Overview of Supply

Chain Analytics

Hasbullah Ashari
Management & Humanities Dept.,
UTP
 Big supply chain analytics uses data and
quantitative methods to improve decision making
for all activities across the supply chain. It does two
new things:
First, it expands the dataset for analysis beyond the
traditional internal data held on Enterprise Resource
Defining Planning (ERP) and supply chain management
Supply Chain (SCM) systems.
Second, it applies powerful statistical methods to
Analytics both new and existing data sources. This creates
new insights that help improve supply chain
decision-making, all the way from the improvement
of front-line operations, to strategic choices, such as
the selection of the right supply chain operating
model.
([Link] [Link])
 The complex supply chain environment presents several
critical challenges for a business, including
• Lack of synchronization between business strategy and
execution
• Lack of real-time visibility across supply chain operations

Supply Chain • Inability to properly schedule production, leading to costly

asset underutilization
Management • Poor forecast accuracy, resulting in frequent stock-outs or
excess inventory and safety stock levels
Challenges • Lack of flexibility in the manufacturing, distribution, and
logistics footprints
• Inability to properly assess and prepare for supply chain
risks
Applying intelligent analytics is the key to addressing all
these challenges
Pandemic and It’s Effects on SC
Three
Componen
ts of SC
Analytics
Types of SC Analytics
Three Core Components of
Supply Chain Analytics
• Data Analytics
The process of examining datasets using specialized systems and software to draw conclusions about the
information. Within the supply chain, this requires collating and analyzing data from a series of complementary
systems.

• Data Visualization
The process of helping people understand the significance of data by placing it in a visual context. Patterns,
trends and correlations that might go undetected in text-based data can be exposed and recognized more easily
with data visualization

• Technology Platform
The underlying infrastructure — often including an analytics engine — that allows for the
capture, storage, retrieval, aggregation, analysis, and reporting of all transactions taking place within the supply
chain and with trading partners.
SC Technology Platform

• A digital supply chain platform

brings together all of your data
and processes to provide a
centralized, real-time view of
your supply chain. It helps you
to collect, track, process, and
act on information from across
all of your supply chain
partners
Example- Supply Chain Control Tower
Example- Bosch Supply Chain Twin
 Types of Analytics

» Descriptive analytics
• looks at data and analyzes past events for insight as to how to approach the future. It is looking for
the reasons behind past failure and success. What happened, where, and why?
» Predictive analytics
• Uses historical and transactional data to determine the probable future outcome of an event or a
likelihood of a situation occurring. It exploits patterns found in the data to identify future risks and
opportunities. What will happen and what should be done next?
» Prescriptive analytics
• Automatically synthesizes big data, business rules, and machine learning to make predictions. It
goes beyond predicting future outcomes by also suggesting actions to benefit from the predictions
and showing the decision maker the implications of each decision option. What are my best
outcomes and what do I need to do to make them happen?
Course: Supply Chain Analytics
Chapter 3: Understanding the Basics
of Metrics and KPIs
Course Instructor : Dr Hasbullah Ashari
Universiti Teknologi Petronas
Understanding the Basics of Metrics and KPIs

Supply chain analytics serves two main purposes

1) First, it allows a business to identify, diagnose, and correct inefficiencies
and waste in its supply chain.

2) Second, it enables a -business to use supply chain data to identify,

prioritize, and address business opportunities. Ensuring that you’re
measuring and reporting on the correct metrics is key to improving
business performance.
 There are two ways to increase profitability
Strategic • Make more sales to increase absolute revenue
Goals- • Reduce costs to increase profit margin
• Revenue analytics are designed to evaluate both
Increase factors.
Profitability • To help grow the business, analytics can identify
opportunities for supply chain initiatives
• Detecting supply chain inefficiencies causing
missed sales due to out of stock (OOS) is a key
benefit of analytics.
 • For most businesses, the more accurate the
forecasts — whether financial reporting, demand
planning, or inventory management — the more
Strategic effectively the business serves its customers and
shareholders
Goals- • Many factors affect forecast accuracy, such as
Forecast supply chain cost controls, order fulfillment, and
inventory optimization efforts
Accuracy • A number of small improvements can
significantly improve forecasting accuracy
• Modern forecast analytics use existing data to
predict the volatility of a particular product line
or stock item
• The best results come from a large data pool with
a number of data sources that cover at least a 12-
to 18-month timeframe.
 • Working capital is money that’s ready to spend, not tied up
Strategic in inventory, real estate, or other assets
• Working capital analytics places the focus on end-to-end
Goals- supply chain inventory.

