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MODULE 1: SUPPLY CHAIN MANAGEMENT

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Week No: 1
Module No 1: SUPPLY CHAIN MANAGEMENT
Lesson No 1: OVERVIEW OF SUPPLY CHAINS MANAGEMENT
Duration/Hours: 2 Hours

Specific Learning Outcomes:

During the students’ learning activities, they will be able to:
 SLO 1: Define supply chain management.
 SLO 2: Differentiate supply chain management advantages and disadvantages.
 SLO 3: Discuss the supply chain management goals.

INTRODUCTION

In today’s changing business environment, there is an increased focus on delivering value to the customer at the cheapest
possible costs. Hence there has been increased interest in logistics and supply chain management practices since performance is
not only determined by actions and decision, but also the improvements on return on investment and greater profitability.
 
Hotel companies, both big and small, must focus on how to offer products and services while keeping costs low. In an
industry which is labour intensive many hotels are forced to make bolder and more visible moves in costs reduction to their
operations. It comes as no surprise that much of these costs cutting efforts have been focused on payroll and other employee
associated costs, like hiring freezes, cuts in employee perks, reduction of bonuses, and reductions in salaries.
 
One area of the hotel industry that is usually left out in cost cutting efforts is its logistics and supply chain operations.
Even though logistics and supply chain is considered an operations management strategy in the hotel and other service industries,
they can use these strategies to help add value to their properties. The supply chain is an important element within the hotel and
catering industry.
 
A well-established logistics and supply chain management system can help the hotel industry give individual hotel
companies a sustainable competitive advantage. The use of the right logistics and supply chain strategies helps not to only
improve the quality and service of the Hotel Company, but drive down costs. For staff in this industry, it is crucial to build steady
relationships with suppliers and work with a good ordering system in order to improve the service level towards customers.
 
The hotel industry can benefit from the comprehensive and integrated practices of logistics and supply chain
management, by delivering a consistently reliable and high quality service at the best costs.

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SLO 1: Define Supply Chain Management.

What is Supply Chain Management?

All activities associated with the flow and transformation of goods from the raw materials stage, through to end users, as
well as the associated information inflows. This includes material and information flows both up and down supply chain.
Therefore supply chain includes a whole horde of systems such as systems management, operations and assembly, purchasing,
production schedule, order processing, inventory management, transportation, warehousing, and customer service.

Challenges in the Supply Chain in the Hotel Industry

The purchase manager is always under constant pressure to meet the user departments’ un- planned needs. As a result the
purchase manager always tries to have huge buffer stocks, lest he should fall short of satisfying the hotel operating/user
departments. But this does not mean that quality management processes should be totally ignored.

Material Cost: A hotel store deals with huge quantities of the items with very less price. Bulk of the direct material cost is
invested in such items. Majority of the consumables of the hotel are of perishable nature due to which one cannot make use of the
economies of bulk purchase. This increases the Number of transactions and thereby the transaction costs. This results in increased
transaction costs.
 
Material Ordering Costs: The individual departments normally use manual indents and purchase requisitions independently. In
many properties the hotels do not have computerized indenting and purchase requisitions. The consolidation of such indent and
requisition become time consuming. The purchase Department is found to place individual orders for same products, due to
difficulty in consolidation Even for chain properties where different units are located in the same city, the hotels do not take
advantage of bulk purchasing due to the above reasons.
 
Inventory Holding Costs: The purchase department, in the fear of not being able to give the right items to the user departments
on time, stock large quantities of materials. This occupies a large space and there by leads to increase in costs.
 
Emergency purchase: The purchases are made on the request to the user departments on the spur of the moment, and are
regularized later by making the required paper work. Due to lack of planning, emergency purchases are a matter of routine and not
due to exception.
Factors affecting supply chain management in Hotel Industry

It is essential to understand that the premise under which the hospitality industry operates is much different from other
industries. The industries capital costs are high, operating costs being comparatively lower. The hotel industry has its unique
characteristics, like customer centricity, different types of management etc.
 
