9780357132302_Langley11e_ch13_LEAP-N.pptx

logistics and supply chain management

1. Supply Chain Management, 11e Chapter 13 : Supply Chain Performance Measurement and Financial Analysis ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

2. Discussion Outline Characteristics of good performance measures Performance categories The supply chain–finance connection Financial implications of supply chain strategies Financial implications of supply chain services

3. Measure vs. Metric vs. Index Index Combines two or more metrics into a single indicator, usually used to track trends in the output of a process. Logistics example: Perfect order Metric Involves a calculation or a combination of measurements, often in the form of a ratio. Logistics examples : Inventory future days of supply, Inventory turns, Sales dollars per stock-keeping unit Measure Requires no calculations and with simple dimensions. Logistics examples: Units of inventory, Backorder dollars

4. Characteristics of Good Performance Measures Is quantitative Is easy to understand Encourages appropriate behavior Is visible Is defined & mutually understood Encompasses outputs & inputs Measures only what is important Is multidimensional Uses economies of effort Facilitates trust

5. Characteristics of Good Performance Measures Raising the Performance Bar Source Figure 13.3: J. S. Keebler, D. A. Durtsche, K. B. Manrodt, and D. M. Ledyard, Keeping Score: Measuring the Business Value of Logistics in the Supply Chain (University of Tennessee, Council of Logistics Management, 1999). Reproduced by permission from Council of Supply Chain Management Professionals.

6. Successful Development of a Supply Chain Metrics Program Is a result of a team effort. Involves customers and suppliers (where appropriate). Develops a tiered structure. Identifies metric “owners” and ties metric goal achievement to an individual’s or division’s performance evaluation. Establishes a procedure to mitigate conflicts. Is consistent with corporate strategy. Establishes top management support.

7. Performance Categories Process Measure Categories SCOR Level-1 Metrics Logistics Quantification Pyramid

8. Performance Categories Process Measure Categories Time On-time delivery/receipt Order cycle time Order cycle time variability Response time Forecasting/ Planning cycle time Quality Overall customer satisfaction Processing accuracy Perfect order fulfillment On-time delivery Complete order Accurate product selection Damage-free Accurate invoice Forecast accuracy Planning accuracy: Budgets and operating plans Schedule adherence Cost Finished goods inventory turns Days sales outstanding Cost to serve Cash-to-cash cycle time Total delivered cost Cost of goods Transportation costs Inventory carrying costs Material handling costs All other costs Info systems Administrative Cost of excess capacity Cost of capacity shortfall Other/Supporting Approval exceptions to standard Minimum order quantity Change order timing Availability of information Source Figure 13.4: J. S. Keebler, D. A. Durtsche, K. B. Manrodt, and D. M. Ledyard, Keeping Score: Measuring the Business Value of Logistics in the Supply Chain (University of Tennessee, Council of Logistics Management, 1999). Reproduced by permission from Council of Supply Chain Management.

9. Performance Categories SCOR Level-1 Metrics (1 of 2) Attribute Performance Attribute Definition Level 1 Metric Supply Chain Reliability The performance of the supply chain in delivering: the correct product, to the correct place and customer, at the correct time, in the correct condition and packaging, and with the correct quantity and documentation Delivery Performance Fill Rates Product Order Fulfillment Supply Chain Responsiveness The velocity at which a supply chain provides products to the customer Order Fulfillment Lead Times Supply Chain Flexibility The agility of a supply chain in responding to marketplace changes to gain or maintain competitive advantage. Supply Chain Response Time Production Flexibility Source Figure 13-5: Adapted from Supply Chain Council (2015). Reproduced by permission.

10. Performance Categories SCOR Level-1 Metrics (2 of 2) Attribute Performance Attribute Definition Level 1 Metric Supply Chain Costs The costs associated with operating the supply chain.  Cost of Goods Sold Total Supply Chain Management Costs Value-Added Productivity Warranty / Returns Processing Costs Supply Chain Asset Management Efficiency The effectiveness of an organization in managing assets to support demand satisfaction.  This includes the management of all assets: fixed and working capital.    Cash-to-Cash Cycle Time Inventory Days of Supply Asset Turn Source Figure 13-5: Adapted from Supply Chain Council (2015). Reproduced by permission.

11. Performance Categories SCOR Process D1 Metrics Process Category: Deliver Stocked Product Process Number: D1 Performance Attributes Metric Reliability Perfect order fulfillment Responsiveness Order fulfillment cycle time Agility Upside Supply Chain Flexibility Upside Supply Chain Adaptability Downside Supply Chain Adaptability Overall Value at Risk Costs Total cost to serve Asset Management Cash-to-Cash Cycle Time Return on Supply Chain Fixed Assets Return on Working Capital Source Figure 13.6: Adapted from Supply Chain Council (2015). Reproduced by permission.

