1 case study of “benchmarking” logistics & supply chain mgt in thailand asst. prof. ruth...

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Case study of “benchmarking” logistics & supply chain mgt in Thailand

Asst. Prof. Ruth BanomyongHead, Dept. of International Business, Logistics & Transport

Thammasat Business [email protected]

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Agenda

• Benchmarking?

• Benchmarking logistics framework

• Example of Thai output

• Questions & Answers

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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.

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Reasons to benchmark

• The objective in developing the benchmarking exercise was to gain information on how organisations:

1.Defined current performance levels

2.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.

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% 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.

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Benchmarking logistics framework

• Benchmarking exercise conducted in 2002 with Thailand Productivity Institute.

• 18 Thai companies registered

• MNEs, State Enterprises & SMEs

• Use of SCAR framework

(Supply Chain Assessment Review)

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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

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This measure considers the performance of the order management process from the time the order is taken through to the time the product is delivered to the customer. EXAMPLE OF CALCULATION OF DELIVERY IN-FULL AND ON-TIME Customer 1 orders 5,000 units of product AAAA And gets 5,000 units of product AAAA

7,000 units of product BBBB And gets 6,000 units of product BBBB 8,000 units of product CCCC And gets 8,000 units of product CCCC 9,000 units of product DDDD And gets 8,000 units of product DDDD

Total 29,000 DELIVERED ON TIME 27,000

Customer 2 orders 2,000 units of product EEEE And gets 2,000 units of product EEEE 7,000 units of product FFFF And gets 7,000 units of product FFFF 8,000 units of product GGGG And gets 8,000 units of product GGGG 17,000 ORDER 2 HOURS LATE 17,000

TOTAL ORDERS 46,000 44,000

IN FULL BY ORDER: 1 order out of 2 orders are correct = 50% IN FULL BY LINE: 5 lines out of 7 lines in full = 71% IN FULL BY UNIT: 44,000 out of 46,000 were delivered = 96%

ON TIME ORDER : 1 order out of 2 is on time = 50% ON TIME LINE 4 lines out of 7 are on

time =57%

ON TIME UNIT 27,000 units out of 44,000 are in time =61%

In full and on time is the in full rate multiplied by the on time rate

IN FULL AND ON TIME BY ORDER: (.5 X .5): = 25% IN FULL AND ON TIME BY LINE: (.71 X .57) =40% IN FULL AND ON TIME BY UNIT: (.96 X .61) = 59%

Calculation of Delivery in-full and on-time (DIFOT)

DIFOT

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Trade Offs

Procurement Overview

Manage Cross Functional Trade Offs

Cost of Procurement Function

Cost of Procured Product

Supplier Performance (Service)

Best Practice Procurement

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Supplier Performance

Delivery

in-full

Ave 93%

Delivery

on-time

Ave 95%

X -Less

Rejects

Ave 1%= Supplier DIFOT

What’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

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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.

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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

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----------------------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

14 = Outlines the spread of other organisation's positions on the Champions-Challengers chart. Note the darker colouring designates greater concentration of companies.

This is the Cost and Service chart for 240 Australasian and Asian Pacific manufacturers.

This chart illustrates the service delivered by the XXX Manufacturing supply chain, balanced against the costs incurred to deliver that service.

“This plots XXX Manufacturing as a 85th percentile (low) cost operation delivering 95th percentile service levels across the supply chain.

100th percentile is best practice.

The XXX Manufacturing supply chain operates in the cost-service square that indicates marginal service improvement potential and some cost reduction opportunity.

Cost & Service Chart

0

40

80

0 40 80

Customer Service

Logi

stic

s C

ost

COST/SERVICE TRADE OFF

2. Significant Service Improvement.

Some Cost Reduction.

High Service

Low Service

High Cost

Low Cost

3. Substantial Service Improvement.


1. Best Practice Supply Chains.

Some Service Improvement.


9. Substantial Service Improvement.

Substantial Cost Reduction.



7. Some Service Improvement.


Cost/Service Trade Off Chart - 240 Australasian Manufacturers

LFD Manuf.

6. Substantial Service

Improvement. Significant Cost

Reduction.


Significant Cost Reduction.

4. Some Service Improvement.

Significant Cost Reduction.

XXX

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Inputs & Outputs Chart

= Outlines the spread of other organisation's positions on the Champions-Challengers chart. Note the darker colouring designates greater concentration of companies.

This is the Inputs-Outputs chart for 240 Australasian and Asian Pacific manufacturers.

This chart plots the XXX Manufacturing supply chain as having 100th [best on database!] percentile outputs.

100th percentile is best.

The XXX Manufacturing supply chain operates in the inputs – outputs square that indicates some potential to further develop the input structure, in order to provide a robustness that will ensure XXX Manufacturing continue to deliver high outputs. Does the level of complexity require more sophisticated inputs? Would XXX maintain high outputs given a 20% surge in demand.

0

50

100

0 50 100

Supply Chain Enablers (That Deliver the Outcomes)

Sup

ply

Cha

in O

utco

mes

Del

iver

ed (

Ser

vice

& C

ost

)

INPUTS/OUTPUTS CHART

5. Significant potential to further develop input

structure.

Significant potential to deliver higher outputs.

4. Well developed input structure.



Well developed input structure delivering

corresponding outputs.

High

LowHigh

LFD Manuf.


structure.

Delivering high outputs.

3. Substantial potential to further develop input

structure.



structure.



structure.

Substantial potential to deliver higher outputs.


structure.




Inputs/Outputs Chart - 240 Australasian Retail Suppliers

XXX

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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

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Thailand Inputs & Outputs Chart

= Outlines the spread of other organisation's positions on the Champions-Challengers chart. Note the darker colouring designates greater concentration of companies.

This is the Inputs-Outputs chart for 18 Thai Supply Chains. Compared to other Thai companies:

This chart illustrates the outputs delivered by Thai companies’ supply chains (an aggregate of service and cost), and the inputs structure (plans, systems, technologies, culture) in place to deliver those outputs.

0

50

100

0 50 100

Supply Chain Enablers (That Deliver the Outcomes)

Su

pp

ly C

hai

n O

utc

om

es D

eliv

ered

(S

ervi

ce &

Co

st)

INPUTS/OUTPUTS CHART


structure.





Well developed input structure delivering

corresponding outputs.

High

LowHigh


structure.



structure.



structure.



structure.



structure.




Inputs/Outputs Chart - 18 Thai Supply Chains

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Peer group methodology

1

Transfer and implement best practice processes across sites

Define and agree on “critical success factors”

of business Develop relevant KPIs to measure

performance

2

Collect and compare individual performance

3

4

Review business process behind

benchmark KPI

5 6

Develop Best Practice Report

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Review implementation plans and activities

8

Continue to monitor performance

Plan

9

Change

Analyse

Measure

Identify and discuss performance gaps and

benchmark KPIs

1 case study of “benchmarking” logistics & supply chain mgt in thailand asst. prof. ruth...

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