Supply Chain Management

BBA 6-C

Group Members

Muhammad Jawad (02-111171-093)

Saud Aftab (02-111171-174)

Aisha (02-111171-107)

Bushra Shoaib (02-111171-182)

Report on

“Supply Chain Drivers and Metrics”

Date: 10 October 9, 2019

Instructor: Sir Shoaib Pasha

 Table of Contents
Impellers of supply chain .................................................................................................................. 3
The Empowered Customer............................................................................................................ 3
Developments in Information Technology Tools........................................................................... 3
Globalization ................................................................................................................................. 3
Supply Chain Concepts .................................................................................................................. 3
Financial Measures of Performance .................................................................................................. 4
FACILITIES ..................................................................................................................................... 5
ROLE IN SUPPLY CHAIN: ................................................................................................................ 5
COMPONENTS OF FACILITIES DECISIONS: ..................................................................................... 6
INVENTORIES .................................................................................................................................... 6
ROLE IN SUPPLY CHAIN: ................................................................................................................ 6
COMPONENTS OF INVENTORY DECISIONS: ................................................................................... 6
TRANSPORTATION ............................................................................................................................ 7
ROLE IN SUPPLY CHAIN: ................................................................................................................ 7
COMPONENTS OF TRANSPORTATION DECISIONS: ........................................................................ 7
INFORMATION .................................................................................................................................. 8
ROLE IN THE SUPPLY CHAIN: ............................................................................................................. 8
COMPONENTS OF INFORMATION DECISION:.................................................................................... 8
SOURCING....................................................................................................................................... 10
ROLE IN THE SUPPLY CHAIN: ........................................................................................................... 10
COMPONENTS OF SOURCING DECISIONS: ...................................................................................... 10
PRICING .......................................................................................................................................... 11
ROLE IN THE SUPPLY CHAIN: ........................................................................................................... 11
COMPONENTS OF PRICING DECISIONS: .......................................................................................... 11
Infrastructure.................................................................................................................................. 13
Components of infrastructure decisions ..................................................................................... 13
International logistics ..................................................................................................................... 13
Impellers of supply chain
The Empowered Customer
The present-day consumer has access to abundant information about product
availability, variety, quality and price which is far more demanding than the
customers of the past who had few choices and there were very less products that
the manufacturers offered at the prices they demanded. in the developing world
the range and variety of such goods was even more restricted and availability
scarce , placing the customers at the mercy of the manufacturers and suppliers. To
contend with the changed power equation the industry leaders are turning to best
practices in supply chain management to become more responsive as well as being
cost effective.

Developments in Information Technology Tools

The exponential growth in information technology tools has been among the major
contributors to the development and expansion of the practice of concepts of
supply chain management across the globe. It is the power of these tools that has
enabled end to end visibility and control of the material and fund flow throughout
the chain. The development of Information Technology enabled (ITE) tools like
Material Requirement planning ( MRP) , Enterprise Resource Planning (ERP) and
Internet , besides Collaborative Planning Visibility Forecasting and Replenishment
(CPFR), Vendor Managed Inventory (VMI), Total Asset Visibility (TAV) and Velocity
Management (VM) have helped link level efficiencies to spread across the whole
chain.

Globalization
In the globalized environment of today , markets , manufacturing facilities and
sourcing opportunities are widely dispersed . Successful co-ordination of the supply
chain functions across the globe requires development of tools and trade practices
that minimize the time delays at every level and overcome the barriers connected
with international trade. The advantages of lower labour cost in the developing
world to which manufacturing may be outsourced can easily be negated if the
logistics infrastructure in the manufacturing country is under developed.
Optimisation of supply chain at global level therefore presents major challenges.

