Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Agenda • Motivation for Performance Measurement • Traditional Performance Measurements Supply Chain Performance Lecture 12 TIØ 4285 Production- and network economics • Different Perspectives on Supply Chain Management and Performance Measures • Supply Chain Performance Measures • Latest Developments in Performance Measurement Systems 1 SCM and Performance Measurement • The purpose of Supply Chain Management is improving the long term performance of individual companies and of the supply chain as a whole! • SCM provides member organizations with an opportunity to optimize logistics performance at the highest level, which is the interorganizational level 2 Motivation Business strategy Overall cost leadership Supply chain strategy Operational excellence Supply chain capabilities and combinations Cost and productivity versus customer service and proactive quality Supply chain performance 3 Low logistics costs, availability, coverage, etc 4 Motivation (cont.) Traditional Performance Measures • A system of supply chain metrics can be used to: • Supply-focused performance – Increase the chances for success by aligning processes across multiple firms – Targeting the most profitable market segments – Obtaining a competitive advantage through differentiated services and lower costs 5 – Logistic costs – Productivity • Demand-focused performance – Customer service – Quality 6 Importance of Performance Measures Examples of Performance Measures • The following slides will display importance of different performance measurements for supply chain success • 1. 2. 3. 4. 5. • The study of these measurements are based on a survey of approximately 1500 US and Canadian firms – Including 111 companies regarded as exhibiting world class best practices in supply chain management and logistics • Determined by an expert panel – See: Edward A. Morash “Supply Chain Strategies, Capabilities, and Performance”, Transportation Journal, Vol. 41, Iss. 1, Fall 2001 Customer service measures (sorted by importance) • Stockouts Fill rate On-time deliveries Overall satisfaction Customer complaints Less important: – – – – – – Backorders Cycle time Complete orders Sales force complaints Response time to inquiries Response accuracy 7 8 Examples of Performance Measures Examples of Performance Measures • • Cost measures (sorted by importance): Quality measures (sorted by importance): 1. 2. 3. 4. 5. • 1. 2. 3. 4. 5. Picking/ shipping accuracy Overall reliability Delivery consistency Document/ invoicing accuracy Shipping errors • Less important: Less important: – – – – – Total cost Cost trend analysis Outbound freight cost Cost per unit Comparison of actual versus budget – – – – – – Number of customer returns Number of customer returns Number of credit claims Damage frequency Order entry accuracy 9 Administrative cost Cost of backorder Cost of damage Inventory carrying cost Cost of returned goods Cost of service failures 10 Examples of Performance Measures Conclusion from the Study • • Supply chain strategy, capability and performance must be congruent, i. e. focusing either on the demand side or the supply side Productivity measures (sorted by importance): 1. 2. 3. 4. 5. • Total productivity index Warehouse labor productivity Units shipped per employee Comparison to historical std. Order entry productivity • Choose capabilities and performance measures according to the focus • Demand-side capabilities are related to customer closeness strategies, whereas supply-side capabilities are related to operational excellence strategies Less important: – – – – Orders per salesperson Units per labor dollar Equipment downtime Transport labor productivity • Demand-side measures (Customer service and quality ) are viewed by the top third firms as more important than supply-side measures (logistical cost and productivity) 11 12 Traditional Supply Chain Metrics • Many traditional supply chain metrics are primarily internally focused logistics measures • Single-company performance is not translated into supply chain performance and vice versa • These metrics fail to capture how the overall supply chain has performed – Fail to identify where opportunities exist to increase competitiveness, customer value and shareholder value for each firm in the supply chain Different Perspectives on Supply Chain Management • System Dynamics • Operations research • Logistics • Marketing • Organization • Strategy 13 Short Description of the Different Companies 14 An Example from the Automotive Industry The Supply Chain: • Robbie Busch AG – One of the world’s biggest automotive suppliers – Develops and manufactures electronic systems, e. g. ABS-systems • Ødi AG – Manufacturing cars for the more exclusive market segment, i. e. highpriced cars – Producing in-house with one exception: a supplier for electronics Supplier Manufacturer Distributor / Retailer Robbie Busch AG Ødi AG Bøller Bil Inventory Inventory • Bøller Bil – Offical importer for Ødi AG’s cars to Norway – Selling Ødi’s to end-customers all over the country Information Funds Goods 15 16 System Dynamics description System Dynamics standard problems and solutions • Views the supply chain as a chain of consecutive, sequentially interdependent local transaction systems • – – – – – • Each local system optimizes the conversion of customer orders into material requirements and finished products • The systems are connected bilaterally through the exchange of orders • The goal of SCM is to equate customer demand with product supply, thereby balancing the conflicting goals of customer service, stock levels and manufacturing costs 17 Problems: • Distortion of demand pattern Uncoordinated ordering behavior Uncoordinated demand planning and demand forecasting Poor