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SUPPLY CHAIN PERFORMANCE MEASURES. Y. NARAHARI Computer Science and Automation Indian Institute of Science Bangalore - 560 012 hari@csa.iisc.ernet.in http://www.csa.iisc.ernet.in. OBJECTIVE OF TALK. To identify and understand different indices of supply chain performance

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supply chain performance measures
Y Narahari, Computer Science and Automation, Indian Institute of ScienceSUPPLY CHAIN PERFORMANCE MEASURES

Y. NARAHARI

Computer Science and Automation

Indian Institute of Science

Bangalore - 560 012

hari@csa.iisc.ernet.in

http://www.csa.iisc.ernet.in

objective of talk
Y Narahari, Computer Science and Automation, Indian Institute of ScienceOBJECTIVE OF TALK
  • To identify and understand different indices of supply chain performance
  • To understand the "science" of lead time reduction in supply chains
  • To appreciate the role of Internet technologies in improving the delivery time performance of supply chains
outline of talk
Y Narahari, Computer Science and Automation, Indian Institute of ScienceOUTLINE OF TALK
  • Taxonomy of Supply Chain Performance Measures
  • Quick Response Supply Chains
  • Fundamental Laws of Lead Time Reduction
  • Synchronized Supply Chains
functional vs process performance measures
Y Narahari, Computer Science and Automation, Indian Institute of ScienceFUNCTIONAL VS PROCESS PERFORMANCE MEASURES
  • Functional measures provide only a partial picture
  • Functional excellence does not imply process excellence
  • Function-based optimization can be disastrous
  • Our attention will be on supply chain process performance measures
financial measures of supply chain performance
Y Narahari, Computer Science and Automation, Indian Institute of ScienceFINANCIAL MEASURES OF SUPPLY CHAIN PERFORMANCE
  • Financial Measures
    • Market share
    • Stock
    • Valuation
    • Profits
    • ROI
    • Inventory Turns
  • Financial measures are lagging metrics, a result of past decisions
  • Operational, non-financial measures are excellent indicators of process health
operational non financial measures
Y Narahari, Computer Science and Automation, Indian Institute of ScienceOPERATIONAL, NON-FINANCIAL MEASURES
  • Cycle time
  • Customer service level
    • order fill rate
    • stockout rate
    • backorder level
    • probability of ontime delivery
  • Inventory levels
  • Resource utilization
  • Capacity/Throughput
operational non financial measures7
Y Narahari, Computer Science and Automation, Indian Institute of ScienceOPERATIONAL, NON-FINANCIAL MEASURES
  • Quality
  • Reliability
  • Dependability/Performability
  • Flexibility
    • volume
    • product mix
    • routing
    • delivery time
quick response supply chains
Y Narahari, Computer Science and Automation, Indian Institute of ScienceQUICK RESPONSE SUPPLY CHAINS
  • Minimal cycle times
    • supply chain end-to-end lead time
    • order-to-delivery lead time
  • Minimal spread in cycle times
  • Synchronization among various stages
lead time reduction
Y Narahari, Computer Science and Automation, Indian Institute of ScienceLEAD TIME REDUCTION
  • Cycle time is an all-encompassing measure
  • Provides competitive edge
  • Leads to increased customer satisfaction
  • Leads to reduced inventory, reduced onsolescence and increased quality
components of supply chain lead time
Y Narahari, Computer Science and Automation, Indian Institute of ScienceCOMPONENTS OF SUPPLY CHAIN LEAD TIME
  • Procurement lead time
  • Manufacturing lead time
  • Distribution lead time
  • Logistics lead time
  • Setup times
  • Waiting times
  • Decision-making times
  • Synchronization times
fundamental laws of lead time reduction
Y Narahari, Computer Science and Automation, Indian Institute of ScienceFUNDAMENTAL LAWS OF LEAD TIME REDUCTION

First Law: Little's Law

  • Average Inventory is the product of average waiting time and throughput rate
  • Inventory reduction and optimal utilization of resources is the key to lead time reduction
  • Throughput and lead time are negatively correlated (classical queueing theory)
  • Load balancing and optimal resource allocation will help
fundamental laws of lead time reduction12
Y Narahari, Computer Science and Automation, Indian Institute of ScienceFUNDAMENTAL LAWS OF LEAD TIME REDUCTION

