MBA I/II-SEM L&SCM unit-IV

22MBA14: LOGISTICS AND SUPPLY CHAIN MANAGEMENT

Unit – IV: Supply Chain Performance

(1). Bullwhip Effect and Reduction

The bullwhip effect is a phenomenon in supply chain management that occurs when small
fluctuations in demand at the retail level are amplified as they move upstream through the
supply chain. This can lead to overstocking or shortages, which can have a negative impact
on customer satisfaction, profitability, and efficiency.
The concept is called ‘The Bullwhip Effect’ because the peak and valley order patterns and/or
demand signals look something like the shape of a whip being coiled. (See graphic below).

There are a number of factors that can contribute to the bullwhip effect, including:

 Lack of communication: If different members of the supply chain are not sharing

information about demand, they may make decisions based on incomplete or

inaccurate data. This can lead to them ordering more or less inventory than they
actually need.
 Incorrect demand forecasts: If demand forecasts are inaccurate, businesses may

order too much or too little inventory. This can lead to the bullwhip effect.
 Too many discounts and promotions: When businesses offer too many discounts

and promotions, it can lead to customers buying more than they need at the retail
level. This can then amplify demand further upstream.

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There are a number of things that businesses can do to reduce the bullwhip effect, including:

 Improving communication: Businesses should share information about demand with

all members of the supply chain. This will help them to make better decisions about
inventory levels.
 Using demand forecasting tools: Businesses can use demand forecasting tools to

improve the accuracy of their forecasts. This will help them to order the right amount
of inventory.
 Limiting discounts and promotions: Businesses should limit the number of

discounts and promotions they offer. This will help to reduce demand volatility.
 Streamlining the supply chain: Businesses should streamline their supply chain by

reducing the number of intermediaries. This will help to reduce the time it takes for
information to travel through the supply chain, which can help to reduce the bullwhip
effect.
By taking steps to reduce the bullwhip effect, businesses can improve their supply chain
efficiency, profitability, and customer satisfaction.

Here are some additional tips for reducing the bullwhip effect:

 Use a single point of truth for demand data: This will ensure that all members of

the supply chain are using the same data to make decisions.
 Use a collaborative forecasting process: This will allow businesses to share

information and insights about demand, which can help to improve the accuracy of
forecasts.
 Use a demand-driven planning approach: This approach focuses on matching

supply to demand, which can help to reduce inventory levels and improve customer
service.
 Use technology to automate tasks: This can help to reduce errors and improve

efficiency.
By following these tips, businesses can reduce the bullwhip effect and improve the
performance of their supply chains.

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(2). Supply chain Performance Measurement Dimensions

The dimensions of supply chain performance measurement can be broadly classified into two
categories:

 Financial measures: These measures focus on the cost of the supply chain, such as

the cost of goods sold, inventory carrying costs, and transportation costs.
 Non-financial measures: These measures focus on the effectiveness of the supply

chain, such as customer service levels, order fulfillment rates, and delivery times.

Some of the most common dimensions of supply chain performance measurement include:

 Cost: The cost of the supply chain is a critical factor in determining its profitability.

Financial measures such as the cost of goods sold, inventory carrying costs, and
transportation costs can be used to track the cost of the supply chain.
 Time: The time it takes to move products through the supply chain is another

important factor. Non-financial measures such as order fulfillment rates, delivery

times, and cycle times can be used to track the time performance of the supply chain.
 Quality: The quality of the products and services provided by the supply chain is also

important. Non-financial measures such as customer satisfaction levels, product

defect rates, and returns rates can be used to track the quality performance of the
supply chain.
 Flexibility: The ability of the supply chain to adapt to changes in demand is also

important. Non-financial measures such as the ability to meet unexpected demand

spikes, the ability to switch suppliers, and the ability to respond to changes in
customer preferences can be used to track the flexibility performance of the supply
chain.
 Reliability: The ability of the supply chain to deliver products on time and in full is

also important. Non-financial measures such as on-time delivery rates, fill rates, and
order accuracy rates can be used to track the reliability performance of the supply
chain.
The specific dimensions of supply chain performance measurement that are most important
will vary depending on the specific goals and objectives of the organization. However, the
dimensions listed above are a good starting point for any organization that wants to improve
its supply chain performance.

