Abscm13 08 Design&Kpi

7/29/2019 Abscm13 08 Design&Kpi

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DESIGNING SUPPLY CHAINCOLLABORATION FOR FOOD

AND AGRIBUSINESS SECTOR

Dr. Jabir Ali

Associate Professor

Centre for Food & Agribusiness Management

Indian Institute of Management,

Lucknow226 013


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WHAT WE NEED TO DO?


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MATCHING SUPPLY CHAIN WITHPRODUCTS

Before devising a supply chain, consider the nature of

the demand for your products -Functional products

require an efficient process; innovative products, a

responsive process

By Marshall L. Fisher, Wharton Business School in Philadelphia


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SUPPLY CHAIN MATRIX SUPPLY &DEMAND MATCHING

Functional Products Innovative Products

Efficient

Supply Chain Match Mismatch

MatchResponsive

Supply Chain Mismatch

A functional product should adopt efficient supply

chain. A firm in this Quadrant would use information

technology to increase its efficiency

Minimization of costsraw material, production anddistribution

Eg. Inventory managementcontinuous

replenishment

An innovative product should adopt responsive

supply chain. An innovative product would have higher margin.

The product in this category would get obsolete

rather quickly.

Due to these characteristics, the firm should be

responsive to avoid losing sales.

Eg. Mass customization strategy


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THE TRIPLEA SUPPLYCHAIN

The best chain are not just fast and cost effective.

They are also agile and adaptable, and they ensure

that all their companies interests stay aligned

By Hau L. Lee, Stanford Graduate School of Business, Stanford


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ALIGNING INCENTIVES IN SUPPLYCHAIN

A supply chain works well only when its players equally

share the risks, costs, and rewards of doing business

together

By V.G. Narayanan and Ananth Raman,Harvard Business School in Boston

Are all the stakeholders in agriculture supply chain getting

their share?

Farmers share in consumer price is very low?

Number of middlemen in the chain take undue share

without any value-addition?

Why the contract farming in India is not succeeding?


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HOW TO ALIGN INCENTIVES IN YOURSUPPLY CHAIN?

A Step-by-Step ApproachStakeholders face incentive problems in their supply chains because of

hidden actions by partner firms. hidden informationdata or knowledge that only some of the firms in the supply

chain possess.

badly designed incentives.

They can tackle incentive problems by

acknowledging that such problems exist. diagnosing the causehidden actions, hidden information, or badly designedincentives.

creating or redesigning incentives that will induce partners to behave in ways thatmaximize the supply chains profits.

They can redesign incentives by

changing contracts to reward partners for acting in the supply chains best interests. gathering or sharing information that was previously hidden. using intermediaries or personal relationships to develop trust with supply chain

partners.

They can prevent incentive problems by

conducting incentive audits when they adopt new technologies, enter new markets,or launch supply chain improvement programs.

educating managers about processes and incentives at other companies in thesupply chain.

making discussions less personal by getting executives to examine problems atother companies or in other industries.


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WERE IN THIS TOGETHER

If your latest supply chain partnership failed to live upto expectations, as so many do, its probablybecause you never stated your expectations in the

first place.

By Douglas M. Lambert and A. Michael Knemeyer


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FUNDAMENTAL REQUIREMENTS FOR ANEFFICIENT AGRIBUSINESS SUPPLY CHAINBETWEEN GROWERS AND CONSUMERS

Scale of operation - ability to produce sufficient volume of thehighest quality product throughout the season

Strategic alliances - concentrating expertise in growing a qualityproduct

Production flexibility-several processing contracts provide adegree of flexibility on the supply side

Continuity of supply - Efficient crop planning

Quality control - Product specifications, due diligence andaccurate record keeping are all important considerations for good

quality control

Communication efficient flow of information

Grimsdell, K. 1996


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PROCESS OF SUPPLY CHAINCOLLABORATION

Designing andGovernance

of SCM activities

Establishing andMaintaining

of SCM relationships

Selectinginformation

Datasharing

andInformation

system

Selecting

partners

Collaborationwidth

(activities)

Collaborationdepth (level

ofcollaboration)

Managing

trust

Managing

power

Sharing

rewards Sharing risks

Managingdependence

Supply Chain

Collaboration

Source: Adopted from Matopoulos et al, 2007

Macro Factors

Globalization/ Consolidation

Consumers attitude

Regulatory environment

Micro Factors

Industry structure

Product features

DESIGNING A RELATIONSHIP WITH


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DESIGNING A RELATIONSHIP WITHCOOPERATION AND TRUST KEYSTEPS

Assessing the value of the relationship

Identifying operational roles and decision rights for each party

Creating effective contracts

Designing effective conflict resolution mechanisms


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MEASURING AGRIBUSINESSSUPPLY CHAIN PERFORMANCE


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WHAT IS SCM PERFORMANCEMEASUREMENT?