Second Law: Pollaczek-Khintchine Formula

  • Waiting times are positively correlated to variance of arrival and processing times
    • Input control
    • Process control
    • Fluctuation smoothing
  • Controlled arrivals can significantly reduce lead times
    • closed mode operation better than open mode
  • Strict control of processing times reduces lead times considerably
fundamental laws of lead time reduction13
Y Narahari, Computer Science and Automation, Indian Institute of ScienceFUNDAMENTAL LAWS OF LEAD TIME REDUCTION

Third Law: Forrester Effect

  • Inventories grow in successive echelons of the supply chain as demands get amplified in the upstream direction
  • Inventory expansion leads to rising levels of lead time
  • Accurate forecasting and intelligent use of information are is key to reducing the effects of this
fundamental laws of lead time reduction14
Y Narahari, Computer Science and Automation, Indian Institute of ScienceFUNDAMENTAL LAWS OF LEAD TIME REDUCTION

Fourth Law: Taguchi's Loss

  • Taguchi's loss function is decided by variability and also bias (deviation from optimal nominal)
  • Do not always try to eliminate variation, but minimize the effects of variability
  • Find robust operating points (nominals)
fundamental laws of lead time reduction15
Y Narahari, Computer Science and Automation, Indian Institute of ScienceFUNDAMENTAL LAWS OF LEAD TIME REDUCTION

Fifth Law: Use the Internet

  • Availability and intelligent use of critical information is a key requirement
  • Use of Internet and Ecommerce Technologies can help dramatically in this
  • Synchronization between the front-end and back-end is critical
synchronized supply chains
Y Narahari, Computer Science and Automation, Indian Institute of ScienceSYNCHRONIZED SUPPLY CHAINS
  • Variability is the main enemy in achieving lead time reduction,as evidenced by:
    • Forrester Effect
    • Pollaczek-Khintchine Formula
    • Taguchi's Loss Function
  • Our objective is to design a highly synchronized supply chain network that works like a world class relay racing team
  • We wish to use best practices in manufacturing, design, and tolerancing domains
design of synchronized supply chains
Y Narahari, Computer Science and Automation, Indian Institute of ScienceDESIGN OF SYNCHRONIZED SUPPLY CHAINS
  • Y = f (X1, X2, . . . , Xn)
      • Y represents supply chain lead time or order-to-delivery lead time
      • f is a deterministic function
      • X1, X2, . . . , Xn are lead times of individual business processes, continuous random variables
  • Y is a continuous random variable
  • Analysis: Compute the probability distribution of Y given f and the distributions of X1, X2, . . . , Xn.
  • Synthesis: Find the best nominals and tolerances for X1, X2, . . . , Xn, given nominal and tolerance specifications for Y.
example a plastics supply chain
Y Narahari, Computer Science and Automation, Indian Institute of ScienceEXAMPLE: A PLASTICS SUPPLY CHAIN
  • Procurement
  • Sheet Fabrication
  • Transportation
  • Manufacturing
  • Assembly
  • Delivery
a six sigma framework
Y Narahari, Computer Science and Automation, Indian Institute of ScienceA SIX SIGMA FRAMEWORK
  • Six Sigma Quality: A process is considered to be of six sigma quality if there are no more than 3.4 non-conformities per million opportunities (3.4 ppm) in the presence of typical sources of variation.
  • Analysis and Synthesis are based on:
    • Characterizing product-process quality using process capability indices Cp and Cpk
    • Use of statistical tolerancing techniques to reduce lead times
where can we apply this
Y Narahari, Computer Science and Automation, Indian Institute of ScienceWHERE CAN WE APPLY THIS?
  • Due Date Setting
  • Selection of Supply Chain Resources
  • Make-to-stock versus make-to-order versus build-to-order
  • Resource Allocation
  • Selecting logistics providers
  • Select Robust Operating Points
conclusions
Y Narahari, Computer Science and Automation, Indian Institute of ScienceCONCLUSIONS
  • There are fundamental laws governing lead time reduction in supply chains
  • Variability reduction and synchronization among internal business processes of a supply chain is a key to achieving a high level of delivery performance
  • Use of Internet and Ecommerce technologies could be a key for achieving outstanding delivery performance