 Guest or Customers are the utmost important for the hotel industry; customer satisfaction is of paramount importance to
the hotel industry. In the hospitality industry the customer related activities such as food and beverage production and

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service, housekeeping, Front office management are given utmost importance. The back office operations such as the
accounts, purchases, supplies chain management, revenue recording etc. take a back seat.
 Different types of management systems, such as the ownership hotels, franchisees, hotels which are run on operating
contracts by chains etc. The different managements systems have different implications on the supply chain management.
 In the hotel industry all the efforts are customer oriented as a result lot of cost reduction which can be attained through
improved upstream functions of supply chain management is lost. Current trends in the industry show that computerized
property management systems are used but mainly for front office management and reservation systems.

Benefits of Supply Chain Management

 
 The supplier and the hotel benefit from a well-established system of supply chain management. The relationship between
the supplier and hotel becomes stronger because of professional management in the form of development of proper
purchasing policies. This could also lead to concentrating on a few trusted suppliers, rather than have a large and
inefficient supplier base. Newer and more efficient suppliers could be identified, leading to increased efficiency.
 It leads to significant reduction in costs and also helps continuous evaluation and improvement in the buying process. It
could increase the product range or perhaps reduce it too, because of intensive market research undertaken.
 Improved management information to future requirements

SCM – Strategic Methods

 
Supplier Identification: Generally supplier base is huge in the hotel industry, this has its positives, conscious steps should be
taken to identify committed suppliers who are willing to go by the objectives of the Organisation, and be involved and appreciate
and support the changes of the organizational requirements.
 
Supplier evaluation and selection: Supplier evaluation is a critical process, suppliers’ ability to supply the right goods at the
right time with correct specifications has to be reviewed. Contracts are awarded after careful negotiations with the supplier.
 
Supplier management : After the suppliers fulfils its obligation by delivering the required goods as per specifications it’s the
responsibility of the Purchase department to ensure suppliers bills are paid promptly , at times good suppliers are lost due to the
payment delays. Therefore its very essential to maintain a strong relationship with the supplier hence supplier management has to
be strengthened.
 
Supplier development and improvement: It’s a very crucial step in the supplier chain management. A careful consideration of
this process would contribute towards efficiency and cost saving.
 
Summary
Professional supply chain management ensures every supplier is committed for top quality product and service
standards. An efficient supply chain management helps in significant cost reduction by developing and implement contracts and
agreements with suppliers of hospitality products and services, securing for the hotels competitive prices be if for food and
beverage, rooms or property operations

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SLO 2: Differentiate supply chain management advantages and disadvantages.

Advantages of Supply Chain Management

Cost Efficiency
The first and foremost advantage of supply chain management is that it helps the company in achieving cost efficiency
because it can lower various costs like transportation costs, warehousing, packaging costs, reduces wastage by timely delivery of
goods and so on which ultimately helps the company in achieving cost efficiency which in turn increases the profitability of the
company.

Helpful in Identifying Problem Areas

In the absence of proper supply management company will find it hard to find problem areas as every department will
blame other departments for failure but due to this management company can identify the problem areas in the company due to
which company’s profitability and reputation are taking a hit. Hence, for example, suppose the production department is
producing goods in time but due to the lacklustre attitude of dispatch departments goods are not reaching on time to ultimate
customers than supply chain management can easily identify the problem area which is the dispatch department and hence can
take action against the concerned people.

Customer Delight
Since the primary task of this management is to make sure that goods reach customer on time it results in customer
delight because nowadays people do not care about paying more money provided they get quality service from the company and
supply chain management does exactly that resulting in costumer of the company getting satisfied and we all know that a satisfied
customer will bring not only his or her business but acts as a marketing spokesperson of the company by bringing other customers
to the company.
Disadvantages of Supply Chain Management

Lack of Coordination between Various Departments

The biggest disadvantage of supply chain management is that it can work only if there is proper coordination between all
the departments of the company and if departments are at loggerheads than this system will be a failure. Hence for example, if the
marketing department does not inform the production department about the possible order than the production department will not
be able to produce the desired order on time.

Complicated
Since it involves multiple departments sometimes it can be complicated and may hamper the normal working of the
company besides workers as well as employees may feel insecure and demotivated because human beings by nature resist new
things and to them the concept of supply chain management may appear very complicated resulting in them accepting this
management half-heartedly.

Trained and Professional Staff

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It requires professional and trained staff in order to properly execute supply chain management and in order to hire
professional staff company will need to pay money which is an expensive proposition which is the reason why small companies
seldom go for supply chain management as expenses of implementing this system outweighs its benefits.
As one can see from the above that supply chain management has advantages as well as disadvantages and that is the
reason why any company thinking of adopting this management should carefully read above points and then decide whether to
implement supply chain management into the company or not.

SLO 3: Discuss the supply chain management goals.

Three Goals of Supply Chain Management

Supply chain management is an important business activity for any company that sells products. From a simple one-man
Amazon business to a multinational corporation selling millions of units yearly, supply chain management is an absolute necessity
to making sure that both the financial model and the distribution model are as good as they can be.

Ultimately, the supply chain exists to guide the creation of product to meet consumer demand. It starts from the raw
material all the way to the finished good in the consumer’s hands. But how is this entire process managed, and why is it important
to do so?

To understand this, we must understand what supply chain management is. Supply chain management refers to the
process of making sure that goods are able to be placed in the consumer’s hands, when they need it, and at the price that makes
sense for the business. Companies that neglect supply chain management do themselves a great disservice.
So what is the overall goal of supply chain management? Here are the three main goals, explained.

Improving Efficiency
Efficiency refers to the minimization of waste. Waste can exist in terms of wasted materials, wasted money, wasted man
hours, wasted delivery time, and much more. Making sure that waste is at a minimum is a key component of supply chain
management.
How does supply chain management reduce waste? By managing production, inventory, transportation and logistics,
supply chain management aims to look for opportunities to change procedures in order to cut down on waste. For example, by
sharing inventory data with your supplier, and keeping it updated in real time using ERP software, the business can replenish
inventory quickly to keep up with customer demand.

Improving Quality
Reducing waste isn’t the only goal of supply chain management. Making sure that the product and the customer
experience are as positive and as effective as they can be is another significant goal.
For example, if retailers are able to communicate feedback from the customer to your company about your product’s
experience, you’ll be able to know what things you can change in order to improve it. Or, if there’s an issue with a supplier for a
specific part that a customer has discovered, you can address that issue with customer feedback and relay those changes back to
that supplier or switch suppliers.

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Improving Stability 
Supply chain management is also about improving and maintaining overall stability of the supply chain. Companies can
aim to forge and maintain strong relationships with their suppliers and distributors to make sure that business continues to run
smoothly.
There are other aspects to stability, mainly with risk management. By keeping an eye on possible risks associated with
parts of the supply chain, a business can take steps to alleviate the risk.

Summary
●       Supply chain management looks at the process behind how goods are made, delivered, and sold to the consumer.
●       Supply chain management aims to reduce waste wherever possible.
●       Supply chain management can be used to improve the quality of the customer experience.
●       Supply chain management looks for long term stability of the overall supply chain.

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MODULE 2: SUPPLY CHAIN MANAGEMENT - PROCESS

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Week No: 1
Module No 2: SUPPLY CHAIN MANAGEMENT - PROCESS
Lesson No 1: Process Flow and Supply Flow Component
Duration/Hours: 8 Hours

Specific Learning Outcomes:

During the students’ learning activities, they will be able to:
 SLO 1: Define supply chain management process flow and supply flow components.
 SLO 2: Execute SCM planning, developing, making, delivering and returning.
 SLO 3: Discuss types, material flow, information flow and money flow.
 SLO 4: Perform and discuss SCM the flow components (Transportation, Warehousing Sourcing and Procurement, Return
Management and Post Sales Services)

SLO 1: Define supply chain management process flow and supply flow components.
SLO 2: Execute SCM planning, developing, making, delivering and returning.

INTRODUCTION

Supply chain management is a process used by companies to ensure that their supply chain is efficient and cost-effective.
A supply chain is the collection of steps that a company takes to transform raw materials into a final product. The five basic
components of supply chain management are discussed below.

PLAN
The initial stage of the supply chain process is the planning stage. We need to develop a plan or strategy in order to
address how the products and services will satisfy the demands and necessities of the customers. In this stage, the planning should
mainly focus on designing a strategy that yields maximum profit.

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For managing all the resources required for designing products and providing services, a strategy has to be designed by the
companies. Supply chain management mainly focuses on planning and developing a set of metrics.

DEVELOP (SOURCE)
After planning, the next step involves developing or sourcing. In this stage, we mainly concentrate on building a strong
relationship with suppliers of the raw materials required for production. This involves not only identifying dependable suppliers
but also determining different planning methods for shipping, delivery, and payment of the product.
Companies need to select suppliers to deliver the items and services they require to develop their product. So in this
stage, the supply chain managers need to construct a set of pricing, delivery and payment processes with suppliers and also create
the metrics for controlling and improving the relationships.
Finally, the supply chain managers can combine all these processes for handling their goods and services inventory. This
handling comprises receiving and examining shipments, transferring them to the manufacturing facilities and authorizing supplier
payments.

MAKE
The third step in the supply chain management process is the manufacturing or making of products that were demanded
by the customer. In this stage, the products are designed, produced, tested, packaged, and synchronized for delivery.
Here, the task of the supply chain manager is to schedule all the activities required for manufacturing, testing, packaging
and preparation for delivery. This stage is considered as the most metric-intensive unit of the supply chain, where firms can gauge
the quality levels, production output and worker productivity.

DELIVER
The fourth stage is the delivery stage. Here the products are delivered to the customer at the destined location by the
supplier. This stage is basically the logistics phase, where customer orders are accepted and delivery of the goods is planned. The
delivery stage is often referred as logistics, where firms collaborate for the receipt of orders from customers, establish a network
of warehouses, pick carriers to deliver products to customers and set up an invoicing system to receive payments.

RETURN
The last and final stage of supply chain management is referred as the return. In the stage, defective or damaged goods
are returned to the supplier by the customer. Here, the companies need to deal with customer queries and respond to their
complaints etc.
This stage often tends to be a problematic section of the supply chain for many companies. The planners of supply chain
need to discover a responsive and flexible network for accepting damaged, defective and extra products back from their customers
and facilitating the return process for customers who have issues with delivered products.

SLO 3: Discuss types, material flow, information flow and money flow.

Supply chain management can be defined as a systematic flow of materials, goods, and related information among
suppliers, companies, retailers, and consumers.
Types

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There are three different types of flow in supply chain management:

 Material flow
 Information/Data flow
 Money flow

MATERIAL FLOW
Material flow includes a smooth flow of an item from the producer to the consumer. This is possible through various
warehouses among distributors, dealers and retailers.
The main challenge we face is in ensuring that the material flows as inventory quickly without any stoppage through
different points in the chain. The quicker it moves, the better it is for the enterprise, as it minimizes the cash cycle.
The item can also flow from the consumer to the producer for any kind of repairs, or exchange for an end of life material.
Finally, completed good flows from customers to their consumer through different agency. A process known as 3PL is in place in
this scenario. There is also an internal flow within the customer company.

INFORMATION FLOW
Information/data flow comprises the request for quotation, purchase order, monthly schedules, engineering change
requests, quality complaints and reports on supplier performance from customer side to the supplier.
From the producer’s side to the consumer’s side, the information flow consists of the presentation of the company, offer,
confirmation of purchase order, reports on action taken on deviation, dispatch details; report on inventory, invoices, etc.
For a successful supply chain, regular interaction is necessary between the producer and the consumer. In many instances,
we can see that other partners like distributors, dealers, retailers, logistic service providers participate in the information network.
In addition to this, several departments at the producer and consumer side are also a part of the information loop. Here we
need to note that the internal information flow with the customer for in-house manufacture is different.

MONEY FLOW
On the basis of the invoice raised by the producer, the clients examine the order for correctness. If the claims are correct,
money flows from the clients to the respective producer. Flow of money is also observed from the producer side to the clients in
the form of debit notes.

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In short, to achieve an efficient and effective supply chain, it is essential to manage all three flows properly with minimal
efforts. It is a difficult task for a supply chain manager to identify which information is critical for decision-making. Therefore, he
or she would prefer to have the visibility of all flows on the click of a button.
SLO 4: Perform and discuss SCM the flow components

After understanding the basic flows involved in the supply chain management, we need to consider the different elements
present in this flow. Thus, the different components of the flow of supply chain are described below.

TRANSPORTATION
Transportation or shipment is necessary for an uninterrupted and seamless supply. The factors that have an impact on
shipment are economic uncertainty and instability, varying fuel prices, customers’ expectations, globalization, improvised
technologies, changing transportation industry and labor laws.

