1 Case study of “benchmarking” logistics & supply chain mgt in Thailand Asst. Prof. Ruth Banomyong Head, Dept. of International Business, Logistics & Transport Thammasat Business School

2 Agenda Benchmarking? Benchmarking logistics framework Example of Thai output Questions & Answers

3 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.

4 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.

5 % of Gross Sales <3% <6 % <5% <6% 7% 10% 11% 12% 10% 12% <7% Pharma ceutical Manufact urers Retail Suppliers SupplyDistributors Industrial Suppliers Best-in-Class Average Total Logistics Cost (Procurement, Inventory Carrying costs, 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.

6 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)

7 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 Delivery Of >97% Only 4% base that on the customer’s 1 st request Cost Only half of these organisations do it at low cost! Only 2% of supply chains achieve world class DIFOT & low cost

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

9 Trade Offs Procurement Overview Manage Cross Functional Trade Offs Cost of Procurement Function Cost of Procured Product Supplier Performance (Service) Best Practice Procurement

10 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

11 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.

12 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

Performance KPI Comparisons with Relevant Grouping from the Database: e.g. 240 Manufacturers Including: 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 Cost CP >80 Days Days <40 Days Cash to Cash Cycle Time CP <1% 7 DisadvantageParity >3% 2% Customer Claims CP 35 Stock Turnover CP WORLDCLASSWORLDCLASS 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 XXX

15 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. 100 th 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. XXX

16 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

17 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.

18 Peer group methodology