2013-navigate-supply chain metrics
TRANSCRIPT
Developing Supply Chain Performance Metrics
Process and Frameworks
August 2013
This presentation details some of the tools and frameworks we use to help clients optimise their supply chain metrics
• The objective is to define a benchmarking framework capable of:
– Develop an overview of the different metrics to measure supply chain performance.
– Suggest a range of the most important metrics that can be used across industries.
– Discuss how the most important metrics link other operational metrics within each stage of the supply chain.
And importantly, while we detail a wide array of potential metrics for a range of industries, we want to emphasise “less is more” and the importance of selecting a concise range of metrics
most suited to your industry and organisation
We used information from several sources to develop our toolkits
• Internal and external documents:
– High level benchmarking framework for supply chain performance (H .Cook):
• Shop Study (March 2007) accessing information from available experts and past projects.
– Supply chain benchmarks and best practice (Dow Polyurethane & Epoxy April 2005).
– Supply Chain Benchmark Assessment (March 2012).
– Supply chain appraisal and benchmarks: (client X September 2013).
• Consultations and workshops various client supply chain team members
• Consultations with supply chain professionals across Australia
Performance measurement is an important but complex subject
Companies see the need for metrics. . .. . . but developing the “right” set of
metrics is a challenge
• “If you can’t measure, you can’t manage, you can’t motivate”
• Establishing the proper measures within an organisation enhances continuous
• No commonly used “model”.
• Business issues that warrant performance measurement:
– Differ between industries.
– Differ within industry.
– Change overtime.
There is no one “right” answer
Focus
Accountability
Communication
Linking strategy to action
Assigning accountabilityto take action when needed
Measuring progress towards goals through
interactive communication and
education
We used a generic supply chain framework as a basis for this toolkit. . .
Supply Chain Framework
Suppliers
Purchasing
Information Flow
Forecasting & Production Planning Customer Service
Inventory Management
InboundLogistics
Manufacturing
Maintenance
Marketing &Sales
OutboundLogistics
Integrated Supply Chain Management
Customers
. . . and concluded there are three strategic objectives we should focus on when analysing the supply chain
The Acid Test
Whichever metrics are chosen, they must be able to measure company’s performance against its’ stated objectives
Strategic objectives:
Quality
Time
Cost
Products/services according to customer expectations
On agreed time
At reasonable cost
Purchasing
Information Flow
Forecasting & Production Planning
Inventory Management
InboundLogistics
Manufacturing
Maintenance
Marketing &Sales
OutboundLogistics
Integrated Supply Chain Management
Customer Service
Supply Chain Framework
Tailor to company specific objectives
We began with a brainstorming session on the key drivers for quality, time and cost
The complete picture can be found in the appendix.
• We look at the supply chain from the customer’s perspective.
• And ask “what could go wrong along the supply chain”:
– What are drivers of performance from a quality, time and cost point of view.
Price ServiceProduct quality
Product quantity
Product delivery
Late arrival
Late delivery
Inventory cost
Product cost
Produc-tion cost
Delivery cost
Customer service
cost
Quality Time Cost
Supply Chain KPIs
KPI’s help to identify “where” the performance problem is within the supply chain, and steer towards areas to explore “why”.
Accuracy (as % of sales)
Customer satisfaction
% of satisfied customers
Total cycle time
Time from placing order to receiving goods
% of products delivered on
time
Total supply chain cost as %
of sales
Cost per product sold as % of
sales
Cost as % of sales
% of products delivered
according to customer order
% of customers satisfied
with service
% of products ordered
already in stock
Defect rate of products
as % of production
% of goods delivered
according to order
Time from order placement to reception of goods
Time from production order to delivery into finished
product warehouse
Downtime as % of total production
time
% of goods delivered on time by supplier
Cost as % of sales
Cost as % of sales
Cost as % of sales
Number of stock
turns/years
Total Supply Chain
Forecasting PurchasingInbound Logistics
Manufacturing MaintenanceInventory
MgmtMarketing &
SalesCustomer
ServiceOutbound Logistics
Quality
Time
Cost
% of suppliers that make
90% of purchases
Need to identify
M&S KPIs
Each stage of the supply chain has a variety of metrics to monitor operational effectiveness
These metrics help identify “why” there is a performance problem.