Supply Chain Concepts

The philosophy is rooted in three inter related concepts
a) System concept – it emphasizes interdependence not only between functions
within an organisation but also among multiple organisation that collectively deliver
products and services to the customer . A focus in efficiency and cost reduction at
individual function level to the exclusion of its impact on other functions may lead
to increased costs at another level within the organisation.
b) Total Cost Concept – it states that that interrelated chains and networks
involving multiple links in the business has to be viewed and appreciated on the
basis that the value delivered to the customer can be maximized only if the total
cost
c) Trade-off Concept – The trade-off concept enjoins upon the decision makers to
explore the possibilities of choosing among alternatives or combination of
alternatives in fulfilling a supply chain objective to minimize costs. Faster
transportation through a more expensive mode may be acceptable if it helps lower
inventories carried and increases responsiveness to a time sensitive customer.

Financial Measures of Performance

In Chapter 1, we discussed how growing the supply chain surplus is the goal of a supply
chain. Our premise was that increasing the surplus allows for a growth of supply chain
profitability, which facilitates an improvement in the financial performance of each
member of the supply chain. In this section, we define important financial measures
that are reported by a firm and affected by supply chain performance. In later sections,
we link supply chain drivers and associated metrics to the various financial measures.
From a shareholder perspective, return on equity (ROE) is the main summary measure
of a firm’s performance.

ROE = Net Income/Average Shareholder Equity

Whereas ROE measures the return on investment made by a firm’s shareholders,

return on assets (ROA) measures the return earned on each dollar invested by the firm
in assets.
Another useful metric is the cash-to-cash (C2C) cycle, which roughly measures the
average amount of time from when cash enters the process as cost to when it
returns as collected revenue.
Framework for Structuring Drivers
We provide a visual framework for supply chain decision making in Figure 3-1.
Most companies begin with a competitive strategy and then decide what their
supply chain strategy ought to be. The supply chain strategy determines how the
supply chain should perform with respect to efficiency and responsiveness. The
supply chain must then use the three logistical and three cross functional drivers to
reach the performance level the supply chain strategy dictates and maximize the
supply chain profits. Although this framework is generally viewed from the top
down, in many instances a study of the six drivers may indicate the need to change
the supply chain strategy and, potentially, even the competitive strategy.

FACILITIES
In this section, we discuss the role that facilities play in the supply chain

ROLE IN SUPPLY CHAIN:

Facility management is a business practice that optimizes people, processes, assets,
and the working environment to support the delivery of the organization’s
commercial objectives. It ensures that the customer's facility is in optimum
operational condition and that they are receiving services in a prompt and
organized manner. The Facility Management Services could range from maintaining
building's air conditions, electrical network, plumbing to cleaning building premises,
maintaining landscapes, provide catering services etc. It is about improving and
maintaining the quality of life within a facility. It is the role of facility management
 service provider to ensure that everything is available and operating properly for
building occupants to do their work.

COMPONENTS OF FACILITIES DECISIONS:

• ROLE
Firms must decide whether production facilities will be flexible, dedicated, or a
combination of the two. Flexible capacity can be used for many types of products
but is often less efficient, whereas dedicated capacity can be used for only a limited
number of products but is more efficient.
• LOCATION
Deciding where a company will locate its facilities constitutes a large part of the
design of a supply chain.
• CAPACITY
Companies must also determine a facility’s capacity to perform its intended
function or functions.

INVENTORIES
In this section, we discuss the role that inventory plays in the supply chain.

ROLE IN SUPPLY CHAIN:

The role of inventory management is to maintain a desired stock level of specific
products or items. The desired level is a function of customer service requirements
and the cost of inventory investment. Once the parameters are determined, the
challenge is how much to order, when to order, and how to control ongoing
activities. The mission is to address the activities and techniques to best manage
inventories. The determination of desired inventory levels requires the
consideration of the attributes of each item.

COMPONENTS OF INVENTORY DECISIONS:

• CYCLE INVENTORY

Cycle inventory is the average amount of inventory used to satisfy demand between
receipts of supplier shipments.

