the importance of benchmarking1 © 2004 supply chain visions – all rights reserved upply hain...

upplyhain isions

®V© 2004 Supply Chain Visions– All Rights Reserved

Mike LedyardPartner

Supply Chain Visions

Continental Traffic Service, Inc.9th Annual Client Focus Group

May 19th 2004

Benchmarking

1© 2004 Supply Chain Visions – All Rights Reserved

upplyhain isions

®V

In This Session…

Lessons from the Real World

Ten Steps to Benchmarking

Measuring Up


upplyhain isions

®V

Lessons Learned in the Real World

If you are not going to take action based on the results, don’t measure it!

In other words, “Don’t measure what you won’t change!”

Key questions that must be asked and answered:Will I change my behavior, or ask my people to change their behaviors, based on this measure?Does the potential benefit to be gained from this information exceed the cost of obtaining it?

You will have a greater immediate impact measuring loading factors and utilization of contracted carriers than total cost to serve

Build from key components up to the overall process measures, but know where you are going before you begin


upplyhain isions

®V

10 Step Path to Benchmarking Success 1

Articulate your strategy Determine your critical processesDevelop process measuresIdentify your Key Performance Indicators (KPI’s)Collect your dataResearch “best in class”Compare performance levelsDetermine reasons for low performanceIdentify action initiativesContinuous improvement

1 Ledyard and Vitasek, “To Benchmark, Or Not, Is Not Really A Question,”CTSI Logistics Forum, Vol. 5, No. 1, pp. 1-3


upplyhain isions

®V

Strategy Comes First

“Would you please tell me which way I ought to go from here? “ asked Alice.“That depends a good deal on where you want to get to.”“I really don’t know,” replied Alice.“Then it doesn’t matter which way you go,” said the cat.

Lewis CarrollAlice's Adventures in Wonderland


upplyhain isions

®V

Profitable Growth

Profitable Growth

Increase Retail / Direct Sales

Increase Retail / Direct Sales

Increase Wholesale Sales

Increase Wholesale Sales

Business Objectives

Strategic ImperativesNew ProductsNew Products

Measures of Success

Mission-Critical

Initiatives

Tactical Plans

Tactical Plans Support Strategy

Tactical plans are derivatives in support of identified goals and objectivesScorecards measure Critical Success Factors


upplyhain isions

®V

CustomerSupplier

Logistics Functions

Focal Company

Planning,Forecasting &

Scheduling

Value-addedConversionProcesses

Information

Sourcing &Procurement

Fulfillment

Determine Critical Processes

ProductsCash

ServicesSourcing &

Procurement

Fulfillment

Information

Keebler, Manrodt, Durtsche and Ledyard (1999), Keeping Score: Measuring the Business Value of Logistics in the Supply Chain, Chicago, IL: The Council of Logistics Management

A Process View of the Supply Chain


upplyhain isions

®V

Process Measures vs. Results Measures

Results MeasuresUsually functionally orientedUsually focused on one aspect of a process Measures components of a process – but not the whole processIf left unchecked, drive suboptimization

Process MeasuresAre usually company-wide or customer focusedAre cross functional in nature (and sometimes cross company)Measure the “total effect” of a processDrive overall optimization of costs and customer satisfaction


upplyhain isions

®V

Task

Task

Task

Activity

Function

Develop Process Measures

The composition of a process measure is based on the composition of the process being measured

Activity

Task

Task

Task

Function

Activity

Task

Task

Task

Function

Process

Activity Activity Activity

Task

Task

Task

Task

Task

Task

Task

Task

Task


upplyhain isions

®V

Cycle Time – Make-to-Stock

Fulfillment Cycle Time

Order Entry & Processing

Delivery and Receipt

Shi

pmen

t Dat

e

Rec

eipt

by

Cus

tom

er

Order Pick / Pack / Ship

Ord

ers

Pic

ked/

Hou

r

Ave

rage

Ord

er

Siz

e

Ord

ers

Pro

cess

ed/W

k

Ord

er R

ecei

pt &

V

erifi

catio

n

Ord

er E

ntry

into

S

yste

m

Ord

ers

Pro

cess

ed/H

r

Ord

ers

Rec

eive

d/W

k


upplyhain isions

®V

Measures Drive Behaviors

- How much did it cost to fill the order?

- Cross functional view to work with OM and Manufacturing and Transportation

- Overall order accuracy and quality – including invoicing

- 95% Perfect Order Fulfillment

Best

Does Not Consider

Kinds of Behavior Created

Measure

- How much did it cost to fill the order?

- Customer complaints (quality or accuracy)

- Did it arrive when the customer wanted?

- How much did it cost to fill the order

- Cycle time up or down the supply chain (tail)

- Customer complaints (quality or accuracy)

- Cross functional view to work with OM and Manufacturing

- Large inventories on hand to prevent out of stocks

- Expedited orders to manufacturing

- Airfreight shipments- Large inventories on

hand to prevent out of stocks

- 97% On Time to Customer Request

- 98% Fill Rate for a Distribution Center in 48 hours

BetterBad


upplyhain isions

®V

Logistics Measures in Context

Cash-to-cash cycle timeNet asset turnover, return on net assets

Days of inventory in entire supply chain by activityTotal safety stocks as % of total inventorySafety (hedge) stocks by customer Dedicated inventories by customer Local support inventories

Inventory turnover Days of inventoryReturn on investmentReturn on assets

Asset Utilization

Perfect order fulfillment (right item, right qty, right place, right time, defect free, correct documentation)Overall customer satisfaction

