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How to Measure Supply Chain Management Performance?

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How to Measure Supply Chain Management Performance?
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Several things that are taken into consideration in supply chain management are as follows:

Market Coverage Objectives To target market scope, management must consider customer purchasing behavior, the type of distribution used, the supply chain structure, and the level of control required for a successful supply chain.

Customer Buying Behavior The purchase motives of potential customer segments must be determined to design supply chains efficiently and effectively. This analysis allows designers to determine the retail segment that is best able to reach the target market. 

Industrial marketing must also identify potential users and determine how these customers will make purchasing decisions. The decision-making process for buyers in the industry depends on the user company, the original equipment company, or the distributor.

Types of Distribution There are three basic types of distribution that can be used to provide products for consumers, namely as follows:

Intensive Distribution 

Intensive distribution means that the products distributed are sold to as many retailers or wholesalers as possible. Intensive distribution is suitable for products, such as chewing gum, soft drinks, bread, movies, and cigarettes when the main factor influencing the purchasing decision is convenience. 

Other industrial products that require intensive distribution, for example, industries in the supply of stationery, such as pencils, paper clips, types transparent, file folders, typewriters, master transparency. Intensive distribution involves more indirect channels with two or more intermediaries.

Selective Distribution 

Selective distribution is suitable for shops that can sell a limited range of products, but not to an exclusive level. By carefully selecting wholesalers and retailers, entrepreneurs can concentrate on accounts more profitable and develop solid working relationships to ensure that products are sold appropriately. 

This can also be done by limiting the number of retail stores if the product is sold with special service or optimal sales support.distribution. Selective be used for categorized products, such as clothing,appliances, televisions, stereo equipment, home furnishings, and equipment sports.

Exclusive distribution when a single shop is granted exclusive rights to sell products in a certain area. Products, such as automobiles, some major appliances, certain types of furniture, certain types of clothing that have a high level of customer brand loyalty can be distributed exclusively.

Generally, exclusive distribution is made when control channels are considered important. Exclusive distribution can enhance product image and enable companies to provide high retail prices. Sometimes entrepreneurs use multiple brands to offer exclusive distribution to more than one retailer or distributor. 

Exclusive distribution is more common at the wholesale trade level than at the retail level. In general, exclusive distribution is used for direct channels (entrepreneurs to retail).


Concerning product characteristics, nine product characteristics should be analyzed by the designer, namely as follows.

The Product's Value

Products with high unit costs require a substantial inventory investment. As a consequence, high-value products require shorter supply chains (fewer members) to minimize total inventory investment. However, supply chains tend to be longer when the value per unit is low when sales volumes are not high. In general, intensive distribution is used for low-value products. 

The value of the product also affects the cost of transporting inventory and transportation premiums. Low margin, low-value grocery products can be shipped by train and stored in a warehouse. High-value components and products such as high fashion merchandise will be shipped via air freight to minimize in-transit reduce inventory and inventory transport costs and markdowns.

The Technicality of the Product

High technical products usually require demonstration by salespeople in addition to providing pre-purchase and post-purchase services.

Also, repair components are needed to make stock. Technical products include home computers, luxury stereo components, expensive camera and video equipment, luxury sports cars, and several other industrial products. In general, direct and selective channel policies or exclusive distribution are used for these types of products.

The Degree of Market Acceptance

The level of market support determines the sales effort required. If a well-known entrepreneur offers new products and plans high advertising and promotion, customers will also provide high support. Also, intermediaries would easily want to offer these products. However, new products with little market support and low brand identification require more aggressive sales.

The Degree of Substitutability

The ability to substitute a product is closely related to brand loyalty. If brand loyalty is low, product substitution and intensive distribution may be needed because consumers will easily switch to another brand. For example, many companies offer discounts on exhibition purchases in busy areas. 

To obtain support from a wholesaler or retailer, manufacturers can offer attractive prices. If brand loyalty is high, selective, or effective distribution is more necessary because consumers do not easily switch to other brands.

Bulk Products (The Product's bulk)

In general, heavy and low-value products are limited to markets adjacent to the location of production. These products often require special material handling capabilities. By using small cubes that are light in weight and properly placed, more units can be shipped in trucks, carts, or containers, thereby reducing the per-unit transportation costs.

The Product's Perishability

The product's long-lasting ability is related to physical deterioration or product obsolescence caused by changes in customer buying patterns or changes in technology. Durable products are generally sold on a direct basis to move products through the supply chain more quickly and reduce potential inventory losses.

