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Measuring Supply Chain Effectiveness

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Measuring Supply Chain Effectiveness

Measuring Supply Chain Effectiveness 

The performance of a supply chain whether effective or not can be measured using an indicator. The indicators used to measure performance are known as Key Performance Indicators (KPI). KPIs are usually obtained from benchmarking results against literature, articles, journals, annual reports of a public company, and so on.

The use of KPIs as a measure of Supply Chain becomes effective because KPIs contain the expected criteria for the output of the existing supply chain. 

The following are some indicators that can be used:

1. In the planning factor (Planning)

An effective supply chain is a supply chain that has a plan where this plan starts with a supply chain design followed by the implementation and evaluation stages followed by continuous improvement.

Execution of existing plans

The planning of the supply chain that has been determined must be carried out and continuously evaluated so that the indicator of effectiveness from this point is to compare the existing planning with its implementation.

Detailed supply chain planning

Planning in the supply chain must be something detailed in the sense that there is a deadline for implementation, responsible implementation, and evaluation. This evaluation includes problems from the implementation of existing plans and the solutions offered in the next period.

2. In the Information System factor

Management model transition was largely due to the timeliness of presenting management information with the support of software, hardware, and programmers. However, it is not uncommon for information systems to be underestimated, namely only as data processing and statistics (Yanuar, 2003). 

The need for fast and precise information is very significant in implementing the supply chain as one of the company's competitive strategies. 

Indeed, adopting an information system into the supply chain implementation requires a very large cost, but it needs to be considered because the costs of making mistakes due to the loss of accurate and fast information or the cost of missing opportunities due to adopting an information system are much greater than the costs required to build an information system. (Donovan, 2003). 

Below are the criteria in an information system to support the implementation of the supply chain:

a. Integrated system / real-time communication

In the implementation of an integrated supply chain, an integrated information system plays a very important role, one of which is to improve the integration function between the existing supply chains. 

Regarding this information system Ramalhinho (October 2002) says as follows: "The key to success in Supply Chain Management (SCM) requires a heavy emphasis on the integration of activities, cooperation, coordination and information sharing throughout the entire supply chain, from supplier to customer. ". 

The size of this integrated system is seen from whether there are excess production, delays, or production errors caused by the absence of integrated information between the marketing, production, and purchasing of raw materials. This integrated system enables real-time communication. 

Hanfield in his book Supply Chain Redesign states the following relating to the importance of communication in the supply chain (2002: 16): "The improvement of supply chain relationship occurs through a great deal of communication and problem-solving activities between organizations, including joint improvement projects, shared training programs, co-location of personnel, a workshop presenting corporate plans, as well as meeting between the perspective organizations' personnel at all levels of the organization from top management to hourly employees. "

b. DSS / Expert system

The Decision-Support System (DSS) is very much needed in supply chain implementation because the supply chain is faced with such varied and complex decisions (Levi., Et al, 2000: 264). One DSS application is used in determining the number of raw material purchases quickly and accurately. 

Many innovations can be made in the DSS application, not only in determining the amount of raw material purchased but also in the networking stage. 

Village Software (2003) states concerning the importance of DSS in the supply chain as follows: "The related areas of Decision Support and Management Information Systems are critical in competitive environments. If an organization has good transaction processing systems valuable data can be made available to help management. ". 

The size of this criterion is seen from the presence or absence of a company DSS in supporting supply chain implementation.

c. Consumer management

This is about managing the relationship between the company and the customer. The measurement is carried out by seeing whether there is a special effort made by the company in building relationships with customers, for example by developing Customer Relationship Management (CRM), and the second is by seeing whether this good relationship helps the company in planning the purchase of raw materials. 

