scn metrics

Dr.T.V.SubramanianDr.T.V.Subramanian

Supply Chain Management- Performance measures

Shareholder Value Focus

OPERATIONAL EXCELLENCE

ASSET UTILIZATION

FixedCapital

Reduction

WorkingCapital

Reduction

LowestLanded

Total Cost

IncreasedCustomerService

Measures• Perfect Order• Dwell Time

• Inventory Days• Total Landed

Cost• Activity Based

Cost

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

Cost Management Quality Productivity Asset Management

Fill rate Total cost Damage frequency

Units shipped per employee

Inventory turns

Stockouts Cost per unit Order entry accuracy

Units per labor dollar

Inventory levels, number of days supply

Shipping errors

Cost as a percentage of sales

Picking/ shipping accuracy

Orders per sales representative

Obsolete inventory

On-time delivery

Inbound freight Document/ invoicing accuracy

Comparison to historical standard

Return on net assets

Backorders Outbound freight Information availability

Goal programs Return on investment

Cycle time Administrative Information accuracy

Productivity index

Inventory classification (A,B,C)

Delivery consistency

Warehouse order processing

Number of credit claims

Equipment downtime

Economic Value Added (EVA)

Response time to inquiries

Direct labor Number of customer returns

Order entry productivity

Additional Measures

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

Response accuracy Complete orders

Customer complaints

Sales force complaints Overall reliability

Overall satisfaction

Customer ServiceCost Management

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 “de-averaged”. 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-to-Cash

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:Node In-Process Finished In-Transit TotalSupplier 5 20 2 27Plant 2 8 1 11Distributor 10 3 13Retailer 10 10

Grand Total 61

Improvement Required - Reduce Supply Chain Inventory

Initial Inventory Inventory Driver Action Plan Target Inventory40,000 units Demand Var.

Supply Var.

Mod. Mktg. Impr. Sales

Comm. Imr. Prod. Perf.

30,000 units

15,000 units Transit TimeUncertainty

Mod. Trans.Mode

New Supplier

10,000 units

45,000 units Cycle TimeUncertainty

Prod. MoreFrequently

Red. Change

30,000 units

100,000 units 70,000 units

A 30% Inventory Reduction Example

Plant

Supplier

Retailer

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 8 percent of the items that should be on the shelf

– 48% 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

Total Supply Chain Cost

RawMaterialSource

Productionof

Components

Manufacturer Distributors Retailers

18-15

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 Nodes

The correct method is to measure across a node:

Supplier Plant DistributionCenter

Customer

Cycle TimeOn-time DeliveryVendor ManagedInventory

Cycle TimeDelivery ReliabilityProduct Availability

Cycle TimeOrder CompletionPerformance

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 levels2.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.

% of Gross Sales

<3%

<6% <5%<6% <6%7%

10% 11%12%

10%12%

<7%

0

2

4

6

8

10

12

Pharmaceutical

Manufacturers

RetailSuppliers

Supply Distributors IndustrialSuppliers

Best-in-ClassAverage

Total Logistics Cost (Procurement, Inventory Carrying costs, Total Logistics Cost (Procurement, Inventory Carrying costs, Warehousing, Transport & Customer Service)Warehousing, Transport & Customer Service)

Best practice performers have 4-6% lower total logistics costs (% of gross sales)

Superior Performers Spend Less on Logistics

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

DeliveryOf >97%

Only 4% base that

on the customer’s 1st request

CostOnly half of these organisations do it at low cost!

Only 2% of supply chains achieve world class DIFOT

& low cost

Only 2% of supply chains achieve world class DIFOT

& low cost

Trade Offs

Procurement Overview

Manage Cross Functional Trade Offs

Cost of Procurement Function

Cost of Procured Product

Supplier Performance (Service)

Best Practice Procurement

Supplier Performance

Delivery

in-full

Ave 93%

Delivery

on-time

Ave 95%

X -Less Rejects

Ave 1% = Supplier DIFOTWhat’s yours?

What is the flow on effect to you?More inventory?

Low service delivered to your customers?Unnecessary costs?

Measure

& manage via

Supplier

Evaluation

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

----------------------Performance------------------KPIComparisonswith Relevant Grouping from the Database:e.g. 240 ManufacturersIncluding:

IBM, HP, Campbells,Black & Decker, Fuji, 3M, Honeywell, Mars,Siemens, Kodak, Nestle, Coca Cola, etc

Advantage

<80% 90 – 94 % >98%DIFOT

(in-full x on-time)

>8% 5 - 7% <4% Total

Logistics CostCP

>80 Days 45- 55 Days <40 DaysCash to

Cash Cycle TimeCP

<1%

7

Disadvantage Parity

>3% 2%Customer

ClaimsCP

3 5 Stock

TurnoverCP

WORLD

CLASS

KPI Summary

CP

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.

Supply Chain Inputs 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

0%

20%

40%

60%

80%

100%

Plans

Culture

Enabling Tech

Structure

Evaluation Tools

KPI

XXX

Self-Assessment

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

Assessing Your Current Capability

E-Business Readiness

Organizational

Process Capability

Supplier Relationships

Transportation/ Warehousing System

Customer Service

Information Sharing

5

4

32

5

4

3

22

4

3

5

54

32

5

4

3

2

5 4 3 2

5

4

3

2

Improvement After One Year

E-Business Readiness

Organizational

Process Capability

Supplier Relationships

Transportation/ Warehousing System

Customer Service

Information Sharing

5

4

32

5

4

3

22

4

3

5

54

32

5

4

3

2

5 4 3 2

5

4

3

2