The major elements that influence transportation should be considered, as it is completely dependent on these factors for
order completion as well as for ensuring that all the flows work properly. The major factors are −

Long-Term Decisions
Transportation managers should acknowledge the supply freight flow and accordingly design the network layout. Now,
when we say long term decision, we mean that the transportation manager has to select what should be the primary mode of
transportation.
The manager has to understand the product flows, volume, frequency, seasonality, physical features of products and
special handlings necessities, if any. In addition to this, the manager has to make decisions as to the extent of outsourcing to be
done for each and every product. While considering all these factors, he should carefully consider the fact that the networks need
not be constant.
For example, in order to transport stock to regional cross dock facilities for sorting, packaging and brokering small loads
to individual customers, stock destinations can be assembled through contract transportation providers.

Lane Operation Decisions

These functional decisions stress on daily freight operations. The transportation managers work on real time information
on products’ requirements at different system nodes and collaborates every move of the product that is both inbound and outbound
shipping lanes so as to satisfy their services demands at the minimal possible cost.
Managers who make good decisions easily handle information and utilize the opportunities for their own profit and
assure that the product is moved to them immediately, whenever it is demanded, that too in the right quantity. At the same time,
they are saving cost on transportation also.

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For example, a shipment has landed from a supplier who is based in New Jersey and in the same week, a product needs
to be dispatched to New York as it becomes available for movement. If the manager is aware of this information in advance, he
would prepare everything as per the demand and the products could be shipped out immediately.
Choice and Mode of Carrier
A very important decision to be made is to choose the mode of transportation. With the improvement in the means of
transportation, modes of transport that were not available in the traditional transportation modes in the past can be now be a
preferred choice.
For example, rail container service may offer a package that is cost-efficient and effective as compared to a motor
transport. While making a decision, the manager has to consider the service criteria that need to be met, like the delivery time,
date special handling requirements, while also taking into consideration the element of cost, which would be an important factor.

Dock Level Operations

This involves the last level of decision-making. This comprises planning, routing and scheduling. For example, if a
carriage is being loaded with different customers’ orders, the function of the dock-level managers is to assure that the driver is
informed of the most efficient route and that loads are placed in the ORDER OF THE PLANNED STOPS.

WAREHOUSING
Warehousing plays a vital role in the supply chain process. In today’s industry, the demands and expectations of the
customers are undergoing a tremendous change. We want everything at our door step – that too with efficient price. We can say
that the management of warehousing functions demands a distinct merging of engineering, IT, human resources and supply chain
skills.

To neutralize the efficiency of inbound functions, it is ideal to accept materials in an immediately storable conveyance,
like a pallet, case or box. For labeling the structure, tool selection and business process demand the types and quantities of orders
that are processed. Further, the number of stock-keeping units (SKU’s) in the distribution centers is a crucial consideration.
The Warehouse Management Systems (WMS) leads the products to their storage location where they should be stored.
The required functionality for the completion and optimization of receiving, storing and shipping functions is then supplied.

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SOURCING AND PROCUREMENT

Sourcing and procurement are a vital part of the supply chain management. The company decides if it wants to perform
all the exercises internally or if it desires to get it done by any other independent firm. This is commonly referred as the make vs.
buy decision, which we will be discussing in brief in another chapter.

RETURNS MANAGEMENT
Returns management can be defined as the management that invites the merger of challenges and opportunities for
inbound logistics. A cost-effective reverse logistics program links the available supply of returns with the product information and
demand for repairable items or re-captured materials. We have three pillars that support returns management processes. These are
as follows:

 Speed − It is a must to have quick and easy returns management and automate decisions regarding whether to produce
return material authorizations (RMAs) and if so, how to process them. Basically, the tools of speed return processing
include automated workflows, labels & attachments and user profiles.
 Visibility − for improving the visibility and predictability, information needs to be captured initially in the process,
ideally prior to delivering the return to the receiving dock. Most effective and easily implementable approaches for
obtaining visibility are web-based portals, carrier integration and bar-coded identifiers.
 Control − In case of returns management, synchronizing material movements is a common issue that needs to be
handled. The producers need to be very cautious and pay close attention to receipts and reconciliation and update the
stakeholders of impending quality issues. In this case, reconciliation activates visibility and control all over the
enterprise. The key control points in this process are regulatory compliance, reconciliation and final disposition and
quality assurance.
 Software solutions can assist in speeding up the returns management by supporting user profiles and workflows that state
supply chain partners and processes, by labeling and documentation that tracks the material along with the web-based
portals and by exception-based reporting to deliver information for timely reconciliation. These characteristics, when
executed with the three pillars mentioned above, support a reliable and predictable returns process to count value across
the company.

