Logistics and
Supply Chain
Management
TOPIC 13: PERFORMANCE MEASUREMENT
Copyright By PowCoder代写 加微信 powcoder
MS BING HAN
Introduction to Logistics and Supply Chain Management
Supply Chain Organisation – Process thinking
Technology in Logistics and Supply Chain
Customer Fulfilment
Order Fulfilment Cycle – Purchasing, Production and Logistics
Supply Chain Mapping
Core Competencies and Outsourcing
Environmental Scanning and Global Supply Chain
Cost Management in SCM
Inventory Management
Managing Uncertainty in the Supply Chain
Operational issues in the Supply Chain
Performance Measurement in the Supply Chain
People Management
Law and Ethics in SCM
Relationship Management
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Learning Objectives
1. Describe the role of measurement in shaping a company’s culture and achieving results.
2. Discuss the strengths and weaknesses of traditional measurement practices.
3. Explain how world-class SC measurement improves alignment, emphasises customer orientation, promotes process integration, and facilitates collaboration.
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Learning Objectives
4. Identify and implement appropriate measures to manage and monitor important processes and relationships. Create unique, tailored measures.
5. Benchmark performance measures and leading-edge SC practices.
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Role of Performance Measurement
When performance is measured, performance improves.
When performance is measured and reported, the rate of improvement accelerates.
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Measurement Creates Understanding
Performance measurement systems provide insight into the nature and workings of value-added processes.
A well defined performance measurement system provides feedback regarding:
1. Customer requirements
2. Company and supplier capabilities
3. Probable success of collaborative initiatives
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Measurement Drives Behaviour
Measurement is more critical than communication, training, or perhaps anything else when it comes to managing human behaviour.
Measurement’s influence on behaviour is pervasive because people pay attention to how they are measured.
Managers must adopt measures that truly promote collaborative behaviour.
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Measurement Leads to Results Measurement is a prerequisite for high level
execution and attainment of world-class results. Well-designed measurement systems must provide
accurate and relevant information in a timely manner.
Incorrect measurement systems lead to non-aligned strategies, poor understanding, and inconsistent if not counterproductive behaviour.
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Traditional Measurement
Areas that are essential to measure to accomplish customer service and profitability goals:
◦ Asset Management
◦ Customer Service
◦ Productivity
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Measures of Asset Management Capital investments are made in facilities,
equipment, technology, and inventory.
Asset management measures give managers means to judge the efficient and effective use of capital.
Recent advances have changed conventional wisdom with regard to asset management.
◦ JIT/Lean
◦ Theory of Constraints
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Measures of Asset Management
Operations
• Raw material inventory levels
• Raw material inventory turns
• Inventory obsolescence
• Return on Assets
• Economic value
• Work in process inventory
• Inventory obsolescence
• Return on Assets
• Return on
Investment
• Economic value added
• Inventory turns
• Inventory
obsolescence
• Return on Assets
• Inventory days
• Economic value
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Measures of Cost
Cost performance is critical and tracked more carefully and comprehensively than any other aspect of competitive performance.
Cost-cutting cannot be done at the expense of core capabilities.
Best practice requires companies to identify activities that most impact total cost, adopt appropriate metrics, and manage to those metrics.
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Measures of Cost
Operations
•Unit price •Acquisition cost •Total cost of
•Cost as a percent of
• Administrative
• Direct labour costs
• Manufacturing overhead
• Costs per unit
• Inventory carrying
• Warranty costs
• Inventory carrying cost
• Total landed cost
• Outbound
• Warehousing
labour costs
• Administrative
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Measures of Customer Service
Customer service metrics measure the ability of the firm to produce the right quantity of product and deliver when and where it is needed.
Time metrics are used as benchmarks for flexibility and responsiveness.
Customer complaints are also tracked.
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Measures of Customer Service
Operations
•On-time delivery •Order to delivery
•Percent shipments
expedited •Response time to
• Production to due date
• Manufacturing cycle time
• Backorders
• New product lead
• Customer
complaints
• Fill Rate
• On-time delivery
• Order cycle time
• Complete orders
• Customer
complaints
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Measures of Productivity Productivity is the ratio of total output to total input.
