than a specified number of days of inventory Average replenishment batch size Average safety inventory Seasonal inventory Fill rate Fraction of time out of stock Obsolete inventory Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 24. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Inventory • Overall trade-off: Responsiveness versus efficiency Increasing inventory generally makes the supply chain more responsive A higher level of inventory facilitates a reduction in production and transportation costs because of improved economies of scale Inventory holding costs increase Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 25. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Transportation • Role in the supply chain Moves the product between stages in the supply chain Impact on responsiveness and efficiency Faster transportation allows greater responsiveness but lower efficiency Also affects inventory and facilities Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 26. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Transportation • Role in the competitive strategy Allows a firm to adjust the location of its facilities and inventory to find the right balance between responsiveness and efficiency • Components of transportation decisions Design of transportation network  Modes, locations, and routes  Direct or with intermediate consolidation points  One or multiple supply or demand points in a single run Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 27. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Transportation • Choice of transportation mode Air, truck, rail, sea, and pipeline Information goods via the Internet Different speed, size of shipments, cost of shipping, and flexibility Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 28. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Transportation • Transportation-related metrics Average inbound transportation cost Average income shipment size Average inbound transportation cost per shipment Average outbound transportation cost Average outbound shipment size Average outbound transportation cost per shipment Fraction transported by mode Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 29. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Transportation • Overall trade-off: Responsiveness versus efficiency The cost of transporting a given product (efficiency) and 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 Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 30. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Information • Role in the supply chain Improve the utilization of supply chain assets and the coordination of supply chain flows to increase responsiveness and reduce cost Information is a key driver that can be used to provide higher responsiveness while simultaneously improving efficiency Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 31. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Information • Role in the competitive strategy Right information can help a supply chain better meet customer needs at lower cost Improves visibility of transactions and coordination of decisions across the supply chain Share the minimum amount of information required to achieve coordination Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 32. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Components of Information Decisions • Push versus pull Different information requirements and uses • Coordination and information sharing Supply chain coordination, all stages of a supply chain work toward the objective of maximizing total supply chain profitability based on shared information • Sales and operations planning (S&OP) The process of creating an overall supply plan (production and inventories) to meet the anticipated level of demand (sales) Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 33. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Components of Information Decisions • Enabling technologies Electronic data interchange (EDI) The Internet Enterprise resource planning (ERP) systems Supply chain management (SCM) software Radio frequency identification (RFID) Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 34. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Components of Information Decisions • Information-related metrics Forecast horizon Frequency update Forecast error Seasonal factors Variance from plan Ratio of demand variability to order variability Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 35. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Information • Overall trade-off: Complexity versus value Good information helps a firm improve both efficiency and responsiveness More information is not always better More information increases complexity and cost of both infrastructure and analysis exponentially while marginal value diminishes Evaluate the minimum information required to accomplish the desired objectives Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 36. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Sourcing • Role in the supply Chain Set of business processes required to purchase goods and services Will tasks be performed by a source internal to the company, or a third party Globalization creates many more sourcing options with both considerable opportunity and potential risk Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 37. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Sourcing • Role in the competitive strategy Sourcing decisions are crucial because they affect the level of efficiency and responsiveness in a supply chain Outsource to responsive third parties if it is too expensive to develop their own Keep responsive process in-house to maintain control Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 38. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Components of Sourcing Decisions • In-house or outsource Perform a task in-house or outsource it to a third party • Supplier selection Number of suppliers, evaluation and selection criteria, direct negotiations or auction • Procurement The supplier sends product in response to customer orders Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 39. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Components of Sourcing Decisions • Sourcing-related metrics Days payable outstanding Average purchase price Range of purchase price Average purchase quantity Supply quality Supply lead time Fraction of on-time deliveries Supplier reliability Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 40. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Sourcing • Overall trade-off: Increase the supply chain surplus Increase the size of the total surplus to be shared across the supply chain Impact of sourcing on sales, service, production costs, inventory costs, transportation costs, and information cost 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 Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 41. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Pricing • Role in the supply chain Pricing determines the amount to charge customers for goods and services Affects the supply chain level of responsiveness required and the demand profile the supply chain attempts to serve Pricing strategies can be used to match demand and supply Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 42. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Pricing • Role in the competitive strategy Firms can utilize optimal pricing strategies to improve efficiency and responsiveness Pricing strategies vary to meet different customer responsiveness requirements Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 43. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Components of Pricing Decisions • Pricing and economies of scale The provider of the activity must decide how to price it appropriately to reflect these economies of scale • Everyday low pricing versus high-low pricing Different pricing strategies lead to different demand profiles that the supply chain must serve Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 44. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Components of Pricing Decisions • Fixed price versus menu pricing If marginal supply chain costs or the value to the customer vary significantly along some attribute, it is often effective to have a pricing menu Can lead to customer behavior that has a negative impact on profits Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 45. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Components of Pricing Decisions • Pricing-related metrics Profit margin Days sales outstanding Incremental fixed cost per order Incremental variable cost per unit Average sale price Average order size Range of sale price Range of periodic sales Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 46. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Pricing • Overall trade-off: Increase 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 Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
  • 47. Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd. Summary of Learning Objectives • Describe key financial measures of firm performance • Identify the major drivers of supply chain performance • Discuss the role of each driver in creating strategic fit between the supply chain strategy and the competitive strategy • Define the key metrics that track the performance of the supply chain in terms of each driver Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra