Supply Chain Dashboard Design and Formulation

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PROJECT SUMMARY/ ABSTRACT

This project involved the design and formulation of a Supply Chain Dashboard – an exceptionally simplistic system which is engineered to provide updated information to management regarding trends, opportunities & threats. In this dynamic market place which demands high efficiency, responsiveness and fast service. The primary aim of the task was to device a method which can continuously & successfully provide day to day indicators of past performances and potential constraints and bottlenecks in Supply chain and pose a threat to business.

In this fast paced world where change is only constant, innovation & sustainability is the key. Businesses have understood the importance of a integrated, globally optimised supply chain and its impact on overall performance. Companies like Dell, Zara, Ikea have been able to excel highly competitive market by their competent supply chain performance. Now these supply chain performances are needed to tracked and monitored on regular basis. To meet customer requirement and one need to manage availability of item, it’s on time delivery and stock level to perform in a responsive manner. Certain risks like globalization, outsourcing, supply & demand uncertainties and shorter product life cycle makes it hard for supply chain manager to measure performance of supply chain network. The project is focused on two classes of enablers: business processes and operational process and demonstrate the limitations of several common metrics.

  1. INTRODUCTION

In order to sustain in today’s fiercely competitive world it is mandatory to define, formulate, implement, control & monitor a holistic SCM strategy. Todays manager have understood that only a supply chain which holistically integrated and optimized to suit global challenges will help in giving company an edge over competition. An agile organisation not only identifies but also measures supply chain effectiveness to gauge business performance. Main objective of this project report is to recognize drivers and levers that help organizations in managing their supply chain and ultimately make money.

Today the battlefield is Supply chain vs Supply chain which demands continuous improvements across supply chain. Modern supply chain is governed by constantly changing relationships & alignments, mix of production methods (build-to-stock, make-to-order) to fulfil orders encompassing various organizations in between. This strategy looks from the perspective of industry as a whole not individual company and this strategy takes care of internal, external, micro & macro-economic factors and environmental factors.

To do so 1st step is to define supply chain performance i.e. complete chains capability to meet requirement of suppliers supplier and customers customer in (suppliers and customers).

The measures must be ‘S.M.A.R.T’ (Specific, Measurable, Attainable, Realistic, Timely) and Relevant, Accurate & Understandable. It should indicate & measure key parameters like Cost reduction, inventory, working capital, time/Speed & quality. An absolute integration of SCM with other systems is required to manage and control the flow in system. In order to serve customer a firm requires personalized products and faster services which are more efficient and effective than competition. Supply chain performance is very complex transcending both departmental and organizational boundaries.

  1. BACKGROUND

Since last decade organizations across the world begin to use key performance indicators (KPI) to ascertain strength & weaknesses of their supply chain system. Otto and Kotzab (2003) gave idea about how to measure effectivess of supply chain. Although external quality management systems like ISO & QMS and organizations internal systems helps in managing customer requirements but they do not consider inter organization processes. SCOR model developed by the Supply Chain Council (Meyr et al., 2002) is answer to it. SCOR takes into account cross industry standards for SCM but also defines KPI & find potential for improvement.

Being responsible for end to end supply chain it is essential for manager to keep an eye for key criteria. It is first such attempt in the organization to gauge KPIs. This project was done in coordination with various departments within organization like purchase, warehouse, production, logistics, marketing, production planning and external organizations like vendors and customers.

  1. PROCESS

Performance is measured on its effectiveness and efficiency. Effectiveness is the degree or percentage with which targets are achieved or the extent with which actual results meets proposed results. On the other hand efficiency is defined as relationship between output of process and resource it used (input). Firms use various KPIs to gauge efficiency of system (cash2cash cycle, inventory turnout time etc.) Both of these are basics of performance measurement (O’Donnell and Duffy, 2002). While defining, it must be made sure that, KPI must in able to satisfy customer demands and strategies are formulated accordingly (Christopher and Towill, 2000). This is very important because supply chain is very complex maze involving many functions inside organization and various outside organization. Hence KPIs must not be short sighted and it should integrate multi-functional and multi-company. One dimensional metrics provide half picture (capacity utilization or raw material price). Moreover performance of one location in the chain is not sufficient; to succeed all locations have to perform. It is well said that strength of a chain is its weakest link. In order to provide an effective & sustainable feedback method a Dashboard it is essential to have insight about operational and business effectiveness for supply chain operations. It is essential to have insight about operational and business effectiveness for supply chain operations. There are three pillars on which supply chain is based those are service, assets and speed. Service means to predict & fulfill changing customer demands within specified delivery time. Assets are anything and everything which has a commercial value like inventory & cash. Speed is metric to track and monitor execution level. Here though quality is not mention but it is taken as granted that quality is inbuilt in all services and activities performed.

