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week 13 Value Chain vs Supply Chain ve performance management - Coggle…
week 13 Value Chain vs Supply Chain ve performance management
Value chain
definition
represents the internal activities a firm engages in when transforming inputs into outputs.
The challenges presented by the value chain require detailled analysis and a willingness to remain agile; today’s suppliers must do more than simply deliver or upgrade their services, they must also strategize how to do so in the best possible way.
Porter's Value Chain is a useful strategic management tool.
It works by breaking an organization's activities down into strategically relevant pieces, so that you can see a fuller picture of the cost drivers and sources of differentiation, and then make changes appropriately.
Value chain template of M. Porter
margin--free cash+profit+ROIC+EVA+customer satisfaction
primary activities
inbound logistics
----quality control, receiving, raw materials control, supply schdules
operations
----manufacturing, packaging, production, control, quality, control, maintenance
outbound logistics
----finishing goods, order handing, dispatch, delivery, invoicing
marketing&sales
----customer management, order taking, promotion, sales analysis, market research
service
----warranty, education and training upgrades
supportive activities
firm infrastructure
----administrative finance , legal, accounting, financial management
human resource management
---personal recruitment, training, staff planning, etc
product and technological development
-----product and process design, production engineering, market testing, R&D
procurement
----supplier management, funding, subcontracting, specification
What do they mean ?
Direct activities
create value by themselves. For example, in a book publisher's marketing and sales activity, direct subactivities include making sales calls to bookstores, advertising, and selling online.
Indirect activities
allow direct activities to run smoothly. For the book publisher's sales and marketing activity, indirect subactivities include managing the sales force and keeping customer records.
Quality assurance
activities ensure that direct and indirect activities meet the necessary standards. For the book publisher's sales and marketing activity, this might include proofreading and editing advertisements.
Direct activities
Inbound logistics
– These are all the processes related to receiving, storing, and distributing inputs internally. Your
supplier relationships
are a key factor in creating value here.
Operations
– These are the transformation activities that change inputs into outputs that are sold to customers. Here, your
operational systems
create value.
Outbound logistics
– These activities deliver your product or service to your customer. These are things like collection, storage, and distribution systems, and they may be internal or external to your organization.
Marketing and sales
– These are the processes you use to persuade clients to purchase from you instead of your competitors.
The benefits you offer, and how well you communicate them
, are sources of value here.
Service
– These are the activities related to maintaining the value of your product or service to your customers, once it's been purchased.
VCM vs SCM
A
supply chain
represents the steps it takes to get the product or service to the customer.
A
supply chain
involves all parties in fulfilling a customer request and leading to customer satisfaction.
A
value chain
is a set of interrelated activities a company uses to create a competitive advantage.
SUPPLY CHAIN
The integration of all the activities involved in the procurement, conversion and logistics of the product is known as Supply Chain
Originated from----Operation Management
Concept---Conveyance
Product Request –Supply Chain - Customer
Objective---Customer Satisfaction
VALUE CHAIN
defined as the series of activities, that adds value to the product.
Originated from----Business Management
Concept---Value Addition
Customer Request -Value Chain -Product
Objective---Gaining competitive advantage
What exactly is value chain analysis?
Value chain analysis is a strategy tool used to analyze internal firm activities. Its goal is to recognize, which activities are the most valuable (i.e. are the source of cost or differentiation advantage) to the firm and which ones could be improved to provide competitive advantage.
In other words, by looking into internal activities, the analysis reveals where a firm’s competitive advantages or disadvantages are.
Value chain and competitive advantage
The firm that competes through
differentiation advantage
will try to perform its activities better than competitors would do (i.e Apple, Tesla, Ferrari....)
If it competes through
cost advantage
, it will try to perform internal activities at lower costs than competitors would do. When a company is capable of producing goods at lower costs than the market price or to provide superior products, it earns profits. (i.e. Walmart, Pegasus Air, BIM, Xiaomi...)
And ofcourse you can use both : i.e Virgin Air, Zara...
Competitive advantage types
Cost advantage
This approach is used when organizations try to compete on costs and want to understand the sources of their cost advantage or disadvantage and what factors drive those costs.(good examples: Amazon.com, Wal-
Mart, McDonald's, Ford, Toyota)
step 1--identify the firm's primacy and support activities
step 2, establish the relative importance of each activities in the total cost of the product
step 3, identify cost drivers of each activity
step 4, identify links between activities
step 5, identify opportunities for reducing costs
Differentiation advantage
The firms that strive to create superior products or services use differentiation advantage approac (good
examples: Apple, Google, Samsu Electronics, Starbucks)
Step 1. Identify the customers’ value-creating activities.
Step 2. Evaluate the differentiatio strategies for improving customer value.
Step 3. Identify the best sustainab differentiation.
value chain
industry's value chain
raw material
intermediate Goods
manufacturing
marketing&sales
after-sales service
company's value chain in manufacturing
inBound logistics
operations
outbound logistics
marketing&sales
service
firm infrastructure
human resource management
procurement
technology
Summary
1.Supply Chain activities include the transfer of material from one place to another. On the other hand, Value Chain is primarily concerned with providing value for product or service.
2.The order of supply chain begins with product request and ends when it reaches the customer.
3.Value chain begins with the customer’s request and ends with the product.
performance management
What is the impact of SC success on coporate results ?
79% of companies with high-performing supply chains achieve revenue growth superior to the average within their industries.
just 8% of businesses with less capable supply chains report above-average growth.
The study found that by this year (2016), 89% of companies expected to be competing primarily on the basis of customer experience.
