Supply Chain Performance

In recent months I have been asked to define Supply Chain Management for people that still do not really understand what it is and what I do as a supply chain management consultant, so for your benefit here is a brief explanation and how it drives all businesses today. Without a good Supply Chain Management Strategy in place there is a distinct risk of misalignment or failure of the overall business.

Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies. Supply Chain Management is an integrating function with primary responsibility for linking major business functions and business processes within and across companies into a cohesive and high-performing business model. It also includes all of the logistics management activities, as well as manufacturing operations, and it drives coordination of processes and activities with and across marketing, sales, product design, finance and information technology.

Having looked at the Supply Chain management model, one has to ensure that it is performing as well as it can, therefore Performance Monitoring is an absolute must in businesses today! What do I need to look at to ensure my Supply Chain is performing?

There are predominately five Supply Chain performance attributes: Reliability, Responsiveness, Agility, Costs, and Asset Management. Consideration of these attributes makes it possible to compare an organization that strategically chooses to be the low-cost provider against an organization that chooses to compete on reliability and performance.

Reliability

The Reliability attribute addresses the ability to perform tasks as expected. Reliability focuses on the predictability of the outcome of a process. Typical metrics for the reliability attribute include: on-time, the right quantity, the right quality. Reliability is a customer-focused attribute.

Responsiveness

The Responsiveness attribute describes the speed at which tasks are performed. Examples include cycle-time metrics. Responsiveness is a customer-focused attribute.

Agility

The Agility attribute describes the ability to respond to external influence and the ability to change. External influence include: Non-forecasted increases or decreases in demand; suppliers or partners going out of business; natural disasters; acts of (cyber) terrorism; availability of financial tools (the economy); or labor issues.  Flexibility and Adaptability can be included as KPI’s. Agility is a customer-focused attribute.

Cost

The Cost attribute describes the cost of operating the process. It includes labor costs, material costs, and transportation costs. KPIs include Cost of Goods Sold and Supply Chain Management Cost. These two indicators cover all supply chain spend. Cost is an internally focused attribute.

Assets

The Asset Management Efficiency (“Assets”) attribute describes the ability to efficiently utilize assets. Asset management strategies in a supply chain include inventory reduction and in-sourcing vs. outsourcing. Metrics include: inventory days of supply and capacity utilization. KPIs include: Cash-to-Cash Cycle Time and Return on Fixed Assets. Asset Management Efficiency is an internally-focused attribute.

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