  1. FINDINGS AND CONCLUSIONS

Based upon our reading various resource we can conclude that KPIs must fulfill 2 prerequisites, first it should be able to measure efficiency of process and secondly it must be able to determine its financial implication. As already established in above section supply chain performance has to be measure on the basis of its efficiency and effectiveness.

  • KPIs to determine supply chain efficiency: KPIs are applied at three levels to measure the efficiency (Reiner, 2004):
    • Generic level: some indicators cannot be aggregated over multiple supply chain levels (Fransoo and Wouters, 2000), but still its necessary to measure them, for e.g. service level as perceived by consumer is generic in nature but for them it shows efficiency of entire supply chain, hence it is necessary to use these indicator, as these includes the performance of the phases preceding it in the chain.
    • Aggregated level: KPIs like capacity, lead times stock levels are aggregated in nature and can be aggregated over different enterprise of supply chain partners or levels of supply chain.
    • Cross processes level: these KPIs can be aggregated over multiple supply chain processes. For e.g. time to market parameter not only provide information about product development but also order processing.
  • KPIs to determine supply chain effectiveness:

In B2B scenario customer satisfaction is often associated with effectiveness of business process. other measures includes % of target achieved, % of savings made etc.

It is very important that performance criteria should be based upon collaboration, coordination & flexibility. Hieber (2002)

As mentioned earlier, supply chain performance measures should follow multi-pronged approach and it should transcendence company boundaries in doing so. Hence as (Weber and Dehler, 1999) described there should be performance measure should be at each stage of processes, which are described as follows:

  • 1st stage Disconnected procedures: at this stage many independent processes persist in organization. These procedures are characterised by low degree of integration, independently operated batch processes and systems and lesser degree of data sharing. The main method used for data retrieval and analysis are through spread sheets. Each plant site takes their own decisions (silo) based upon manual data analysis. The strategies are mainly short sighted and inconsistent and reactive in nature. One of most important prerequisites is that measurements are not aligned with company’s main goal.
  • 2nd stage Internal integration: Higher degree of integration in system, process, decision, data sharing is observed in areas of sale, marketing, production, purchase, warehouse, accounts etc. key measurements are used department wise.
  • 3rd Stage Intra organization integration: multiple site of companies are organized in cross functional way. Suppliers and vendors are involved in finalizing strategy. Higher level of data visibility/sharing. KPIs are aligned with company goal.
  • 4th Stage Multi company integration: many organizations with common interest and objectives collaborate and bring together their expertise of collaborative supplier and customer relationship management. Seamless integration of data, processes, objectives across all channels. All stakeholders are empowered and informed. KPIs are aligned with goal.

ASSUMPTIONS:

  • A robust ERP SYSTEM (SAP)
  • • companies with mature business processes have lower inventory levels;
  • • companies that only invest in business processes do not tap the full potential;
  • • improvements in delivery performance demand IT investments;
  • • best-in-class-systems (BICS) companies with mature processes achieve superior
  • financial performance

Following Key measures are to be utilized to identify potential problems and make an mitigation plan:

Performance Management Measures Cost Management Measures Time Management Measures
 Financial Reduced Fixed cost Order cycle time
Capacity Utilization  Process cost Order lead time
Process Accuracy Waste reduction Cash2cash cycle
Product Quality Standardization of components Response time
Service Quality Inventory Days of Supply Fill Rate
Risk Management Freight cost per unit Supply Chain Cycle Time
Perfect Order Measurement Finished goods inventory turns Days Sales Outstanding
Freight bill accuracy Finished goods inventory days of supply Average Payment Period for Production Materials
Inventory Turnover On-time delivery On Time Shipping Rate
Perfect Order Measurement
  1. PERFECT ORDER MEASUREMENT:
  • Purpose: To measure accuracy of customer Order processing time.
  • Definition: A perfect order has to be ‘On-time’, in ‘Totality (Quality & Quantity) and in ‘Damage Free’ condition. Also it has to be ‘Correctly documented.’ Percentage of error free orders processed out of total order processed. Or we can say that Or it is measure of no of time a firm able to deliver product right first time in totality.
  • Dashboard Formula: ((total orders – error orders) / total orders)) * 100
  • Type (Business / Operational Management): Operational
  • Type (Performance/Cost /Time Customer Management): Time
  • Frequency of monitoring: Monthly (assumption)
  • Feasibility/difficulty of data collection: Feasible, as all data available through ERP.
  • Drivers:
    • Holding vendors accountable
    • Clear communication of company expectations & performance measures
    • Continuous monitoring of all parameters of every transaction
    • Feedback to all concern
    • Rewards and penalty clearly defined to vendors.
  • Usage (use alone or combine with other measures): combination with other parameters
  • Rationale to prove Linkage to above Context: As market is very dynamic i.e. product requirement & its price keeps on changing. Hence it is very important to do “Right first time”. By measuring these parameters we can track both cost and demand of product. Also as product demand requires some level of customization which means to track changes in product mix is very crucial. Order cycle time provide input for this.
  • Potential (High/Medium/Low): High
  • Risks (High/Medium/Low): High. If this parameter is not tracked properly there is several cost implications involved.
    • Cost involved in fixing the error:
      • Cost of Labour used in loading and unloading
      • Extra freight
      • Many times to give refund to customer
      • To provide credit
      • Providing replacement product
      • Lost revenue: Cost of lost sales /Cost of lost customers.
  • Scope of application: it has varied scope for example an order measurement can be measured in following areas:

Procurement=99.99% perfect, Production = 99.12% perfect, Transportation=99.02% perfect, Warehousing=99.98% perfect

  • Commercial implications & benefits to company: Helps reduce costs (i.e. it tracks Cost of Doing “Wrong”). Cost reduction can be seen in order processing time, reduction in labour overtime, lesser Truck/container loading/unloading time.
  • Required personnel, facilities, and equipment: A central coordinator to collect all information from SAP.
  • Life of project or product line: Continuum (on going)
  • Target date: within 30 days (assumption)
  1. CASH TO CASH CYCLE TIME:
  • Purpose: To measure time duration between payments made to vendor and payments received from customer.
  • Definition: It is defined as the time required until working/operating capital is tied up and is not available for any other function or purpose. A fast cash2cash cycle means a lean supply chain which is profitable.
  • Type (Business / Operational Management): Operational
  • Type (Performance/Cost /Time Customer Management): Time
  • Frequency of monitoring: Quarterly (assumption)
  • Drivers:
    • Standardization of input resources, product bundles & process flow
    • Consolidation of requirements, vendors, customers
    • Optimization of demand planning/forecasting, SRM/CRM, integrated logistics, stakeholder goal alignment
    • Automation of production facility, information system, warehousing & logistics.
  • Measurement Tools:
    • Revenue Percentage: It gives indication about %revenue generated through complete order2cash process and its contribution towards total revenue generated.
    • Cash flow: higher the cash-flow higher control over prices. It can be achieved by either price increase or increase in value of sale i.e. selling items of higher values.
    • Landed cost of Goods Sale: Profit = Sale Price – Cost Price. Hence lesser the cost price higher will be profit or cash in hand. It can be achieved by price improvement i.e. cost optimization using various procurement strategies.
    • Accounts Receivable Improvement by faster collection of money from customers.
    • Continuous optimization of Inventory: can be achieved by continuous monitoring and control of idle inventory, selling obsolete inventory.
    • Accounts Payable: Higher the payment terms higher will be cash in hands. Without hampering landed cost of goods purchased.
    • Overhead Cost: Lesser the Overheads higher will be liquidity.
  • Dashboard Formula: ((materials payment date) – (customer order payment date)). Or Receivable days + Inventory Days – Payable Days. It is measured in average days (weeks, months, quarter etc). In case of many SKUs a weighted average of materials payment date is calculated.
  • Usage (use alone or combine with other measures): COMBINATION.
  • Rationale to prove Linkage to above Context: in current scenario Person being responsible for both in-process and finished goods inventory and its flow and also for the customers and vendors. Hence it is important to monitor cash2cash cycle time.
  • Risk Potential (High/Medium/Low): High. If this parameter is not tracked properly there is several cost implications involved.
    • Lower days in inventory will cause service issues because inventory level is not monitored and managed.
    • On the other hand high payment cycle may cause issues with suppliers or supplier may increase price of product as they add interest rate of late payment on product price.
  • Scope of application: It has varied scope, for example an cash2cash cycle can be measured in following areas:
    • Business Finance group or accounts department responsible for keeping track of account Receivables and account payables.
    • Purchase responsible for vendor payment and negotiating payment terms
    • Supply chain responsible for customer payments
    • A typical example of cash2cash cycle:  if Account Receivable Days is 45 days add In Hand Inventory Days 10 days minus Account PayableDays 70 = Cash2Cash Days will be minus 15 days. Here cash to cash cycle is negative which is good.
  • Commercial implications & Benefits to company: There are several important commercial implications of this parameters:
    • It indicates amount of fund is tied up in each transaction.
    • Stakeholders like investors, shareholders, and lenders review cash2cash cycle to judge about efficiency of company’s working capital.
    • Fund flow statements and liquidity conditions and investment decisions are determined by analysing cash2cash cycle.
    •  A periodic review will help in comparing trends of working capital.
  • Required personnel, facilities, and equipment: Team of Business Finance Group keeps track of all data using SAP.
  • Feasibility/difficulty of data collection: Feasible, as all data available through ERP. (Account payable Vs. Account Receivables).
  • Life of project or product line: Continuum ( on going)
  • Target date: within 30 days (assumption)
  1. CUSTOMER ORDER-TO-DELIVERY CYCLE TIME:
  • Purpose: To measure time required to process a customer order.
  • Definition: It is defined as all of the elapsed time from the moment of receipt of PO from customer for an item till that item is received as inventory at customer’s end. It is calculated in days including weekends.
  • Type (Business / Operational Management): Operational
  • Type (Performance/Cost /Time Customer Management): Time
  • Frequency of monitoring: Continuous (assumption)
  • Drivers :
    • Inventory optimization: achieved by placing order for right part in right quantity and at right time.
    • Priorities: Right due date ordering and commitment to meet due date
    • Capacity: production planning, utilizing maximum plant load with minimum idle time and maximum throughput.
    • Automation of manufacturing process: higher the automation better speed, efficiency & accuracy.
    • Product Quality (purity like 99.999% pure, Quality certifications requirement etc)
    • Flexibility in scheduling & Labour utilization
    • Paperless work to reduce manual errors and cost reduction
  • Measurement Tools: By calculating following parameters order fulfilment rate can be tracked accurately:
    • Order accuracy: % of error free ordered shipped out of total order shipped.
    • Production line accuracy, Plant productivity and facility utilization
    • Customer Order fill-rate & Inventory days on hand
    • Warehouse storage,
    • Transportation management & logistics utilization
    • Cost per order
  • Dashboard Formula: Actual delivery date – purchase order creation date OR

Customer Order Cycle Time = Source Cycle Time + Make Cycle Time + Deliver Cycle Time

  • Usage (use alone or combine with other measures): COMBINATION with above 2 parameters.
  • Rationale to prove Linkage to above Context: a fast paced customer service oriented scenario needs a robust and accurate tracking, monitoring and control of customer order cycle time. As it hugely affect customer satisfaction and ultimately business share with customer.
  • Risk Potential (High/Medium/Low): High. A high cycle time denotes inefficient use of productivity or loss of productivity. Which in turn results into wasting of company resources, additional cost overshooting, customer dissatisfaction due to failure in meeting delivery deadlines or long lead time and many others.
  • Scope of application: this parameters encompasses following departments:
    • Sales & Marketing: Proposal preparation & purchase order acceptance
    • R&D & Design department: Product designing & modification according to purchase order
    • Production planning department: Planning process using lead time mapping
    • Production: Manufacturing of product as per requirement & quantity
    • Warehousing & logistics: Transportation & Distribution
    • Customer service department: After Sales Service
    • e-commerce platform
  • Commercial implications & Benefits to company: There are several important implications of this parameters:
    • A Reduction in supply chain lead time decreases inventory level and enhances responsiveness.
    • A lean order cycle time also reduces waiting times and delays i.e. wean out wastages from system.
    • Reduced waiting time for loading/ unloading and documentation preparation saves money.
    • Reduction in expediting cost due to Faster order processing
    • Open the market to additional customers.
  • Required personnel, facilities, and equipment: Team of Production planner, coordinator & managers along with supply chain professionals keeps track of all data using SAP.
  • Feasibility/difficulty of data collection: little difficult to measure as various factors affecting.
  • Life of project or product line: Continuum ( on going)
  • Target date: within 30 days (assumption)
  1. FILL RATE:
  • Purpose: To measure time required to process a customer order with available inventory.
  • Definition: The order fill rate is the percentage of customer order that can be immediately dispatched using available stocks. So vendor lead time and manufacturing lead time does not come into picture. It can be presented as %SKU, %total quantity or % total order value that is included in first shipment.
  • Type (Business / Operational Management): Operational
  • Type (Performance/Cost /Time / Customer Management): Customer centric
  • Frequency of monitoring: Continuous (assumption)
  • Drivers:
    • Time delays in fulfilment
    • Absolute or % of profit viewpoint
    • Average pipeline inventory (at plant/in-transit/DC): to tightly control hike in cost that will may arise due to order fill rate
    • VMI (vendor managed inventory) and DSD (Direct Store delivery) model.
  • Measurement Tools: By calculating following parameters order fulfilment rate can be tracked accurately:
    • A high fill rate means sales requirements are met with more efficiency and more agility to cope up with changing customer demand.
    • Holistic Inventory data (at plant/in-transit/DC/retails store shelves/warehouses) availability to sales team
    • feedback from your retailers
    • Percentage of customer retention
    • Based on above data overall analysis of order fill rate (Industry best figures are from 95% – 98%).
  • Dashboard Formula: (1 – ((total items – shipped items) / total items)) * 100  OR

Orders filled complete on the first shipment / Total Orders Shipped. – For example, a customer orders 20 nos but the supplier sends the 15 nos it has in stock. The fill rate will be 15/20 =0 .75.

  • Usage (use alone or combine with other measures): COMBINATION with above parameters.
  • Rationale to prove Linkage to above Context: in order to cater requirement of market and serve customer this parameter is required to be tracked.
  • Risk Potential (High/Medium/Low): High. If not tracked properly may result in inaccurate sales forecasting.
  • Scope of application: this parameters encompasses following departments:
  • Commercial implications & Benefits to company: There are several important implications of this parameters:
    • To improve customer service accuracy in shipped consignment is utmost important.
    • Fill rate hugely affect transportation and logistics efficiency.
    • Distributer’s expectations are managed.
    • Shelves are stored to fullest keeping space occupied
    • Increase productivity of sales representatives
  • Required personnel, facilities, and equipment: Team of Production planner, coordinator & managers along with supply chain professionals keeps track of all data using SAP.
  • Feasibility/difficulty of data collection: little difficult to measure as various factors affecting.
  • Life of project or product line: Continuum ( on going)
  • Target date: within 30 days (assumption)
  1. SUPPLY CHAIN PROCESS LEAD TIME
  • Purpose: To measure time required to process a customer order if inventory levels were zero.
  • Definition: Total Time required by supply chain to procure and convert raw ingredient into finish product and make it available to end user.
  • Type (Business / Operational Management): Operational
  • Type (Performance/Cost /Time / Customer Management): Time
  • Frequency of monitoring: Continuous (assumption)
  • Drivers (Keys to Success):
    • Resource consolidation
    • Kitting service: it is grouping of various components & fasteners, so workers can build or assemble fast. Makes work more organize and helps in batch controlling.
    • Contract manufacturing of Sub-assembly: Find out smaller components which can be outsourced or contract manufactured outside. It helps in removing bottleneck from system; increase throughput as parts arrive in ready to use condition, thus increases production efficiency, moreover number of SKUs also gets reduced.
    • More standardization, lesser specialization: “Special items” not only require long lead time but also minimum run is required. On the other hand standardize items saves costs in all aspects.
    • Technology deployment: RFID, EDI, TPI, WMS & TMS.
    • Customer-facing performance attributes
      • Reliability: includes Delivery performance, Perfect order fulfilment & Fill rates
      • Responsiveness (Order fulfilment lead times)
      • Flexibility: includes Supply chain response time & Production flexibility
    • Internal-facing: Costs includes Costs of goods sold, Total SCM costs & Warranty/returns processing costs
    • Asset management efficiency includes Cash-to-Cash cycle time & Asset turn
  • Measurement Tools: It is summation of following parameters supply chain process lead time can be tracked accurately:
    • Sourcing lead time which includes vendor lead time + transportation time
    • Raw Material Inventory: It is part of inventory that is used as raw material for manufacturing of finished goods. It is  Measured in average days on hand (ADOH)
    • Manufacturing lead time: production time + packaging time
    • Finished goods Inventory: It is quantity of finished goods produced (measured in ADOH).
    • Shipping lead time: warehousing + transporting + distribution lead time
  • Dashboard Formula: procurement lead time + manufacturing lead time + shipping lead time
  • Usage (use alone or combine with other measures): COMBINATION with above parameters.
  • Rationale to prove Linkage to above Context:
  • Risk Potential (High/Medium/Low): High.
  • Scope of application: this parameters requires Collaboration & coordination among departments in complete process of planning, sales forecasting and inventory level fulfilment
  • Commercial implications & Benefits to company: There are several important implications of this parameters:
    • Overall supply chain cycle time reduction helps in reduction in inventory, cost, more responsiveness.
  • Required personnel, facilities, and equipment: Team of Production planner, coordinator & managers along with supply chain professionals keeps track of all data using SAP.
  • Feasibility/difficulty of data collection: little difficult to measure as various factors affecting.
  • Life of project or product line: Continuum ( on going)
  • Target date: within 30 days (assumption)
  1. INVENTORY TURNOVER
  • Purpose: To measure at what annual frequency organization is able to sell their total inventory.
  • Definition: It is the ratio predicting number of times inventory is sold and replenished in a predefined duration.
  • Type (Business / Operational Management): Operational
  • Type (Performance/Cost /Time / Customer Management): Time
  • Frequency of monitoring: Continuous (assumption)
  • Drivers (Keys to Success):
    • Marketing Strategy: an effective marketing strategy will help in improving sales hence faster inventory turnout.
    • Price strategy: not just cost reduction, but a whole slew of things like seasonal, premium, cost plus pricing, bargain etc.
    • Constantly reviewing purchasing price: Re-negotiating contracts/payment terms, increasing competition among vendors etc
