Supply Chain Management Lecture 13 – Measurement & Metrics Alexa Kirkaldy.
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Transcript of Supply Chain Management Lecture 13 – Measurement & Metrics Alexa Kirkaldy.
Supply Chain Management Lecture 13 –
Measurement & Metrics
Alexa Kirkaldy
Lecture 13 - Learning ObjectivesOn completion you will be able to:
• Discuss some of the weaknesses of traditional measurement systems
• Explain how the balanced scorecard and supply chain measurement systems can help improve alignment, emphasise customer satisfaction and promote process integration.
• Be aware of the SCOR model.
Measurement Clichés “If you can’t measure it, you can’t manage it.”“What gets measured gets done.” Tom Peters“When performance is measured, performance improves. When
performance is measured and reported, the rate of improvement accelerates.” Thomas Monson
“Not everything that counts can be measured, and not everything that can be counted counts.” Albert Einstein
• Measurement creates understanding• Measurement drives behaviour• Measurement leads to results
Fawcett, Ellram and Ogden, “Supply Chain Management”, 2014, Chapter 13
Great Visionaries!But what is the message?
1. “Everything that can be invented has been invented” (Charles H. Duell, Commissioner, US Office of Patents, 1899).
2. “This ‘telephone’ has too many shortcomings to be seriously considered as a means of communication” (Western Union internal memo, 1876).
3. “Heavier-than-air flying machines are impossible” (Lord Kelvin, President, Royal Society, 1895).
4. “Who the hell wants to hear actors talk?” (H.M. Warner, founder of Warner Brothers, 1927).
5. “I think there is a world market for maybe five computers” (Thomas Watson, Chairman of IBM, 1943).
6. “There is no reason anyone would want a computer in their home” (Ken Olson, founder of Digital Equipment Corp., 1977).
Change is CONSTANT!
•Traditionally most measures are functional
•Key end-to-end Supply Chain metrics must replace the traditional metrics
Metrics in the traditional supply chain reflect its fragmented nature
$$$
Cash to Cash Inventory Days of Supply Supply Chain Response Time Total Order Fulfilment Lead Time
$
With only financial metrics being cross-functional
Evolving characteristics of Customer Satisfaction metrics
Traditional Practice Emphasizes Best in Class Emphasizes
Internal service measures over customer satisfaction measuresExternal assessment that reveals what customers really think is important
Measures that are expressed as averages Absolute measures expressed in customer centric terms
Measure that treat all customers the same Measures that recognize unique needs of individual customers
Traditional Measurement
Fawcett, Ellram and Ogden, “Supply Chain Management”, 2014
Framework for supply chain measurement• Delivery performance
– Delivery compared to customer request date– Delivery compared to commit date
• Responsiveness and flexibility– Order fulfilment lead time – Supply chain response time
• Total Supply Chain Cost– Total acquisition cost / total cost of ownership– Customer order management costs
• Cash to cash cycle time– Inventory days of supply– Cash to cash cycle time
Time
The right…Place
Condition
Quantity
Cost
Product
Customer
Rushton, Croucher and Baker (2010)
Great delivery performance
Delivery Performance
Supply Chain Response Time
Re – plan response time
+
Source response time
+
Make response time
+
Deliver response time
Total Supply Chain Cost
Order management cost +Material acquisition cost+Inventory carrying cost +Supply chain finance, planning and execution cost.+ Market mediation costs
Cash to Cash Cycle
Cash-to-cash cycle time:
Average days to turn a dollar invested in raw material into a dollar collected from the customer= Total inventory days of supply + days receiveable – days payable
Inventory:
Inventory days-of-supply or ratio of inventory to cost of goods sold.
SC Inventory Days of SupplyTotal number of days of inventory required to support the supply chain - from raw materials to the final customer acquisition. Expressed as calendar days of supply based on recent actual daily cost of sales
Cash to Cash Cycle TimeThe time required to convert a dollar spent to acquire raw materials into a dollar collected for finished product ( total inventory days of supply + days sales outstanding - days payable outstanding)
Inventory Dwell TimeThe ratio of days inventory sits idle to days inventory is being productively used or positioned
Customer Inquiry Response Time The average elapsed time between receipt of a customer call and connection with the appropriate company representative
Customer Inquiry Resolution Time The average elapsed time required to completely resolve a customer inquiry
Order Fulfilment Cycle Time The average actual lead times consistently achieved, in calendar days, from customer order to customer delivery.
On Shelf In Stock Percentage The percentage of time that a product is available on the rack, shelf or wherever the customer expects to find and buy it.