Forecasting Purchasing Inbound Logistics Manufacturing Maintenance
Quality
Time
Cost
Actual vs. forecasted sales
• % of data which can be used without modification in the planning process
Number of suppliers who account for 90% of total purchase value
• % of correct orders placed• # of alternative sources of supply• # of suppliers involved in product
development/innovation• # of suppliers per purchasing
employee (purchasing professional)
• # of vendors products ordered• Purchasing head count as % of
total head count
% of goods delivered according to order by supplier
• # of overshipments• % of direct material purchases that
are not inspected at incoming quality assurance
• % of orders delivered without unplanned communication, disputes or special attention
Defect rate of products as % of production
• Scrap rate as % of production• # of changes per production
period• % of goods repackaged• Actual vs. production capacity
Time from order placement to reception of goods Time from production order to deliver warehouse
% of acc payable handed in 1–30 days• % of acc payable handled in 31–60 days• % of acc payable handled in 61–90 days• % of acc payable handled over 90 days• Average time to negotiate a contract
% of goods delivered on time by supplier
• % of suppliers who deliver daily• % of suppliers who deliver weekly• % of suppliers who deliver monthly• Response time to schedule changes• Turnaround time on rejected items
• Average production leadtime
• Current manufacturing leadtime
• Minimum production leadtime
Downtime as % of total production time
• Downtime due to parts shortage (or stock outs in general)
• Hours of unplanned downtime
• Cost as % of sales • Cost as % of sales
• Cost as % of total costs• Cost of expedite repair
materials• Purchasing spend per supplier
• Cost as % of sales• Cost as % of total sales
• Cost as % of sales• Cost per saleable unit• Cost per unit produced
• Nos of strategies, or “uptime” service-based contracts
Quality
Time
Cost
Each stage of the supply chain has a variety of metrics to monitor operational effectiveness (cont.)
Inventory Management Marketing and Sales Customer Service Outbound Logistics Total Supply Chain
Quality
Time
Cost
• % of products ordered in stock
• Defect rate of products as % of products leaving warehouse
• Accuracy of inventory records
• Inventory vs. service level
• Obsolete vs. active inventory
• % of correct orders taken
• # of additional sales from customer referrals
• Oder changes as % of orders filled
• % of customers satisfied with service
• Complaints as % of total orders
• # of customer contacts per order
• # of enquiries not answered to customers satisfaction
• % of customer follow-up• % of invoices containing errors• % of orders delivered
complete and without error (order fill rate)
• % of products delivered according to customer order (quantity/quality)
• Degree of utilisation of facilities (%)
• Equipment utilisation—load
• Equipment utilisation—weight
•Time from order placement to start of delivery
• Customer satisfaction (rating)• % of satisfied customers• % of information on credit
history limit, information on open-order history, on outstanding balance, pricing available, product history available on-line, product ID code and shipping points available On-line
• Ratio of operations labour as % of passive labour
• Average # of orders rejected• Average product time in warehouse
• No. of days consumption in stock Planned days of inventory on hand
• % of acc receivable settled before due date• % of acc receivable settled in 1–30 days• % of acc receivable settled in 31–60 days• % of acc receivable settled in
61–90 days
• Delivery time• % of products delivered early• # of deliveries per manhour• % of orders delivered on time• Average # of days delay after
scheduled ship date
• Total cycle time• Time from placing order to receiving
goods• % of products delivered on time• Average customer quoted leadtime• Average leadtime from receipt of order
to shipment• Cash to cash cycle• Longest customer quoted leadtime• New product introduction time• Product changeover time• Shortest customer quoted time
• Ave time to respond to requests
• Cost as % of sales• # of stock turns/year• Cost as % of cost of goods
purchased• Carried worth of expired lots• Average stock level
• Cost as % of sales • Cost as % of sales• Cost per delivery• # of route miles per delivery• # of warehousing facilities• # of warehousing of locations• % of transportation units
owned by company• Cost per order• Cost per route
• Total supply chain cost as % of sales• Cost per product sold as % of sales• % of profit from base purchase• % of profit from increased purchases• % of profit from premium pricing• % of revenue generated by largest
customer group (top 20%)• Cost per product sold as % of sales• Total cost per order• Total cost per unit produced
• Cost as % of sales
Given the multitude of metrics we suggest analysingsupply chain performance using a hierarchy of measures
. . . digging through the causal tree to improve business performance.
Key KPI
SupportingMetrics
Other Operational
Measures
Type of Measure
Example Highest Level Use Who Uses It
• Forecasting accuracy (as % of sales)
• Integrated supply chain
• Generic benchmarking
• Consultant
• Top management
• Supply chain stage manager
• % of suppliers connected via EDI
• Supply chain stage diagnostic
• Consultant
• Supply chain stage manager
• A-goods as a % of inventory
• Supply chain stage diagnostic
• Supply chain stage manager
Objective
• Find “where” the problem is within the supply chain
• Identify the “why” within the supply chain stage
• Give more in-depth information about supply chain stage
For example, the quality of customer service performance can be clearly measured at three different levels
Quality
Key KPI’sSuggested Supporting
MetricsOther Operational
Measures
• % of customers satisfied with service
• # of complaints as % of total orders
• # of phone calls to customer service department per order shipped
• # of complaints due to: order entry, packaging, shipping error, . . .)