    • Inventory categorization helps in stacking, retracting of inventory thus reducing inventory handling/storage time.
    • Accurate forecasting helps in predicting sales trend and aligning production, warehousing & logistics functions with it.
    • Improving partnership with vendors: an open channel to share information, costs, future plans & holding Joint projects.
    • Speeding up manufacturing and delivery process (JIT)
    • Advance orders provide buffer time for preplanning, scheduling it also helps in avoiding last minute rush & emergencies.
  • Measurement Tools: It is summation of following parameters supply chain process lead time can be tracked accurately:
    • High turnover ratio pointed out towards an efficient supply chain process.
    • sales figures
    • Value of COGS
    • Inventory level before and after i.e. physical stock level checking
  • Dashboard Formula: Cost of Goods Sold ÷ Average inventory
  • Usage (use alone or combine with other measures): COMBINATION with above parameters.
  • Rationale to prove Linkage to above Context:
  • Risk Potential (High/Medium/Low): High. If not tracked properly will cause serious problems like:
    • Inefficiency in gauging level of liquidity in company’s inventory.
    • A lower turnover rate indicates overstocking, dead-stock etc or inefficiency in marketing or manufacturing efforts.
    • Higher the turnover of inventory, more efficient supply chain but it should be balanced and not result into stock outs.
  • Scope of application: this parameters encompasses following departments:
    • Inventory management according as per ABC class of inventory: Reducing ‘A’ class items to maintain stocks for 15 to 20 days of consumption. ‘B’ & ‘C’ Class items as per lead time & purchasing/storage EOQ. MRP list calculation as per production plan.
  • Commercial implications & Benefits to company: if company is continuously clocking higher turnout ratio, it means:
    • Strong sales, JIT is working efficiently and reduction in human error and saving of time
    • Company is replenishing cash at faster rate so more liquidity as less money is to be investing in buying inventory.
    • Lower risk of ending up with dead stock or obsolete inventory or risk of getting broken, stolen, pilferage etc.
    • Enjoy more profitability and efficiency of system as a whole. Firm carry low inventory level in comparison with sales.
  • Required personnel, facilities, and equipment: Team of Production planner, coordinator & managers along with supply chain professionals keeps track of all data using SAP.
  • Feasibility/difficulty of data collection or shortcoming: little difficult to measure as various factors affecting.
    • If considered alone this is not perfect metrics. Inventory on lesser side means stockout/lost sales etc.
    • It does not indicate whether inventories were too less and company lost sales as a result.
    • Using only 2 figures (beginning & end inventory level) for entire year could be misleading and may lead to wrong assumptions.
  • Life of project or product line: Continuum ( on going)
  • Target date: within 30 days (assumption)
  1. ORDER STATUS /TRACKING :
  • Purpose: To measure Monitor the current status and accuracy of orders that are being shipped to your customers.
  • Definition: This metric basically check for accuracy, track, monitor( real time status) & categorize(dispatched, on-hold or backordered) a customer order in terms of.
  • Type (Business / Operational Management): Operational
  • Type (Performance/Cost /Time / Customer Management): Time
  • Frequency of monitoring: Continuous (assumption)
  • Drivers (Keys to Success):
    • Technology: RFID, Barcodes, GPS tracking chips,
    • Holistic data management which can decipher tons of data collected and can represent in meaningful dashboard KPI.
    • Go paperless
    • Six sigma, kizen, kanban
  • Measurement Tools: It is summation of following parameters supply chain process lead time can be tracked accurately:
    • Order accuracy
    • Finished goods packing: proper filling, packing, labelling, palletised
    • Customer complaints ( quality issues, returns etc)
    • Performance measure for adherence to lead time.
  •  Dashboard Formula: Cost of Goods Sold ÷ Average inventory
  • Usage (use alone or combine with other measures): COMBINATION with above parameters.
  • Rationale to prove Linkage to above Context:
  • Risk Potential (High/Medium/Low): High. If not tracked properly will cause serious problems like:
    • Shortages and surpluses
    • Employee theft
    • Poor customer service
  • Scope of application: this parameters encompasses following departments:
  • Commercial implications & Benefits to company: if company is continuously clocking higher turnout ratio, it means:
    • On line tracking will help in faster response to ever changing customer demands or issues
    • Avoids stock out situations
    • Extra revenue and efficiency enhancement
    • Business will appear trustworthy and reliable.
  • Required personnel, facilities, and equipment: Team of Production planner, coordinator & managers along with supply chain professionals keeps track of all data using SAP.
  • Feasibility/difficulty of data collection or shortcoming: little difficult to measure as various factors affecting.
    • Involves cost and resources.
    • Time taking
    • Too much dependency on technology
    • Many external factors affecting performance, on which a firm has less or no control
  • Life of project or product line: Continuum ( on going)

