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Forecast Accuracy Customer Service (on time delivery to commit) Total Inventory Days of Supply
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Copyright 2004 The Performance Measurement Group, LLC
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CHAPTER 2 Core Discipline 2: Develop an End-to-End Process Architecture
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eliminate the need for inspection or preparation. Another way to lower costs is to automate manual, paper-based transactions such as purchase orders or to replace them with a more efficient practice, such as setting up automatic replenishment to do away with purchase orders entirely. Set procurement strategies according to category. Procurement strategies set the boundaries for supplier agreements, competitive contracts, and global sourcing agreements based on the need for robustness in the supply network. Different categories have different supply-market complexities and business impacts. In addition, sourcing activities, organization, and tools should be differentiated based on these specific strategies. For example, for standard products where cost is the primary selection criterion, focus on global supply-base management and techniques such as online bidding, whereas for more strategic products, partnership management and collaborative workspaces will be needed. Maintain an enterprisewide focus. This means choosing suppliers that can service the organization across its different locations and consolidating purchase volume across the enterprise, where possible, for greater leverage with suppliers. It also requires managing the supply base at the enterprise level using standard specifications, common tools (profiles, ratings, and evaluation criteria), and appropriate organizational structures, such as global commodity managers and teams. Managing the global supply base ensures that suppliers use best practices those which drive lower costs and greater flexibility whenever possible and that processes are standardized for a more efficient and robust supply chain. Spend management is also a critical part of source excellence, ensuring that your company tracks spending, uses only approved suppliers and standards (approved vendors lists, catalogs, etc.), and has delegation-of-authority processes in place for approving purchases. Measure and manage performance. You won t know if you re achieving the objectives of your category strategies unless you track sourcing performance. For example, visibility on spend across all locations (on volumes purchased by suppliers and terms and conditions applied) is needed for contract enforcement. In addition, explicit performance review points should be built into supplier contracts and be based on standard supplier scorecards. Supplier scorecards should include the key performance indicators
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Strategic Supply Chain Management
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needed to support the achievement of mutually agreed TCO objectives. In addition to reviews, two-way visibility of performance to the scorecard metrics should support day-to-day performance management. For the supply chain to operate effectively, be sure to integrate source with the plan, deliver, make, and return processes both within the organization and with suppliers. The integration points with suppliers are multiple because a company s source process integrates with a supplier s deliver processes for many activities (ordering, goods receipt, and payment). Working with suppliers to design a seamless, integrated flow of these inputs and outputs can lower total cost of ownership significantly. To achieve your company s business objectives, also integrate sourcing with other core business processes. For instance, by integrating with technology, product, and service development processes, you can ensure that suppliers apply design for manufacturing and design for supply chain practices. These practices improve quality; optimize production, testing, and packaging; and get new products to market faster. Figure 2-10 shows the metrics of top performance in the source process.
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The supply chain make process transforms the resources procured by source into goods and services according to agreed-on specifications and any regulatory requirements. To increase flexibility, minimize costs, or
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F I G U R E 2 10
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Metrics of top performance in source.
Best Performer Advantage Over Median/Average Discrete Process Discrete Process Discrete Process 6 times faster 18 times faster 1/5 the inventory 1/4 the inventory Spend 50% less Spend 20% less
Source
Materials Availability (days to increase by 20%) Raw Materials Inventory Days of Supply Materials Acquisition Costs
Copyright 2004 The Performance Measurement Group, LLC
CHAPTER 2 Core Discipline 2: Develop an End-to-End Process Architecture
boost asset utilization, more and more companies are using external partners to execute some or all of their make activities, such as production, testing, certification, and packaging. This requires sharing performance objectives and processes across this extended network. There are four principles for process excellence in make:
Focus on business priorities. All make scheduling decisions should integrate customer and market priorities. Your company s business managers should provide these priorities as formally defined business rules. Give priority to key accounts and higher-margin products when resources and production capacity are limited. Aim for speed and flexibility, not just low costs. Reduce cycle times and inventory levels with demand-pull and other lean manufacturing techniques. For example, when time or cost prohibits making customized products, finish products to a generic level and only finalize them on receipt of a customer order. Speed and flexibility require almost real-time visibility. Timely and accurate information on key areas, such as order status, production output, line stoppages, quality performance, and inventory levels, is needed to support rapid adjustments to the production schedule. Set and monitor quality standards. Capture and review quality information at each step of the production process based on preset standards. Timely data on quality must be accessible to everyone involved in manufacturing activities and then analyzed using a structured approach such as Six Sigma. This focus on quality should cover the whole product life cycle. Products should be traceable at the lot and unit levels to ensure that the source of quality problems can be identified and corrected. Synchronize all manufacturing activities. Provide information on production schedules, consumption, and inventory levels to suppliers so that they can better monitor and respond to demand. Define and agree on rules to guide supplier decision making for replenishment. To ensure that production schedules are both feasible and accurate, production rules, information, and performance data need to be managed; this requires defining and maintaining formalized processes and accountabilities both internally and with supply partners.
For the supply chain to operate effectively, make must be integrated with the plan, source, deliver, and return processes. For example, plan provides make with a production plan stating the amount of product to be
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