inventory visibility Uncoordinated manufacturing control Solutions: – – – – – – – Eliminate local system/ reduce complexity Demand transparency – flow of information Collaborative demand planning Pipeline transparency (inventory visibility) Re-ordering discipline Collaborative production Collaborative capacity planning 18 The System-Dynamics Perspective Supplier Manufacturer Distributor / Retailer Ødi AG Bøller Bil Robbie Busch AG Inventory • • • • • • Inventory Capacity Utilization Cumulative Inventory Levels Stock-Outs Time Lags Time to Adapt Phantom Ordering Operations Research / IT description • Models the supply chain as a configurable and flow-programmable resource network – Moving material objects from the sources of production to end customers – Adhering to various restrictions (constraints) • Elements within the optimization scope include – – – – – – Plants Distribution centers Suppliers Customers Orders Products, etc. 19 OR/IT standard problems and solutions 20 The OR/IT Perspective Supplier • Problems: Manufacturer Distributor / Retailer Ødi AG Bøller Bil – Manufacturing • Number of plants, degree of integration, etc. – Distribution/ transportation – Supplier – Spare parts Robbie Busch AG Inventory • Solutions: – IT-based identification of the optimal algorithm – Heuristics to adapt to the real-life problems Inventory • Logistics Cost per Unit • Service Level • Time to Deliver 21 22 Logistics description Logistics standard problems and solutions • Analyzing the supply chain from a conceptual base • Problems: – Interfaces • Views the chain as a set of business processes, which for management purposes are compared to generic business process models • Internal and external – “Shape” of the internal supply chain – Cycle time • Solutions: • 4 generic processes are suggested: – – – – “idea to market” “prospect to sale” “order to payment” “record to plans” 23 – – – – Sequential integration Vertical integration Horizontal integration Order penetration point 24 The Logistics Perspective Supplier Manufacturer Distributor / Retailer Ødi AG Bøller Bil • Seeing the supply chain as a pipeline connecting products and customers – Segment customers and connect them with the “right” channel Robbie Busch AG Inventory • • • • • Marketing description Inventory Integration Lead Times Order Cycle Times Inventory Level Flexibility • A marketing channel is the result of the process of connecting independent institutions between a point of origin and a point of consumption • Outputs of the supply chain from a marketing perspective are primarily costs and customer service 25 Marketing standard problems and solutions The Marketing Perspective Supplier • Problems: – – – – – – 26 Marketing strategy Determining customer service Balancing the order cycle time and lead time gap Segmentation of customers and differentiation Product characteristics Internal and external interface management Manufacturer Distributor / Retailer Ødi AG Bøller Bil Robbie Busch AG Inventory Inventory • Customer Satisfaction • Distribution Cost per Unit • Market Share / Channel Cost • Solutions: – Do not segment the markets • Undifferentiated approach – Do segment the markets • Differentiated approach 27 28 Organization description Organization standard problems and solutions • Perceiving the chain as a set of inter-organizational relationships • Problems: • Doing business in an open system requires relationships between a company and its environment – The relations may be manifold (chain, vertical, horizontal) – Vertical relations dominate the analysis • SCM defined as relationship-management (upstream and downstream) – Integration, density and interlocks – Structures of control – Conflict management • Solutions: – Quality check of the relationships – Identify the complexity of the relationship – Replace power by trust • Seen as management approach to overcome functional barriers and to coordinate inter-organizational relationships 29 30 The Organization Perspective Supplier Manufacturer Distributor / Retailer Ødi AG Bøller Bil Robbie Busch AG Inventory Strategy description • Perceiving the supply chain as an arrangement of competencies and profits • Strategies answer 2 fundamental questions: 1. In which fields of the market should we act? What is our domain? 2. Given the domain, how should we act? Inventory • • • • • Transaction Costs Time to Network Flexibility Density of Relationships Very often, SCM is seen as dealing with the “How”, but not with “Where”, e. g. success through – – – – integration, optimization of the whole chain close collaboration with customers and suppliers etc. 31 Strategy standard problems and solutions The Strategy Perspective Supplier • Problems: – Different opportunities in time to market – Moving target – anticipation of profitable locations – Supply chain flexibility • Solutions: – – – – 32 Manufacturer Distributor / Retailer Ødi AG Bøller Bil Robbie Busch AG Inventory Virtual vertical integration Vertical hedging Flexibility, re-configuration Product design Inventory • Time to Network • Time to Market • ROI of Focal Organizations 33 34 Problems with these Metrics Example • Single-company metrics, supply chain as a whole is not really analyzed • Consider inventory turn in this value chain • Managers can only determine whether they have met their corporate goals after the fact, by diagnosing financial results or when they lose a key customer • Metrics from different approaches can be competing, Service Level ↔ Inventory Level • The complexity of supply chain management is not captured 35 – Normal traditional performance measure – Does not qualify as a supply chain metric • As inventory moves closer to the point of consumption, it increases in value – If opportunity cost of money and the inventory