Y Narahari, Computer Science and Automation, Indian Institute of Science SUPPLY CHAIN PERFORMANCE...

Y Narahari, Computer Science and Automation, Indian Institute of Science

SUPPLY CHAIN PERFORMANCE MEASURES

Y. NARAHARIComputer Science and Automation

Indian Institute of ScienceBangalore - 560 [email protected]

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


OBJECTIVE 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 Taxonomy of Supply Chain Performance

Measures Quick Response Supply Chains Fundamental Laws of Lead Time

Reduction Synchronized Supply Chains


FUNCTIONAL 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

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 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 MEASURES Quality Reliability Dependability/Performability Flexibility

volume product mix routing delivery time


QUICK 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

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 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 REDUCTIONFirst 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 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


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



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)



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 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 = 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

Procurement Sheet Fabrication Transportation Manufacturing Assembly Delivery


A 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? 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 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

Y Narahari, Computer Science and Automation, Indian Institute of Science SUPPLY CHAIN PERFORMANCE...

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