POST - SALES SERVICE

Now that the ordered shipment is over, what is the next step? The post sales service in supply chain tends to be an
increasingly essential factor as businesses offer solution instead of products.

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The post sales services comprise selling spare parts, installing upgrades, performing inspection, maintenance and repairs,
offering training & education and consulting.
Presently, with the growing demands of the clients, a high volume of after sales service proves to be a profitable
business. Here, the services are basically heterogeneous and the value-added services are different from those provided prior to
sales service.

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MODULE 3: SUPPLY CHAIN MANAGEMENT – DECISION PHASES AND PERFORMANCE MEASURES

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Week No: 2
Module No 3: SUPPLY CHAIN MANAGEMENT - DECISION PHASES
Lesson No 1: Decision Phases and Performance Measures
Duration/Hours: 10 Hours

Specific Learning Outcomes:

During the students’ learning activities, they will be able to:
 SLO 1: Explain the SCM decision phases and performance measures.
 SLO 2: Discuss and execute SCM strategy, planning and operation.
 SLO 3: Distinguish quantitative measures, non-financial measures and financial measures.

SLO 1: Explain the SCM decision phases and performance measures.

SLO 2: Discuss and execute SCM strategy, planning and operation.

INTRODUCTION

Decision phases can be defined as the different stages involved in supply chain management for taking an action or
decision related to some product or services. Successful supply chain management requires decisions on the flow of information,
product, and funds that fall into three decision phases.
Below are the three main decision phases involved in the entire process of supply chain.

Supply Chain Strategy

In this phase, decision is taken by the management mostly. The decision to be made considers the sections like long term
prediction and involves price of goods that are very expensive if it goes wrong. It is very important to study the market conditions
at this stage.

These decisions consider the prevailing and future conditions of the market. They comprise the structural layout of
supply chain. After the layout is prepared, the tasks and duties of each were laid out.

All the strategic decisions are taken by the higher authority or the senior management. These decisions include deciding
manufacturing the material, factory location, which should be easy for transporters to load material and to dispatch at their
mentioned location, location of warehouses for storage of completed product or goods and many more.

Supply Chain Planning

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Supply chain planning should be done according to the demand and supply view. In order to understand customers’
demands, a market research should be done. The second thing to consider is awareness and updated information about the
competitors and strategies used by them to satisfy their customer demands and requirements. As we know, different markets have
different demands and should be dealt with a different approach.

This phase includes it all, starting from predicting the market demand to which market will be provided the finished
goods to which plant is planned in this stage. All the participants or employees involved with the company should make efforts to
make the entire process as flexible as they can. A supply chain design phase is considered successful if it performs well in short-
term planning.
Supply Chain Operations
The third and last decision phase consists of the various functional decisions that are to be made instantly within minutes,
hours or days. The objective behind this decisional phase is minimizing uncertainty and performance optimization. Starting from
handling the customer order to supplying the customer with that product, everything is included in this phase.

For example, imagine a customer demanding an item manufactured by your company. Initially, the marketing department
is responsible for taking the order and forwarding it to production department and inventory department. The production
department then responds to the customer demand by sending the demanded item to the warehouse through a proper medium and
the distributor sends it to the customer within a time frame. All the departments engaged in this process need to work with an aim
of improving the performance and minimizing uncertainty.

SLO 3: Distinguish quantitative measures, non-financial measures and financial measures.

Supply chain performance measure can be defined as an approach to judge the performance of supply chain system. Supply
chain performance measures can broadly be classified into two categories −
 Qualitative measures − for example, customer satisfaction and product quality.
 Quantitative measures − for example, order-to-delivery lead time, supply chain response time, flexibility, resource
utilization, delivery performance.