• % of calls abandoned, answered by recording, delayed, . . .
• % of complaints handled by: customer service rep., department manager, . . .
• KPI’s will be measured for generic benchmarks, whilst operational metrics will be measured by a customer service manager.
• . . .
• # of complaints that were not answered to customer satisfaction
• Average number of orders rejected
Key KPI’sSuggested Supporting
MetricsOther Operational
Measures
Outbound logistics performance . . .
• % of products delivered according to customer order (quantity/quality)
• (These can often be driven by customer service metrics)
• Degree of utilisation of facilities (%)
• Equipment utilisation (load/weight)
• Delivery time
• % of orders delivered on time (as defined by customer)
• # of deliveries/man hour
• % of orders delivered early
• % of orders delivered with an average delay of 1 month
• Average number of days of delay after scheduled ship date
• Cost as % of sales • # of route miles per delivery
• # of warehousing facilities/locations
• % of transportation units owned by company
• Cost per delivery
• Cost per order
• Cost per route
Quality
Time
Cost
Key KPI’sSuggested Supporting
MetricsOther Operational
Measures
Quality
Time
Cost
For maintenance, commonly used supply chain performance metrics relate to time and cost
• The quality of maintenance is commonly measured by lag measures in terms of cost or as a production measure (downtime).
• We suggest the use of two lead measures that proactively monitor maintenance performance.
• Number of service contract
• Number of training days for maintenance staff
• Downtime as % of total production time
• Cost as % of sales
• Cost per unit produced
• Downtime due to parts shortage (or stock outs in general)
• Hours of unplanned downtime
Just remember . . .
Be Selective
• The number of potential supply chain metrics is unlimited, but we need to be very selective in our choice of metrics for each function or process. Always aim for the minimum number of most relevant KPI’s for your circumstances
Take a Step-By-Step Approach to Developing Your Metrics
• A step by step approach to measuring supply chain performance avoids being overwhelmed by data.
• The following segmentation gives us such an approach:
– A few select key KPI’s allow us to identify “where” the problems” exist within the supply chain.
– Key supporting metrics then allow us to answer “why” the problems exist.– Operational metrics allow us to go analyse the supply chain stage in more detail.
There is no “right” set of metrics, only the right set for your circumstances
• The “right” set of metrics does not exist for a given industry or even a specific company.
• The “right” set of metrics is dynamic like the business it measures and will change with the type of industry/problem and over time.
Appendix
• KPI Definitions.
• Causal Trees:
– Quality
– Time
– Cost
ServiceProduct Delivery
Wrong Info.Higher Prices
Than Competitors
Higher Margin Than Competitors
Badly Set Customer
Expectations
Wrong Order Information
Unable to Meet Customer Demand
Produced Faulty Goods
Products Damaged After Mfg
PriceProduct Quantity
Product Quality
Delivered Faulty Goods
Quality
Quality KPIs
Did Not Have the Right Materials
ForecastsIncorrect
InformationFailure
HumanFailure
TechnicalFailure
Late ArrivalLate
Departure
Late ArrivalInformation
FailureInfrastructure
FailureProduct Failure
WrongInformation
Info. Sent to WrongPerson
InformationSent Late
Product Notin Stock
FaultyProduct
HumanFailure
TechnicalFailure
Un-controllable
Factors
InformationFailure
InfrastructureFailure
HumanFailure
Did Not ProduceAnymore
Did Not ProduceEnough
InformationSystem Failure
Technical Failure
Human Failure
Could Not Produce
To Capacity
Total Capacity
Too Small
Other ProductionPriorities
Materials Not
Delivered
Wrong MaterialsDelivered
Materials Delivered
Late
SuppliersForgot
We Did Not Order
Suppliers Got
Order Wrong
We Got Order Wrong
SuppliersDelivered
Late
We OrderedLate
Time
Time KPIs
Purchasing Cost
Customer Service Cost
Inventory Cost Delivery CostProduction
Cost
Too Much Stock
Wrong Type of
Products
Obsolete Stock
Infrastructure Stock
Human Resources
Costs
Used More Expensive Materials
Materials Arrived Late
Human Failure
Technical Failure
Human Resource
Cost
Maintenance Cost
Complaints
Wastage Planning
Used More Raw
Materials
Higher Cost Than
Competitor
Ordered Late
Different Materials
People Systems
Same Suppliers
Worse Deal
Different Suppliers
Skills Product MOT
Promotion Sales
Volumes Lower
Don’t Know How to
Negotiate
Many Suppliers
Cost
Cost KPIs