The articles “What’s Wrong with Supply Chain Metrics, Becoming Demand Driven and Staying Demand Driven” by Debra Smith and Chad Smith discuss a very important question whether managers use appropriate tools in a management decision-making process or not. Also, there is a misconception that return of investments (ROI) and overall effectiveness can be maximized through the minimization of unit cost. There is an immense importance of the flow of information and materials in supply chain systems. It is very true that today companies direct their efforts toward maximizing their profits by minimizing of unit costs. Sometimes, such efforts can impede overall a company’s system efficiency and flow. Also, it is crucial to realize the difference between linear and nonlinear complex systems, since most companies face the problem of their existing complex supply chain system, so they need to reevaluate such a system and assess how it affects a company’s overall performance and flow. As mangers we should try to limit a complexity of existing supply chain systems and try to adopt linear systems. …show more content…
The first step underlines an importance of developing solutions from a system-and-flow-based perspective, as I discussed before. The second step focuses on an idea of adopting new position-centric efficiency rules and a new position-and-pull mode, which ultimately maximize the flow of relevant materials and information. Managerial accounting books also suggest that the push-and-promote mode of operation must be shifted with the position-and-pull approach. The final step is to embrace and deploy smart metrics, which requires understanding principles of system flow, the causes of system variation, and the ability to think
Smith & Brown currently use Budgets and review meetings to measure performance and short-term financial targets to drive performance. Budgets use conventional performance measures which are focused on financial aspects where it seeks to explain the financial consequences of actions and decisions through the use of variance analysis, but it can not identify the causes or the source of bad financial performance. However, non-financial information has proven to address this problem, and has been incorporated in the balanced scorecard to help businesses measure its performance more effectively by providing management with information about what could be causing inefficiency in the production cycle and what could be the source of bad performance
Balanced Scorecard: During 1980s, executives across organizations were convinced that traditional measures of financial performance didn’t let them manage effectively and wanted to replace them with operational measures. Arguing that executives should track both financial and operational metrics, Robert Kaplan and David Norton suggested four sets of parameters.
The rate of growth of the company affected the supply chain management system negatively. Sales and the company grew at a healthy rate annually, but the supply chain management system lagged in performance by comparison, based on a monolithic approach to supply chain sourcing that decentralized orders, inventory management, and the movement of products to retail stores independently by
Metrics are very important in Operations Management within an organization because it provides functions such as control, reporting, communication, opportunities for improvement and expectations. It is a certifiable measure stated in either quantitative or qualitative terms types of measurements. In addition, metrics has different types of categories in the organizations. One of which is “Organizational Focus”, that have four different types of level within the organization or firm. 1. Organizational Metrics – this type of measure, capture and describe the performance of an organization (i.e.…market share and rate of return). 2. Product Metric – it measures cost per unit, contribution margin per unit, or growth in sales.
The balanced scorecard is a continuous, strategic analysis of the organisation from multiple perspectives commonly approached by analysing the four perspectives of financial, learning and growth, customer and internal business processes. A combination of financial and non-financial performance measures are used in this analysis. Financial information is measured in dollars or ratios of dollars and compares forecasts to actual results, whereas nonfinancial information, that cannot be measured in dollars, includes data on areas such as defect rates, throughput time and employee retention (Eldenburg et. al. 2014, p. 699). Interestingly, the Balance Scorecard MCS was developed to balance the undue emphasis of the financial performance focus of organisations, with non financial indicators, particularly in the western english speaking countries such as the United States of America and the United Kingdom (Otley 1994, p.
The brainwave of Logistics and Supply Chain Management came into existence decades ago and now has evolved as an elaborated organization alongwith application of variegated operations. This paper mentions the essence of Logistics and Supply Chain Management in a broader and centralizing way. Here , we will also talk about how Supply Chain incorporates Logistics and how does this industry works together as a whole.
Value Chain Analysis"Accounting for Strategic Management Porter identified the 'value chain' as a means of analysing an organisation's strategically relevant activities in order to understand the behaviour of costs. Competitive advantage comes from carrying out those activities in a more cost-effective way than ones competitors.This essay describes the activities which are referred to as the value chain and discuss how cost analysis of the value chain can be achieved in order to facilitate cost-effectiveness.M. Porter (in Competitive advantage, 1985) breaks the value chain (VC) model into two distinctive types these being primary and support activities. (Bowman C., 1990, p63) The model suggests, that no matter how many operational units that are involved in the process of generating customer value; these primary activities can be conceptualised into five generic stages. The five primary stages are inbound logistics, operations, outbound logistics, marketing and sales, and service. These primary stages are supported by the firms infrastructure, human resource management, technology development, and purchasing and procurement. The stages within the VC should not be seen in isolation but looked at in a wider context and include the interactions between stages not just within the processes. The relationship between sales, operations and procurement for instance can determine how much stock is to be carried and therefore reflected in cost of inventory held.When analysing the VC of a given company/organisation the management accountant (MA) should firstly identify the activities of the firm to establish the framework of the chain.• o ". . . Porter suggests the detailed assignment of operating costs and assets to each value activity" (Grant R.M., 1995,p193) A company producing computers and a firm of accountants for instance would display very different components within the chain due to the differentiating activities (see below); this framework will allow us to establish the relevant importance of each unit of activity in regards to costs. As you can see the relevance of operations within the manufacturing company is higher than that of operations within accountancy. With over 60% of its costs being allocated to operations, it would seem that the manufacturing company should concentrate on this area to maximise savings, as this is the main cost driver. The accountancy firm however as two main cost drivers these being operations at 26% and marketing at 21% , suggesting almost equal saving potentials can will be offered. As MA’s we need to identify the cost drivers, in a similar manner as ABC costing.