• SAFETY INVENTORY

Safety inventory is inventory held in case demand exceeds expectation; it is held to

counter uncertainty.
• SEASONAL INVENTORY

Seasonal inventory is built up to counter predictable seasonal variability in demand.

• LEVEL OF PRODUCT AVABILITY

Level of product availability is the fraction of demand that is served on time from
product held in inventory.

TRANSPORTATION
In this section, we discuss the role that transportation plays in the supply chain.

ROLE IN SUPPLY CHAIN:

Transportation refers to the movement of product from one location to another as
it makes its way from the beginning of a supply chain to the customer's handle. This
requires a new broad look at the business of transportation supply chain, including
supply chain management, logistics, & procurement.

COMPONENTS OF TRANSPORTATION DECISIONS:

• DESIGN OF TRANSPORTATION NETWORK

The transportation network is the collection of transportation modes, locations, and

routes along which product can be shipped. A company must decide whether
transportation from a supply source will be direct to the demand point or will go
through intermediate consolidation points. Design decisions also include whether
multiple supply or demand points will be included in a single run.

• CHOICE OF TRANSPOTATION MODE

The mode of transportation is the way a product is moved from one location in the
supply chain network to another. Companies can choose among air, truck, rail, sea,
and pipeline as modes of transport for products. Today, information goods can also
be sent via the Internet.

A supply chain’s performance in terms of responsiveness and efficiency is based on

the interaction between the logistical and cross-functional drivers of supply chain
performance i.e. facilities, inventory, transportation, information, sourcing and
pricing. The goal of using the drivers if to increase the level of responsiveness at the
lowest possible cost and increase the performance of supply chain and the firm’s
financial position.
INFORMATION
Information is the biggest driver of performance in the supply chain because it
affects the other drivers. It presents management with the information to make the
supply chain performance responsive and efficiency.

ROLE IN THE SUPPLY CHAIN:

Information can be helpful in improving the responsiveness of the supply chain flow
and reducing cost. For example: Walmart increase its level of responsiveness by
facilitating cross docking (inbound shipments are unloaded directly into outbound
trailers at distribution centres) which lowers the inventory and transportation cost.
However, information is not always accurate as the information is shared across a
supply chain, so this increases the complexity and cost of both infrastructure and
the follow-up analysis. Thus, minimum information is required to achieve the
desired objective.

COMPONENTS OF INFORMATION DECISION:

PUSH VERSUS PULL:
In order to design the process of supply chain, managers first need to determine
whether the process are in push or pull phase in the chain. In push system it starts
with the forecasts. Pull system starts with information on actual demand so that the
production and distribution of products can fulfil the demand accurately.

CORDINATION AND INFORMATION SHARING: Coordination will take place when all
the stages of a supply chain work towards the objective of maximizing total supply
chain profitability based on the information which is shared. It is the crucial part in
the success of a supply chain.

SALES AND OPERATION PLANNING:

It is the process of creating a supply chain plan to meet the targeted sales. The
process starts with the sales and marketing communicating the needs to the supply
chain which communicate the decision to the sales and marketing that these needs
can be fulfilled or not and what will be the cost. Sales and operating planning are
important as is affects both the demand on a firm’s suppliers and the supply to its
customers.
ENABLING TECHNOLOGIES:
Manager must decide which technology to use and how to coordinate them into
their supply chain. Some of the technologies are:
• Electronic data interchange (EDI) a process which allows one company to send
information to another company electronically rather than with paper.
• Use of internet helped the supply chain information to convey much more
information and increase the efficiency and responsiveness.
• Enterprise resource planning (ERP) allows an organization to use a system of
integrated applications to manage the business and automate many back-office
functions related to technology, services and human resources.
• Supply chain management (SCM) is the broad range of activities required to plan,
control and execute a product's flow, from acquiring raw materials and production
through distribution to the final customer, in the most streamlined and cost-
effective way possible.
• Radio frequency identification (RFID) uses electromagnetic fields to automatically
identify and track tags attached to objects. The technology can make the receiving
of
a truck much faster and cheaper.

