Lead Time Gap = SC Lead Time - Customer’s Order Cycle Time–Supply chain lead time: procurement, manufacturing and delivery of order–Customer’s order cycle time: time that the customer is prepared to wait on order•In conventional organizations, the only way to close the lead time gap is to attempt to forecast the market’s requirements and carry just-in-case inventory.•Ideally, a reduction in the gap can be achieved by shortening the SC lead time (pipeline time) while simultaneously trying to gain earlier warning of requirements through improved visibility of demand.Lifetime value of customers equationlifetime value = (average transaction value) x (yearly frequency of purchase) x (customer 'life expectancy')Total Process Performance= Cash-to CashWhat are the key process metrics? Internal Supply Chain- Perfect Order, Cash-to-cash Overall Supply Chain- Focus on the end customer, Dwell time, Inventory days of supply, total landed cost.Total Cost of Ownership (LILSO)= Landed Cost (Material price, transportation, customs, inspection, taxes)+ Inventory Carry Cost (holding, inspection, insurance) +Life Cycle Costs (Storage, handling, warranty, field failures)+ Support Costs (Technology, Supplier Mgmt)+ Opportunity Costs (Lost Sales, Capital Costs)Cash to Cash Cycle= Days of Inventory+Days Accts Rec-Days Acct PayableThe time that it takes to convert an investment in raw materials to sales of finished goods comprised of those raw materials is known as?Cash to Cash cycle timeCompetitive Advantage: Product Excellence (Form, Time, and Place Utility) x Process Excellence1. The “Great Divide” in supply chains occurs between:a. Demand focused activities and supply focused activities (between manufacturing and distribution)How do you create financial value in an organization: Return on Asset improvement What overarching goal should the drive the design and execution of a company’s supply chain?Return on assets, return on investmentsUnit sales and profitKeeping all other inputs constant logistics can increase ROI by: COPCIACustomer Service (Effectiveness) (perfect order, direct customer profitability)to increase sales revenue, Operating Efficiency (reduce costs) activity based costs, tcoPipeline Mgmt (Cash-to-cash cycle)Credit Mgmt (accounts receivable/payable) days receivable, days payable Net receivablesInventory Policy: inventory days, turnover, carrying costs (lower inventory)Asset Mgmt (fixed Assets) free cash spinoff (Notes) Return on investment is the ratio between the net profit and the capital thatwas employed to produce that profit. ROI=Profit/Capital Employed or ROI= (Profit/Sales)Margin*(Sales/Capital employed) Capital Turnover or Asset TurnoverTraditional accounting is focused around understanding product costs rather than customer costs. Activity Based Costing could better show us how much it really coststo serve customer. ABC and ABM are allocation techniques that make it possible to more precisely assess true segment profitability Allocations are more realistic than traditional cost accounting which relies on sales volume or direct labor houses to allocate overhead. Additional profit (take from net profit)/original profit margin= 460/Sales to get percentTraditional Cost-to-serve:More Accurate Cost-to-serve (Activity Based Costing) Drivers of Shareholder Value: Revenue Growth Tax Minimization Working Capital Efficiency Operating cost reduction Fixed capital efficiencySupply Chain Management*: the systemic, strategic coordination of the traditional business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole.a. Extends the linking and coordination of materials management, manufacturing management and distribution upstream to suppliers and downstream to customersa. The management of up and downstream relationships with suppliers and customers to deliver superior value at less cost to the supply chain as a whole (pipeline)Logistics management is that part of Supply Chain Management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customer requirements.the process of strategically managing the procurement, movement and storage of materials, part and finished inventory (and the related information flows) through the organization and its marketing channels in such a way thatcurrent and future profitability are maximized through the cost-effective fulfillment of ordersTotal Cost Analysis attempts to identify and minimize total supply chain costs rather than the cost of individual activities. Inventory Carrying Costs: Capital Costs (Investment in Inventory, Interest/Financing Expense) Service Costs: (Insurance on Inventory, taxes on inventory) Storage Space Cost (Public Warehouse, Mfg Plant Warehouses….) Inventory Risk Costs (Obsolescence, damage, shrinkage (theft), relocation)Perfect Order:“If you ain’t perfect you’ve failed= # of orders perfect on all elements/total orders •Correct order entry•Items are available•Ship date allows delivery•Order picked correctly•Paperwork complete•Timely arrival• Product as expected•Shipment not damaged•Correct invoice•Accurate overcharges•No customer deductions•No errors in payment processingConcept of customer retention and lifetime value of a customer:-Understanding the value of keeping existing customers happy and making them loyal customers. Divide into customer categories: to enable him to serve his best customers at a higher level and promote his best productshttp://ptgmedia.pearsoncmg.com/images/0273681761/samplechapter/0273681761_ch03.PDFLogistics Balance Sheet:For example, the shorter the order cycle time, from when the customer places the order to when the goods are delivered, the sooner the invoice can be issued. Likewise the order completion rate can affect the cash flow if the invoice is not issued until after the goods are despatched. One of the less obvious logistics variables affect- ing cash and receivables is invoice accuracy. If the customer finds that his invoice is inaccurate he is unlikely to pay and the payment lead time will be extended until the problem is rectified.Mission: set of customer service goals to be achieved by the system
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