Target date: within 30 days (assumption)

  1. INVENTORY ACCURACY
  • Purpose: To ascertain that system stock match with physical stock.
  • Definition: it is measure of how much physical stock matches with system stock. Often cycle counting is used to do it. It is measured either in financial terms like this much dollar worth of inventory or in quantity terms like this many tons of inventory.
  • Type (Business / Operational Management): Operational
  • Type (Performance/Cost /Time / Customer Management): Time
  • Frequency of monitoring: Continuous (assumption)
  • Drivers (Keys to Success):
    • Lean Manufacturing/ Warehouse and Office
    • The crux is quality. Quality of transaction, processes, methods etc.
    • Cycle Counting
    • Minimizing no of transactions
    • Process Improvement
  • Measurement Tools: It is summation of following parameters supply chain process lead time can be tracked accurately:
    • TQM & Six Sigma
    • ABC classification
    • % of Error creation in a period of time (days, week, month etc) should be lesser than error deletion rate.
    • Cycle Counting of stock taking of physical Inventory
    • Minimizing no of transaction and making process robust will reduce no of new errors.
  • Dashboard Formula:  IRA (%) = (Number of Correct Records/ Number of Records Checked) X 100, where Physical stock, its location, quantity should match system stock and all transactions related to item (goods receipt note, issue, bill booking etc) should be completed in system
  • Usage (use alone or combine with other measures): COMBINATION with above parameters.
  • Rationale to prove Linkage to above Context:
  • Risk Potential (High/Medium/Low): High. If not tracked properly will cause serious problems like:
  • Scope of application: These parameters include various departments like finance, purchase & warehouse.
  • Commercial implications & Benefits to company: if company is continuously clocking higher turnout ratio, it means:
    • Investors are interested in accuracy of book value which again depends upon entry of assets and inventories.
    • Inventory indicates company’s financial status. Lenders often lend money based upon inventory, hence accuracy is important.
    • Filing government taxes often requires depreciation value of assets/inventory.
    • Inaccurate system records often results in stock outs and create product and delivery delays
    • Wastage of time and money in case of misplaced or missing items.
    • Waste of space and blocked money in case company stores obsolete inventory.
  • Required personnel, facilities, and equipment: Team of Production planner, coordinator & managers along with supply chain professionals keeps track of all data using SAP.
  • Feasibility/difficulty of data collection or shortcoming: little difficult to measure as various factors affecting like process error. Each stage of process creates chances of error. Hence to reduce this error process should be made failsafe and error proof and possibly without manual intervention. Organization should try to reduce number of processes.
  • Life of project or product line: Continuum ( on going)
  • Target date: within 30 days (assumption)

 

  1. CARRYING COST OF INVENTORY
  • Purpose: To ascertain cost that a company incurs over a period of time for acquiring, storing & holding the inventory.
  • Definition: It is basically one of the components of Total inventory cost, other two being Ordering/start-up costs and Stock-out/storage costs. Inventory carrying cost can be summarized as various costs involved in inventory purchasing, its service cost, warehousing cost & cost involved in mitigating the risk. As industry thumb rule the carrying costs alone represent generally 25% of inventory value on hand.
  • Type (Business / Operational Management): Operational
  • Type (Performance/Cost /Time / Customer Management): Time
  • Frequency of monitoring: Continuous (assumption)
  • Drivers (Keys to Success):
    • Keep track of Re-order point
    • Negotiate well about MOQ and purchasing frequency with vendor
    • Centralized inventory control, monitoring & tracking
    • Avoiding overstocking
    • Reduce dead stock: either Bundle it as complementary with popular items, Return it to vendor, or scrap it, Donate it
    • Reduction of vendor lead time
    • Emphasis on WMI & cross docking
    • IT technology: Inventory management software  or ERP for real-time update
  • Measurement Tools: It is summation of following parameters supply chain process lead time can be tracked accurately:
    • Purchasing cost 6%-12%, Taxes & duties 2%-6%, Insurance 1% – 3%, Warehouse Expenses 2% – 5%, Physical Handling 2% – 5%, Clerical & Inventory Control 3% – 6%, Obsolescence 6% – 12% & Deterioration & Pilferage 3% – 6%.