INFORMATION-RELATED METRICS:
A manager should track the following information-related metrics that influence
supply chain performance:

• Forecast horizon: it is the length of time into the future for which forecasts are to
be prepared. It must be greater or equal to the lead time of a decision for which the
forecast is being made.
• Frequency of update: it identifies that how frequently each forecast is updated so
that changes can be made, and corrective action can be taken quickly.
• Forecast error: it identifies the difference between the forecasted demand and the
actual demand.
• Seasonal factors: it identifies that how much the demand in a season is above or
below the average in the year.
• Variance from plan: it measures the difference between planned production or
inventories and the actual production or inventory. It helps in identifying the
shortages and surpluses.
• Ratio of demand variability to order variability: it measures the standard deviation
of incoming demand and supply orders placed.
 SOURCING
Is the practice of locating and selecting businesses or individuals based on set
criteria? The manager needs to make the decision related to key sourcing.

ROLE IN THE SUPPLY CHAIN:

Sourcing is a set of business processes which is required to purchase goods and
services. Managers decide whether the task will be performed internally, or a third
party will perform it for the company. Outsourcing is useful when the third party is
more efficient than the company in performing the task and will earn the company
supply chain surplus if not it is advisable that the company should in house the
supply chain function.

COMPONENTS OF SOURCING DECISIONS:

IN-HOUSE OR OUTSOURCE:
Firm has to make the decision whether it has to perform the task internally or hire a
third party for it. Manager needs to decide whether to outsource all of it or some
components in which the third party is efficient. However, it is advisable to
outsource if the business supply chain is growing.
SUPPLIER SELECTION:
Managers must decide how many suppliers do they want and what will be the
selection criteria for selecting suppliers.
PROCUREMENT:

Procurement is the process of finding and agreeing to the terms and acquiring of
goods and services from outsider.
SOURCING RELATED METRICS:
Decisions related to sourcing have a direct impact on the cost of goods sold and
account payable. Moreover, sourcing affects the quality, inventory and
transportation cost. There are some metrics related to sourcing.

• Days payable outstanding: It measures the number of days of when then supplier
fulfilled the order and when he was paid for it.
• Average purchase price: It measures the average price of the good during the year.
• Range of purchase price: It measures the change of price during a particular period.
• Average purchase quantity: It measures the number of purchase quantity per order.
• Supply quality: the quality of product supplied is measured.
• Supply lead time: It indicates the average time taken between placing of an order
and its receiving, firms avoid long lead time as it decreases their responsiveness and
increase their stock holding cost.
• Percentage of on-time deliveries: It calculates the number of deliveries that were on
time.
• Supplier-reliability: It measures that what is the suppliers lead time in delivering and
what is the quantity that they deliver.

PRICING
Pricing is used to determine how much a firm is going to charge for the product or
service that is being offered for sale. Supply chain performance is affected by the
buying behaviour. Changes in the pricing decisions affect the revenue and the costs
as well as the other drivers are also changed.

ROLE IN THE SUPPLY CHAIN:

Pricing affects the consumer segment as well as influence their expectations. It
plays an important role in the supply chain in terms responsiveness as well as in
terms of demand and supply that needs to be matched. All the pricing decisions
must be made to achieve the profit-making objective of the firm. It needs to be
planned efficiently with the knowledge of cost structure of performing a supply
chain activity. A firm must plan a supply chain that targets both the responsiveness
and efficiency.

