Running head: SUPPLY CHAIN 1

MANAGEMENT

NUST Business School

OTM 452 Supply Chain Management

Assignment-1

Submitted to;

Dr. Mauzzam

Submitted by;

Aimen Niazi

BBA 2K16 A

Date: 5 October, 2019

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Introduction:
“Supply chains are everywhere. From the biggest company in the world to running your
household. We all have supply chain experience even if we don’t know it.”
Thus, there is no denying the fact that supply chain forms the integral part of every business and
businesses now compete on the basis of efficient supply chains.

With that being said, I will now integrate my understanding of supply chain and its performance
measures from the literature. Initially, supply chain was only considered as transaction and
delivery. With time due to breakthroughs in technology as the world became fast paced, focus
shifted towards integrating the system efficiently. It is rightly said that as materials and
information flow in both directions, supply chains must sustain the quality driven and
technology-based capabilities so as to mitigate system wide costs, improve customer service
level and reduce transit and lead time.

Also, supply chain is a set of firms that pass materials forward that involve raw material and
component producers, product assemblers, wholesalers, retailer merchants and transportation
companies in the supply chain (La Londe, 1994). Another definition states that supply chain is an
integrated network of organizations that are a part of downstream and upstream linkages in
different activities that are a part of the whole delivery process to the consumer (Christopher,
1992). Thus, we can say that a supply chain consists of many firms as well as the ultimate
consumer. its main function is to streamline firms and their activities so as to bring the final
service or product to the end consumer.
Christopher (1992) further explained that, supply chain can be categorized into three degrees;
direct supply chain, extended supply chain and ultimate supply chain. Where a direct supply
chain consists of a supplier, company, and a customer involved in flows of products and
information. On the other hand, extended supply chain, involves customers of the immediate
customers, and suppliers of the immediate supplier. Moreover, an ultimate supply chain includes
all the organizations involved in all the upstream and downstream flows of services, products,
finances and information from the final supplier to the end customer.

Supply chain Strategy:

A key feature of present-day business is the idea that it is supply chains that compete, not
companies (Christopher, 1992), and that the success or failure of supply chains is ultimately
determined in the market-place by the end consumer. We can say that the major factor for every
successful business is the way in which a business plans activity, manufactures, procures, sells
and stores its product or service. In today’s business environment efficiency, transparency and
speed are key determinants of success. It is the efficient management of workflows and
processes that allow a business to gain competitive advantage over other firms. Advantage could
be spread across the supply chain and aid in the reduction and outsourcing of inventors to
unleashing potentials in procurement for profit improvement and, to providing quick delivery to
end consumers. (Rolf, 2016) Turning supply chain into an advantage for a firm depends on
choosing the appropriate strategy which is done by analyzing the market and ensuring customer
satisfaction. It is only when the requirements are well understood; the best supply chain strategy
could be devised.
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Two mutually exclusive strategies that firms adopt are responsive strategy and efficiency
strategy. Some scholars also state it as lean or agile strategy. It is being concluded that they are
not mutually exclusive alternatives rather they should be used separately or conjointly, according
to the demands of the market-place and the characteristics of the physical product.
Supply chain strategies are determined after determining the competitive strategy of a business.
Supply chain strategy has to be well aligned with the competitive strategy to determine whether
the company will have responsive or efficiency strategy. If a company pursues responsive
strategy it will ensure more facilities near the customers preferring more decentralization. It will
then have excess amounts of capacity to respond as quickly to customers as possible. Also, high
levels of inventory will have to be maintained so that customer’s demands are fulfilled at the
earliest without being short of demand. Moreover, transportation will have to be fast to be
responsive to customers. This will also require fast movement of information to and fro. Last but
not the least, sourcing and pricing decisions will also affect the supply chain strategy. However,
if a company wants to be efficient it will have to go the other way around to fulfill customers
demand. It will have to ensure that facility, sourcing, inventory leaves and transport is managed
in such a way that the costs are minimized.
Performance indicators:
Supply chain metrics are chosen relevant to each supply chain driver.
● Inventory: Inventory of a firm that includes, finished goods, raw materials and work in
process inventory should be well aligned with the supply chain strategy. If a company
adopts a responsive strategy, it should have stock of goods in inventory, whereas if the
company pursues efficiency strategy it must not have piles of stock in inventory. The
major inventory related metrics include cash to cash cycle time, inventory turns, fill rate,
average replenishment batch size, average safety inventory, average inventory, seasonal
inventory, obsolete inventory, and fraction of time out of stock.
● Facilities: According to the appropriate supply chain strategy role, location, flexibility
and capacity of the facility should be determined. The important facility related metrics
are capacity, utilization, production cost per unit, quality losses, production cost per unit,
idle time, actual average flow, cycle time of production, flow time efficiency, product
variety, volume contribution, average production batch size, and production service level.
● Sourcing: sourcing decisions include the appropriate match of outsourcing and in-house
management. Sourcing relevant metrics include average purchase size, days payable
outstanding, percentage of on time deliveries range of purchase size, supply quality,
supply lead time, and supplier reliability.
● Pricing: a company determines an appropriate pricing strategy keeping in view the
supply, demand and the costs incurred. Furthermore, pricing related metrics comprise of
days sales outstanding, profit margin, incremental fixed cost per unit, incremental
variable cost per order, average order size, average sales size, range of sale size, and
range of periodic sales.
● Information: Information affects almost all the other drivers thus, having the most
impact. Information can better help the company match supply with demand and thus
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become responsive or efficient. Information metrics include, forecast horizon, forecast

