performance management

Relative Improvements of Supply Chain Redesign Strategies

Daniel Dumke — Mon, 29 Aug 2011 13:21:00 +0000

The Bullwhip Effect was first discovered and analyzed in the 1950s. It triggered more intense research on the supply chain system (even though the term supply chain was not yet coined).
Starting in the early 1980s, this research finally lead to significant changes in real supply chains as well.
This article does a follow up on these developments and evaluates the relative improvements of each of the strategic stages.

Supply chain redesign process

The authors refer to a supply chain redesign process called “Cardiff methodology”. It is depicted in figure 1, key elements are the real supply chain as a starting point, this supply chain is then analyzed and converted into a conceptual model of the chain. In the the next step this conceptual model is transformed into a mathematical representation and then simulated to generate new insights on the dynamic behavior of the system. Lastly, this knowledge is used to adapt the real supply chain, and the process is restarted.

Figure 1: Supply Chain Design Process (Berry and Naim, 1996)

History of supply chain redesigns

The article in great length on the shifting redesign paradigms since the 1980s. Four phases are distinguished here. I will highlight the corner stones of each of them.

Phase 1 – Just in time
Just in time initiatives were launched in the early 1980s, with the goal of reducing in-plant lead times. As a result: “The application of JIT techniques have achieved very significant reductions in lead-times and inventory. In European plants, the average manufacturing cycle time from component start to finished good shipment has been reduced by around 50%, with an accompanying drop in inventory.”
Phase 2 – Interplant planning and logistics integration
The next step was to improve the information flows thoughout within the company and on its edges. Key components here was the introduction of MRP systems and the supporting EDI.
Phase 3 – Vendor Integration
During the next phase the focus shifted towards the supply side. And the vendors were integrated into the systems established in Phase 2.
Phase 4 – Time based management
Should be seen as a broader view on the above mentioned steps to lead time reduction. So time based management includes the comprehensive reduction of total cycle times from product development to the end customer.

Case study

The author use a case study to highlight the effects of above mentioned strategies on supply chain performance. Using the example of a PC supply chain the authors create a computer simulation model of this specific chain and test the above mentioned redesign strategies. Overall five different models are generated one baseline case including the state of the supply chain before the redesign strategies and one model for each of the four phases mentioned above.

The results can best be seen in figure 2.
At about time 5 a positive demand shock is induced into the system, after that customer demand is constant again. The results show decreasing factory order rate fluctuations with each new strategy employed.

Figure 1: Supply Chain Dynamics with different Supply Chain Designs (Berry and Naim, 1996)

Conclusion

This article has two major contributions first it has a very informative listing of the strategic paradigms during a 20 year time period. Furthermore it also shows that these strategic changes have not been in vain, but each of the phases has the potential to improve the supply chain performance.

Reference:

Berry, D., & Naim, M. (1996). Quantifying the relative improvements of redesign strategies in a P.C. supply chain International Journal of Production Economics, 46-47, 181-196 DOI: 10.1016/0925-5273(95)00181-6

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Effective Performance Management

Daniel Dumke — Mon, 03 Jan 2011 15:05:00 +0000

Aviation and steering a company can be viewed as somehow alike. At least this is the starting point for the article by Srinivas (2009) reviewed today.

Aviation Analogy

But unlike companies a pilot has some advantages: a clear starting point, a given destination, he knows on which path to get there, he knows anytime if he is off course and he also knows how to get back on track.

Company as a staggering Airplane

On the other hand within a company you have a hard time defining those parameters:

Starting Point
There is a distorted view on the company, enhanced by a myopic financial view, financial reporting that draws a misleading picture and reward systems that drive people to overstate the current status

Destination
Often there are more goals than employees and the missing alignment of reward system with goals leads to further problems

Path to get there
The goals seldomly translate into a clear path that provides the employess with guidance to reach the destination safely, and most of all: nobobdy is expecting variation to the path!