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In addition to the dimensions listed above, there are a number of other factors that can be
considered when measuring supply chain performance. These factors include:
 Environmental sustainability: The environmental impact of the supply chain is

becoming increasingly important. Non-financial measures such as greenhouse gas

emissions, water usage, and waste generation can be used to track the environmental
performance of the supply chain.
 Social responsibility: The social responsibility of the supply chain is also becoming

increasingly important. Non-financial measures such as labor practices, working

conditions, and ethical sourcing can be used to track the social responsibility
performance of the supply chain.
By tracking the performance of the supply chain on a variety of dimensions, organizations
can identify areas where improvements can be made. This can help to improve the efficiency,
effectiveness, and profitability of the supply chain.

(3). Tools of Supply Chain Performance Measurement

There are a number of tools that can be used to measure supply chain performance. Some of
the most common tools include:

 Balanced Scorecard: The Balanced Scorecard is a strategic planning and

performance management framework that can be used to measure supply chain
performance. The Balanced Scorecard typically includes four perspectives: financial,
customer, internal business processes, and learning and growth.
 SCOR Model: The Supply Chain Operations Reference (SCOR) model is a

framework for describing, assessing, and improving supply chain processes. The
SCOR model includes five levels of detail: generic, process, detailed, implementation,
and operational.
 ABC/ABM: Activity-based costing (ABC) and activity-based management (ABM)

are methods for allocating costs to activities and products. ABC/ABM can be used to
track the cost of supply chain activities and to identify areas where costs can be
reduced.
 EVALOG: Economic Value Added for Logistics (EVALOG) is a method for

measuring the financial performance of logistics activities. EVALOG takes into

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account the cost of logistics activities, the value of logistics services, and the risk
associated with logistics activities.
 KPIs: Key performance indicators (KPIs) are metrics that are used to measure the

performance of a business process or activity. KPIs can be used to track the

performance of supply chain processes, such as order fulfillment, inventory
management, and transportation.
The specific tools that are used to measure supply chain performance will vary depending on
the specific goals and objectives of the organization. However, the tools listed above are a
good starting point for any organization that wants to improve its supply chain performance.

(4). The SCOR model

The SCOR model (Supply Chain Operations Reference model) is a process reference model
developed and endorsed by the Supply-Chain Council as the cross-industry, standard
diagnostic tool for supply chain management. The SCOR model describes the business
activities associated with satisfying a customer's demand, which include plan, source, make,
deliver, return and enable. Use of the model includes analyzing the current state of a
company's processes and goals, quantifying operational performance, and comparing
company performance to benchmark data.

The SCOR model is based on six distinct management processes:

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 Plan: Processes that balance aggregate demand and supply to develop a course of

action which best meets sourcing, production, and delivery requirements.

 Source: Processes that procure goods and services from suppliers to meet the demand

plan.
 Make: Processes that transform materials into finished goods or services.

 Deliver: Processes that move finished goods or services to customers.

 Return: Processes that handle returns from customers.

 Enable: Processes that provide the infrastructure and technology to support the other

five processes.

The SCOR model is a valuable tool for supply chain managers because it provides a common
language and framework for discussing and improving supply chain performance. The model
can be used to assess the current state of a company's supply chain, identify areas for
improvement, and benchmark performance against other companies.

The SCOR model is also a valuable tool for communicating with suppliers and customers. By
using the same language and framework, all parties involved in the supply chain can better
understand each other's needs and requirements. This can lead to improved collaboration and
coordination, which can ultimately lead to better customer service and lower costs.

The SCOR model is a powerful tool for improving supply chain management. By using the
model, companies can gain a better understanding of their supply chains, identify areas for
improvement, and benchmark performance against other companies. This can lead to
improved customer service, lower costs, and a more competitive advantage.

Here are some of the benefits of using the SCOR model:

 Improved communication: The SCOR model provides a common language for

discussing supply chain management, which can help to improve communication

between different departments within a company and between different companies in
a supply chain.
 Increased visibility: The SCOR model can help to improve visibility across the

supply chain, which can help to identify and address problems more quickly.

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 Better decision-making: The SCOR model can help companies to make better

decisions about their supply chains, such as where to source materials, how much
inventory to hold, and how to manage transportation.
 Benchmarking: The SCOR model can be used to benchmark a company's supply

chain performance against other companies, which can help to identify areas for
improvement.
If you are interested in improving your company's supply chain management, the SCOR
model is a valuable tool that you should consider using.

(5). Demand chain management (DCM)

Demand chain management (DCM) is a subset of supply chain management (SCM) that
focuses on understanding and managing customer demand. DCM is essential for ensuring
that a company has the right amount of product in the right place at the right time to meet
customer demand.