Here, we will be considering the quantitative performance measures only. The performance of a supply chain can be
improvised by using a multi-dimensional strategy, which addresses how the company needs to provide services to diverse
customer demands.
QUANTITATIVE MEASURES
Mostly the measures taken for measuring the performance may be somewhat similar to each other, but the objective
behind each segment is very different from the other.
Quantitative measures are the assessments used to measure the performance, and compare or track the performance or
products. We can further divide the quantitative measures of supply chain performance into two types. They are −
 Non-financial measures
 Financial measures

Non - Financials Measures

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The metrics of non-financial measures comprise cycle time, customer service level, inventory levels, resource utilization
ability to perform, flexibility, and quality. In this section, we will discuss the first four dimensions of the metrics −

Cycle Time
Cycle time is often called the lead time. It can be simply defined as the end-to-end delay in a business process. For
supply chains, cycle time can be defined as the business processes of interest, supply chain process and the order-to-delivery
process. In the cycle time, we should learn about two types of lead times. They are as follows −
 Supply chain lead time
 Order-to-delivery lead time

The order-to-delivery lead time can be defined as the time of delay in the middle of the placement of order by a customer
and the delivery of products to the customer. In case the item is in stock, it would be similar to the distribution lead time and order
management time. If the ordered item needs to be produced, it would be the summation of supplier lead time, manufacturing lead
time, distribution lead time and order management time.

The supply chain process lead time can be defined as the time taken by the supply chain to transform the raw materials
into final products along with the time required to reach the products to the customer’s destination address.
Hence it comprises supplier lead time, manufacturing lead time, distribution lead time and the logistics lead time for transport of
raw materials from suppliers to plants and for shipment of semi-finished/finished products in and out of intermediate storage
points.

Lead time in supply chains is governed by the halts in the interface because of the interfaces between suppliers and
manufacturing plants, between plants and warehouses, between distributors and retailers and many more.

Lead time compression is a crucial topic to discuss due to the time based competition and the collaboration of lead time
with inventory levels, costs, and customer service levels.

Customer Service Level

The customer service level in a supply chain is marked as an operation of multiple unique performance indices. Here we have
three measures to gauge performance. They are as follows −
 Order fill rate − the order fill rate is the portion of customer demands that can be easily satisfied from the stock
available. For this portion of customer demands, there is no need to consider the supplier lead time and the
manufacturing lead time. The order fill rate could be with respect to a central warehouse or a field warehouse or stock at
any level in the system.
 Stock out rate − It is the reverse of order fill rate and marks the portion of orders lost because of a stockout.
 Backorder level − this is yet another measure, which is the gauge of total number of orders waiting to be filled.
 Probability of on-time delivery − It is the portion of customer orders that are completed on-time, i.e., within the agreed-
upon due date.
In order to maximize the customer service level, it is important to maximize order fill rate, minimize stockout rate, and
minimize backorder levels.

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Inventory Levels
As the inventory-carrying costs increase the total costs significantly, it is essential to carry sufficient inventory to meet
the customer demands. In a supply chain system, inventories can be further divided into four categories.
 Raw materials
 Work-in-process, i.e., unfinished and semi-finished sections
 Finished goods inventory
 Spare parts

Every inventory is held for a different reason. It’s a must to maintain optimal levels of each type of inventory. Hence gauging
the actual inventory levels will supply a better scenario of system efficiency.

Resource Utilization
In a supply chain network, huge variety of resources is used. These different types of resources available for different
applications are mentioned below.
 Manufacturing resources − Include the machines, material handlers, tools, etc.
 Storage resources − Comprise warehouses, automated storage and retrieval systems.
 Logistics resources − Engage trucks, rail transport, air-cargo carriers, etc.
 Human resources − Consist of labor, scientific and technical personnel.
 Financial resources − Include working capital, stocks, etc.

In the resource utilization paradigm, the main motto is to utilize all the assets or resources efficiently in order to maximize
customer service levels, reduce lead times and optimize inventory levels.

Financial Measures
The measures taken for gauging different fixed and operational costs related to a supply chain are considered the
financial measures. Finally, the key objective to be achieved is to maximize the revenue by maintaining low supply chain costs.

There is a hike in prices because of the inventories, transportation, facilities, operations, technology, materials, and
labour. Generally, the financial performance of a supply chain is assessed by considering the following items −
 Cost of raw materials.
 Revenue from goods sold.
 Activity-based costs like the material handling, manufacturing, assembling rates etc.
 Inventory holding costs.
 Transportation costs.
 Cost of expired perishable goods.
 Penalties for incorrectly filled or late orders delivered to customers.
 Credits for incorrectly filled or late deliveries from suppliers.
 Cost of goods returned by customers.
 Credits for goods returned to suppliers.

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In short, we can say that the financial performance indices can be merged as one by using key modules such as activity based
costing, inventory costing, transportation costing, and inter-company financial transactions.

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