Developing Supply Chain Performance Metrics

Process and Frameworks

August 2013
This presentation details some of the tools and frameworks we
use to help clients optimise their supply chain metrics
The objective is to define a benchmarking framework capable of:
Develop an overview of the different metrics to measure supply chain performance.
Suggest a range of the most important metrics that can be used across industries.
Discuss how the most important metrics link other operational metrics within each
stage of the supply chain.
And importantly, while we detail a wide array of potential metrics for a range of industries, we
want to emphasise less is more and the importance of selecting a concise range of metrics
most suited to your industry and organisation
We used information from several sources to develop our
toolkits
Internal and external documents:
High level benchmarking framework for supply chain performance (H .Cook):
Shop Study (March 2007) accessing information from available experts and past
projects.
Supply chain benchmarks and best practice (Dow Polyurethane & Epoxy April 2005).
Supply Chain Benchmark Assessment (March 2012).
Supply chain appraisal and benchmarks: (client X September 2013).
Consultations and workshops various client supply chain team members
Consultations with supply chain professionals across Australia
Performance measurement is an important but complex
subject
Companies see the need for metrics. . .
. . . but developing the right set of
metrics is a challenge
If you cant measure, you cant
manage, you cant motivate
Establishing the proper measures
within an organisation enhances
continuous
No commonly used model.
Business issues that warrant
performance measurement:
Differ between industries.
Differ within industry.
Change overtime.
There is no one right answer
Focus
Accountability
Communication
Linking strategy
to action
Assigning
accountability
to take action
when needed
Measuring progress
towards goals through
interactive
communication and
education
We used a generic supply chain framework as a basis for
this toolkit. . .
Supply Chain Framework
Suppliers
Purchasing
Information Flow
Forecasting & Production Planning Customer Service
Inventory Management
Inbound
Logistics
Manufacturing
Maintenance
Marketing &
Sales
Outbound
Logistics
Integrated
Supply Chain
Management
Customers
. . . and concluded there are three strategic objectives we
should focus on when analysing the supply chain
The Acid Test
Whichever metrics are chosen, they must be able to measure companys performance
against its stated objectives
Strategic objectives:
Quality
Time
Cost
Products/services according
to customer expectations
On agreed time
At reasonable cost
Purchasing
Information Flow
Forecasting & Production Planning
Inventory Management
Inbound
Logistics
Manufacturing
Maintenance
Marketing &
Sales
Outbound
Logistics
Integrated
Supply Chain
Management
Customer Service
Supply Chain Framework
Tailor to company
specific objectives
We began with a brainstorming session on the key
drivers for quality, time and cost
The complete picture can be found in the appendix.
We look at the supply chain from the customers perspective.
And ask what could go wrong along the supply chain:
What are drivers of performance from a quality, time and cost point of view.
Price Service
Product
quality
Product
quantity
Product
delivery
Late
arrival
Late
delivery
Inventory
cost
Product
cost
Produc-
tion cost
Delivery
cost
Customer
service
cost
Quality Time Cost
Supply Chain KPIs
KPIs help to identify where the performance problem is within the
supply chain, and steer towards areas to explore why.
Accuracy (as
% of sales)
Customer
satisfaction
% of satisfied
customers
Total cycle time
Time from
placing order to
receiving goods
% of products
delivered on
time
Total supply
chain cost as %
of sales
Cost per product
sold as % of
sales
Cost as %
of sales
% of products
delivered
according to
customer order
% of
customers
satisfied
with service
% of products
ordered
already in
stock
Defect rate
of products
as % of
production
% of goods
delivered
according to order
Time from order placement
to reception of goods
Time from production order
to delivery into finished
product warehouse
Downtime as % of
total production
time
% of goods delivered on
time by supplier
Cost as %
of sales
Cost as %
of sales
Cost as %
of sales
Number of
stock
turns/years
Total Supply
Chain
Forecasting Purchasing
Inbound
Logistics
Manufacturing Maintenance
Inventory
Mgmt
Marketing &
Sales
Customer
Service
Outbound
Logistics
Quality
Time
Cost
% of suppliers
that make
90% of
purchases
Need to
identify
M&S KPIs
Each stage of the supply chain has a variety of metrics to
monitor operational effectiveness
These metrics help identify why there is a performance problem.
