Major Projecton

Supply Chain Key Performance Measures of Materials Management Department

Indian Railways

ByIRSS (P)-2011 Dipankar Mukherjee

Brajendra Kumar SinghSusant Kumar NayakAjay SonkerManraj Meena

Coverage Objectives Supply Chain Management SCOR ModelBSC ModelRelevant KPIs for MM DepartmentExisting PMs in MM DeptCritical Review of Existing PMsOutput of the project Scope of Future study

ObjectivesTo evaluate the adequacy of present PM system to

measure efficiency and effectiveness of Supply chains of MM department

Whether existing PMs are balanced across customer satisfaction, readiness, cost, sustainability and other parameters as per modern PM models such as SCOR and BSC Model

Scope for improvement

Scope of the Project Study the Supply Chain of supply of materials by MM

department

Study of existing PM system of MM department

Compare existing PMs with key performance attributes referenced from SCOR and BSC model

Identification of new additional KPIs

Preparation of consolidated chart of KPIs

Supply Chain Management (SCM) is thenetwork of organizations and systems thatare involved through upstream anddownstream linkages, in the differentprocesses and activities that produce valuein the form of products and services in thehands of the ultimate consumer

What is Supply Chain Management?(1)

SCM is the process of planning, implementingand controlling the operations of the supply chainwith a purpose to satisfy customers requirementsas efficiently as possible. SCM spans allmovement and storage of raw materials, work-in-progress and finished goods from point-of-originto point-of-consumption.

( Keith Oliver, Booz Allen Hamilton,1982)

What is Supply Chain Management?(2)

SC of MM department

SUPPLIERS

A

USERS

MM DEPARTMENT

PURCHASE OFFICE

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3rd Party Inspection

Flow of Data

Flow of Materials

SCOR Model Supply Chain Operations Reference (SCOR) was developed by Supply

Chain Council (SCC) SCC: Independent, not-for-profit corporation organized in 1996 The Primary Use of SCOR:

– To describe, measure and evaluate supply chain configurations. SCOR contains:

– Standard descriptions of management processes– A framework of relationships among the standard processes– Standard metrics to measure process performance– Management practices that produce best-in-class performance

Enables the companies to:– Evaluate and compare their performances with other companies

effectively– Identify and pursue specific competitive advantages– Identify software tools best suited to their specific process requirements

SCOR: SC Management Processes

Make DeliverSource Make DeliverMakeSourceDeliver SourceDeliverSource

Plan

Supplier (Internal or

External)Company in Question

Customer (Internal or

External)

ReturnReturn ReturnReturn Return

Return

Supplier’sSupplier Customer’s

Customer

Plan-Source-Make-Deliver-Return

Source: Supply Chain Council

SCOR MODEL

Processes MetricsBest in Class

SCOR Model: Methodology

Level 1: Analyze Basis of Competition (Strategic goals)

Level 2: Configure Supply-Chain

Level 3: Align Performance Levels, Practices and Systems

Level 4: Implement Supply-Chain Processes and Systems

SCOR Model: MeasuresCostTotal logistics costValue added productivityWarranty cost

AssetsCash to cash cycle timeInventory days of supplyAsset turns

ReliabilityDelivery performanceOrder fulfillment performance-fill rate, fulfillment lead timePerfect order fulfillment

FlexibilitySupply chain responsivenessProduction flexibility

Does not address:TrainingQualityInformation technologyAdministration

Balanced Score Card (BSC)

This is done using 4 perspectives-financial, customer, internal business processes and learning and growth

It is a concept for measuring whether the company is meeting its objectives in terms of its vision and strategy

Suggested performance indicators within each perspective follow

BSC: Performance Indicators

Financial- ROI, cash flow, financial result, return on capital employed and return on equity

Customer- delivery performance by date and quantity, customer satisfaction and customer retention

Internal processes- number of activities, opportunity success rate, accident ratios and defect rates

Learning and growth- investment rate, illness rate, internal promotions %, employee turnover and gender/racial ratios

Since these above measures can be many and will vary from firm to firm, the key is to strike a ‘balance’ amongst all of them to truly reflect and measure what are the particular firm’s Key Success Factors or Key Performance Indicators

Performance Measurement

MEASUREMENT is the key to performance management since:

If We cannot measure something, We cannot control it

If We cannot control something, We cannot manage it

If We cannot manage something, We cannot improve it

List of Relevant KPIs for MM Department

No. Attributes KPIs Description

1 Reliability Perfect order fulfillment

Percentage of products delivered on-time to customer request with complete documentation and no defects.

2 Responsiveness Order fulfillment cycle time

Total elapsed time from users’ demand or quantity estimate to supply of material to users.

3 Flexibility Upside supply chain flexibility

The amount of time it takes a supply chain to respond to an unplanned increase in demand without service or cost penalty.

4 Cost Cost of goods to issue ratio

Both direct and indirect costs incurred to procure materials in the department. As a percentage of total issues.

Continued----

List of Relevant KPIs for MM DepartmentNo. Attributes KPIs Description

5 Satisfaction Satisfaction Satisfaction of the supply chain partners e.g. vendors, users and employees

6 Evaluation Evaluation of vendors

Evaluation of the performance of vendors

7 Value addition Value addition

Contribution in new product development, kit formation and cost reduction

8 Sustainability Sustainability Green procurement, Social responsibility

Existing Performance Measures in MM Dept.

1. PCDO

Based on the measures prescribed by RB and the measures relevant to the respective zonal railway

2. Criteria for Award of Stores Shield to Zonal Railways

RB fixed the criteria

No. of parameters are measured and the parameters have been given different weights based on their criticality and importance in the system

Award is given to the best functional Unit of the MM department

Details

Critical Review of existing PM system

Not systematic and consistent across the railways

Not fully adequate to measure the overall performance of the SC of the department

Most of the indicators are based on output and less emphasis is given on SC parameters that are related to inputs, process and the external suppliers e.g. Forecasting, co-ordination, vendor evaluation, vendor satisfaction, employee satisfaction etc.

Critical Review of existing PM system

Rules, Regulations and Social Obligations: Not exactly comparable with private industries

Despite of constraints, MM dept is doing good: Inv TOR (10-15%); Compliance level (Safety> 98%, Other >90%)

Value Addition: e-procurement; unified PLs; MMIS; Divisionalisation of stores

Output of the Report

Consolidation of all indicators under Key Performance attributes

Recommendation of new performance indicators and attributes in addition to existing performance indicators

Consolidated Chart of KPIs

Scope of Future Study

In our report we mainly emphasize on to frame a comprehensive list of KPIs and what are the data need to be captured to measure those KPIs.

But further study is required to work out the target value or rating system of all these KPIs. Without a rating system it is difficult to judge the efficiency and effectiveness of the system