Supply Chain Management - Performance measures

Dr.T.V.Subramanian

Shareholder Value Focus

Measures Perfect Order Dwell Time Inventory Days Total Landed Cost Activity Based Cost Increased Customer Service Lowest Landed Total Cost

OPERATIONAL EXCELLENCE ASSET UTILIZATION

Fixed Capital Reduction Working Capital Reduction Measures Cash-to-Cash cycle time Segment profitability Return on assets Free cash spin

Traditional Functional Measures

 Categories


   

Asset Management capital investments and inventory investments Cost total dollars spent on each function Customer Service product availability, reliability, time performance Quality work performed correctly, damage Productivity output/input

Customer Service Fill rate Stockouts

Cost Management Total cost Cost per unit

Quality Damage frequency Order entry accuracy Picking/ shipping accuracy Document/ invoicing accuracy Information availability Information accuracy Number of credit claims Number of customer returns

Productivity Units shipped per employee Units per labor dollar Orders per sales representative Comparison to historical standard Goal programs Productivity index Equipment downtime Order entry productivity

Asset Management Inventory turns Inventory levels, number of days supply Obsolete inventory

Shipping errors On-time delivery Backorders Cycle time

Cost as a percentage of sales Inbound freight

Return on net assets

Outbound freight Administrative

Delivery consistency Response time to inquiries

Warehouse order processing Direct labor

Return on investment Inventory classification (A,B,C) Economic Value Added (EVA)

Additional Measures
Cost Management Comparison of actual versus budget Cost trend analysis Direct product profitability Customer Segment profitability Inventory carrying cost Cost of returned good Cost of damage Cost of service failures Cost of backorders Customer Service Response accuracy Complete orders Customer complaints Sales force complaints Overall reliability Overall satisfaction

Deficiencies of Traditional Functional Assessment

Bias toward cost and traditional customer service persists. Many supply chain executives believe that their current customer service and quality metrics reflect a customer perspective, but they often are internally focused. Customer service metrics are not jointly defined. Metrics are on-average, over-time. Must be deaveraged. Research shows that world-class companies emphasize absolute metrics rather than percentages.

Internal Supply Chain:Perfect Order Achievement

 The Perfect Order Defined
 Complete Orders, Delivered To Customers on the Requested Date And Time, In Perfect Condition, Including All Documentation ...  .97 x.97 x.97 x.97 x.97 x.97 x.97 x.97 x.97 x.97=.73

 Perfect Orders should be assessed at each stage in the supply chain

Internal Supply Chain: Cash-toCash

 Cash-To-Cash Cycle Time
 Cash-To-Cash = Total Inventory Days Of Supply + Days Sales Receivables Outstanding - Days Payables Outstanding

 Affected by:

Supply Chain Inventory: Days of Supply

 Days Of Supply
 The total inventory in the supply chain -- Inbound, plant, all stocking locations in the channel -- Expressed as calendar days of sales available based on recent sales activity (or forecasted rate of sales). Food Industry over 120 days of supply being held by Manufacturers, Wholesalers, and Retailers

Inventory Reduction - Total Supply Chain Inventory

Definition: Sum of days on-hand at every node of the supply chain Purpose: To identify level of synchronization To gauge speed to market Gold Standard: 35 days Organizational Goal: 45 days

Total Supply Chain Inventory Includes:

Supplier - in-process, finished, in-transit inventory Manufacturer - in-process, finished, in-transit inventory Distributor - in warehouse, in-transit inventory Retailer - in store inventory Measurement Timing: Weekly data collection

Total Inventory Example

How to Calculate:

No e In roce uppler lant tr utor etaler

n e 8

InT t T ran otal

ran T otal 6

Improvement Required - Reduce Supply Chain Inventory

A 30% Inventory Reduction Example
Initial Inventory Inventory D river 40,000 units D emand V ar. Action Plan Target Inventory 30,000 units y M od. M ktg. y Impr. Sales Com m . y Imr. Prod. Perf.

Retailer
Supply V ar. 15,000 units Transit Time U ncertainty C ycle Time U ncertainty

Supplie r Plant

45,000 units

y M od. Trans. M ode y N ew Supplier y Prod. M ore Frequently y Red. Change

10,000 units

30,000 units

100,000 units

70,000 units

Focus on the Consumer to Measure Overall Performance

 Shelf level in-stock position is a key metric for the supply chain
 % of time a product is available on the shelf in the store  Results from Andersen Study
At any point in time a supermarket is out of stock of percent of the items that should be on the shelf 4 % of the items were out of stock at least one time in the month Reduced overall consumer purchases by 3.1% on an average shopping trip

18-15

Total Supply Chain Cost

Raw Material Source

Production of Components

Manufacturer

Distributors

Retailers

Supply Chain Response Time

 The (theoretical) time to recognize a fundamental shift in final customer demand, internalize that finding in all supply chain members, re-plan, and increase/decrease output by 20%.

