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INDUS UNIVERSITY

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 Course Name

• Teacher • Sir. Bilal

• Semester • Fall 2023
• Credit Hours • 03

Faculty of Management Sciences, Indus University 3

 Assessment

• Assignment • 05
• Quiz • 05
• Report • 15

Faculty of Management Sciences, Indus University 4

S upply Chain Drives and
The Power of Effective
S upply Chain
Supply chain management can significantly impact an organization's
success. Learn about the key drivers of supply chain performance,
metrics for measuring efficiency, and case studies of successful
implementations.

by Bilal
 Supply Chain Drivers and Metrics

Drivers of Supply Chain Performance Financial Measures Of Performance

Logistics Drivers return on equity

Cross- Functional Drivers
(ROE)

Facilities Inventory Transportation Return on assets

Information (1-5)
(ROA)

1- Role in the 1-Role in the

supply chain & supply chain & 2- 1 and 2
2- Role in the accounts payable
Role in the Sourcing ( 1-5)
competitive turnover (APT)
competitive
3-Components
strategy strategy
of Inventory
decisions -
Cycle inventory 3,4,and 5
3- Components of Pricing (1-5) ROA
facilities decisions -Safety
–4- Related inventory -
metrics – 5- Seasonal
Overall trade-off inventory-
Level of Cash-to-cash (C2C)
cycle
product
availability -
Inventory-4-
Related
metrics -5-
Overall trade-
off
Financial Measures of Performance
Revenue Growth
The increase in total sales over a
period of time, indicating that the
supply chain is successfully
delivering products to customers.
Gross Margin
The difference between revenue and
the cost of goods sold, indicating the
profitability of products sold by the
supply chain.
Return on Assets
The ratio of net income to total
assets, indicating the overall
efficiency and profitability of the
supply chain operations.
 F inancial Measure of P erformance
Formula
No Measure Purpose
1 (ROE) From a shareholder perspective, return on equity
(ROE) is the main summary measure of a firm’s
performance
2 (ROA) Return on assets (ROA) measures the return Earnings before interest
earned on each dollar invested by the firm in ROA 
Average total assets
assets
3 (APT) An important ratio that defines financial Cost of goods sold
APT 
leverage is accounts payable turnover (APT) Accounts payable

Earnings before interest

4 ROA ROA can be written as the product of two ROA 
Sales revenue
( Profit margin)

ratios—profit margin and asset turnover 

Sales revenue
Total assets
( Asset turn over)

5 (C2C) Cash-to-cash (C2C) cycle roughly measures the

C2C = – days payable (1/APT)
average amount time from when cash enters + days in inventory (1/INVT)
+ days receivable (1/ART)
the process as cost to when it returns as
collected revenue

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Conclusion and Key
Takeaways
Supply chain management is a key driver of business success. By
optimizing the flow of goods and services, companies can reduce costs,
improve customer satisfaction, and create new opportunities for growth
and innovation.
 K ey Drivers of S upply Chain P erformance
1- Logistics Drivers (3 elements)
Facilities
Location, capacity, organization, and resources of the
physical infrastructure, including warehouses,
distribution centers, and transportation terminals and
hubs.
Transportation
The movement of goods, materials, and products from
one location to another, including the modes of
transportation, such as trucks, ships, and planes.
Inventory
The management of all goods and materials, including
raw materials, work-in-progress, finished goods, and
even spare parts and tools.
2- Cross Functional Drivers (3 elements)
Sourcing
The process of identifying and selecting suppliers,
negotiating contracts, and managing relationships to ensure
timely and cost-effective delivery of goods and services.
P ricing
The process of setting prices for products and services
based on customer demand, competitive pressures, and
costs, while balancing profitability and market share
objectives.
Information
The flow of data and information within and between
supply chain partners, including suppliers,
manufacturers, distributors, and retailers.
Supply Chain Performance Drivers
1 - Cross F unctional Drivers (3 elements)
1 Sourcing
Explore how this process of a
firm performs and what functions or
processes that are outsourced, affects
bottom line. This process plays an
important role in supply chain
efficiency and effectiveness
2 Information
See how companies are
adopting Raw materials, WIP,
finished goods within a supply
chain – Inventory policies.
3 Pricing
Discover how Price is associated
with goods and services provided by a
firm to the supply chain-affects top
line
 2- Cross Functional Drivers (3 elements)
Cross Functional
Information
Drivers
Improve the utilization of supply chain
assets and the coordination of supply
chain flows to increase responsiveness
and reduce cost
Role in the Information is a key driver that can be used
to provide higher responsiveness while
supply chain simultaneously improving efficiency
Right information can help a supply chain
better meet customer needs at lower cost
Role in the competitive Improves visibility of transactions and
coordination of decisions across the supply
strategy
chain
Share the minimum amount of information
required to achieve coordination
Sourcing / Purchasing Pricing
Set of business processes required to purchase
goods and services Pricing determines the amount to charge
customers for goods and services
Will tasks be performed by a source internal to the Affects the supply chain level of
company, or a third party
responsiveness required and the demand
profile the supply chain attempts to serve
Globalization creates many more sourcing options
Pricing strategies can be used to match
with both considerable opportunity and potential
demand and supply
risk
Sourcing decisions are crucial because they Firms can utilize optimal pricing strategies to
affect the level of efficiency and responsiveness improve efficiency and responsiveness
in a supply chain
Outsource to responsive third parties if it is too Pricing strategies vary to meet different
expensive to develop their own customer responsiveness requirements
Keep responsive process in-house to maintain
control
 2- Cross F unctional Drivers (3 elements)
SUPPLY CHAIN DRIVERS
Cross Functional Drivers Information Sourcing / Purchasing Pricing
•Push versus pull •In-house or outsource •Pricing and economies of scale
•Coordination and information •Everyday low pricing versus
•Supplier selection
sharing high-low pricing
Components of Decisions ( Just
•Sales and operations planning
List) •Procurement •Fixed price versus menu pricing
(S&OP)
•Enabling technologies