Performance measurement is defined as theprocess of quantifying the effectiveness and

efficiency of actions across the supply chain.

Effectiveness is the extent to which a customersrequirements are met and

Efficiency measures how economically a firms resourcesare utilised when providing a pre-specified level of

customer satisfaction


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WHY TO MEASURE SUPPLY CHAINPERFORMANCE?

To reduce operating costs

To drive revenue growth

To enhance stakeholdervalue

To enhance the customersatisfaction


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A CYCLE VIEW OF PROCESSES

Processes interconnect entities (stages)

in a supply chain

Customer Order Cycles exist on the boundary between

customers and retailers

Replenishment Cycles exist on the boundary between theretailer and distributor

Manufacturing Cycles exist on the boundary between the

distributor and the manufacturer Procurement Cycles exist on the boundary between the

supply and manufacturer


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Manufacturers Wholesale

Distributors

Suppliers Customers

Information Flow Goods Flow

Retailers

Revenue Flow

Procurement

CycleCustomer Order

Cycle

Manufacturing

CycleReplenishment

Cycle

SUPPLY CHAIN PROCESSES ACYCLE VIEW


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CUSTOMER ORDER CYCLECUSTOMER & RETAILER

Customer

arrival

Customer

Order entry

Customer

Order fulfillment

Customer

Order Receiving


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THE CUSTOMER ORDER CYCLE

Customer Arrival

Physical entry, phone or web interface

Goal - facilitate interactions by easy access to goods,services or information with little delay to convert arrivals to

orders

Metrics - delay time, queueing, congestion

Customer Order Entry

Customer specifies products or services to be acquired

Goal - ensure order entry is timely accurate andcommunicated to all processes effecting it


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CUSTOMER ORDER CYCLE(CTD.)

Order Fulfillment Order filled and sent to customer

Objective - get the correct and complete order to the customerat the promised date at the lowest cost and adjust internal

stock records accordingly metrics - on time deliveries, correct orders ,

Order Receiving

Physical delivery of product or service to customer and cash

transferred to retailer


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FRAMEWORK OF SCMPERFORMANCE MEASUREMENT

Van der Vorst (2000) (in logistics) makes a distinction between performanceindicators on three main levels:

the supply chain level (e.g. product availability, quality, responsiveness, deliveryreliability and total supply chain costs);

the organization level (e.g. inventory level, throughput time, responsiveness,delivery reliability and total organizational costs); and

the process level (e.g. responsiveness, throughput time, process yield and process

costs).

Li and OBrien (1999) (in manufacturing) proposed a model to improve supplychain efficiency and effectiveness based on four criteria:

profit;

lead-time performance;

delivery promptness; and

waste elimination.

Lai et al. (2002) identified four performance indicators: responsiveness;

reliability;

costs; and

assets.


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MEASURING THE PERFORMANCE OFAGRI-FOOD SUPPLY CHAINS

Shelf life constraints for raw materials and perishability ofproducts;

Long production throughput time;

Seasonality in production;

Physical product features like sensory properties such as taste,odor, appearance, color, size and image;

Requires conditioned transportation and storage;

Product safety issues; and

Natural conditions affect the quantity and the quality of farmproducts.


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PERFORMANCEMEASUREMENT FRAMEWORK

Cost

Time

Waste

Quality

Flexibility

Responsive

Reliability

Framework


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PERFORMANCE MEASUREMENTFRAMEWORK - AGRIBUSINESS

Performance

Efficiency

Costs Production/distribution

Transaction

Profit

Return on investment

Inventory

Responsiveness

Fill rate

Product lateness

Customer response time

Lead time

Shipping errors

Customer complaints

Flexibility

Volume flexibility

Delivery flexibility

Mixed flexibility

Quality

Product Quality

Sensory properties and shelf-life

Product safety & health

Product reliability and convenience

Process quali ty

Production system characteristics

Environmental aspects

Marketing


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MEASURES AND METRICS AT FOUR BASICLINKS IN ASUPPLY CHAIN: PLAN, SOURCE,MAKE/ASSEMBLE, AND DELIVER

Source: Gunasekaran et al, 2001


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SCM RESOURCE PERFORMANCEMEASURES

Total cost: Total cost of resources used. Distribution costs: Total cost of distribution, including

transportation and handling costs.