The Degree of Market Concentration

If the market is concentrated in a certain geographic area, a short supply chain can be the most effective and efficient method. If it is widely circulated, a special intermediary is required. The number of food-processing companies using middlemen to market their products is one example. 

This factor also explains the existence of pooling agents, such as freight forwarders and local cartage companies, who collect and ship small items into units for truck or carloads to be moved to their destination.


For certain products, the sales volume is busy at times certain of the year, for example, school uniforms are only busy when the new school year starts. In other cases, raw materials, such as fruits and vegetables, can only be available at certain times. Both cases require out-of-season storage. 

Entrepreneurs must invest in warehouses, use third parties, or provide incentives to intermediaries who take care of the storage function. For example, entrepreneurs can offer seasonal discounts or delivery of supplies to wholesalers or retailers who agree to take early delivery.

The Width and Depth of the Product Line The type of width and depth of a product can influence supply chain design. An entrepreneur with a low value per unit product can use intensive distribution with direct selling if the product can generate a relatively large volume of sales. 

For example, food entrepreneurs such as Kellog's and General Foods use intensive distribution. Generally, an entrepreneur from a limited product line will use a wholesaler to reach an adequate market at a reasonable price.


The objectives of performance measurement are:

  • To create a physical delivery process (goods flow smoothly and inventory is not too high).
  • Streamlining information flow (the flow of information between each channel).
  • Good cash flow on each channel in the supply chain.

The following are the main players involved in the supply chain:

Supplier (chain 1)

The chain in the supply chain starts from chain 1, which is the source of the first supply of materials. This is the place where the supply chain will begin. The first materials here can be in the form of raw materials, raw materials, auxiliary materials, spare parts, or merchandise.

Supplier-Manufacturer (chain 1-2)

The first chain is followed by the second chain, namely the manufacturer, which is the place to convert or finish goods (finishing). The relationship between the two links already has the potential to make savings. For example, saving on inventory carrying costs by developing the supplier partnering concept.

Supplier-Manufacturer-Distributor (chain 1-2-3)

In this stage, the finished goods produced are distributed to customers, who usually use the services of a distributor or wholesaler who is a large wholesaler.

Supplier-Manufacturer-Distribution-Retail Outlets (chain 1-2-3-4)

From the wholesalers, the goods are distributed to retail outlets. Although several factories directly sell their products to customers, they are relatively small in number and most of them use a pattern like the one above.

Supplier-Manufacturer-Distribution-Retail Outlets-Customer (chain 1-2-3-4-5) 

The customer is the last chain that is passed in the supply chain, in this context as the end-user. In this chain, transactions occur between retailers and customers which cover the entire process which directly includes receiving goods as well as meeting customer demands. 

From the explanation of supply chain actors, a supply chain model can be developed, which is a plastic picture of the chain linkages of these actors which can be shaped like a chain that is connected.

The flow of material in the supply chain is also often associated with various financial measurements of the company. All methods of measuring inventory begin with a physical unit, volume, or weight count. 

However, inventory measurement can be divided into three basic forms, namely the average aggregate value of inventory, supply weeks, and inventory turnover. The average aggregate value of inventories is the total value of all items stored in inventory. 

This means that the value of all inventory is measured based on costs during processing and at the time the goods are finished. Final sales value means only the final product or service and cannot be used for all inventory items. This value is taken as an average because it represents the investment in inventory over some time.

For example, item A is a raw material that is converted into finished goods called item B. One unit of item A may only cost a few Rupiah, while one unit of item B can be worth several hundred Rupiah due to the interference of labor, technology, and value. other value-added during the production process. 

Measurement of inventory, in this case:

Average value = (Number of units of item A) (Value of each item A)

Aggregate inventory + (Number of units of item B in stock) (Value of each item B)

By adding up all items in inventory, this total value means how many of the company's assets are in inventory. Manufacturing companies usually have about 25 percent of their total assets in stock, while for wholesalers and retailers the average is around 75 percent. 

To some extent, managers can determine whether the aggregate inventory value is too high or too low based on historical data, industry comparisons, or the managers' judgment.

Supply week is an inventory valuation obtained by dividing the average value of the aggregate inventory based on sales per week based on cost (at cost). In some company operations that have low inventories, daily or hourly assessments can be done and will provide better accuracy. 

Companies engaged in the automobile industry use the basis of the final product assessment per two months. The value varies from company to company.

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