Productivity growth must not come at the expense of quality or customer satisfaction.
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Measures of Productivity
Operations
•Purchase orders per employee
•Dollar spend per employee
•Commodity teams per employee
•Percent transactions automated
• labour productivity
• Equipment downtime
• Changeover time
• Engineering
change orders
• Total factor Productivity
• Units shipped per employee
• Equipment downtime
• Order productivity
• Warehouse labour
productivity
• Transportation
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productivity
Measures of Quality
Measures of quality track the functionality or reliability of a product or service.
Six Sigma targets a quality level which achieves defect rates of less than 3.4 ppm
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Measures of Quality
Operations
•Shipments rejected •Defect rate—parts
per million •Percent suppliers
•Percent orders from
certified suppliers •Response to inquiry
• Defect rate—parts per million
• Percent rework or scrap
• Statistical process control
• Total hours quality training per year
• Percent employees six sigma trained
• Damage frequency
• Order entry accuracy
• Picking/shipping accuracy
• Document/invoi cing accuracy
• Number of customer returns
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Traditional Measurement – Caveats
Traditional measurement systems are not holistic, they are designed to capture and communicate primarily functional information.
Traditional measures are primarily oriented to short-term financial results and cost-cutting.
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Contemporary Supply Chain Measures
Measurements consistent with supply chain management core principles emphasise:
◦ Goal alignment
◦ Customer satisfaction
◦ Process integration
◦ Total costs
◦ Inter-organisational collaboration
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SC Measures – Alignment What gets measured, gets done!
Often there is little relationship between strategic intent and measurement.
Leads to dysfunctional behaviour
Supply chain managers must align key measures within their own organisation as well as within the supply chain.
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SC Measure Alignment – Traditional
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SC Measures – Customer Satisfaction
Traditional customer service measurements often do not provide a clear understanding of customer expectation or satisfaction levels.
Internal service measures do not identify what the customer values or their perception of the value they receive.
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Customer Satisfaction Metrics
Traditional Practice
Internal service measures over satisfaction measures
Measures that are expressed as averages
Measures that treat all customers the same
External assessment that reveals what customers really think is important
Absolute measure expressed in customer centric terms
Measures that recognise unique needs of individual customers
Class Practice
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SC Measures – Total Cost
Total costing is a prerequisite to good process design and management.
Total cost is the sum of all the costs incurred in planning, designing, sourcing, making, and delivering a product from raw material to the final customer.
Managers lacking accurate total cost information make decisions that favour their own company’s financial performance when making trade-offs within the supply chain.
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Availability Of Logistics Information
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Total Supply Chain Cost
Total supply chain costs are the sum of all costs incurred in planning, designing, sourcing, making, and delivering a product from raw materials to the final customer.
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SC Measures – Activity Based Costing
Activity based costing links costs directly to the activities that drive them.
ABC costing requires process transparency and detailed information on products, customers, activities, and resource costs.
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Activity-Based Costing
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Supply Chain Performance Measures
Superior supply chain performance moves beyond simple functional excellence.
New measures are required to facilitate collaboration throughout the entire supply chain.
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Characteristics of Effective Measures
1. Aligned with organisational goals
2. Aligned with project goals
3. Customer oriented
4. Meaningful to workers, managers, & customers
5. Consistent across appropriate functions or departments
6. Promotes cooperative behaviour both horizontally & vertically
7. Communicated to all relevant individuals
8. Simple, straightforward, & understandable
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Characteristics of Effective Measures (cont’d)
9. Easy to collect the needed data
10. Easy to calculate
11. Available on a timely basis—real time when possible 12. Strategic and tactical
13. Quantifiable
14. Designed to drive appropriate behaviour
15. Designed to drive learning & continuous improvement
16. Designed to provide information that is actually used in decision-making
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Supply Chain Performance Measures
SC Inventory Days of Supply
Total number of days of inventory required to support the supply chain—from raw materials to the final customer acquisition. Expressed as calendar days of supply based on recent actual daily cost of sales
Supply-Chain Response Time
The theoretical number of days required to recognise a major shift in market demand and increase production by 20 percent
Total Supply Chain Cost
The sum of all the costs incurred in planning, designing, sourcing, making, and delivering a product broken down for each member of the supply chain
Cash-to-Cash Cycle Time
The time required to convert a dollar spent to acquire raw materials into a dollar collected for finished product. (Total Inventory Days of Supply + Days Sales Outstanding – Days Payables Outstanding).