errors, seasonal factors, frequency of update, variance from plan and ratio of demand
variability to order variability.
● Transportation: Transportation is no less than any oter driver in supply chain
performance. High level of ground transportation is to be maintained if the company
wants to be responsive to customers. The important metrics to take into account for
transportation are average incoming shipment size, average inbound transportation cost,
average outbound transportation cost, average outbound shipment size, average outbound
and inbound transportation cost per shipment, and fraction transported by nodes.
In order to achieve efficiency in supply chain a company must first identify the key chain
drivers, and identify the strategic fit between the firm's competitive strategy and supply
chain strategy. Then the firm must track the important metrics discussed above.

Performance of supply chain of a business must be determined in accordance with the supply
chain strategy of that firm. Supply chain performance is ensured by the interaction of cross
functional and logistical drivers including transportation, inventory, facilities, sourcing, pricing,
and information. Once the strategy is chosen, performance measures are identified against which
performance is measured. One of the approaches to measure performance is balanced scorecard
approach. according to balance score card devised by Kaplan and Norton, performance is
measured on the basis of customer perspective, internal business perspective, innovation and
financial perspective. Customer orientation takes into account the value gained by customers and
their satisfaction. Whereas internal business perspective analyzes the internal activities that
improve customer experience. Innovation and learning perspective are concerned about bringing
innovation in supply chain. (Brewer.P. 2000)
Supply chain performance can be measured with respect to certain financial indicators. As far as
shareholders are concerned, return on equity determines the return that a shareholder gets out of
the investment. Return on assets is also an important indicator to check the return on firm’s
assets. A higher profit margin and asset turnover increases the return on asset. A higher asset
turnover can either be achieved by turning inventory quickly or using the existing infrastructure
more efficiently. Moreover, cash to cash cycle time is used to measure the time taken by the
cash outflow and cash inflow. Other measures that are not part of financial statements include
markdowns and lost sales. Markdowns show the discounts given to customers to earn sales.
Although these markdowns and discounts are not mentioned in the financial statements but these
affect the financial statements greatly. Lost sales are also not taken into account which if dealt
carefully could have helped reduce lost customers. Lost sales and markdowns impact the net
income and indicate a considerable supply chain effect on financial performance of a company.
If supply chains are made in such a way that the demand and supply is matched accurately
lockdowns and lost sales can be reduced greatly.

Figure 1
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Reference list:

Brewer, P. C. (2000). Using the balanced scorecard to measure supply chain performance Peter
C Brewer; Thomas WSpeh. Journal of Business logistics, 21(1), 75.

Chopra, S., & Meindl, P. (2007). Supply chain management. Strategy, planning & operation.
In Das summa summarum des management (pp. 265-275). Gabler.

Kuei, C. H., Madu, C. N., Lin, C., & Chow, W. S. (2002). Developing supply chain strategies
based on the survey of supply chain quality and technology management. International
Journal of Quality & Reliability Management, 19(7), 889-901.

Poluha, R. G. (2016). Introduction: The real competition will be between supply chains in the
future. In The quintessence of supply chain management (pp. 1-8). Springer, Berlin,
Heidelberg.

Towill, D., & Christopher, M. (2002). The supply chain strategy conundrum: to be lean or agile
or to be lean and agile?. International Journal of Logistics, 5(3), 299-309.