Measure Across Supply Chain odes

The correct method is to measure across a node:

Supplier

Plant

Distribution Center
Cycle Time Delivery Reliability Product Availability

Customer

Cycle Time On-time Delivery Vendor Managed Inventory

Cycle Time Order Completion Performance

What is benchmarking?
 Benchmarking is an improvement technique that considers how others perform a similar activity, task, process or function.  Benchmarking is not only a comparison of key performance indicators (KPIs) although benchmarking uses KPIs to compare operations.

Reasons to benchmark
 The objective in developing the benchmarking exercise was to gain information on how organisations: 1.Defined current performance levels 2.Quantified the gap between current levels and best practice. 3.Managed the logistics process from the perspectives of inputs into the system and logistics outputs.

Superior Performers Spend Less on Logistics

Best practice performers have 4-6% lower total logistics costs (% of gross sales)
Total Logistics Cost (Procurement, Inventory Carrying costs, Warehousing, Transport & Customer Service)
% of Gross Sales 12% 12 10 8 6 4 2 0 Pharma ceutical Manufact urers Retail Suppliers Supply Distributors Industrial Suppliers <3% 7% <6% <5% <7% <6% <6% 10% 11% 10% Best-in-Class Average 12%

Source: Benchmarking Success, 2002.

World Class Supply Chains

Service
19% of Supply Chains deliver >97% in full by line. Only 8% of supply chains match that with on-time Delivery Of >97% Only 4% base that on the customers 1st request

Cost
Only half of these organisations do it at low cost! Only 2% of supply chains achieve world class DIFOT & low cost

Procurement Overview

Supplier Performance (Service)

Cost of Procured Product

Best Practice Procurement

Trade Offs
Cost of Procurement Function

Manage Cross Functional Trade Offs

Supplier Performance

Delivery in-full Ave 93%

Delivery on-time Ave 95%

Less Rejects Ave 1%

Supplier DIFOT Whats yours?

What is the flow on effect to you?

More inventory? Low service delivered to your customers? Unnecessary costs?

Balanced KPIs Is Forecasting Important?

5 Strategic Level 1 Supply chain KPIs:
 Customer service DIFOT  Cost to deliver to service total and functional % of sales, Cash cycle.  Sales Forecasting Accuracy.  Inventory Turn Over.  Supplier DIFOT (for distributor) or manufacturing performance.

A Benchmarking Model.

The Charts (service-cost and inputs-outputs) uses the results from a Customer Order Fulfilment and Supply Chain Survey. Questions selected are those that impact on logistics best practice. The Customer Order Fulfilment and Supply Chain Survey consists of eight parts which include:  Profile of operation -DC/warehouse  Logistics & SCM structure -Transport  Purchasing -Customer service  Inventory management - Functional Costs

KPI Summary
KPI
DIFOT (in-full x on-time) Total Logistics Cost Cash to Cash Cycle Time Customer Claims Stock Turnover

----------------------Performance-----------------<80% 90 94 %
CP >98%

>8%

5 - 7%

CP

<4%

W O R L D C L A S S

>80 Days

CP

45- 55 Days

<40 Days

Comparisons with Relevant Grouping from the Database: e.g. 240 Manufacturers Including:
IBM, HP, Campbells, Black & Decker, Fuji, 3M, Honeywell, Mars, Siemens, Kodak, Nestle, Coca Cola, etc

>3%

2%

CP

<1%

5 CP

Disadvantage

Parity

Advantage

Supply Chain Inputs

The chart below illustrates the performance of supply chain inputs (enablers) that XXX use to achieve their current service and cost structure. Underdeveloped inputs equate to close to the centre while best practice is extreme outside of web.
Definitions:
Plans: Business (including customer) plans & deployment. KPI: KPI reporting, integration deployment & alignment (operat ional & customer management). Culture: People, Leadership, communication, deployment, & relationships with customers & suppliers. Evaluation Tools: Strategic evaluation & management tools, e.g. Product Port Folio Technique (PPT), Pareto analysis of inventory (ABC), Customer research, supplier evaluation, etc. Enabling Technologies: Processes, applications & technologies that enable. Management processes & IT enablers (ERPs, EC, WMS). Structure: Organisational structure and responsibility and structure of supply chain.

XXX Supply Chain Inputs

Plans
100% 0% 0%

KPI

40% 20% 0%

Evaluation Tools

Structure

Culture

Enabling Tech

XXX

Self-Assessment
       Process Capability Supplier Relationships Transportation/Warehousing Systems Customer Service Information Sharing Organizational e-business Readiness

Assessing Your Current Capability

Organizational E-Business Readiness
5 5 4 3 2 2 2 2 3 3 4 4 5 5 2 2 3 3 2 4 3 5 4

Process Capability

Information Sharing

Supplier Relationships

Customer Service

Transportation/ Warehousing System

Improvement After One Year

Organizational E-Business Readiness
5 5 4 3 2 2 2 2 3 3 4 4 5 5 2 2 3 3 2 4 3 5 4

Process Capability

Information Sharing

Supplier Relationships

Customer Service

Transportation/ Warehousing System