Forecast horizon Days payable outstanding Profit margin

Frequency update
Forecast error
KPI -related metrics for Seasonal factors
Performance evaluation (no
Variance from plan
detail)
Ratio of demand variability to
order variability
Average purchase price
Range of purchase price
Average purchase quantity
Supply quality
Supply lead time
Fraction of on-time deliveries
Supplier reliability
Days sales outstanding
Incremental fixed cost per order
Incremental variable cost per unit
Average sale price
Average order size
Range of sale price
Range of periodic sales
KPI for sourcing/purchasing
KPI Definition
The average number of days it takes
Days Payable Outstanding for a company to pay its suppliers for
goods and services received.
The average price at which goods are
Average Purchase Price
purchased from suppliers.
Formula Numerical
Accounts Payable (amount owed to suppliers):
(Accounts Payable / Cost of Goods $500,000
Sold) * Number of Days in the Cost of Goods Sold (COGS): $2,000,000
Period Number of Days in the Period: 30
Formula: (500,000 / 2,000,000) * 30 = 7.5 days
Total Purchase Cost: $1,000,000
Total Purchase Cost / Total Purchase Total Purchase Quantity: 10,000 units
Quantity Formula: 1,000,000 / 10,000 = $100 per unit

The difference between the highest
and lowest purchase price for a
Range of Purchase Price
specific product or a category of
products.
Average Purchase The average quantity of products
Quantity purchased from suppliers.
The level of conformity and quality of
Supply Quality
products received from suppliers.
Highest Purchase Price - Lowest
Purchase Price
Total Quantity Purchased / Number Number of Purchase Orders: 20
of Purchase Orders
(Number of Conforming Products /
Total Products Received) * 100
Highest Purchase Price: $150 per unit
Lowest Purchase Price: $80 per unit
Formula: 150 - 80 = $70 per unit
Total Quantity Purchased: 10,000 units
Formula: 10,000 / 20 = 500 units per order
Number of Conforming Products (meeting quality standards):
9,500 units
Total Products Received: 10,000 units
Formula: (9,500 / 10,000) * 100 = 95% (supply quality)

Sum of Lead Times for all Orders: 50 days

The average time taken for an order
(Sum of Lead Times for all Orders) / Number of Orders: 10
Supply Lead Time to be fulfilled by the supplier, from Formula: 50 / 10 = 5 days (average supply lead time)
Number of Orders
the time of order placement.
Number of On-time Deliveries: 180
The percentage of deliveries received
Fraction of On-time (Number of On-time Deliveries / Total Deliveries: 200
from suppliers on time as per the
Deliveries Total Deliveries) * 100 Formula: (180 / 200) * 100 = 90% (fraction of on-time
agreed-upon delivery schedule.
deliveries)
 KPI for Pricing
KPI Definition Formula
The percentage of revenue that
((Total Revenue - Total Cost) / Total Revenue) *
Profit Margin represents profit after deducting all
100
costs.
The average number of days it takes for a
Days Sales (Accounts Receivable / Total Credit Sales) *
company to collect payment from
Outstanding Number of Days in the Period
customers after a sale.

(Total Fixed Costs in Period 2 - Total Fixed

Incremental Fixed The additional fixed cost incurred for
Costs in Period 1) / Number of Additional
Cost per Order processing one additional order.
Orders in Period 2

(Total Variable Costs in Period 2 - Total

Incremental Variable The additional variable cost incurred for
Variable Costs in Period 1) / Number of
Cost per Unit producing one additional unit.
Additional Units in Period 2

The average price at which products are

Average Sale Price Total Sales Revenue / Total Number of Sales
sold to customers.

The average quantity of products sold Total Number of Units Sold / Total Number of
Average Order Size
per order. Orders

The difference between the highest and

Range of Sale Price lowest sale price for a specific product or Highest Sale Price - Lowest Sale Price
category of products.