According to Mentzer (2001), several organizations have made supply chain management a key competency, particularly inbound logistics to support company operations. This is because its impact on services and products delivery to end consumer. Through supply chain management companies coordinate inter organizational operations for mutual efficiency. According to Brar and Saini (2001) to achieve supply chain efficiency organizations must be keen on their inbound logistics operations. This is because inbound logistics is the starting point of all supply activities in a firm and has an impact on subsequent supply chain activities. A disruption on inbound logistics flow may bring a company to a halt if production lines lack materials to run. This may lead to losses to an organization due to lost opportunities. Companies must therefore integrate inbound logistics in their supply chain plans for material sourcing and final product
Many organizations do not achieve the profits they anticipate by using incorrect methods or models to determine the true costs of products and services. This failure to correctly assess the costs associated with business not only affects the profit margin, but the organizations competitive advantage as well. In order to asses whether the organization is failing to realize optimum resource allocation, the organization should look at the methodology first popularized by Michael Porter titled the Value Chain Analysis (VCA). "VCA seeks to define the entire chain through which goods are supplied to a customer" (Booth, 1997, 2). The VCA can be a powerful tool in increasing an organization's competitive advantage; by correctly pricing products and assessing the true costs of materials and labor, organizations can align the improvements in efficiency, quality, and profits with its strategic objectives.
In addition, planned or actual production quantities also restraints the capacity of transportation and affects customer satisfaction leveAs per Fleischmann, Meyr and Wagner (2008:p87), Supply Chain Planning Matrix (Rohde et al. 2000) was used to categorized the planning tasks base on two dimensions “planning horizon” and “supply chain process”. Figure___ indicates shat typical process that occurred in common supply chain types, with exception in some specific businesses.
National and International businesses are becoming ever more dependent on logistics and supply chain management in order to keep pace with the demands of an increasingly global economy. This is why business leaders acknowledge that the supply chain can be a value creator and a source of competitive advantage.
The key performance drivers of Supply Chain Management (SCM) are - facility effectiveness, inventory effectiveness, transportation effectiveness, information effectiveness, sourcing effectiveness, pricing effectiveness, delivery effectiveness, quality effectiveness and service effectiveness. These drivers include various performance markers that may be measured quantitatively by gathering information and applying them in SPSS. The works here may principally be quantitative with spellbinding measurable investigation. In the current world, practical supply chain management to help the triple primary concern, (nature, domain, and economy) is likewise included in the extent of supply chain performance drivers. This is relatively a quite new research region.
This is the activity carried out by organizations that own production sites, and their performance has a major impact on product cost, quality, speed of delivery and delivery reliability, and flexibility [8]. As it is quite an important part of the supply chain, production needs to be measured and continuously improved. Suitable metrics for the production level are as follows. Order lead-time, the total order cycle time, called order to delivery cycle time, refers to the time elapsed in between the receipt of customer order until the delivery of finished goods to the customer. The reduction in order cycle time leads to reduction in supply chain response time, and as such is an important performance measure and source of competitive advantage [9]. It directly interacts with customer service in determining competitiveness. Range of product and services: According to [8] a plant that manufactures a broad product range is likely to introduce new products more slowly than plants with a narrow product range. Plants that can manufacture a wide range of products are likely to perform less well in the areas of value added per employee, speed and delivery reliability. This clearly suggests that product range affects supply chain performance. Effectiveness of scheduling techniques is another important measure of supply chain effectiveness. Scheduling refers to the time or date on or by which
To support this assertion Krivda (2004) cites the findings of AMR Research Inc. According to this research, companies that have adopted proper supply chain operation and management enjoy greater performance as determined by various financial measures. Specifically, excellence in supply chain can result in relatively accurate demand forecast therefore making such companies realize higher profit margin by approximate 5%, a 15% percent lower inventory, a stronger “perfect order rating” rating of up to 17%, and a comparative shorter cash-to-cash cycle time of about 35% (Krivda 2004).
Coyle, J., Langley, C., Gibson, B., Novack, R. and Bardi, E. (2008).Supply Chain Management: A Logistics Perspective. 8th ed. Cengage Learning, p.366.