Institute of Food, Nutrition and Human Health PERFORMANCE ANALYSIS IN THE SUPPLY CHAIN: CASE STUDY OF GRAIN SUPPLY Dr. Lidia Norina Lecturer, Agribusiness Dr. William C. Bailey Professor of Agribusiness Palmerston North, New Zealand Background • No single school for supply chain performance measurement systems • Unique structure of the agri-food chain and the requirements of the chain’s performance • Customer-supplier relationships are often based on contractual agreements Background The supply chain has been described as a series of material, informational and financial flows between chain participants. Performances of these three flows are interdependent. Research Objectives • To develop a methodology to assess supply chain performance. • The methodology should evaluate the interdependent performance of three supply chain flows: material, financial, and informational. • The methodology should be applicable to the strategic planning and control process of each chain participant, as well as the total supply network. • To apply the methodology to a grain supply case. Normalisation Each flow has different content normalisation is required. Normalised performance values are calculated as : f(quality, delivery) where delivery is defined through time and volume utilities. Material Flow Quality Measurement (Quality Characteristics: Expected vs Actual Values) Expected values for quality characteristic EVi (i = 1…n) are compared with Actual values (available after inspection) AVi (i = 1…n) where n = number of inspected quality characteristics Material Flow Quality Measurement (Quality Characteristics: Normalised Acceptance Values) Normalised Acceptance Values NAVi , (i = 1…n) are defined through the deviation of the actual values AVi from the expected values EVi, so that: NAVi = 1, expected acceptance; 0< NAVi <1 acceptance with discounts; 1<NAVi <=2, acceptance with premiums; NAVi =0, not accepted. Material Flow Quality Measurement (The Total Normalised Quality Acceptance Value) Weights are assigned to each quality characteristic. CW i 1 n i 1 The total Normalised Quality Acceptance Value (p1) is calculated as the weighted average of normalised acceptance value of the quality characteristics: i 1 n CWi * NAVi 0 when all quality characteristics are accepted, and if at least one quality characteristic is not accepted The Total Normalised Acceptance Value of Delivery (p2) Delivery is defined in terms of the volume ordered by the customer and its delivery time. • Expected volume and delivery time are specified in the contract. • Actual delivered volume and actual time of delivery are compared with expected delivery time and volume. Normalised Material Flow Performance Function Normalised Material Flow Performance Function f is defined as: average (p1, p2) if p1* p2> 0 (product is accepted) fm = 0 if p1* p2= 0 (product is not accepted) Normalised Performance Measurement for Financial Flow ff i 1 j APi (1 r ) ( ETi Ti ) AP i 1 j i where j – number of customer payments I =1…j ETi - expected payment time Ti - actual payment time APi - amount of payment, and r - discounting factor Information Flow Performance Measurement (Three Dimensions [Categories] of Information Quality Characteristics) Dimension [Category] Definition Information content: characteristics that are required to initiate related activities. Quality characteristics that lead to the expected level of customer satisfaction when present and low levels of satisfaction when not present. Essential (or must have) quality Convenient quality Attractive quality Quality characteristics that go beyond customers’ expectations. Normalised Performance Measurement for Information Flow (Evaluation of the Actual Delivery Time for Information Flow) Balanced Performance Balanced Performance is defined as the sum of all incoming normalised performance measures minus all out-going normalised performance measures for each party. Balanced Performance (Example 1) 1.0087 Agent The balanced performance – 0.0268 0.9819 Company The balanced performance –0.3798 0.8050 1.2116 Consignee The balanced performance 0.4066 Material flow Financial flow Case Evaluation Case Evaluation (Continued) 1.3 1.25 1.2 1.15 1.1 1.05 1 0.95 0.9 0.85 0.8 M1 M2 F1 F2 M1 – normalised performance value for material flow between the Agent and the Company; M2 – normalised performance value for material flow between the Company and the Consignee; F1 – normalised performance value for financial flow between the Consignee and the Company; F2 – normalised performance value for financial flow between the Company and the Agent. 2001 2002 2003 2004 Supply Chain Wave Effect Supply Chain Wave Effect occurs when the performance of one supply chain member affects the balance of performance for one or more chain members. • Why is it important to analyse the wave effect? • How to identify the party that initiates the wave effect? • Is the wave effect diminished or reinforced along the chain? Conclusions Suggested performance measurement methodology may be used to: • Analyse supply chain performance (material and financial flows); • Quantify balanced performance; • Detect and analyse supply chain wave effect. Further Research • Information flow normalised performance measurement (quality categories); • Applications to operational, tactical and strategic planning; • Applications for benchmarking.