Week 3: Logistics and Operations

Performance (Bowersox et .al., 2020)

 Measurement System Objectives

 Performance Assessment
 functional perspective

 customer accommodation

 supply chain comprehensive

 Benchmarking

Learning outcomes

 Recognise supply chain and logistics system level

performance goals and alternative perspectives of
performance measurement

 Explain how operations and logistics decisions

affect performance at the organisational and
supply network levels
 Measurement System Objectives

 Monitoring (tracking) system performance and

reporting outcomes to management
 Controlling via appropriate standards and
modifying (improving) when actual < standard
 Directing (motivating and rewarding) staff
towards meeting higher performance goals
 The overall aim is to improve shareholder value;
via improvement of system performance?

Shareholder Value Focus

Measures Increased Lowest

• Perfect Order Customer Landed
• Dwell Time
Service Total Cost
• Inventory Days
• Total Landed Cost
OPERATIONAL EXCELLENCE
ASSET UTILIZATION
Measures
Fixed Working • Cash-to-cash cycle time
Capital Capital • Segment profitability
• Return on assets
Reduction Reduction
• Free cash spin
 Balanced Scorecard
(Kaplan and Norton, 1992)

Shareholder value
(profitability + ROI)

Financial Perspective
How do we look to shareholders?

Service Efficiency
Quality Customer Perspective Operations Perspective Productivity
Satisfaction How do customers see us? What must we excel at? Defects rate

Innovation and Learning Perspective

Can we continue to improve and create value?
Superior value proposition
Process improvement

Performance Assessment

 Functional Perspective
 warehousing, transport, order processing
 expressed in aggregate form (e.g. as a % of sales/volume)
 Customer Accommodation
 perfect order, absolute performance, customer satisfaction
 emphasizes customer requirements/relationship aspect
 Supply Chain Comprehensive Metrics
 overall logistics/supply chain performance
 promotes a collaborative, integrated approach to SCM
Logistics and Supply Chain Performance

 Operations and Logistics Performance goals

 efficient processing of orders
 swift and even flow of material (products)
 fast and on-time delivery of product
 optimum utilisation of capacity

 Supply Chain Performance goals

 efficiency
 speed
 responsiveness

Performance Measures

 Functional Perspectives
 warehousing, transport, order processing
 expressed in aggregate form (e.g. as a % of sales)
 Customer Accommodation
 perfect order, absolute measures, customer satisfaction
 emphasizes customer perspective
 Supply Chain Comprehensive Metrics
 overall logistics/supply chain-wide performance
 promotes a collaborative and integrated approach to SCM
 Performance Assessment

 Functional:
 Costs - $ spent on specific activities
 Customer Service – availability, operational
performance and service reliability
 Quality – damage frequency and accuracy levels
 Productivity – ratio of output to input of resources
 Asset Management – utilization of capital investments

TYPICAL PERFORMANCE METRICS

Customer Service Cost Management Quality Productivity Asset Management

Fill rate Total cost Damage frequency Units shipped per Inventory turns
employee
Stockouts Cost per unit Order entry accuracy Units per labor dollar Inventory levels,
number of days supply
Shipping errors Cost as a percentage of Picking/ shipping Orders per sales Obsolete inventory
sales accuracy representative
On-time delivery Inbound freight Document/ invoicing Comparison to Return on net assets
accuracy historical standard
Backorders Outbound freight Information availability Goal programs Return on investment
Cycle time Administrative Information accuracy Productivity index Inventory classification
(A,B,C)
Delivery consistency Warehouse order Number of credit Equipment downtime Economic Value Added
processing claims (EVA)
Response time to Direct labor Number of customer Order entry
inquiries returns productivity
Response accuracy Comparison of actual Warehouse labor
versus budget productivity
Complete orders Cost trend analysis Transportation labor
productivity
Customer complaints Direct product
profitability
Sales force complaints Customer Segment
profitability
Overall reliability Inventory carrying
Overall satisfaction Cost of returned good
Cost of damage
Cost of service failures
Cost of backorder
 Performance Assessment

 Customer Accommodation:
 Perfect Order – measures the effectiveness of the
firms overall integrated logistics performance
 Absolute Performance – indicators are not
averaged, but rather absolute
 Customer Satisfaction – collecting, monitoring
and measuring information from the customer

 Are these measures extreme ???