There are three key components of DCM:

 Demand forecasting: This is the process of predicting future demand for a product or

service. Demand forecasting is essential for ensuring that a company has enough
inventories to meet customer demand, but not so much inventory that it becomes
obsolete or costs too much to store.
 Demand planning: This is the process of developing a plan to meet forecasted

demand. Demand planning takes into account factors such as inventory levels,
production capacity, and shipping lead times.
 Demand execution: This is the process of carrying out the demand plan. Demand

execution includes tasks such as ordering inventory, scheduling production, and

shipping products to customers.
DCM is an essential part of SCM because it helps companies to ensure that they are meeting
customer demand in a cost-effective way. By understanding and managing demand,
companies can avoid stock outs, reduce costs, and improve customer satisfaction.

Here are some of the benefits of demand chain management:

 Increased customer satisfaction: By ensuring that customers have the products they

want when they want them, DCM can lead to increased customer satisfaction.

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 Reduced costs: By optimizing inventory levels and production schedules, DCM can

help companies to reduce costs.

 Improved efficiency: By streamlining the demand planning and execution processes,

DCM can help companies to improve efficiency.

 Increased agility: By being able to quickly respond to changes in demand, DCM can

help companies to increase their agility.

If you are looking to improve your company's supply chain, then DCM is an important area
to focus on. By understanding and managing demand, you can improve customer satisfaction,
reduce costs, and improve efficiency.

Here are some of the challenges of demand chain management:

 Demand forecasting is difficult: It can be difficult to accurately predict future

demand, especially for new products or in volatile markets.

 Demand planning is complex: The demand planning process can be complex, as it

takes into account a variety of factors.

 Demand execution can be challenging: The demand execution process can be

challenging, as it requires close coordination between different departments and

suppliers.
Despite these challenges, DCM is an essential part of SCM. By understanding and managing
demand, companies can improve their bottom line and better serve their customers.

(6). Global Supply Chain

A global supply chain is a network of organizations, people, activities, information, and
resources involved in moving a product or service from conception to the end user. It spans
multiple countries and continents, and can be very complex.
The main components of a global supply chain are:
 Suppliers: The organizations that provide raw materials, components, or finished

goods to the company.

 Manufacturers: The organizations that transform raw materials or components into

finished goods.
 Distributors: The organizations that store and transport finished goods to retailers or

consumers.
 Retailers: The organizations that sell finished goods to consumers.

 Customers: The end users of the finished goods.

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(7). Challenges in Establishing Global Supply Chain

Establishing a global supply chain can be a complex and challenging task. There are many
factors to consider, including:

 Country risk: The political and economic stability of the countries involved in the

supply chain.
 Currency fluctuations: The risk of changes in exchange rates that can impact the

cost of goods and services.

 Logistics: The availability of transportation and warehousing facilities, as well as the

cost of transporting goods around the world.

 Customs and duties: The need to comply with customs regulations and pay duties in

different countries.
 Language and cultural barriers: The need to communicate effectively with

suppliers and customers in different countries.

 Security: The risk of theft, fraud, or other security incidents.

In addition to these general challenges, there are also some specific issues that can arise
when establishing a global supply chain. These include:

 Quality control: The need to ensure that goods meet the required quality standards,

even when they are manufactured in different countries.

 Intellectual property protection: The need to protect proprietary information and

designs from unauthorized use.

 Compliance with regulations: The need to comply with environmental, labor, and

other regulations in different countries.

(8). Factors that influence designing Global Supply Chain Network

There are many factors that influence the design of a global supply chain network. Some of
the most important factors include:

 Customer demand: The location and size of customer demand is a major factor in

determining the location of supply chain nodes. For example, a company that sells
products to customers in Asia will need to have a presence in Asia in order to meet
demand.

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 Product characteristics: The characteristics of the products being sold also have a

big impact on the design of the supply chain network. For example, perishable
products will need to be located closer to customers, while products that are not
perishable can be located in more remote locations.
 Cost: The cost of transportation, warehousing, and labor all play a role in the cost of

operating a supply chain network. The goal is to minimize the total cost of ownership
(TCO) while still meeting customer demand and other requirements.
 Risk: The risk of disruptions to the supply chain, such as natural disasters, political

instability, or labor strikes, also needs to be considered when designing the network.
The goal is to minimize the risk of disruptions while still maintaining a cost-effective
network.
 Sustainability: The environmental impact of the supply chain is also becoming an

increasingly important factor. Companies are looking for ways to reduce their carbon
footprint and other environmental impacts.

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