Agile Course Correction
Is this difference because of poor strategy and planning or poor execution, furthermore there is usually a (unknown) delay between cause and effect

Solution

So the solution seems straightforward:

Starting Point
It is very important to understand the current reality, else you cannot know what direction to go
Destination
It is recommended, that you take current reality into account when setting the destination, keep a long term view and select appropriate indicators for evaluating the performance
Path
Set a clear path (or strategy), eg. deeper market penetration or extending market reach
Variations
Compare the performance over a longer time horizon, use the variation as a means to improve the underlying process/system and use them as an input for an agile course correction
Agile Course Corrections
Increase the frequency of tracking performance against plan and compare performance against the 5 to 7 year goal and not quarter to quarter or year-to-year as this tends to give a myopic view of performance. Furthermore, keep the focus on the few key performance indicators and integrate agile course correction into the organization’s culture.
Alignment
To align the goals of the company to the goals of the employees use the following strategies: Clarity, Communication, Resource Allocation, Reinforcement

Conclusion

Of course there is no easy solution for the problem of steering a company, but the Srinivas (2009) provides categories to analyze your own performance and make adjustments to arrive at your selected destination.

Reference:

Srinivas, S. (2009). Effective Performance Management Journal of Business Logistics, 30 (2), 85-100

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Measuring Supply Chain Performance

Daniel Dumke — Mon, 22 Nov 2010 12:47:00 +0000

Last week I conducted another Interview for the empirical part of my research. And we also discussed how to measure performance within the SC. As it turns out, multiple measures, namely service, cost, working capital are used. Sadly in literature many authors still focus on a single measure only and I wanted to know more about it. So I read an article by B. Beamon (Measuring Supply Chain Performance) to get an overview over performance measures used and how to select the right one(s).

History of Supply Chain Performance Measures

Supply chains consist of many different companies and within those, various functions. So first measures have relied on characterizing individual systems like production, distribution, or inventory management. In literature the measures have often been categorized into aspects of quality, time, flexibility, and cost.

But most often cost is used as an only measure or cost and another measure for customer responsiveness is applied. Other more qualitative measures, like customer satisfaction or concerning risk management, are seldom used due to their restricted applicability in quantitative models.

Measures are generally thought of being effective if the following characteristics are fulfilled:

inclusiveness (measurement of all pertinent aspects)
universality (allow for comparison under various operating conditions)
measurability (data required are measurable) and
consistency (measures consistent with organization goals)

Performance Management System

The last bullet point highlights another topic: It is also important not only to focus on the measures used, but also to reflect on the performance measurement system as a whole. Especially, it is important to consider the effects of a specific corporate strategy on the performance measures used. Thus there are several caveats when evaluating options for performance measures:

If using only one performance measure make sure that it can adequately describe the performance of the system in focus.
When using cost as (only) measure, be careful to include all necessary costs in the calculation. Pitfalls include cost of obsolescence or rework due to engineering changes
Align performance measures with the strategic goals

Framework

Individual performance measures are usually non-inclusive so the goal for a performance management system should be to include more aspects. Beamon suggest to focus on measures for resources ®, output (O) and flexibility (F) (see figure 1 and 2).

Figure 1: Framework for Performance Measurement (Beamon 1999)

Figure 2: Framework Supply Chain Measurement System (Beamon 1999)

Examples for resource measures are: total cost, distribution cost, inventory cost.

Output can be measured quantitatively as number of items produced or number of on-time deliveries or profit; alternatively qualitative measures like customer satisfaction or quality can be used.

Flexibility is harder to measure, Beamon details on a quantitative approach for measuring it, focussing on volume, delivery, mix and new product flexibility.

Different Aspects of Flexibility (Beamon 1999)

Conclusion

The use of simple performance measures is tempting, since simple measures are more easily implemented into numerical models; however, by limiting the scope of the performance measurement, these models ignore important performance trade- offs.

So it is obviously important to focus on meaningful measures. While reading the article I didn’t quite understand the authors relation to profit as a performance measure. Return on Investment for example is listed under the category cost-measures, profit itself is listed under output. Neither is really correct if you define profit as revenue minus cost since, profit affects both sides, resources and output.

Reference:

Beamon, B. (1999). Measuring supply chain performance International Journal of Operations & Production Management, 19 (3), 275-292 DOI: 10.1108/01443579910249714

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