Working • For example, analytics might determine that a company has

an inventory in excess of 15 percent, which could be
Capital liquidated (or just not replenished) to improve cash flow.
• Inventory analytics enables setting efficient inventory
Improvement levels, determining how much stock is currently in the
supply chain, identifying slow-moving or obsolete stock,
and deciding where stock should best reside for optimal
logistics
• To improve cashflow further, companies should be
considering shortening daily sales outstanding (DSO) and
reviewing payment terms with suppliers, so monies owed
are collected much sooner
 • The most common approach to improving
your operating margin — the difference
between your revenue and your costs — is
through savings
• Within the supply chain, that means
Strategic Goals- knowing key areas where cost occurs
• If a company looking to reduce its
Operating Margin operating costs and improve supply chain
efficiencies will look for where
Improvement unnecessary expense is happening
• This could be where orders are incorrect
and need to be redelivered or where
customers are rejecting invoices or
delaying payments
• Additionally, the goal is to minimize the
cost of capital and right-size the inventory
levels to balance between OOS and
inventory holding costs
 • Businesses ensure their continued survival
by responsibly managing risks and that
extends to the supply chain.
• Along with looking at KPIs, businesses
today also frequently talk about key risk
indicators (KRIs), which are risks they
Strategic Goals- track and manage

Risk Management • Analytics can identify operational,

financial, and compliance risks within a
business’s own supply chain operations as
well as those of its trading partners.
• Supply chain analytics is most effective
when it starts by addressing a real business
objective
 Top down versus bottom up
• When planning supply chain analytics, starting at the top
with corporate goals ensures that the analytics are aligned
with the business’s overall needs.

Two
Strategic
Considerations
 Positive versus negative variance

• Supply chain analytics is frequently about managing the variance of a particular metric.
• A simple rule is that lower variance —the difference between the predicted and actual value
of the metric — indicates a well-managed enterprise based on the accuracy of their
forecasting.
• When a company optimizes a process to meet its business objectives, some metrics will be
negative and some positive.
• Part of analytics is ensuring that you find the most effective balance between them.
• The key is to understand the overall impact of both positive and negative variances and
define the acceptable range of variance to optimize business operations
 Maturity Models, Reference Models, and
Benchmarking
Maturity models
• When planning a supply chain analytics strategy, a good place to start is to determine the
maturity level of current activities.
• Luckily, a number of services are available to help
• Many organizations, have developed Analytics Maturity Models.
• These models help an organization understand the phases of maturity in analytics, interpret
assessment scores, and provide best practices to move forward.
• Its customized strategies and actionable recommendations can help quickly advance a
company’s analytics initiatives to gain more value.
• Don’t use maturity modeling as a one-off exercise. Keep coming back to it and assess how
you’re improving.
 Reference models
• A reference model provides a set of management
tools and best practice approaches for a specific
business activity
Maturity Models, • Within the supply chain, the reference model
Reference most often applied is the Supply Chain Operations
Models, and Reference (SCOR) model.
Benchmarking • SCOR helps address, improve, and communicate
supply chain management decisions within a
company and its trading partner community.
• Breaking down the supply chain by using the SCOR
model allows an organization to apply metrics to
business activities at each of five stages: plan,
source, make, deliver, return.
 Benchmarking

Maturity Models,
Reference Models, Benchmarking enables an organization to compare
and Benchmarking its analytics performance with aggregated data
from other companies within a specific industry
sector, including the sector’s best performers

This provides valuable context, helping to set

meaningful targets, gain insight into trends
occurring across the industry, and find out how a
company is doing compared to its competition
 • Reference models like SCOR can help apply analytics to the

Applying Goals to the

different parts of a supply chain process
• It enables decision makers to focus on the supply chain activities
to be measured and improved to achieve corporate goals.
• By identifying a series of related activities at each stage of the
process, a company can drill down to work out the KPIs.
Defining and measuring these KPIs will help create a useful
overall picture of the
Supply Chain
• changes needed in order to improve and grow.
 • After identifying the supply chain activities, wish
to improve, the next step is to create a series of
KPIs to ensure that performance targets are being
achieved
• Here is a short list of the types of KPIs commonly
used within supply chain organizations.
» Average customer order delivery time (in days)
What to Measure » Average service delay (in days)
» Share of perfect orders delivered/received
» Cash-to-cash cycle time (in days)
» Days of sales outstanding (DSO) (in days)
» Invoice processing time
» Price per unit trend over time
» Order volumes and associated change orders
 Business Metrics

