Posts Tagged With: Supply chain management

Simple Ways to Measure Supply Chain Performance

We must be able to measure the existing supply chain performance and we also should able to see if the performance has improved.

SCM Measurement

In general, there are two ways that we can use to measure the performance of the supply chain, i.e. objective measure and subjective measure. Objective measure based on facts, preferably in the form of numbers. To be able to measure objectively, it requires setting up ways of recording for the performance of physical flow and information flow. Measurement of the performance of physical flow can be done through delivery performance, we need to record all request for goods/materials, when orders are placed, when orders are delivered/received, orders that are not delivered/received completely, etc. Measurement of the performance of information flow can be done through record all information concerning requests, delivery, returns/reverse or any information relating to the physical flow of goods / material.

There may be some aspects of performance which are either too difficult or not possible to measure in objective way. For these aspects, we have to use subjective measures. For example, subjective measures includes the views or perceptions of the people that cannot be supported by hard facts, this includes customers satisfaction surveys that can be done through questioners or direct interview.

With both ways as above, we then can make a matrix that focuses on the internal performance and the external performance.  External performance is performance that is done to the customer / buyer as well as the performance of all links in the supply chain. Internal performance will focus internally on the efficiency of the process, particularly the cost of carrying out all of the process.

Below is a simple way to measure the external performance:

1. Customer service, measurement includes:

  • Percentage of requests and orders fulfillment. The most used definition is on time, in full and error free. On time are orders delivered on or before date requested. In full are complete orders, and error free usually means complete based on the specification of the request, correct labeling and not damage.
  • Quality of the service provided. Included here is the information provided to the customer/buyer on the status of the goods / materials that are required/requested.
  • The flexibility provided.

2. Performance of supply chain links.

  • It is also important to measure different parties/actors involved in managing the whole supply chain. If these different parties/actors have different views what is required and they are using different matrix to manage and measure the performance, this can have a significant impact on the performance of the whole/total supply chain.

 

A simple way to measure the internal performance

Providing good customer service also must be done efficiently. Purely focused on managing and measuring customer service can lead to inefficiency and unnecessary costs. Below are simple ways to measure cost efficiency on the supply chain process:

  1. Total costs. These are the sum of all the supply chain costs including people who involved in the process and management costs.
  2. Inventory costs. Total costs of holding inventory in the whole supply chain.
  3. Inventory value. The value of inventory being held in the whole supply chain.
  4. Order management costs. Total costs involved in processing and managing orders.
  5. Cost of waste. Total costs involved in managing, returning and disposing of goods/materials which for different reasons are never used by the buyers/customers. This can include wrong goods/materials, damaged goods, expired goods, or goods/materials that arrived too late in the buyers/customers place, etc.
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Categories: Supply Chain Management (eng) | Tags: , , , , , | 1 Comment

Ideas for Improving the Performance of the Supply Chain

Previously, we have seen that there are two types of flows that exist in the supply chain, i.e. the “physical flow” and the “information flow”. Here’s an outline about the functions of the two flows:

  1. Physical flow or goods/material flow is to ensure the right types of goods/materials, in the right quantities, and to the right quality are meet the requirement of customers. Activities in this flow are buying, making and moving.
  2. Information flow is to find what are the goods/materials needed by customer, what quantities are required, when and where are they required.

All the activities involved in the supply chain are to respond to this information.

Supply demand

We also have seen that there are five basic components of the supply chain management, i.e. plan, source, make, deliver, and reverse. From these five basic components, in general we can see there are three important things involves in the supply chain:

  1. Procurement and Order Management.  Source of goods/materials is key information for companies to meet the needs. From this information then we can make a further planning for delivery of goods to the customers/buyers.
  2. Transport. Transport is an important component that ensures goods/materials are moved efficiently in the right speed to meet the needs of customers/buyers.
  3. Warehousing and Inventory. These components are also a key component of the supply chain process. By warehousing, any inventory is being stored in the supply chain process.

Improving supply chain is about ensuring the flow of goods/materials and the flow of information is as effective and efficient as possible and removing any barriers there may be affected to those flows.

Below some ideas for improving the performance of the supply chain:

  1. Improve and increase communication between all units in the companies (internal) and all agencies/companies involved in the supply chain process (external). Lack of communication either internal or external may raise some problems in providing the needs to the customers/buyers. Sharing information also includes in this point. By sharing related information to other colleagues will help companies to meet the needs. Sometimes people kept latest information only for them or their unit to get applause from the management. But applause will be given only if the work is done well. If it is failed then we will blame each other. We also need to give correct information in order to avoid any problem. It is always better to double check the information before pass it to other.
  2. Improve coordination and manage all links in the supply chain in properly manner. This includes improving the knowledge of people involved on the supply chain process.
  3. Reporting. Good and clear reports as well as correct data are needed. For example, by creating a new database related to the movement of goods/materials from the sources until the customers/buyers. All related information such as procurement, storage, warehousing, and transport to be updated on daily basis.
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Procurement >> Preliminary

We have seen five basic components of SCM previously, i.e. plan – source/supply – make/production – deliver – reverse.

These five components cannot be separated. A simple example is if we have a necklace. Of course that necklace has to be in good form in order for us to use it. If one part, e.g. the hooks are damaged then we need to fix so we can use it again. Maybe there will be a slight defect or the looks will not as good as before. And maybe at first we only had the money to buy a silver necklace, but after a while we’ve got enough money to buy a gold necklace. We will take care of that gold necklace properly because it is valuable goods.

Above example is same with SCM, each component is unity and should be managed properly to achieve value / profit as per the goals, it has to be sustained and improved.