On-time delivery to commit, requestOrder cycle time variabilityOrder processing accuracyForecasting accuracyPlanning accuracyManufacturing schedule adherenceStockouts against forecast

Fill rates by customer, commodityAvailable for customer pickup per requestErrors by line item, activity, reason code, etc.Cycle count accuracy

Reliability

Upside production flexibilityForecasting/planning cycle time% Expedite requests fulfilled Order fulfillment lead time

Backlog & back ordersAggregate cycle times by activityOrder cycle time Lead time from order receipt to manufacturer complete

Order fulfillment lead time by customer, commodityFill rates by customer, commodity% Expedite requests fulfilled by customerCapacity load & utilization

Flexibility & Responsiveness

Total supply chain management cost as a percentage of salesTotal delivered cost

Logistics costs (order mgmt + distribution + freight) as a percentage of salesFreight costs as a percentage of sales to customerDistribution costs as a percentage of salesInventory shrink and obsolescence as a percent of salesLabor productivity analysis Over, short, damage as % of salesReturns as a percentage of sales

Costs per line, per order, per activity, per shift, etcLoad factors, lines per order, qty per line, etc.Freight costs per pound by mode and destination

Cost

Strategic MeasuresProcess MeasuresResults Measures

Companies should strive for “balanced” measures that are more process and strategic in nature

© 2003 Supply Chain Visions – All Rights Reserved

(as published in Jan 2003 issue of Logistics Management)


upplyhain isions

®V

What Gets Measured Gets Managed

Concentrate on measuring the right things – second emphasis on measuring them in the most efficient manner

Segmentation is essential – by market, product, and/or customerDon’t try to “boil the ocean”

Focus on areas of greatest concern, or greatest painMeasuring anything that does not directly affect profitability, productivity or safety only adds burden while diverting attention from that which is truly important


upplyhain isions

®V

Implementation – Select the Measures

Determine which 3-4 metrics are critical to your success of your functional teamCreate value add statements that are substantially under your team or area’s control and contain measurable performance goals

Our team adds value by maintaining 98.36% or better on-time and in-

full shipments

Our team adds value by ensuring that our

supplier quality is at or above 99.67%

Our team adds value by maintaining 99.21% or

better accuracy on material procurement

VVA (Validate the Value Add) Statements


upplyhain isions

®V

On Time and In Full Shipments

94%

96%

98%

100%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Begin Measuring

Summarize data so that results are obvious Make it easy to see if goals are being metInclude historical data to track trends


upplyhain isions

®V

Research Best in Class

Benchmarking – Two ViewpointsOnly by understanding how your performance compares to others in your industry can you identify where improvement efforts will be beneficial

The only benchmarks that matter are your customer’s expectations


upplyhain isions

®V

Best-in-Class Companies Are Like Decathletes

Top ranking athletes across a set of eventsAccumulate the most points among all eventsWin some events, but not allKnow their own strengths and weaknessesKnow the strengths and weaknesses of competitorsFocus training first on events that match their relative strengths & events which they feel they can or must winSpend remainder of training time and energy on the remaining events to assure they are minimally competitive in all events

Best-in-ClassCompanies

Decathletes

Top ranking companies across a processesBeats competitors in most areas, not allIs not best-in-class in every performance category, but wins in areas that match their strategies and prioritiesKnow their own competencies, strengths, and weaknessesLikewise, know the same about their competitorsSpend most of their resources in those areas which in which theymust excel (in accordance with competitive knowledge, customer and stakeholder requirements, and business strategies)Minimally competitive in every performance category

Source: Performance Measurement Group


upplyhain isions

®V

A Pareto chart shows where to focus your effortsOften, your failures are caused by another group! This data helps point you in the right directionAsk “Why” 5 times, if necessary

Understand Why You Are Not Meeting Your Goals

Late Order Reason Codes

0

5

10

15

20

25

30

35

Purch Documents BM Quality Picking Carrier Admin


upplyhain isions

®V

Take Action

Taking action will help drive change to improve your performanceSharing your VVA data helps mitigate emotions and finger pointingExplore all actions to solve the problem

We are working with Purchasing to:

1) Determine which suppliers have slipped

2) Actively issue Corrective Actions for suppliers with late shipments

3) Ensure all supplier Statement of Works/Contracts have receiving goals outlined


upplyhain isions

®V

In Practice

Our team adds value by maintaining 98.36% or better on-

time delivery.

Root Cause

Action

Results

VVA Metric

On Time and In Full Shipments

94%

96%

98%

100%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Late Order Reasons

05

101520253035

Purch Documents BM Quality Picking Carrier Admin

We are working with Purchasing to:1) Determine which suppliers have slipped 2) Actively issue Corrective Actions late supplier

shipments3) Ensure all supplier Statements of Work/Contracts have

receiving goals outlined

The VVA method

creates a culture for

employees to turn data

into information

and take action to

drive improvement


upplyhain isions

®V

Keep In Mind…

The greatest measures not used are not worth spending the timeDrive a culture that are “believers” in measures and not just “collectors” or “posters”Develop and foster an environment that utilizes performance measures

Involve employeesActively discuss improvement areasDrive improvement of the business and not just pay for performance

Information does not guarantee action No “end” to supply chain improvements

Today’s exceptional service becomes tomorrow’s minimum cost of doing business

You cannot fix that which you cannot measure