Range of Periodic The difference between the highest and Highest Sales Revenue in Period - Lowest Sales
Sales lowest sales revenue in a specific period. Revenue in Period
S upply Chain P erformance Drivers
2- Logistics Drivers (3 elements)
1 Facilities
Explore how Places where
inventory is stored, assembled, or
fabricated – Production sites and
storage sites plays important role in
supply chain efficiency and
effectiveness
2 Inventory
See how companies are
adopting Raw materials, WIP,
finished goods within a supply
chain – Inventory policies.
3 Transportation
Discover how Moving inventory
from point to point in a supply chain –
using Combinations of transportation
modes and routes enabling
businesses to create more
personalized and seamless
shopping experiences.
 1- Logistics Drivers (3 elements)
Logistics Drivers Facilities & location
The “where” of the supply
chain
Manufacturing or storage
Role in the supply (warehouses)
chain
Economies of scale (low cost
means efficiency priority)
Role in the
competitive Larger number of smaller
strategy
facilities (responsiveness
priority)
Inventory Transportation
§ Mismatch between supply and demand
• Moves the product between stages
in the supply chain
Satisfy demand • Impact on responsiveness and
efficiency
§ Exploit economies of scale
• Faster transportation allows greater
responsiveness but lower efficiency
§ Impacts assets, costs, responsiveness,
material flow time • Also affects inventory and facilities
• Allows a firm to adjust the location of
Form, location, and quantity of inventory
its facilities and inventory to find the
allow a supply chain to range from being
right balance between responsiveness
very low cost to very responsive
and efficiency
Objective is to have right form, location,
and quantity of inventory that provides
the right level of responsiveness at the
lowest possible cost means Balance
between the Cost and Customer
Satisfaction
 1- Logistics Drivers (3 elements) continue..s
Logistics Drivers Facilities
Role (storage-production)
Components of Decisions ( brief
Location
details)
Capacity
Capacity
Utilization
Processing/setup/down/idle time
Production cost per unit
KPI- related metrics for
Performance evaluation (no Quality losses
detail) Theoretical flow/cycle time
production
Actual average flow/cycle time
Overall Trade-offs ( mark Cost and Level of Efficiency
favorable- unfavorable) Cost and Level of Responsiveness
Inventory
Cycle inventory
Safety inventory
Seasional inventory
Cash-to-cash cycle time
Average inventory
Inventory turns
Products with more than a specified
number of days of inventory
Average replenishment batch size
of Average safety inventory
Seasonal inventory
Fill rate
Fraction of time out of stock
Obsolete inventory
Cost and Level of Efficiency
Cost and Level of Responsiveness
Transportation
Design of transportation network:
Choice of transportation mode
Average inbound transportation cost
Average income shipment size
Average inbound transportation cost
per shipment
Average outbound transportation cost
Average outbound shipment size
Average outbound transportation cost
per shipment
Fraction transported by mode
Cost and Level of Efficiency
Cost and Level of Responsiveness
Metrics for Measuring S upply Chain E fficiency

Inventory Turnover Rate Distribution Yield Transportation Cost per Unit Perfect Order Measurement

A measure of how many times a company
sells and replaces its inventory per year.
A high turnover rate indicates efficient
use of inventory.
A measure of how much a company is
able to ship or deliver on time and in full.
A high yield indicates strong distribution
performance.
A measure of the cost of transportation
per unit of product or material. A low cost
per unit indicates efficient use of
transportation resources.
A measure of the percentage of orders
that are delivered to the customer without
any defects, incorrect products, or delays.
A high perfect order rate indicates strong
supply chain management.
Framework for Structuring Drivers
Formulating a supply chain strategy

Determine how to meet demand and achieve

organizational goals by evaluating trade-offs among
responsiveness, efficiency, and cost.

1 2 3

Analyzing customer demand Creating a supply chain infrastructure

Understand what customers want in terms of order lead Develop the organizational structure, policies,
time, product customization, and order size variability. procedures, and technology to support the strategy and
improve supply chain performance.
Seven-Eleven Japan Co. Case Study

In Japan, convenience stores are transforming supply chain management by using technology to connect with suppliers and custo mers in real time, control inventory levels,
and optimize transportation and logistics.

Seven-Eleven Japan Co. Ltd. is one of the most successful and innovative companies in this space, with over 20,000 stores and a market share of over 50%.

Inventory Management Transportation Network Mobile App

Seven-Eleven Japan uses a barcode-based inventory Seven-Eleven Japan has a unique transportation Seven-Eleven Japan has its own mobile app that
management system to track sales, manage stock, network that delivers product to stores twice a day. allows customers to order products, make payments,
and predict demand. This allows for quick restocking and reduced and get coupons. This helps them to better
inventory costs. understand customer demand and preferences.
Supply Chain

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Thank You

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