Back to procurement, for most ordinary people, procurement is same with purchasing. But actually both are different. Below we can see what the difference between procurement and purchasing:

Procurement Contract

Procurement: the complete process for acquiring goods or services from external party or supplier. Procurement covers all process from the beginning until the end to obtain goods or services. It includes identifications of goods or services as per requirement, market survey or assessment, obtain sampling based on the required specifications, tender process until award for the winner, make a contract, ordering includes logistics arrangement (transport & warehouse if necessary), monitoring and make performance evaluation of the supplier. Almost same with logistics missions, procurement is acquiring goods or services in the right quantity & quality, at the right time & place and from the right source at the right price.

Purchasing: the specific activity of committing expenditure (money or equivalent) and tends to focus on the price rather than others. We can also say that purchasing is a part of procurement and more for administrative aspects. There are several companies set their own standard for purchasing, it can vary greatly between companies.

Going forward we will discuss steps in the procurement process.

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Reverse Supply Chain

This is the last component of the supply chain. As mentioned before, this component is a problematic part for many companies because they must create a responsive and flexible system on optimizing this backward supply chain, such as management of product returns due to quality problem, return of unsold stocks, etc.

In short, we can say that “reverse” is the resource goes at least one step back in the supply chain. Examples of reverse supply chain include:

  • Product move from customer to distributor. For example, the fan is returned to X store by a buyer because it not working properly.
  • Product move from distributor to manufacturer.
  • Raw material move from manufacturer to supplier.

Based on the above, in principal, there are five key components to be carried out:

  1. Product Acquisition. Obtaining the used product from the customer/buyer by the distributor/manufacturer/supplier.
  2. Reverse Logistics. Transporting products to a facility of distributor/manufacturer/supplier for inspection, sorting and disposition.
  3. Inspection and Disposition. Companies must conduct this component at the earliest possible stage, assessing the condition of the return products and take the most profitable decision reuse or disposal. This is to avoid the additional costs such as the cost of storage and so on.
  4. Reconditioning / remanufacturing / recycling. If decision of above (no. 3) is reuse.
  5. Redistribution. Would be better to conduct survey prior of redistribution in order to determine whether there is demand for it or whether a new market must be created.

The picture below can give an idea to make the best solution for reverse supply chain:

Reverse Supply Chain

 

What –> what resources are returned

Why –> reasons why resources are returned

When –> time of returned

Where –> at which point occurred

Who –> who returned

How –> way of returned

By providing the best solutions to the above questions then the company can make a good system of reverse supply chain that of course will add to the benefits and sustainability of a business.

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Supply Chain >> Deliver

This part known as Logistics, which is one of the most important part in the supply chain. Logistics involves many parties. For example, a manufacturing company in Bandung – Indonesia, and a retailer in California – USA. How many paths should be traversed? Goods should be sent by road from Bandung to Jakarta, and then it will be sent to USA by sea or air, not to mention Customs arrangements in both origin and destination countries. Of course big capital is required, such as payment for transport, staffing, labors, Customs fees as well as information infrastructure.

Back to Logistics, there are two main components, i.e. transport and warehouse / storage.

From the below illustration we can see that the transport can be done by air, sea, land and rail.

Delivery

Important factors to consider are how to make an efficient delivery system at an affordable cost. The selection of transport mode and who will be the transporter are crucial.  We will see more about transport in the Logistics part of this blog.

The second component is a warehouse or storage. Important factors that should be considered in this section include:

  1. What we will store
  2. When we will store
  3. How much space we will need
  4. How to handle and organize goods
  5. When the goods will be out

Same as transport, we will see more about warehouse/storage in the Logistics part of this blog.

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Supply Chain >> Pengiriman

Bagian ini kita kenal dengan nama Logistik yang merupakan bagian yang sangat penting dalam suplai chain. Logistik melibatkan banyak pihak. Bayangkan saja, seandainya pabrik kita berada di Bandung – Indonesia, dan pengedarnya berada di luar negeri, misalkan di California – USA. Berapa banyak jalur yang harus dilalui, dari Bandung harus dikirim ke Jakarta melalui jalan darat, kemudian dikirimkan ke USA melalu laut atau udara, belum lagi masalah bea dan cukai baik di negara asal maupun negara tujuan. Sudah pasti banyak modal yang diperlukan, baik untuk transport itu sendiri maupun untuk yang lainnya seperti pembayaran kepada seluruh personil yang terlibat, pembayaran bea & cukai serta sistem/infrastruktur informasi yang dibutuhkan.

Kembali ke bagian logistik, ada dua komponen penting, yaitu transport dan gudang atau penyimpanan.

Dari ilustrasi di bawah ini kita dapat melihat bahwa trasportasi dapat dilakukan lewat udara, laut, darat dan kereta api.

Delivery

Faktor penting yang harus diperhatikan adalah bagaimana membuat suatu sistem pengiriman yang efisien dengan biaya yang terjangkau. Pemilihan jenis transportasi yang akan digunakan dan siapa yang akan menjadi transporternya merupakan hal yang krusial. Kita akan melihat lebih jauh mengenai transport pada bagian Logistics dalam blog ini.

Komponen kedua adalah gudang atau tempat penyimpanan. Faktor penting yang harus dilihat dalam bagian ini antara lain:

  1. Apa yang akan disimpan
  2. Kapan akan disimpan
  3. Berapa jumlah barang yang akan disimpan
  4. Bagaimana cara menangani barang yang akan disimpan
  5. Kapan barang tersebut akan dikirimkan kembali

Sama seperti transport, kita akan melihat lebih jauh mengenai gudang/tempat penyimpanan pada bagian logistik dalam blog ini.

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