Strategic Supply Chain Management - Supply Chain Online

56 Strategic Supply Chain Management
Because the company didn’t have an end-to-end view of the supply
chain, however, these “good” practices actually were hurting its delivery
performance. The company’s order-management system assumed that product
was shipped shortly after production and confirmed customer delivery
dates based on the end-production date plus a fixed transportation lead time.
As a result, customer orders were being confirmed with delivery dates that
couldn’t be met. Without a focus on end-to-end supply chain processes,
overall results suffered: Despite having more than 80 days of finished-goods
inventory, on-time delivery performance to customer commit date was only
75 percent, compared with 85 percent for the industry leader.
To fix the problem, the company put in place new supply chain
processes with a focus on overall business performance. One of the first
steps was to define company-level cross-functional objectives—what we
call end-to-end targets. To set the targets, the project team created a supply
chain scorecard (which we discuss in more detail in Chapter 5). The
critical need to improve customer service and working capital led to targets
based on four metrics:
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On-time delivery (to commit date). The percentage of orders fulfilled
on or before the internal commit date. Delivery measurements
are based on the date a complete order is shipped.
Order fulfillment lead time. Average, consistently achieved lead
time (in calendar days) from customer order origination to customer
order receipt.
Cash-to-cash cycle time. The time it takes for cash to flow back
into the company after it has been spent on external purchases.
Cash-to-cash cycle time is calculated as total inventory days of
supply plus days of sales outstanding minus average payment
period for materials.
Total supply chain management cost. Total cost to manage
orders, acquire materials, manage and hold inventory, and manage
supply chain finance, planning, and information technology
costs, represented as a percent of revenue.
Targets for each of these metrics were based on industry benchmarks,
and goals for each function were then aligned to these businesslevel
objectives (see Figure 2-3).
Within each region, finished-goods inventory was held at both the
regional distribution center and the country warehouses. Each country
managed its own supply chain operations. This practice led to different
work practices and dedicated inventory in each country. As a result, there