Perfect Order FulfilmentA perfect order is one that is delivered complete, on time, in perfect condition and with accurate and complete documentation. Fulfilment is the percent of order that are perfect ( perfect orders / total orders)
Source / Make Cycle Time The cumulative time to build a shippable product from scratch, starting without inventory in stock or on order.
Supply Chain Response Time The theoretical number of days required to recognize a major shift in market demand and increase production by 20 %
Total Supply Chain Cost The sum of all the costs incurred in planning, designing, sourcing, making and delivering a product broken down for each member of the supply chain
Value Added Productivity Total company revenues generated less the value of externally sourced materials expressed as a ratio of total company headcount.
Other Supply Chain Performance Measures
Linking Measures Corporate
Mfg Director
PlantManager
DepartmentManager
ProcessDrivers
Returnon assets
Inventorydays
Output/Equipment $
Output/Square metre
Occupied
ManufactureCycle Time
Finished GoodsInventory Days
Days VendorLead Time
Machine Down Time
% Good OutputTotal Output
% UnplannedSchedule Changes
Defective Sub-assembly
Parts Availability
Wait on QC
NoMan
power
PowerFailure
Change-over
Times
Beischel and Smith (1991)
Difficulties of aligning measures in a single firm
Adapted from Ray Martin (1997)
Corporate Strategy
Corporate Plan
Integration of Functional Objectives
MarketingStrategy
FinancialStrategy
ManufacturingStrategy
HRMStrategy
InnovationStrategy
Operational &Departmental Strategies
MainlyFinancialMeasures
Mix ofFinancial& Non-FinancialMeasures
Mainly Non-FinancialMeasures
Performance measures satisfying functional strategies
Performancemeasuressatisfyingstrategicplan
Kaplan & Norton’s Balanced Scorecard
How do our customers see us? Customer perspective
How do we look to our shareholders?
Internal business perspective
Linking long term strategy to short term actions
Financial perspective
Can we continue to improve & create value?
What must we excel at?
Innovation and learning perspective
Linking SCM to the Balanced Scorecard
Harrison A. & van Hoek R., Logistics Management and Strategy, 2012.
Tesco Wheel
‘Our management tool called the Steering Wheel is divided into four quadrants – Customer, Operations,
People and Finance – which, in turn, are divided into several segments, each with a set of Key Performance Indicators (KPIs) which are based
on demanding but achievable targets’
Supplier
Plan
Customer Customer’sCustomer
Suppliers’Supplier
Make DeliverSource Make DeliverMakeSourceDeliver SourceDeliver
Internal or External Internal or External
Your Company
Source
Supply Chain Operations Reference Model (SCOR)
SCOR Model
Return Return ReturnReturn Return Return Return Return
Building Block Approach
Processes Metrics
Best Practice Technology
Types of Benchmarking Internal
– comparing internal operations across departments of business units
Competitive– comparing the product or operations with a direct competitor
Functional (or industry)– comparing similar functions in the same broad industry
Generic– comparing business functions or processes regardless of industry
Customer– comparing performance against customer expectations
SCOR: Strategic, Tactical, Operational
Supply Chain Performance Metrics Framework, Gunasekaran, Production Economics (2004)
Things to do!Read the case study
Possible oral presentation questions• How is performance measured in this industry
or firm?• Who is the best supply chain manager in this
industry and what should be the benchmarks for performance?
Lecture 13, Key Points & TipsBased on Fawcett, Ellram and Ogden, “Supply Chain Management”, 2014.• A firm’s ability to monitor and evaluate its value-added processes & work effectively with
supply chain partners depends on its measurement capability• Traditional measurement has focused on asset management, cost, customer service,
productivity and quality.• Measurement can be used to create alignment and should try to link strategy to
measurement, align measures across functional areas and align measures vertically in the firm and through the supply chain.
• Customer focussed measures must find out what customers value and how they evaluate performance.
• Process costing using techniques such as Activity Based Costing and total cost of ownership are critical in making trade-offs visible.
• Benchmarking is a useful tool in establishing objective targets and identifying new methods for improvement, so called best practices.
• The balance scorecard approach can be used to overcome some of the weaknesses of traditional measurement systems by incorporating financial and non financial measures, communicating results more effectively and encouraging improvement.
• Firms and individuals find it hard to focus on more than 10 individual metrics and a range of 6 to 10 is normally recommended.
• The SCOR model can help in to benchmark and measure supply chain performance. Other models such as the EFQM model could also be used.
• The AMR and Gartner research provides a useful guide to the top 25 supply chains.