CRM modules or applications are usually used by sales and marketing departments to process sales offers and orders to create better customer relationships. The CRM modules also help analyze customer habits and plan sales

d. Catalog management

Catalog management focuses on introducing the company's products to customers, both passively and actively, where it can be seen whether there is an IT application in introducing the company's products. Passive here means that there are facilities used by customers to have access to the company's products. Active in the sense of a company that takes the initiative to introduce it to customers.

e. Order management

The ease with which customers can place orders is something that needs attention. The measurement is done by looking at customer complaints in placing orders.

f. Accurate costing per customer

The overall supply chain costs should be known so that the actual costs of each customer can be found.

g. Cost added and value-added analysis

An analysis is carried out to distinguish activities that only add costs (non-value added) and those that provide added value.

3. In the Goods factor

Inventory is an important enough thing to be managed properly. Inventory in this context talks about how to regulate the existing raw material inventory, both in terms of procurement and distribution of these raw materials for production needs. 

However, the thing to note is that the raw material requirements will not be known without information. This is what makes raw material and information side by side.

Periodic inventory policy review

The policy here is for example the policy regarding reordering rates. There is an evaluation of the inventory policy, where this evaluation is tailored to exist needs. Purchase of raw materials according to the proportion of customer needs.

Centralized inventory

Centralization here is not in a physical sense, but more towards integrated planning of the entire chain regarding the supply of raw materials, wherein ideal conditions information on raw material inventory needs comes from various departments, both marketing and production departments. 

The measurement is seen in the coordination meeting that occurs until the implementation of the coordination which leads to the planning of raw material procurement.

Reorder points at the planned rate

The measurement is seen in the implementation of reordering. Optimizing the purchase of goods (good price, good quality). Efforts are being made to get goods at good prices and quality so that existing suppliers are selected.

4. In the Organization factor

A good organizational system must be created to support the implementation of the existing supply chain, to create an effective supply chain. It is not uncommon for the flow of supply of goods to be delayed due to many administration processes such as too many non-value activity re-checks. Process-based management. 

One of the keys to a successful supply chain implementation is the change from a functional organization to a horizontal organization. The key to horizontal organization is an organization that is structured by process rather than function. 

With this change, the formation of an integration perspective will be easier for employees because this integration perspective is one of the obstacles that often occurs in the implementation of business strategies (Executive September 2003: 53)

Open communication between chains

Communication between the links must be routine, transparent, and open.

Shared Culture

This talks about communication built from top-level management to employees regarding the implementation of the existing supply chain in the form of sharing which is ultimately built into corporate culture. 

Through both formal and informal approaches, employee paradigm changes will be created from a narrow mindset towards a mindset that can see the big picture of the activities they do, because the supply chain talks about thinking that is integrated with the entire existing chain (all production processes).

Managing People

Human resources are the things that need to be considered in implementing a strategy because human resources are the spearhead of the success of the implementation. This is what makes the need for adequate training and coaching of the competencies and skills needed by employees in carrying out their responsibilities. 

Without providing proper training and coaching, supply chain implementation will fail or have poor performance. One example is training for employees when a company adopts a new information system or upgrades to implement a supply chain.

5. In the Strategic Partnering factor

With the increasingly fierce competition, companies have taken a lot of partnering methods as the right way to integrate the supply chain from the upstream to the downstream. 

A business partnership is defined by Poirier and Reiter, as quoted by Indrajit as follows: "Is process through which the involved parties establish and sustain a competitive advantage over similar entities, through pooling resources in trusting atmosphere focused on continuous, mutual improvement" (Poirier and Reiter, 1996).

The criteria for strategic partnering are as follows: Partner as an operational part of supply planning. For example, by involving in the planning of raw material purchases. Integrated information systems, for example, Vendor Managed Inventory (VMI). 

The existence of trust between partners, for example, exchange of information through Electronic Data Interchange (EDI). Joint projects, for example, joint advertising, product design. Limitation on the number of suppliers (preferred suppliers).

6. In the supply chain process auditing factor & continuous improvement

Supply chain activity is something that needs to be audited to make necessary improvements. Improvement in the sense of finding solutions to obstacles to the existing supply chain implementation. 

The obstacle in this context is a condition where the supply chain cannot be carried out like an ideal supply chain condition. Apart from finding a solution, it is also an evaluation whether it is because the ideal supply chain criteria are not following the condition of the company if it is still being forced to do so.


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