[Reff: Helen Richardson, “Control your costs then cut them”, Transportation & Distribution, December 1995, 94-96]

  •  Dashboard Formula:  Capital Costs/Inventory Investment + Inventory Service Costs (Insurance +Taxes+ Physical Handling) + Storage Space Costs (Plant W/H, Public W/H, Rented W/H, Company Owned W/H) + Inventory Risk Costs (Obsolescence + Damage + Shrinkage + Relocation Costs)         = Inventory carrying cost. It is normally expressed as % of total inventory value in hand.
  • Usage (use alone or combine with other measures): COMBINATION with above parameters.
  • Rationale to prove Linkage to above Context: Carrying cost of inventory is very important particularity when organisation is operating both in areas of customer service i.e. Built to order and Build To Stock (BTS) Build To Order (BTO).
  • Risk Potential (High/Medium/Low): High. If not tracked properly will cause serious problems like:
    • Frequent instance of overstock, stock out
    • Increased risk associated with inventory.
    • Low supply chain visibility may lead to reducing trust level among suppliers and customers.
    • Increased Storage Costs
    • Excess stock may result in Quality degradation & price decline
  • Scope of application: this parameters encompasses following departments:
  • Commercial implications & Benefits to company: inventory carrying cost has direct impact on companies financials like:
    • Working Capital
    • Fund Flow
    • P&L account
  • Required personnel, facilities, and equipment: Team of Production planner, coordinator & managers along with supply chain professionals keeps track of all data using SAP.
  • Feasibility/difficulty of data collection or shortcoming: little difficult to measure as various factors affecting.
  • Life of project or product line: Continuum ( on going)
  • Target date: within 30 days (assumption)
  1. INVENTORY TO PERCENTAGE OF SALES:
  • Purpose: To measure amount of inventory in context with number of sales order in hand.
  • Definition: It is defined as amount of sales figures achieved by company because of certain amount of inventory or working capital. In other words For every unit sold, how many units were on hand?
  • Type (Business / Operational Management): Operational
  • Type (Performance/Cost /Time / Customer Management): Time
  • Frequency of monitoring: Continuous (assumption)
  • Drivers (Keys to Success):
    • Identification of correct SKUs which contributes maximum towards sales.
    • Enhancing purchasing frequency, shortening lead time.
    • Cost optimization for items sold and purchased.
    • Accurate Forecasting
    • Faster selling of inventory
  • Measurement Tools:
    • A decreasing number indicates efficient utilization of assets.
    • Inventory turnover ratio
    • Sales data
  • Dashboard Formula:  (Average inventory during a period ÷ cost of sales during that period) x 100.
  • Usage (use alone or combine with other measures): COMBINATION with inventory turnover ratio
  • Rationale to prove Linkage to above Context: In order to grow business and sustain it while meeting customer demands requires that every dollar invested in inventory to be as productive as possible. It helps in giving quick view about best value of money while investing in inventory.
  • Risk Potential (High/Medium/Low): High. If not tracked properly will cause serious problems like:
    • Less visibility about financial stability of organization.
    • Chaos in inventory stock level
    • Many times cash crunch arises because large amount of money tied up in inventory.
  • Scope of application: These parameters can be calculated by departments or by categories, seasons, vendors, regions or individual stores.
  • Commercial implications & Benefits to company: inventory carrying cost has direct impact on companies financials like
    • It give quick view in terms of Compare and Contrast between past figures.
    • Gives good intuitions about productivity of investment made in inventory.
    • This metric gel with finance KPIs also.
    • It give idea about how well specific products or departments are performing
    • Helps in optimizing inventory and merchandising.
    • It is linear KPI, assuming sales stays constant, 1% reduction in inventory will result in savings.
  • Required personnel, facilities, and equipment: Team of Production planner, coordinator & managers along with supply chain professionals keeps track of all data using SAP.
  • Feasibility/difficulty of data collection or shortcoming: little difficult to measure as non-availability of required data like COGS and inventory level. Another problem is that the sales figures are based on market value and inventory is based on cost. So the two figures are not comparable to each other.
  • Life of project or product line: Continuum ( on going)
  • Target date: within 30 days (assumption)

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