Forecasting Purchasing Inbound Logistics Manufacturing Maintenance
Quality
Time
Cost
Actual vs. forecasted sales
% of data which can be used
without modification in the
planning process
Number of suppliers who account
for 90% of total purchase value
% of correct orders placed
# of alternative sources of supply
# of suppliers involved in product
development/innovation
# of suppliers per purchasing
employee (purchasing
professional)
# of vendors products ordered
Purchasing head count as % of
total head count
% of goods delivered according to
order by supplier
# of overshipments
% of direct material purchases that
are not inspected at incoming quality
assurance
% of orders delivered without
unplanned communication, disputes
or special attention
Defect rate of products as % of
production
Scrap rate as % of production
# of changes per production
period
% of goods repackaged
Actual vs. production capacity
Time from order placement to reception of goods Time from production order to deliver warehouse
% of acc payable handed in 130 days
% of acc payable handled in 3160 days
% of acc payable handled in 6190 days
% of acc payable handled over 90 days
Average time to negotiate a contract
% of goods delivered on time by
supplier
%of suppliers who deliver daily
% of suppliers who deliver weekly
% of suppliers who deliver monthly
Response time to schedule changes
Turnaround time on rejected items
Average production
leadtime
Current manufacturing
leadtime
Minimum production
leadtime
Downtime as % of total
production time
Downtime due to parts
shortage (or stock outs in
general)
Hours of unplanned downtime
Cost as % of sales Cost as % of sales
Cost as % of total costs
Cost of expedite repair
materials
Purchasing spend per supplier
Cost as % of sales
Cost as % of total sales
Cost as % of sales
Cost per saleable unit
Cost per unit produced
Nos of strategies, or uptime
service-based contracts
Quality
Time
Cost
Each stage of the supply chain has a variety of metrics to
monitor operational effectiveness (cont.)
Inventory Management Marketing and Sales Customer Service Outbound Logistics Total Supply Chain
Quality
Time
Cost
% of products ordered in
stock
Defect rate of products as %
of products leaving
warehouse
Accuracy of inventory
records
Inventory vs. service level
Obsolete vs. active inventory
% of correct orders taken
# of additional sales from
customer referrals
Oder changes as % of orders
filled
% of customers satisfied with
service
Complaints as % of total
orders
# of customer contacts per
order
# of enquiries not answered to
customers satisfaction
% of customer follow-up
% of invoices containing errors
% of orders delivered
complete and without error
(order fill rate)
% of products delivered
according to customer order
(quantity/quality)
Degree of utilisation of
facilities (%)
Equipment utilisationload
Equipment utilisationweight
Time from order placement to start of delivery
Customer satisfaction (rating)
% of satisfied customers
% of information on credit
history limit, information on
open-order history, on
outstanding balance, pricing
available, product history
available on-line, product ID
code and shipping points
available On-line
Ratio of operations labour as
% of passive labour
Average # of orders rejected
Average product time in
warehouse
No. of days consumption in
stock Planned days of
inventory on hand
% of acc receivable settled before due date
% of acc receivable settled in 130 days
% of acc receivable settled in 3160 days
% of acc receivable settled in
6190 days
Delivery time
% of products delivered early
# of deliveries per manhour
% of orders delivered on time
Average # of days delay after
scheduled ship date
Total cycle time
Time from placing order to receiving
goods
% of products delivered on time
Average customer quoted leadtime
Average leadtime from receipt of order
to shipment
Cash to cash cycle
Longest customer quoted leadtime
New product introduction time
Product changeover time
Shortest customer quoted time
Ave time to respond to requests
Cost as % of sales
# of stock turns/year
Cost as % of cost of goods
purchased
Carried worth of expired lots
Average stock level
Cost as % of sales Cost as % of sales
Cost per delivery
# of route miles per delivery
# of warehousing facilities
# of warehousing of locations
% of transportation units
owned by company
Cost per order
Cost per route
Total supply chain cost as % of sales
Cost per product sold as % of sales
% of profit from base purchase
% of profit from increased purchases
% of profit from premium pricing
% of revenue generated by largest
customer group (top 20%)
Cost per product sold as % of sales
Total cost per order
Total cost per unit produced
Cost as % of sales
Given the multitude of metrics we suggest analysing
supply chain performance using a hierarchy of measures
. . . digging through the causal tree to improve business performance.
Key KPI
Supporting
Metrics
Other
Operational
Measures
Type of
Measure
Example
Highest Level Use
Who Uses It
Forecasting
accuracy (as % of
sales)
Integrated supply
chain
Generic
benchmarking
Consultant
Top management
Supply chain stage
manager
% of suppliers
connected via EDI
Supply chain stage
diagnostic
Consultant
Supply chain stage
manager
A-goods as a % of
inventory
Supply chain stage
diagnostic
Supply chain stage
manager
Objective
Find where the
problem is within the
supply chain
Identify the why
within the supply
chain stage
Give more in-depth
information about
supply chain stage
For example, the quality of customer service performance can
be clearly measured at three different levels
Quality
Key KPIs
Suggested Supporting
Metrics
Other Operational
Measures
% of customers satisfied
with service
# of complaints as % of
total orders
# of phone calls to
customer service
department per order
shipped
# of complaints due to:
order entry, packaging,
shipping error, . . .)
