Centralization vs. Decentralization Centralized ◦ Chief purchasing officer has authority for majority of purchase expenditures Center-led ◦ Centralized approach for common items and decentralized approach for unique ones Decentralized ◦ Divisional, business unit, or site levels have authority for majority of purchase expenditures 50
Selection and Evaluation Process 51
Steps in Developing a Supplier Evaluation and Selection Survey Identify supplier evaluation categories Assign a weight to each evaluation category Identify and weigh subcategories Define scoring system for categories and subcategories Evaluate supplier directly Review evaluation results and make selection decision Review and improve supplier performance continuously 52
PERFORMANCE MEASUREMENT ALONG THE SUPPLY CHAIN
Introduction “You can’t improve what you don’t measure” ◦ Designing standards and monitoring them can provide much better information for decision-making purposes. ◦ Adding several tiers of suppliers & customers complicates performance measurement. ◦ Achieving adequate performance and then continually improving on those measures are what firms aim toward. ◦ Performance measures must be visible & communicated to all members of the SC. 54
Viewing the SC as a Competitive Force Understanding End Customers Supply chains need to look at each segment of the market they serve & determine the needs of those customers. 55
Viewing the SC as a Competitive Weapon (Continued) Understanding SC Partner Requirements Supply chain strategies must consider the potential trade-offs existing between: ◦ Cost ◦ Quality ◦ Sustainability ◦ Service 56
Traditional Performance Measures Traditional Performance Measures ◦ Traditional cost-based information does not reflect the underlying performance of an organization’s productive systems; costs & profits can be hidden or manipulated ◦ Decisions to maximize current stock prices do not necessarily reflect that the firm is performing well ◦ Financial performance measures, while important, cannot adequately capture a firm’s ability to excel in these areas 57
Traditional Performance Measures (Continued) Use of Performance Standards & Variances Establishing standards for comparison purposes can be troublesome ◦ Employees & managers do whatever it takes to reach the goal ◦ Shoddy work & “Cooking” the books 58
Traditional Performance Measures (Continued) Productivity & Utilization Measures These measures are useful but have the same problems as revenues, costs, & profits ◦ Productivity decisions may actually increase costs & reduce quality ◦ Tendency to continue producing & adding to inventory to keep machines & people busy ◦ Less time is spent doing preventive maintenance & training for greater performance & profits in future ◦ Traditional measures favor the short-term 59
World-Class Performance Measurement Systems (Continued) Table 14.1 World-Class Performance Measures Capability Performance Measures Areas Quality 1. No. of defects per unit produced and per unit purchased 2. No. of product returns per units sold 3. No. of warranty claims per units sold 4. No. of suppliers used 5. Lead time from defect detection to correction 6. No. of workcenters using statistical process control 7. No. of suppliers who are quality certified 8. No. of quality awards applied for; No. awards won 60
World-Class Performance Measurement Systems (Continued) Table 14.1 World-Class Performance Measures Capability Performance Measures Areas 1. Scrap or spoilage losses per workcenter Cost 2. Average inventory turnover 3. Average setup time 4. Employee turnover 5. Avg. safety stock levels 6. No. of rush orders required for meeting delivery dates 7. Downtime due to machine breakdowns 61
World-Class Performance Measurement SystemsTable 14.1 (CWonotinruledd-)Class Performance Measures Capability Performance Measures Areas Customer Flexibility Service 1. Average number of labor skills 2. Average production lot size 3. No. of customized services available 4. No. of days to process special or rush orders Dependability 1. Average service response time or product lead time 2. % of delivery promises kept 3. Avg. no. of days late per shipment 4. No. of stockouts per product 5. No. of days to process a warranty claim 6. Avg. number of hours spent with customers by engineers Innovation 1. Annual investment in R&D 2. % of automated processes 3. No. of new product or service introductions 4. No. of process steps re6q2 uired per product
SC Performance Meas. Systems (Continued) Environmental sustainability ◦ Addressing the need for protecting the environment & reducing greenhouse gas emissions as well business & consumer needs Green supply chain management (GSCM) ◦ Sharing of environmental responsibility along the SC such that sound environmental practices predominate, & adverse global environmental effects are minimized. Carbon footprint ◦ Supply chains evaluate design configurations and various options for reducing total carbon emissions
SC Performance Meas. Systems (Continued) Supply Chain Performance Measures ▪ Total SCM costs are the costs to process orders; purchase & manage inventories; & information systems ▪ SC cash to cash cycle time is the avg. # of days between paying for materials & getting paid by SC partners ▪ SC production flexibility is the avg. time required to provide an unplanned 20% increase in production ▪ SC delivery performance is the avg. % of orders filled by requested delivery date
SC Performance Meas. Systems (Continued) Supply Chain Performance Measures (continued) ▪ SC perfect order fulfillment performance is the average % of orders that arrive on time, complete, & undamaged. ▪ Supply chain e-business performance is the avg. % of electronic orders received for all SC members. ▪ Supply Chain Environmental Performance is the % of SC w/ISO 14000 partners, avg. % env. goals met, avg. # of policies adopted to reduce greenhouse gas emissions, or avg. % of carbon footprints offset
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