Business metrics measures an activity that delivers value to the business. Examples
include
1) ASN timeliness
The number of timely ASN creation instances as a percentage of total ASNs for
a time period
2) Delivery timeliness
The number of “on-time” deliveries as a percentage of total number of
deliveries for a time period
3) Invoice accuracy
Measures whether invoices accurately reflect orders placed in terms of product,
quantities, and price by supplier, during a specified period of time
 Business Metrics

• Price variance:
The actual invoiced cost of a purchased item, compared to the price at the time of
order. A price variance exists if the price on the purchase order (PO) doesn’t match
with the invoiced price.
• Order acceptance rate:
Fully acknowledged POs as a percentage of total number of POs within a given period of
time
• Quantity variance:
The difference between the quantity delivered and the quantity invoiced for goods
received for a purchase order. A quantity variance exists if the quantity entered into
the invoice doesn’t match this open quantity.
 Business Metrics

• Top partners by spend

The top trading partners by the economic spend over a period of time
• Top products by invoiced amount:
• The top products by invoiced amount over a period of time
Operational Metrics

Operational metrics look at how well supply chain is performing every day.
Examples include
• Transaction volume by document type:
• The number and type of documents sent and received over a period of time
(days, months, years)
• Transaction volume by trading partner
 The number and type of documents sent and received, ordered by the top
ten and bottom ten partners
 Custom Metrics

These are developed specifically to address a business need that may be unique to
business. Examples include
• Average invoice $ value by customer/supplier:
• Used to consider the cost of processing a deal in comparison to its dollar value. If a
partner is sending frequent invoices for $10 and processing cost is $25, this would be
an opportunity to improve the process.
• Total spend with strategic customers/suppliers:
The amount of spend associated with a trading partner based on invoices; may be
compared to POs to understand where lost sales opportunities.
Looking at
Reports
There are different levels of report
types that straddle these categories.
 Explanation of the reports at each level

• Level 1: Standard reports.

What happened? When did it happen? Think of a quarterly financial report. Standard reports
tell you where you are but aren’t very useful as a basis for long-range planning
• Level 2: Ad hoc reports.
How many? How often? Where? Ad hoc reports answer very pointed questions about limited
datasets. They are useful for gathering the quick facts needed to make limited-scope
decisions
• Level 3: Drilldown.
Where exactly is the problem? How do I find the answers? Drilldown enables you to look
behind a summary value to see the data underneath it. E.g whereas a standard report might
provide the overall sales for a particular month, a drilldown might show a list of individual
sales transactions included in that total.
 Explanation of the reports at each level
• Level 4: Alerts.
When should I react? What actions are needed now? An alert is a pre-set query — driven by
business rules — that lets you know when something happens — good or bad. For example,
you might set an alert to let you know when the inventory for a particular part number falls
below a certain level.
• Level 5: Statistical analysis.
Why is this happening? What opportunities am I missing? This is a deep dive into a
particular dataset to enable frequency, trend, or regression analysis to see why things are
happening.
• Level 6: Forecasting.
What if these trends continue? How much will be needed, and when? Forecasting is one of the
hottest markets — and hottest analytical applications — right now. Effective forecasting can
help supply just enough inventory, so you don’t run out or have too much.
 Explanation of the reports at each level

• Level 7: Predictive modeling

What will happen next? How will it affect my business? Predictive modeling suggests the likely
outcomes for a certain set of actions under a specific set of circumstances.
• Level 8: Optimization
How do we do things better? What is the best decision for a complex problem? Optimization is a
type of prescriptive analytics that takes resources and needs into consideration and helps find the
best possible way to accomplish goals
 • Levels 1 through 4 are concerned mainly with
descriptive analytics
Explanation of • while the mid-section, levels 5 through 7, are
predictive
the reports at • At the top end — levels 7 and 8 — are prescriptive
each level reports.

• Never underestimate the value of data visualization to

help the story of how analytics resonates with your
audience.