% of calls abandoned,
answered by recording,
delayed, . . .
% of complaints handled
by: customer service rep.,
department manager, . . .
KPIs will be measured for generic benchmarks, whilst operational metrics will be measured
by a customer service manager.
. . .
# of complaints that
were not answered to
customer satisfaction
Average number of
orders rejected
Key KPIs
Suggested Supporting
Metrics
Other Operational
Measures
Outbound logistics performance . . .
% of products delivered
according to customer order
(quantity/quality)
(These can often be driven
by customer service metrics)
Degree of utilisation of
facilities (%)
Equipment utilisation
(load/weight)
Delivery time
% of orders delivered on
time (as defined by customer)
# of deliveries/man hour
% of orders delivered early
% of orders delivered with an
average delay of 1 month
Average number of days of
delay after scheduled ship
date
Cost as % of sales # of route miles per delivery
# of warehousing
facilities/locations
% of transportation units
owned by company
Cost per delivery
Cost per order
Cost per route
Quality
Time
Cost
Key KPIs
Suggested Supporting
Metrics
Other Operational
Measures
Quality
Time
Cost
For maintenance, commonly used supply chain performance
metrics relate to time and cost
The quality of maintenance is commonly measured by lag measures in terms of cost or as a production
measure (downtime).
We suggest the use of two lead measures that proactively monitor maintenance performance.
Number of service contract
Number of training days for
maintenance staff
Downtime as % of total
production time
Cost as % of sales
Cost per unit produced
Downtime due to parts
shortage (or stock outs in
general)
Hours of unplanned
downtime
Just remember . . .
Be Selective
The number of potential supply chain metrics is unlimited, but we need to be very selective
in our choice of metrics for each function or process. Always aim for the minimum number
of most relevant KPIs for your circumstances
Take a Step-By-Step Approach to Developing Your Metrics
A step by step approach to measuring supply chain performance avoids being overwhelmed
by data.
The following segmentation gives us such an approach:
A few select key KPIs allow us to identify where the problems exist within the
supply chain.
Key supporting metrics then allow us to answer why the problems exist.
Operational metrics allow us to go analyse the supply chain stage in more detail.
There is no right set of metrics, only the right set for your circumstances
The right set of metrics does not exist for a given industry or even a specific company.
The right set of metrics is dynamic like the business it measures and will change with the
type of industry/problem and over time.
Appendix
KPI Definitions.
Causal Trees:
Quality
Time
Cost
Service
Product
Delivery
Wrong Info.
Higher Prices
Than
Competitors
Higher
Margin Than
Competitors
Badly Set
Customer
Expectations
Wrong Order
Information
Unable to Meet
Customer
Demand
Produced
Faulty Goods
Products
Damaged
After Mfg
Price
Product
Quantity
Product Quality
Delivered
Faulty Goods
Quality
Quality KPIs
Did Not Have
the Right
Materials
Forecasts
Incorrect
Information
Failure
Human
Failure
Technical
Failure
Late Arrival
Late
Departure
Late Arrival
Information
Failure
Infrastructure
Failure
Product
Failure
Wrong
Information
Info. Sent
to Wrong
Person
Information
Sent Late
Product Not
in Stock
Faulty
Product
Human
Failure
Technical
Failure
Un-
controllable
Factors
Information
Failure
Infrastructure
Failure
Human
Failure
Did Not
Produce
Anymore
Did Not
Produce
Enough
Information
System
Failure
Technical
Failure
Human
Failure
Could Not
Produce
To Capacity
Total
Capacity
Too Small
Other
Production
Priorities
Materials
Not
Delivered
Wrong
Materials
Delivered
Materials
Delivered
Late
Suppliers
Forgot
We Did Not
Order
Suppliers
Got
Order Wrong
We Got
Order
Wrong
Suppliers
Delivered
Late
We Ordered
Late
Time
Time KPIs
Purchasing
Cost
Customer
Service Cost
Inventory Cost Delivery Cost
Production
Cost
Too Much
Stock
Wrong
Type of
Products
Obsolete
Stock
Infrastructur
e Stock
Human
Resources
Costs
Used More
Expensive
Materials
Materials
Arrived Late
Human
Failure
Technical
Failure
Human
Resource
Cost
Maintenanc
e Cost
Complaints
Wastage Planning
Used More
Raw
Materials
Higher Cost
Than
Competitor
Ordered
Late
Different
Materials
People Systems
Same
Suppliers
Worse Deal
Different
Suppliers
Skills Product MOT
Promotion
Sales
Volumes
Lower
Dont Know
How to
Negotiate
Many
Suppliers
Cost
Cost KPIs