“Perfect Order” achievement

 Dimensions of “perfect order”
 Correct order entry
 Correctly formatted EDI and transaction codes
 Items are available
 Ship date allows delivery
 Order picked correctly
 Paperwork complete and accurate
 Timely arrival
 Shipment not damaged
 Correct invoice
 No error in payment processing
 Perfect Order” achievement

 The “Perfect Order” Defined

 Complete orders delivered to customers requested
date and time in perfect condition, including all
documentation.
 .97 x.97 x.97 x.97 x.97 x.97 x.97 x.97 x.97 x.97=.73

 Perfect Orders should be assessed at Each Stage

in the supply chain
 Can you really capture the data?
 Best Practice: 60-70% Zero Defects !

Performance Assessment

 Supply Chain Comprehensive:

 Cash-to-Cash Cycle Time
 Inventory Days of Supply
 Dwell Time
 On-shelf In-stock Percent
 Supply Chain Total Cost
 Supply Chain Response Time
 Supply Chain: Cash-to-Cash Cycle Time

 Cash-To-Cash Cycle (conversion) Time

 cash-to-cash = total inventory days of supply +

days sales outstanding – days payables
outstanding
 time required to convert a dollar spend on inventory
into a dollar collected from sales revenue

 Influenced by logistics as well as marketing, pricing

and terms of sales

example

Source:
https://link.springer.com/chapter/
10.1007/978-3-642-17271-7_3

 A retailer maintains a 30 days supply of inventory,

enjoys 30 days’ trade credit from its suppliers and
sells to end-customers on cash-only transactions

 What is the cash-to-cash cycle time?

 Supply Chain: Inventory Days of Supply

 Inventory Days Of Supply

 The total inventory in the supply chain - inbound, plant

and all stocking locations in the channel - expressed as
calendar days of supply based on recent actual daily
rate of sales (or forecast rate of sales).

 ECR study: in many supply chains for consumer

processed food -120 days supply of finished goods !

Supply Chain: other metrics

 Dwell Time: the ratio of time inventory sits idle in a

supply chain vs. being productively used or positioned

 On shelf in stock %: the percentage of time a product is

on the shelf in a store (supermarket!)

 Total Supply Chain Cost: total landed cost – recognizes

that costs should not be shifted from one organization in
the chain to the another
 SC Total Cost - Total Landed Cost

Total SC
Cost

Raw Production Final Assembly Distribution Retail

Material of (manufacture)
Sourcing Components incl. transportation

Supply Chain Response Time (SCRT)

 The (theoretical) time to recognize a fundamental

shift in final customer demand, internalize that
finding in all supply chain members, re-plan, and
increase/decrease output (auto industry – SUV)
 Suppose that one of your recently introduced
products becomes the most successful product in its
category – taking 50% market share when your
forecast was for only 20%. How long before you
actually recognize this? How long before you can
arrange production capacities, procurement and
distribution arrangements to accommodate it?
Selection of Performance Metrics!

Source: Griffis et al. 2007; Griffis et al. 2004

Selection of Performance Metrics!

Source: Griffis et al. 2007; Griffis et al. 2004

 Selection of Performance Metrics!

Source: Griffis et al. 2007; Griffis et al. 2004

Benchmarking

 Benchmarking is also an important aspect of

supply chain performance measurement
 Reveals best practice
 Choice of benchmark
 internal and external

 competitors and non-competitors

 related and non-related industries
 Benchmarking operations and logistics processes ???
 SCOR Model

 Supply Chain Management Reference Model

 a process reference model developed by the
Supply Chain Council in 1997
 Objective
 to measure SCM performance and identify
opportunities for improvement
 Provide a structure for linking business
objectives to SCM operations
 Represents
 supply chain processes, performance measures,
best practices and software requirements

Structure/Key Components

 Standard descriptions of process elements

 plan, source, make, deliver, return (closed-loop)
 Benchmark metrics
 reliability, responsiveness, flexibility, cost,
asset utilization
 Best-in-Class management practices
 Mapping of software products
SCOR Model (for self-study!)
Source: https://www.youtube.com/watch?v=yeVPZmdhfgE