Supply Chain Performance Measurement “The more you measure, the more you know!” M.Tariq Yousafzai Innovator and Business Creator (ILSCM)

Focus on ‘the story behind the figures’ ‘Eh, turnover has decreased 10% but fortunately costs also … so there is no problem!’

Common Mistakes  Recency  Central Tendency  Leniency  Horns/Halo Effect

Measure the right things  Critical Success Factor (KSF) = an organisational variable, critical for successfully reaching the strategy  Key Performance Indicator (KPI) = a measurable parameter for the CSF that gives information about that CSF

Example CSF + KPI

Some conceptualities  Difference between a measure and a metric  A measure is easily defined with no calculations and with simple dimensions  A metric needs definition, involves a calculation or is a combination of measurements, and is often a ratio

Lecture 7-7 Characteristics of Good Measures

Question????  Is it really true that logistics affects all aspects of an organization's performance?

Lecture 7-9 Raising the Performance Bar

Process Measure Categories

Logistics Quantification Pyramid

Dimensions of Performance Metrics  Establishing appropriate metrics is a complex problem.  Measuring inappropriate performance can lead to a company chasing the wrong goal.  Metrics drive behavior --- what you measure is what you get.

Common areas where there are inefficiencies 1.Quality – 2.Production level – 3.Processing – 4.Waiting – 5.Movement – 6.Stock –

Specific measures for logistics  Product availability  Reliability of delivery  Total travel time and distance  Delivery cost  Prices and discounts offered  Information available  Order location and tracking  Orders received on time  Mistakes in deliveries  Customer satisfaction  Flexibility and customisation  Frequency of delivery service  Loss and damage  Availability of special equipment

Specific measures for logistics  Helpfulness of drivers  Handling of queries  Time to load and unload  Total weight moved  Number of errors in deliveries  Areas covered  Size and capacity of vehicles  Skills of drivers  Utilisation of vehicles  Advance warning of supply problems  Convenient delivery size  Consistency of service  Errors in processing and administration  Additional services provided

Performance of warehouses  Order cycle time  Number of orders processed  Cost of each stock transaction  Time taken to prepare each shipment  Customer services  Errors in order picking  Damage and loss  Special storage facilities  Amount of product substitution

Performance of warehouses  Average stock value  Changes in stock value  Utilisation of storage area and volume  Proportion of orders met from stock  Proportion of demand met from stock  Weeks of stock held  Stock turnover

Dimensions of Performance Metrics  Logistics cost metrics should focus on the total supply chain, not on just one link.

Lecture 7-19 Other Useful Performance Guidelines  The metrics must be consistent with overall corporate strategy.  The metrics must focus on customer needs and expectations.  Prioritize your metrics.  Focus upon processes not functions.  Use a balanced approach in selecting and developing metrics.  Precise cost measurement is an important aspect for gauging improvement.  Use technology to enhance efficient performance measurement.

Evolution of Metrics Utilization  Most organizations go through several phases in the development of meaningful metrics: Stage 1 – awareness of the importance of using the appropriate metric Stage 2 – developing the actual metric Stage 3 – performance improvement Stage 4 – integration internally and across the supply chain

Supply Chain Metrics  Supply chain metrics are very different from traditional logistics metrics in that they measure inter-company performance rather than just internal performance.  These measures of performance must be common across the firms in the supply chain to be meaningful.

Measures are often used in comparisons against  Absolute standards  Target performance  Historical standards  Competitors’ standards – typically through benchmarking, which 1.Identifies the logistics process to benchmark 2.Finds the competitor with the best performance 3.Compares operations and analyses differences 4.Finds reasons for the differences 5.Designs new operations to give improved performance 6.Implements the plans and monitors progress

Developing SC Metrics  Should be result of team effort  Involve customers and suppliers  Executive dashboard or KPIS  Mteric owners identification  Establish a procedure to mitigate conflicts arising from metric development and implementation..  Must be consistent with corporate strategy  Establish management support

Characteristics of well- performing organisations