Application of Cost to Serve can improve EBIT performance by up to 20%
Supply chain failures and impacts
late customer delivery---preferably expedite critical orders---production disruptionsand delays resulting in even more critical orders---- income statement: operating income
high material cost----source from low price suppliers---increased scrap and return rates resulting in customer dissatisfaction and high cost----balance sheet: cashl income statement net income
poor incoming material quality---holds additional buffer stock for inbound materials---higher storage, inspection and obsolesence cost---income statement operating income
poor communication skills of front line---employee turnover---increased complaints in customer portfolio causing loss of customers
unmanagable SKU prolifaration---increase product commonality---lower product disctictnevess and differentiation leading to lost of market share---income statement sales
SCM Goals
unit cost reduction
waste reduction
time reduction
flexible response
financial benefits
improved working capital& margins
revenue proft growth
improved cash flows
higher return in assets
customer benefits
improved value
improved flexibility
improved timelines
improved or new product/service quality
SCM improvements
integrate people, process&systems
improved decision making
strategic partner relations
product/service innovation
Overview of SCM process performance measurement
Customer Service + Quality
inputs---- Efficiency
outputs-----Effectiveness---productivity
adding value
suppliers
customers----customer satisfaction
results----profitability
How to structure performance approach ?
Strategic----Mostly financial
external----percent of scheduled customer shipments delivered on-time//order cycle lead time: from release to distribution to customer delivery time in days&variability
internal---total distribution cost per unit delivered
Tactical---Resource based
external---percent of lines/orders picked correctly+percent of orders picked on scheduled day
internal---total warehouse costs per unit of throughput
Operational----Process related
external---percent of cases/lines received correctly
internal---total receiving costs per unit
Performance Types
Do More > Productivity
With Less > Efficiency
Better > Quality
Faster > Time
Success > Satisfaction
SCM process performance measurement
Productivity Measurements
Per head sales & cost measurements
Resource utilization
Process efficiency
Time based measurements
Cycle times
Response times
Elapsed processing times
Quality Measurements
Likelihood of mistakes
Deviation from goals (i.e forecast accuracy)
Defects
Overall satisfaction
Unwanted variability
Financial Measurements
Cost of resources employed
Cost of activities performed
Financial implications of current. performance – ROI, ROCE, EVA
Customer Perspective
Perfect Order Index
Ontime
Infull
Full quality*Correct Doc’s
Balanced Scorecard
The Balanced Scorecard is a management system. It’s a way of looking at your organization that focuses on your big-picture strategic goals. It also helps you choose the right things to measure so that you can reach those goals.
BSC tree (relationships)
Financial-----Profitability of invested capital -ROIC
Customer---On time delivery+ Customer Loyalty
Processes---Quality of operation+Speed of operation
Learning&development---Org.capabilities
SCM - Performance measures-KPI’s
Internal
----Waste reduction+ Time compression+ Flexible response +Unit cost reduced
Customers
-----Improve quality +Improved timeline+ Better flexibility+ Improved value
Financial
---Improved WC+Improved margin +Improved cash flow +Revenue growth
Innovation
----Product/service innovation+Strategic Partnerships+Big data
Shareholder point of view
Comparable investment
• ROI (Return on invested capital) • Sales (up)
• Costs (down)
• Working capital (healthy)
• Cash and debtors (balanced)
• Creditors (low)
• Fixed assets (deployment)
Return on capital employed(ROCE)
EBIT= Sales revenue- Costs
Capital employed
Working capital
Inventory
Cash and debtors
Creditors
Fixed assets
Linking ROCE to SC performance
cash+receivables-----order cycle time+order completion rate+invoice accuracy
inventories---inventory
property, plant and equipment----distribution facilities and equipment
current liabilities---purchase order quantities
debt+equity----financing options for inventory, plant and equipment
Supply Chain Operations Reference (SCOR) model
model is unique in that it links business processes, performance metrics, practices, and people skills into a unified structure. It is hierarchical in nature, interactive and interlinked.
The SCOR model is based on six main management processes that include
plan---supplier's supplier---supplier---your company---customer(internal or external)---customer's customer
SCOR Supply Chain Improvement Framework
Reliability
The ability to perform tasks as expected. Reliability focuses on the predictability of the outcome of a process.
Typical metrics for the reliability attribute include: On-time, the right quantity, the right quality
.
Responsiveness
The speed at which tasks are performed. The speed at which a supply chain provides products to the customer. Examples include
cycle-time metrics
.
Agility
The ability to respond to external influences, the ability to respond to marketplace changes to gain or maintain competitive advantage. SCOR Agility metrics include
Flexibility and Adaptability.
Costs
The cost of operating the supply chain processes. This includes labor costs, material costs, management and transportation costs. A typical cost metric is
Cost of Goods Sold
.
Asset Management Efficiency (Assets)
The ability to efficiently utilize assets. Asset management strategies in a supply chain include inventory reduction and in- sourcing vs. outsourcing. Metrics include:
Inventory days of supply and capacity utilization
.
12 key metrics to maximize supply chain performance
largest profit drivers
forecast accuracy(demand planning)
supply plan accuracy(supply planning)
on time shipping rate
fill rate
perfect order fufillment
capacity utilization
inventory days of supply
freight bill accuracy
freight cost per unit
cash to cash cycle time
COGs% of revenue
SC performance metrics - summary
restore customer service leading level-----goal：score 9 out of 10 on annual customer survey
improve revenue -----goal: race to 5 usd billion
improve margin----goal: 10% increase
supply chain strategies
improve delivery performance
align sales strategy with planning, purchasing and inventory strategy( through sales and operations planning process)
create inventory health metric+create network and inventory strategy
establish supplier scorecard portal
supply chain KPIs
on-time delivery performance(based on customer requested date)
forecast accuracy
inventory turns
supplier on-time delivery
premium freight percentage