16-1 logistics/supply chain control chapter 16 cr (2004) prentice hall, inc. the logistician is now...

16-1

Logistics/Supply Chain Control

Chapter 16CR (2004) Prentice Hall, Inc.

The logistician is now a process manager and no longer just an activities administrator.

16-2CR (2004) Prentice Hall, Inc.

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Correcting• Fine tuning• Major re-planning• Re-engineering

Measuring• Auditing• Performance

measures• Reporting

Standards/Goals

• Performance targets

Assessing• Status analysis• Benchmarking• Best-in-class

Controlling in Logistics/Supply Chain Management

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•Control can be represented as a model whose key elements are:

-Inputs, process, and outputs-Standards and goals-Performance measurement-Monitoring-Corrective action

•Control systems are:-Open-loop-Closed-loop-Modified

A Control Paradigm

Definition The process where planned performance is brought into line or kept in line with desired objectives.

Definition The process where planned performance is brought into line or kept in line with desired objectives.

Schematic of Control Process

Elements of the control process

Inputs Outputs

Supply chain activitiesand customer service

levels

Activity costs andcustomer service

MonitorComparison by

manager, consultant, or computer

MonitorComparison by

manager, consultant, or computer

Corrective action

Corrective action

ProcessOngoing supply chain activities

ProcessOngoing supply chain activities

External and internal forces and changes

External and internal forces and changes

Performance reports

Performance reports

Standardsor goals

Standardsor goals

CR (2004) Prentice Hall, Inc. 16-4

CR (2004) Prentice Hall, Inc.

Open-Loop Control System

Service andinventory level goals

MonitorThe manager

Reports on costand service

ProcessWarehouseoperation

Corrective action:Adjust supply

Demand

Inputs Outputs

Stock resupply Stockouts andinventory costs

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Closed-Loop Control System

Decision ruleWhen L < ROP,

order Q*

Computerreport on L

Corrective action:Adjust supply

Demand, D

Inputs Outputs

Stock resupply, Q Inventoryon hand, L

Inventory standards for Q* and ROP


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Modified Control System

Inventory standards for Q* and ROP

Decision ruleWhen L < ROP,

order Q*

Computerreport on L


Corrective actionStock order on

supplier

Demand, D

Inputs Outputs

Stock resupply, Q Inventory on hand, L,stockouts and inventory costs

Manager

Reports on costs,service, product

promotions,production

schedules, etc.

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Auditing Performance

Reasons for conducting an audit

•Bring logistics system in line with the inherent demand characteristics

•Identify opportunities for improvement

•Understand the nature of logistics in the firm and its relative costs

•Determine if logistics meets its performance goals

Elements to evaluate

•Customer service levels

•Transportation costs

•Inventory costs

•Demand levels

•Purchase costs


Benchmarking Performance

•Benchmarking

-Establishes an external reference point

-Compares company performance to the best-in-class

•Sources of benchmarking data

-Consulting firms

-University research centers

-Trade associations

-Sponsored studies

This Year Last Year Budget/TargetPhysical DistributionTransportation of finished goods Freight charges inbound to warehouses $2,700,000 $2,500,000 $2,800,000 Delivery charges outbound from warehouses 3,150,000 2,950,000 3,000,000 Freight charges on stock returns to plant 300,000 250,000 275,000 Extra delivery charges on back orders 450,000 400,000 400,000 Subtotal $6,600,000 $6,100,000 $5,475,000Finished goods inventories Inventories in transit 280,000 260,000 250,000 Storage costs at warehousesa 1,200,000 600,000 1,000,000 Materials-handling costs at warehouses 1,800,000 1,600,000 1,700,000 Costs of obsolete stock 310,000 290,000 300,000 Storage costs at plantsa 470,000 460,000 460,000 Materials-handling costs at plants 520,000 510,000 510,000 Subtotal $4,580,000 $4,020,000 $4,230,000Order processing costs Processing of customer orders $830,000 $840,000 $820,000 Processing stock replenishment orders 170,000 165,000 160,000 Processing of back orders 440,000 300,000 300,000 Subtotal $1,440,000 $1,305,000 $1,280,000Administration and overhead Proration of unallocated managerial expenses $240,000 $220,000 $230,000 Depreciation of owned storage space 180,000 180,000 180,000 Depreciation of materials-handling equipment 100,000 100,000 100,000 Depreciation of transportation equipment 50,000 70,000 50,000 Subtotal $ 570,000 $ 570,000 $ 560,000 Total distribution costs $13,190,000 $11,995,000 $12,545,000

Co

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CR (2004) Prentice Hall, Inc. 16-10


Cost-Service Statement (Cont’d)