turns are similar, inventory carrying costs are much higher at the retail level – Improvements in inventory turns at the end of the supply chain will thus improve performance more than changes at the beginning – Inventory (or better: inventory ownership) should be moved backwards in the supply chain 36 Example Supplier Robbie Busch AG Variable cost of product: $5 Full manufactured cost: $ 7 Selling price: $ 10 Comparing Inventory Carrying Costs (ICC) Manufacturer Distributor / Retailer Ødi AG Bøller Bil Supplier Cash value of inventory Variable cost of material: $10 Acquisition cost: $1 Other variable costs: $14 Total variable cost of product: $ 25 Full manufactured cost: $40 Selling price: $60 Manufacturer Distributor / Retailer $5 $25 $62 Inventory carrying costs % 36% 36% 36% ICC/unit with Variable cost of material: $60 Acquisition cost: $2 Total variable cost of product: $ 62 Selling price: $80 1 turn $1.80 $9.00 $22.32 2 turns $0.90 $4.50 $11.16 3 turns $0.60 $3.00 $7.44 4 turns $0.45 $2.25 $5.58 5 turns $0.36 $1.80 $4.46 6 turns $0.30 $1.50 $3.72 7 turns $0.26 $1.29 $3.19 8 turns $0.23 $1.13 $2.79 9 turns $0.20 $1.00 $2.48 37 38 Evaluating Inventory Turns The Need for Supply Chain Metrics • Assuming the same number of inventory turns at every level in the supply chain, the biggest potential lies at the end of the supply chain • What if the number of inventory turns is not equal, but already increasing towards the end of the supply chain? • The requirement to go beyond internal metrics and take a supply chain perspective • The requirement to align activities and share joint performance measurement information to implement strategy that achieves supply chain objectives • The desire to expand the “line of sight” within the supply chain • The requirement to allocate benefits and burdens resulting from functional shifts within the supply chain • The need to differentiate the supply chain to obtain a competitive advantage • The goal of encouraging cooperative behavior across corporate functions and across firms in the supply chain • Assume that the manufacturer has 7 inventory turns whereas the supplier has only 2 • An increase in inventory turns at the manufacturer level results then only in an improvement of $0.16 per unit, whereas an improvement at supplier level level will result in $0.30 per unit lower ICC 39 40 Short Repetition: The Bullwhip Effect Possible Causes Increasing variability of orders up the supply chain • Promotional sales • Volume and Transportation discounts – Batching • Inflated orders • Demand Forecast • Long cycle times • Lack of Visibility to demand information 41 42 Possible Ways to Cope with the Problem • Reduce Variability and Uncertainty The Bullwhip Effect and Performance Measurement • What would be the requirements to a performance measurement system that helps avoiding the Bullwhip effect? – POS – Sharing Information – Year-round low pricing • Based on inventory levels, sales, lead times, … • Information about the performance indicator must be available to all partners • Consequences to the single-company due to changes in the performance indicator must be shown • Managers must be able to derive actions from the information provided by the perfmance indicator • Reduce Lead Times – EDI – Cross Docking • Alliance Arrangements – Vendor managed inventory – On-site vendor representatives 43 44 Supply Chain Performance and Single-Company Performance How to Select Indicators Indicators have to be SMART: Supply Chain Level • • Supply Chain Performance Indicators and Single-Company Indicators have to be connected Customer Competitive Requirements Priorities Management Priorities • Specific: Specific and targeted to the area being measured • Measurable: Accurate and complete data is collected and correlated against a standard Indicators have to be choosen such that they induce congruent actions among the member organizations • Actionable: Allowing for corrective or mainting actions • Relevant: A common downfall is to measure everything, which Single Company Level produces many meaningless measures Customer Competitive Requirements Priorities Management Priorities 45 Supply Chain Performance Measurement: State-of-the-art • Timely: Timely metrics are those for which data is available when it is needed 46 Graphical Support to the User Multi-dimensional KPI (Key Perfomance Indicator) dashboard • Controlling the process performance towards the set objectives requires attention towards several indicators simultaneously • PI dashboard: The following issues have to be considered – Which graphical representation is more efficient? How should it look like to facilitate non-expert users? – Which indicators have to be shown at the same time – Should different users have different dashboards based on the indicators they need to use? 47 48 Conclusions I Conclusions II • THE performance indicator does not exist • Supply Chain Performance Measurement is still under development, but metrics integrating perfomance measurement across multiple companies are emerging • Single performance indicators fail to capture the complexity of supply chain performance • Satisfying customer requirements must be an important component in performance measurement systems • The performance measurement system and all necessary information must be shared along the supply chain 49 Unanswered Questions • Who determines the ”right” performance measure? • How does one determine the ”right” actions to improve performance? • What if profits resulting from one supply chain member’s actions end up with a different member? • … 51 • There some attemps in the field of Logistics to develop Supply Chain Performance Measurement Systems – – – – TOPP AMBITE ENAPS SCOR (Supply Chain Operations Reference model) 50