12. Performance Categories Logistics Quantification Pyramid Looks at how logistics cost and service are perceived by channel members. Focuses on how a seller’s cost influences a customer’s profit and on how a seller’s service impacts a customer’s revenue. Example: Transportation cost tradeoffs between less expensive (slower & less reliable) and more expensive (faster & more reliable) transportation.  Product availability  Order cycle time  Logistics operations responsiveness  Logistics system information  Post-sale logistics support Source Figure 13.7: R. A. Novack, Center for Supply Chain Research, Penn State University (2015).

13. The Supply Chain–Finance Connection Revenue–Cost Savings Connection Supply Chain Impact on ROA

14. The Supply Chain–Finance Connection The cost of providing logistics service not only affects the marketability of the product (via the landed cost, or price), but also impacts its profitability. Inventory management & capital Logistics techniques such as just-in-time and vendor-managed inventories reduce inventory levels and capital required. Lead times & inventory cost and customer service Consistent and short lead times helps inventories and can build customer satisfaction and loyalty. Order processing time & order-to-cash cycle Order processing time has a direct bearing on an organization’s order-to-cash cycle: Longer order-to-cash cycle = higher accounts receivable and higher investment in “sold” finished goods.

15. The Supply Chain–Finance Connection Revenue–Cost Savings Connection (1 of 2) Transform cost reductions into equivalent revenue increases Profit = Revenue − Costs Where: Cost = (X%)(Revenue) Then: Profit = Revenue − (X%)(Revenue) = Revenue (1 − X%) Where: (1 − X%) = Profit margin Sales = Profit/Profit Margin

16. The Supply Chain–Finance Connection Revenue–Cost Savings Connection (2 of 2) CLGN Example CLGN 2020 SALES EQUIVALENT FOR COST SAVINGS OF (000) Percentage $200,000 $500,000 $1,000,000 Sales $150,000 100.0 $2,857,143 * $7,142,857 ** $14,285,714 † Total cost 139,500 93.0 2,657,143 6,642,857 13,285,714 Net profit 10,500 7.0 200,000 500,000 1,000,000 Source Table 13.1: Edward J. Bardi, Ph.D. Used with permission. * $200,000 cost saving ÷ 0.07 profit margin ** $500,000 cost saving ÷ 0.07 profit margin † $1,000,000 cost saving ÷ 0.07 profit margin

17. Financial Implications of Supply Chain Strategies Supply Chain Impact on ROA Source Figure 13.9: Robert A. Novack, Ph.D. Used with permission.

18. Financial Implications of Supply Chain Strategies Supply Chain Impact on Balance Sheet Source Figure 13.10: Robert A. Novack, Ph.D. Used with permission.

19. Financial Implications of Supply Chain Strategies

20. Financial Implications of Supply Chain Strategies Supply Chain Strategic Areas Affecting ROA Source Figure 13.11: R. A. Novack, Center for Supply Chain Research, Penn State University (2015).

21. Financial Implications of Supply Chain Strategies Supply Chain Decision and ROA (1 of 2) CLGN Example: Comparison of Supply Chain Alternatives Ratio Analysis CLGN, 2020 $(000) Transport Cost Reduced 10 % Warehousing Cost Reduced 10% Inventory Reduced 10 % Profit margin 7.00% 7.24% 7.06% 7.12% Return on assets 7.24% 7.49% 7.30% 7.42% Inventory turns/year 8.00 8.00 8.00 8.89 Transportation as percentage of sales 4.00% 3.60% 4.00% 4.00% Warehousing as percentage of sales 1.00% 1.00% 0.90% 1.00% Inventory carrying as percentage of sales 2.00% 2.00% 2.00% 1.80% Source Figure 13.17: Edward J. Bardi, Ph.D. Used with permission.

22. Financial Implications of Supply Chain Strategies Supply Chain Decision and ROA (2 of 2) Example: CLGN 2020 and Reduced Transportation Costs Source Figure 13.18: Edward J. Bardi, Ph.D. Used with permission.

23. Financial Implications of Supply Chain Services

24. Financial Implications of Supply Chain Service Supply Chain Service Failure Source Figure 13.19: Edward J. Bardi, Ph.D. Used with permission.

25. Financial Implications of Supply Chain Service Supply Chain Service Improvement Example: Strategic Profit Model & On-Time Delivery Improvement Source Figure 13.22: Edward J. Bardi, Ph.D. Used with permission.

26. Summary Successful metric development for logistics and supply chains is consistent with corporate strategy, focuses on customer needs, carefully selects and prioritizes metrics, focuses on processes, uses a balanced approach, and uses technology to improve measurement effectiveness. Four principal categories for performance metrics are: time, quality, cost, and miscellaneous or support; OR : operations cost, service, revenue or value, and channel satisfaction. Supply chain management impacts ROA via decisions regarding channel structure management, inventory management, order management, and transportation management. Supply chain service failures result in lost sales and rehandling costs. The financial impact of modifications to supply chain services can be analyzed using the strategic profit model which shows the relationship of sales, costs, assets, and equity.