Physical SupplyTransportation of supply goods Freight charges inbound to plant $1,200,000 $1,400,000 $1,115,000 Expedited freight charges 300,000 250,000 350,000 Subtotal $1,500,000 $1,650,000 $1,465,000Supply goods inventories Storage costs on raw materials $300,000 $375,000 $275,000 Materials-handling cost on raw materials 270,000 245,000 260,000 Subtotal $570,000 $620,000 $535,000Order processing Processing of supply orders $55,000 $50,000 $50,000 Costs of expedited orders 10,000 10,000 10,000 Subtotal $65,000 $60,000 $60,000Administration and overhead supply goods Proration of unallocated managerial expenses $50,000 $60,000 $40,000 Depreciation of owned storage space 30,000 30,000 30,000 Depreciation of materials-handling equipment 40,000 40,000 40,000 Depreciation of transportation equipment 25,000 25,000 25,000 Subtotal $145,000 $155,000 $135,000 Total supply costs $2,280,000 $2,485,000 $2,195,000 Total distribution costs $13,190,000 $14,480,000 $14,740,000 Total logistics costs $15,470,000 $14,480,000 $14,740,000

This Year Last Year Budget/Target

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Cost-Service Statement (Cont’d)Customer ServicePercentage of warehouse deliveries withinone day

92% 90% 90%

Average in-stock percentageb 87% 85% 85%Total order cycle timec

(a) Normal processing 7 2 6 2 6 2 (b) Back-ordersplit delivery processing 10 3 10 3 10 3Back orders and split deliveries (a) Total number 503 490 490 (b) Percentage of total orders 2.5% 2.7% 2.5%Orders filled complete 90% 86% 87%Customer returns due to damage, deadstock, order processing errors, and latedeliveriesd

1.2% 2.6% 1.0%

Percentage of available production timeshutdown due to supply out-of-stocks 2.3% 2.4% 2.0%

a Includes space, insurance, taxes, and capital costs.b Percentage of individual product items filled directly from warehouse stocks.c Based on the distribution of order cycle times at the 95 th percentile.d Percentage of gross sales.

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Audit Instruments (Cont’d)The productivity report

Productivity MeasureThis

QuarterLast

Quarter

ThisQuarter

Last YearCompanyStandard

IndustryAveragea

Transportation Freight costs as a

percentage of distributioncosts

31% 30% 32% 29% 31%

Damage and loss claimsas a percentage of freightcosts

0.5% 0.5% 0.6% 0.5% 0.5%

Freight costs as apercentage of sales 9.6% 9.2% 10.2% 9.0% 8.8%

Inventories Inventory turnover 4.5 4.4 5.0 4.7 6.0 Obsolete stock to sales 0.1 0.1 0.3 0.1 0.2Order Processing Orders processed per labor

hour 50 45 55 50 50 Percentage of orders

processed within 24 hoursof receipt

96% 92% 85% 95% 93%

Order processing costs tothe total number of ordersprocessed $5.50 $4.95 $5.65 $5.00

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Productivity Report (Cont’d)

Warehousing Percentage of cube utilized 75% 70% 70% 70% 70% Units handled per labor

hour200 250 225 200 200

Customer Service Stock availability

(percentage of ordersfilled from primary stock) 98% 92% 90% 90% 85%

Percentage of ordersdelivered within 24 hoursof receipt

72% 70% 61% 85% 90%


Performance Control GraphControl graph for inventory turnover


SCOR ModelThe SCOR model:•Links processes or supply chain activities to performance measures, best practices, and software requirements•Provides a systematic approach for identifying, evaluating, and monitoring supply chain performance•Has a broad scope beginning with a demand forecast or

order placement and ending with final invoice and final payment•Accepts process description that can be product specific•Has a five component framework of plan, source, make,

deliver, and return•Incorporates five performance measures of reliability, responsiveness, flexibility, costs, and efficiency of asset utilization


Scope of the SCOR Model

Source Make Deliver

Return Return

Source Make DeliverReturn Return


Focus companySupplierInternal or external

CustomerInternal or external

Plan

SCOR Model

Source Make Deliver

Return Return





Plan

Source Make Deliver

Return Return





Plan

SCOR Model

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Process “Thread” Diagram

P=plan, S=source, M=make, and D=deliverCR (2004) Prentice Hall, Inc.

Performance MetricsSC Performance Attribute Metric

Delivery Reliability •Delivery performance

•Fill rates

•Perfect order fulfillment

Responsiveness •Order fulfillment lead-times

Flexibility •Supply chain response time

•Production/vendor flexibility

Costs •Cost of goods sold

•Total SC management costs

•Value-added productivity

•Warranty/returns processing costs

Asset Management Efficiency •Cash-to-cash cycle time

•Inventory days of supply

•Asset turnsCR (2004) Prentice Hall, Inc. 16-19


Linking Processes and Metrics

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Artificial Intelligence in Control

Artificial intelligence refers to computer recognition of adverse patterns in the performance reports and makes suggestions as to the courses of action that might be taken to correct the adverse performance patterns.

Artificial intelligence refers to computer recognition of adverse patterns in the performance reports and makes suggestions as to the courses of action that might be taken to correct the adverse performance patterns.

•Pattern recognition

•Performance patterns

•Courses of action

16-1 logistics/supply chain control chapter 16 cr (2004) prentice hall, inc. the logistician is now...

Documents

prentice hall

loop control system16

modified control system16

percentage of freightcosts0

capital costs

process manager

total order cycle timec

performance goalselements