COMPONENTS OF PRICING DECISIONS:

The components of pricing decisions that affect supply chain performance are:
PRICING AND ECONOMIES OF SCALE:

Economies of scale involves a fall in unit cost and most supply chain activities
display economies of scale. The provider of supply chain activity must price the
goods and services appropriately so that economies of scale can be achieved. A
common way of achieving economies of scale is by offering quantity discounts
which must be in consistence with the economies of scale in the underlying process.
 EVERYDAY LOW PRICING VERSUS HIGH-LOW PRICING:

Everyday low pricing is charging a low price continuously for a product over a long
period. Whereas, high low pricing is charging high prices for a product and later sell
it for a lower price. These two pricing strategies lead to different demand profiles
that the supply chain must serve.
FIXED PRICE VERSUS MENU PRICING:

In this a firm must decide whether to charge a fixed price which is non-negotiable
for its supply chain activities or have a menu with prices which differs with some
attributes such as location of delivery, response time etc. Sometimes, a customer
pays an additional shipping fee for home delivery but pays nothing for a pickup.
However, pricing policy can negatively affect the consumer behaviour and profits.
PRICING-RELATED METRICS:

Pricing directly affects revenues but also production cost and inventories. Manager
must decide the following pricing-related metrics:

• Profit margin: it measures the profit as a percentage of revenue.

• Days sales outstanding: it measures the average time between when a sale is made
and when the cash is collected.
• Incremental fixed cost per order: this measures the incremental costs that are
independent of the size of order.
• Incremental variable cost per order: this measures the incremental costs that
changes with the size of the order.
• Average sale price: it measures the average price at which the supply chain activity
was performed in a given period.
• Average order size: it measures the average size per order. The average sale price,
order size, incremental fixed and variable cos per order help estimate the
contribution.
• Range of sale price: it measures the maximum and the minimum sale price per unit
over a certain time period.
• Range of periodic sales: it measures the maximum and minimum quantity sold per
period over a certain time period, this helps the firm to understand the change in
sales with the change in price.
Infrastructure
Infrastructure comprises of both the physical and educational resources required to
run a supply chain. It’s exceptionally vital to have created foundation for the
productive stream of supply chain.

Components of infrastructure decisions

Infrastructure orientation To meet the requirements of the creating nations ought
to re-major and redo their existing framework and take the foremost imperative
foundation choices in these nations. As it were this will aid move forward their
framework as a great framework is the spine for the any thrive society.
Integration with international infrastructure design and standard For the correct
stream of the merchandise from source to the conclusion organize both locally and
globally, it’s imperative that foundation plan and advancement comply with the
worldwide benchmarks and hones and on the off chance that it the infrastructure
plan and advancement don't relates with the worldwide measures at that point it
leads to the destitute execution of the supply chain
Extent of the penetration There's the got to spread the physical framework so that
the inaccessible ranges of the nation can effortlessly reach to it and ought to be
associated with the national and worldwide connect of supply chain
Infrastructure-related metrics As we all know that foundation acts as a driver of
supply chain execution but by one means or another the foundation depends on the
advancement of the state that’s why the execution changes from state to state.
Computerised operations, activity dealing with capacity etc are a few of the
measurements for measuring execution of this driver.
Effect of infrastructural advancement on Indian Agri trade: It’s the case that how
the improvement on foundation changed the entire amusement and presented the
concept of supply chain administration and proceed it to indeed higher efficiency
and responsiveness. The insufficiency and wastefulness within the foundation not
as it were impact on the trade but to the economies as entire. the way better
infrastructural office, modern crests of agrarian generation can be expanded.

International logistics
The study and practice of supply chain management at the global scale cannot be
complete without an understanding of international logistics which forms the
backbone of global supply chains and has become far more comprehensive. We
have misinterpreted the meaning of logistics as considering it to be a fancier name
for transportation which is narrow and misleading. The generally accepted
definition of logistics in the army, the organisation to which it owes its origin is the
science of planning and carrying out the movement and maintenance of forces.
those aspects of military operation that deal with the design and development,
acquisition, storage, movement, distribution, maintenance, evacuation and
disposition of material. It has been realised that the scope of logistics is far larger
than transportation and its contribution to the success of business is not
inconsiderable. The international logistics is now recognized as “design and
management of a system that controls the flow of materials into and out of the
international corporation”.