Methods Used To Evaluate Supply Chain Performance - Essay Example

?Methods Used To Evaluate Supply Chain Performance Table of contents Methods Used To Evaluate Supply Chain Performance 1.0 Introduction 4 1.2Problem statement 4 1.3 Purpose 5 1.4 Criteria for model evaluation 5 2.0 Research method 6 2.1 methodological perspectives 6 2.2 Research approaches 6 2.4 data collection methods 6 3.0 Theoretical frameworks 7 3.1 supply chain and investment choices 7 3.2 Differences between a value chain and a supply chain 7 3.3 The Cost-Volume-Profit examination 7 3.4 Static methods 8 3.5 Dynamic methods 8 3.6 DuPont model 8 3.6.1 Performance metrics 8 The performance metrics are a method of evaluating the performance of the supply chain. It should be noted this performance evaluation mode usually analyses: 8 The metric order planning has numerous methods for analysing and evaluating the performance of the supply chain. 9 Method 9 Strength 9 Weakness 9 Metrics for order planning 9 Involves the customers in the analysis 9 Time consuming 9 Evaluation of the supply link 9 It involves suppliers, strategic and tactical level measurements, as well as the business operation level; thus, it provides comprehensive evaluation 9 Time consuming since different stakeholders are involved 9 Evaluating the delivery links or the cost volume profit evaluation 9 The process directly impacts the customers; thus, it aims at profiting the business 9 May have prejudice since the supplier of products and raw materials are not involved in the process 9 DuPont model 9 It is vital since it often detects a supply chain problem without moving to the suppliers or interrogating customers 9 The model only requires manager with experience using the same. 9 3.7 Choice of a method 9 5.0 Development of supply chain model 10 Figure1: Summary of the study……………………………………………………..……… 5 Figure 2: Research approach and strategy…………………………………………..……… 5 Figure 3: Fixed costs………………………………….…………………………………….. 6 Figure 4: General Of supply chain model…………………………………………………..10 1.0 Introduction 1.1 Background Information The supply chain management is usually considered the main component of the competitive strategy that aims at enhancing organizational profitability and productivity. Therefore, most business organizations that often deal with different supply chains often deploy different strategies and technologies in managing their supply chain (Mamizadeh-Chatghayeh and Sanei, 2012; pg. 166). The measurement of performance of the supply chain is quite vital especially in setting objectives and evaluating the performance of such supply chains as well as determining the necessary future course of action. Companies should consider themselves in the chain supply not as the producer or just as the suppliers of the products thereby reducing the products and or service cycle time. Additionally, a significant supply chain allows competitors to cooperate in order to achieve smooth movement in the supply chain. Companies are engaged in planning and coordinating the process of product flow from the foundation to the end user as a combined system rather than independent processes (Keebler 33). This has made the evaluation of the chain of supply mandatory to ensure that the more profitable supply chain is applied in the course of the business. Therefore, businesses must use the different methods of evaluating the performance of the supply chain to ensure that they remain abreast in the competition by employing the most effective supply chain in the business. 1.2Problem statement Businesses are often involved in different supply chains including those that supply raw materials and the finished products. Therefore, without a proper functional supply chain, business that involves at the same may waste time and resources in such supply chains resulting to low productivity and profitability of such businesses. Hence, it is vital that product manufacturers evaluate the performance of their supply chain using evaluation models that shall ensure that the recommended or adopted supply as the most effective one will elevate the productivity and profitability of such company. 1.3 Purpose The purpose of this study is to evaluate different models available for evaluating the performance of the supply chain. Different methods of the evaluating the performance supply chain are known to exist; however, it's appropriate to understand their effectiveness that this the purpose of this research work. 1.4 Criteria for model evaluation This research work or essay is purely pegged on the internet research and library research. Figure1: Summary of the study 2.0 Research method 2.1 methodological perspectives For this study, Interpretivism seems to be the main philosophy concern because the part of the evaluation is compounded within reusable models that seek to answer a continual process in a business set up. 2.2 Research approaches The research work that aims at evaluating the performance of any supply chain should follow deductive and inductive method. The deductive method proposes to usually examine the study of theory; thus, spelling out the need of the evaluation of the performance of the supply chain. It is followed by the establishment and testing of hypothesis and examining the empirical concerns of the analysis. The inductive method is more flexible since it allows more variables and features to be incorporated in the study and analysis. 2.4 data collection methods The primary method of data collection is to avoid biased information that might affect the decision making after or during supply chain performance evaluation. Figure 2: the Research approach and strategy that may be used to collect data for evaluating the performance of a supply chain. 3.0 Theoretical frameworks 3.1 supply chain and investment choices Every company has made the decision that it uses a model that makes the most profit during the supply chain. Any investment choices made by any company should take into consideration the best supply chains to maximize the profits of the company. Methods such as the internal rate of return and Net Present Value have been employed during making of such decisions. 3.2 Differences between a value chain and a supply chain Supply chains can be defined as the total flow of goods, finances, and information from the source of raw material to the end user or the customers. While a value chain includes all supply chain activities it also includes value-creating processes including marketing and customer services. 