Manufacturing cost: Total cost of manufacturing, includinglabor, maintenance, and re-work costs.

Inventory: Costs associated with held inventory: Inventory investment: Investment value of held inventory. Inventory obsolescence: Costs associated with obsolete inventory;

sometimes includes spoilage.

Work-in-process: Costs associated with work-in-process inventories.

Finished goods: Costs associated with held finished goodsinventories.

Return on investment (ROI): Measures the profitability of anorganization. The return on investment is generally given bythe ratio of net profit to total assets.

SCM OUTPUT PERFORMANCE


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SCM OUTPUT PERFORMANCEMEASURES Sales: Total revenue.

Profit: Total revenue less expenses.

Fill rate: Proportion of orders filled immediately: Target fill rate achievement: To what extent a target fill rate has been achieved.

Average item fill rate: Aggregate fill rate divided by the number of items.

On-time deliveries: Measures item, order, or product delivery performance: Product lateness: Delivery date minus due date.

Average lateness of orders: Aggregate lateness divided by the number of orders. Average earliness of orders: Aggregate earliness divided by the number of orders.

Percent on-time deliveries: Percent of orders delivered on or before the due date.

Backorder/stockout: Measures item, order, or product availabilityperformance:

Number of backorders: Number of items backordered due to stockout.

Number of stockouts: Number of requested items that are out of stock. Average backorder level: Number of items backordered divided by the number of

items.

Customer response time: Amount of time between an order and itscorresponding delivery.

Manufacturing lead time: Total amount of time required to produce aparticular item or batch.

Shipping errors: Number of incorrect shipments made.


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IDENTIFYING KEY PERFORMANCEINDICATORS (KPIs)


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FACTORS AFFECTING SUPPLYCHAIN PERFORMANCE

Improving SCM performance

Reliability Flexibility Lead timeCost-

effectiveness

Value-

added

Management

Systems

Process

Integration

Information

SystemsOrganization Technology Relationships

SWOT

Potential Actions for Improvement

Goal

SCM

Critical

Success

Factors

Enablers


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DESIGNING SUPPLY CHAINPERFORMANCE INDICATORS

Input OutputSCM process

Input performance

indicator

Output performance

indicator

Process performance

indicator


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Input OutputSCM process

Input performanceindicator

Output performanceindicator

Process performance

indicator

Analysis of deviations Analysis of deviations

Analysis of deviations

Input standards Output standards

process standards

alternativesalterna-

tives

alternatives

SCM PERFORMANCE INDICATORSAND BENCHMARKING


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WEGMANS & WELCHSSUPPLY CHAIN PERFORMANCE:

A CASE

Source: Mike Bargmann and Dee Biggs, 2006

KPI Reporting - Wegmans Food Markets and Welch Foods


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This is a measure of the

percentage of items fully

synchronized between the two

trading partners

Important KPIs

Days of supply On Time Delivery

Order Cycle Time

Invoice Accuracy Timely PaymentAverage Days Late

Service level

Days Of Supply Reporting


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DOS - COMPANY

Back To Scorecard

Entire Company

Grocery

Dairy

Frozen

KPI Notes: This KPI measures the days of supply of product Wegmans has on hand for

Welch's. This is a weekly measurement, broken out by department.

Days Of SupplyEntire Company

0

5

10

15

20

25

30

26

28

30

32

34

36

38

40

42

44

46

48

50

52

2

4

6

8

10

DOS

Goal

Trendline

---------------------------------- 2005 ---------------------------------||------------- 2006 ---


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DOS - GROCERY


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DOS - DAIRY


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DOS - FROZEN


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ON TIME DELIVERY PAGE


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ORDER CYCLE TIME

COMPANY


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INVOICE ACCURACY


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TIMELY PAYMENT


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SERVICEWELCHS TO

WEGMANS


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SERVICE LEVEL DC TO STORE

Abscm13 08 Design&Kpi

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