Supply Chain Management For Dummies. Daniel Stanton

the Bullwhip Effect might seem odd to a functional manager. In fact, they might even interfere with the objectives of your functional teams. Smaller batches, for example, are likely to increase costs for both purchasing and logistics. This is why understanding the challenges that occur every day in a holistic way is so important. Your team needs to recognize that the ways in which supply chains interact aren’t always obvious.

      

Supply chains are systems in which the people, processes, and technologies interact in complex ways. Managing a supply chain as a system may require taking a different approach to measuring success than what functional teams normally use.

      In some cases, it helps to build a model of your supply chain to show how the parts of the system interact. These models can show cause-and-effect relationships — how one thing affects another, which causes something to happen, which causes something else to happen, and so on. In other words, these models can show causal relationships. Very often, systems models reveal reinforcing loops, in which a series of events repeats over and over, getting stronger each time. Or they can show balancing loops, in which a series of events gets weaker over time.

      

Small events that occur in complex systems often have surprising effects, including the Law of Unintended Consequences, The Butterfly Effect, and The Cobra Effect. Understanding how systems behave can help you protect your supply chain from these outcomes.

Figure 2-4 shows a causal loop diagram, which is one of the most common tools for modeling the dynamics of a system. In this example, you see how two important supply chain dynamics affect the market share for a company. As the number of customers increases, the market share grows higher. But as the market share goes up, the number of prospective customers gets smaller because the prospects have now become customers. As the number of prospects gets smaller, the increase in market share slows and eventually stops. (For more information about supply chain modeling and simulation, see Chapter 18.)

      FIGURE 2-4: Example of a causal loop diagram.

A few universities require their supply chain management students to take classes in system dynamics, which includes a set of tools for predicting how supply chains behave over time. The concept of system dynamics was developed in the 1950s by MIT professor Jay Forrester.

      

System dynamics modeling usually requires special software. You’ll find reviews of several options at www.systemdynamics.org/core-software, but if you’re looking for a simple tool that lets you build your own system dynamics model for free, check out Insight Maker at https://insightmaker.com.

Measuring Supply Chain Processes

      Supply chains can be viewed in terms of flows, functions, communities, or systems. But no matter how you look at it, effective supply chain management requires being able to measure what’s happening. Virtually every process in a supply chain can be measured with quantitative or qualitative metrics.

Quantitative metrics are objective, numerical indicators. Qualitative metrics describe intangible characteristics. Quantitative metrics might include things like current inventory levels or the amount of money spent on transportation. Qualitative metrics could describe the level of employee engagement or customer satisfaction. Table 2-1 lists some common types of qualitative and quantitative metrics.

TABLE 2-1 Quantitative versus Qualitative Metrics

Quantitative	Qualitative
Times	Degree of satisfaction
Rates	Likelihood of doing something
Values	Perceptions
Amounts	Desire or need
Frequencies	Level of agreement

Collecting measurements costs money and takes time, so it’s important to decide which metrics you really need. The key is to identify the steps in each supply chain process that will be most useful for understanding how things are working and what decisions you need to make. The metrics that give you this insight are called key performance indicators (KPIs). The KPIs in one business or facility can be very different from the KPIs in another, depending on which processes are most important to each organization. (For more information about metrics, see Chapter 16.)

      A good way to look for improvement opportunities in any process is to compare your own performance with that of someone else. You can compare the KPIs from one facility with the KPIs at another or from one company to another, for example. Comparing KPIs in this manner is an example of benchmarking. Companies can benchmark their supply chain KPIs by using the Supply Chain Operations Reference (SCOR) Model, which is covered in Chapter 5. Benchmarking has become so popular that many companies have built their entire businesses on collecting, evaluating, and reporting on supply chain KPIs.

      

Companies (even competitors!) share benchmarking data all the time. But sharing business information can lead to problems if it violates laws such as the Clayton Antitrust Act. Before you start benchmarking with other companies, it’s a good idea to talk to a corporate attorney.

      There are lots of ways to look at a supply chain. To manage a supply chain well, you need to understand each of these perspectives and use them to select the KPIs that give you visibility into how your supply chain is performing. Benchmarking those KPIs against other facilities and other companies can reveal areas in which you’re doing well and opportunities for improvement.

Chapter 3

      Digging into Your Supply Chain

      IN THIS CHAPTER

      

Establishing your supply chain priorities

      

Balancing cost and value

      

Compromising to improve results

      Before you can manage something, you have to understand how it works and what you want it to do. A supply chain is no exception. Many kinds of supply chains exist, and each of them needs to deliver a different