3.3 The Cost-Volume-Profit examination This evaluation helps the company find out which level of manufacture and sales of a certain good a risk makes a profit. This evaluation can also help a company to know which option of the supply chain brings in less loss at a certain production level. The figure below shows Figure 3: Fixed costs 3.4 Static methods The static tools are usually used by the managers. They include average rate of return and the payback. The average rate of return studies average benefits annually for a project as the major factor in evaluating international supply chains. This process involves the analysis of the paybacks in cases business fall-backs (Leeuwen, 2000; pg. 45). This method is time consuming since the recovery period is required to recover the initial price negotiated with the business. ARR= average annual income flows/ Initial cost of investment 3.5 Dynamic methods These methods consider time value of cash. These techniques include Net present value (NPV) and yield rate. Net present value checks if the product or a business has appreciated NPV= PV-C C= initial cost PV= present cost value 3.6 DuPont model This technique evaluates complex financial state of an enterprise through ratios of a pyramid. Moreover, this method often deals with Return on the Investment ratio (ROI) which is a part of DuPont model. ROI= Income/Investment 3.6.1 Performance metrics The performance metrics are a method of evaluating the performance of the supply chain. It should be noted this performance evaluation mode usually analyses: Supply chain flexibility Supply chain reliability Supply chain costs Supply chain responsiveness Supply chain asset management The metric order planning has numerous methods for analysing and evaluating the performance of the supply chain. Method Strength Weakness Metrics for order planning Involves the customers in the analysis Time consuming Involvement of the customer path may not add value to the business Evaluation of the supply link It involves suppliers, strategic and tactical level measurements, as well as the business operation level; thus, it provides comprehensive evaluation Time consuming since different stakeholders are involved It is expensive since its elaborate Evaluating the delivery links or the cost volume profit evaluation The process directly impacts the customers; thus, it aims at profiting the business It helps in solving the customers problems in line with supply chain problems May have prejudice since the supplier of products and raw materials are not involved in the process It is less comprehensive DuPont model It is vital since it often detects a supply chain problem without moving to the suppliers or interrogating customers It's time conscious and less expensive The model only requires manager with experience using the same. 3.7 Choice of a method It is essential that the management settle of the vital method in evaluating the performance of the supply chain. It is worth noting the each method of analysis has a different matrix; therefore, different information that can be used to evaluate the performance of the chain supply can only be obtained depending on the method used (Huish, 2000; pg. 37). Additionally, some methods are expensive and time consuming; hence, their application and use can result to more management, production, and profitability problems. The method described can give same or different results; however, it is significant that the business and its management decide on the major factors to consider in their performance analysis. 5.0 Development of supply chain model Effective evaluations of the supply chain often help the management to adopt the effective method or mode of chain supply while emanating other ineffective methods or systems of supply chains. Therefore, the evaluation of the performance of the supply chain often assists the management in decision making by analysing the cost benefit analysis per supply chain. The figure below fully explains the process of coming up with a model (Coyle, at al., 1996; Pg. 68) 6.0 conclusions Supply chain management is essential for all businesses that are involved in chain supply of the products and raw materials. Moreover, the analysis and evaluation of the performance of the supply chain upon which a business has ventured is equally vital. However, such evaluations must be proactive and must involve all the stakeholders; otherwise, shallow analysis may lead to the collapse of a business due to omissions or prejudice. Additionally, the one of the aims of evaluation must be to improve the performance of the chain supply and move the illusive supply chain optimization goals and satisfying the demands of all stakeholders that are influenced by the supply chain including customers, supplier, and other business partners. Some of the vital supply chain performance evaluation techniques include the NPV, cost volume profit analysis, DuPont model, the pay back, supply chain reference model and IRR with each aiming different aspect of the business. Therefore, the supply chain management embark on evaluation of the performances of the supply chain, it is vital that the parameters of such analysis are well stipulated and defined. Otherwise, such evaluation may remain irrelevant to the business and the targeted stakeholders within the supply chain. List of References COYLE, J. J., BARDI, E. J. & LANGLEY, C. J. Jr. (1996). The Management of Business Logistics, 6 Ed, West Publishing Company. New York HUISH, P. (2000). The web is radically changing access to plant information. Material Handling and Distribution, March/April 2000, Sydney, Australia. LEEUWEN, H. V. (2000). The big four vie to become business-to-business links. The Financial Review, Wednesday 8 March. MAMIZADEH-CHATGHAYEH S. & SANEI, M. (2011). Supply Chain Performance Evaluation with Rough Data Envelopment Analysis Case Study: Food Industry (Ramak Co).. International Conference on Business and Economics Research vol.1 Retrieved May 9, 2013 from http://www.ipedr.com/vol1/13-B00020.pdf MAMIZADEH-CHATGHAYEH S. & SANEI, M. (2012). Application of non-Radial Models in Evaluation of Performance of Supply Chain. 2(1), 161-170. Retrieved May 9, 2013 from http://ijes.info/2/1/42542112.pdf Read More