Perfect Order Fulfillment
A perfect order is an order that is delivered complete, on time, in perfect condition, and with accurate and complete documentation. Fulfillment is the percent of orders that are perfect (Perfect orders/Total orders).
Inventory Dwell Time
The ratio of days inventory sits idle to days inventory is being productively used or positioned
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Supply Chain Performance Measures
Source/Make Cycle Time
The cumulative time to build a shippable product from scratch—if you start with no inventory on hand or on order. Consists of total sourcing lead time, release-to- start build, total build cycle time, and complete build-to-ship time
Customer Inquiry Response Time
The average elapsed time between receipt of a customer call and connection with the appropriate company representative
Customer Inquiry Resolution Time
The average elapsed time required to completely resolve a customer inquiry
Order Fulfillment Cycle Time
The average actual lead times consistently achieved, in calendar days, from customer order to customer delivery. Includes, order authorisation to entry, entry to release, release to shippable, shippable to customer receipt, and receipt to customer acceptance
On-Shelf In-Stock Percentage
The percentage of time that a product is available on the shelf, rack, or wherever the customer expects to find and buy it. Measures the supply chain’s ultimate ability to satisfy the end customer
Value-Added Productivity
Total company revenues generated less the value of externally sourced materials expressed as a ratio of total company headcount
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Supply Chain Performance Measures Measures of supply chain performance:
Supply chain inventory days supply Supply chain response time
Total supply chain costs
These measures allow for identification of inefficiencies throughout the entire supply chain.
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Cash-to-Cash Cycle Time
Cash-to-Cash Cycle = Total Inventory Days of Supply + Days Receivables – Days Payables
Receivables
Inventory Days
Days Receivable
Days Payables
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Perfect Order Busters
Order-entry error
Ordered item is unavailable Incomplete paperwork Picking error
Customer deduction Damaged shipment Overcharge error
Error in payment processing
Missing information
Late shipment
Inability to meet ship date Early arrival
Inaccurate picking paperwork Invoice error
Credit hold
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SC Measures – Scorecards
Process encompasses objectives, measures, targets, and action plans.
Typical scorecard emphasises cost, quality, delivery, responsiveness, and innovation.
Provide mechanism for evaluation and communication of performance along critical dimensions.
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SC Measures – Scorecards
1. Help companies select and monitor both suppliers and customers
2. Support recognition programs
3. Benchmark leading-edge practices
4. Disseminate best practices throughout the supply chain
5. Identify deficiencies that can be overcome through continuous improvement efforts
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Supplier Scorecard
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Benchmarking
The formal process of comparing the attributes of one organisation to those of another.
Process consists of:
1. Define attribute to be benchmarked and identified a best-in-class comparison company.
2. Document the best-in-class process at strategic and operational levels. Compare with current practice specifying any and all differences.
3. Develop a strategy, complete with specific methods, for adopting best practices.
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Benchmarking – Types
Competitive Benchmarking – evaluating best practices of leading competitors within industry.
Non-competitive Benchmarking – evaluating best practices regardless of industry.
Internal Benchmarking – large global firms may find opportunities to disseminate best practices within the organisation.
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Benchmarking – Caveats
Effective benchmarking depends on the competitive attitude of management.
Benchmarking alters manager’s perception of their own company’s performance.
Active benchmarkers are more likely to recognise deficiencies.
High performing SC companies are likely to be active benchmarkers.
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References
Leenders, Ch13, pp361-363 Christopher, Ch3, pp81-111
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