*Lecturers: Ho Trung Thao (thao.hotrung@hoasen.edu.vn)

Chapter 8Measuring & Improving Performance*

AIMS OF THE CHAPTER

RECOGNISE the importance of measuring performance DESCRIBE different measures of supply chain performance USE benchmarking ANALYSE a supply chain using different charts DESCRIBE approaches to improving logistics

Outline

I. MEASURING PERFORMANCESupply chain continues to evolve.Necessary to know how well its working & how to improve

Give new aims & clear objectives for improvement.Choose measuresof logistics performance.Describe some methods of analyzing current operationsSuggest some approaches to improvement

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Measures for logistics.Capacity and utilization.Productivity.Other measures.Balancing different measures.

I. MEASURING PERFORMANCE

what you cant measure, you cant manage Managers need to take measures to understand how well they are doing, whether things are improving or getting worse, whether they meet targets, or how they compare with competitors.Possible measures of logistic could be: Indirect measures financial measures (such as the return on assets, payback period, or contribution to profits).Direct measures (such as the number of tons delivered, stock turnover or distance travelled) start by looking at general ones for capacity, utilization and productivity.I.1 Measures for Logistics

Designed capacity is the maximum possible throughput in ideal condition.Effective capacity is what we can actually achieve over the long term.Actual throughput shows what we actually achieved.Utilization shows the proportion of designed capacity that is actually used.I.2. Capability and Utilization

Example of Capacity & Utilization in a supply chainUtilizationPart A = 140/200 = 0.7 = 70%. Different parts have different utilization.

The most widely used measures of performance.Total productivity: throughput of the supply chain to the amount of resources used.

I.3. Productivity

The most widely used measures of performance.Total productivity: throughput of the supply chain to the amount of resources used.

I.3. Productivity

Throughput and resources must use consistent units normally translated in to units of currency.Problems with finding values for all the inputs and outputs difficult for intangible inputs (sunlight, the environment and reliability) and outputs (pollution, waste products and reputation).

Partial productivity or single factor productivity. Throughput of a supply chain to a single type of resource.

4 types of partial productivityEquipment productivity.Labor productivity.Capital productivity.Energy productivity.

Transportation performance:Reliability of delivery.Total travel time and distance.Delivery cost.Customer satisfaction.Frequency of service.Loss and damage.Availability of special equipment.I.4. Other Measure

I.4. Other Measure (cont.)Warehouse Performance:Average stock value.Changes in stock value.Utilization of storage area and volume.Proportion of orders met from stock.Proportion of demand met from stock.Weeks of stock held.Stock turnover.Order cycle time.Number of orders processed.

Standards for comparison.Benchmarking.

II. COMPARING PERFORMANCE

Best performance can be achieved.Compare to the past performance.Compare to other organizations.Compare differences parts of the supply chain.Make some decisions.Measure the effects of supply chains chances.Help internal functions.Highlights areas that need improving.Role of Comparing

Absolute standards: create best ideal performance that can be achieved with zero defects in total quality management.Target performance: set the absolute standard for weekly number of customer complaints received is zero.Historical standards: Base on achieved performance then set it as the worst performance can be acceptable after improving.Competitors standards: looks at competitors achievement as the lowest level of performance to remain competitive.II.1. Standards for Comparisons

II.2. Benchmarking

Process charts.Precedence diagrams.Multiple activity charts.III. ANALYZING A SUPPLY CHAIN

III.1. Process ChartsProcess chart: A graphical and symbolic representation of the processing activities performed on the work piece.

Procedure for constructing a formal process chartStep 01: List all the activities in their proper sequence from the start through to the finish.Step 02: Classify each activity as an operation, movement, inspection, delay or storage. Find that time taken and distance moved.Operation: where something is actually done.Movement: where products are moved.Storage: where products are put away until they are needed.Delay: where products wait for something to happen.Inspection: to test the quality.

Procedure for constructing a formal process chartStep 03: Summarize the activities by adding the number of activities, total times, rate of doing each activity, and any other relevant information.Step 04: Critically analyze each activity, asking questions like, Why is it done this way?, Can we eliminate this activity?, How can we improve this activity?, Can we combine activities?.Step 05: Now revise the process to give fewer activities, shorter times, less distance travelled, and so on.Step 06: Check the new procedure, prepare the organization for changes, train staff, and so on and implement the changes.

Process Chart

II.2. Precedence DiagramsPrecedence diagram: A graphic representation of depicting the sequence of activities performed on the work piece.Precedence diagram is represented as a network of arrows and nodes where:Nodes represent activities.Arrows indicate dependencies/relationships between activities.

Precedence Diagram

ActivitiesPredecessorsActivitiesPredecessors1-7421853196, 742, 3108, 954111064

III.3. Multiple Activity ChartsMultiple activity chart: The chart on which the activities of workers, products, and machines are recorded on a common time scale to show their relationships.Multiple activity chart has a time scale down the side of the diagram, with all the participants listed across the top.

Benefits of better performance.Finding improvements.

IV. IMPROVING PERFORMANCE

IV.1. Benefits of better performance

Managers problemsEasy to find out the inefficient things Managers are happy with the old waysBeing afraid of failureLack of authority to changeNo incentiveNo time to investigateNot see the need, not like to changeNot know how to improve thingsThink that changes are too expensiveClaim that cannot measure performance

IV.2. Finding improvementQuality that is too poor to satisfy customersProduction level making products, or having capacity, that is not currently needed.Processing having unnecessary, too complicated or time-consuming operationsWaiting for operations to start or finish, for materials, repairs, and so onMovement with products making unnecessary, long, or inconvenient movements during operationStock too much stock that need storing and raises cost

Five principles of improvementBalance, giving a smooth flow of materials through the chainLocation, with all operations in the best positionsMinimize, using the least amount of handling, distance travelled and costSimplify, to make everything as simple as possibleCommunicate, as a good information flow gives good material flow.

Plan do check act cyclePlan looking at the existing logistics, collecting information, discussing alternatives, and suggesting a plan for improvementDo where the plan is implemented, and data is collected on performanceCheck which analyses the performance data to see if the expected improvements actually appeared.Act if there are real improvements the new procedures are made permanent, but if there are no improvements, lessons are learnt and the new procedures are not adopted.

Improvement stepsMake everyone aware that changes are needed to the supply chain, describing the reasons, alternatives and likely effects.Examine current practices, identify their aims, see how well they achieve these and identify problem areas and weaknesses.Use benchmarking and other comparisons to identify potential improvements and improved methods.Design better procedures using the knowledge, skills and experience of everyone concerned.Discuss the proposals widely and get people committed to the new methods.

Improvement stepsDesign a detailed plan for implementing the improvements, anticipating likely problems rather than waiting for them to happen.Make any necessary changes to the organizations structure, systems, facilities, and so on.Give appropriate training to everyone involved.Set challenging, but realistic, goals for everyone, and make it clear how these can be achieved.Have a specific event to start the new methods.

Improvement stepsEstablish milestones and monitor progress to make sure they are achieved.Give support and encouragement to everyone concerned.Have continuing discussions about progress, problems, adjustments, and so on.Monitor and control progress to make sure that everything continues to go as planned, remain committed to the new methods while they are giving improvements, and update them as necessary.Accept that the new methods are only temporary, and continually look for further improvements.