OMSAN LOJİSTİK. Performance Measurement in Logistics and Supply Chain Processes. Strategic Logistics Management - Leadership Program -.
Strategic Logistics Management
- Leadership Program -
Complex flow of materials, information and funds within the four walls of a company require a strategic approach to logistics considering performance measures, process design, infrastructure and systems requirements and organization development
Logistics goes beyond the company frontier. Firms interact within interdependent supply chains along with distributors, manufacturers, third-party logistics providers, customers, etc.
Internal and external coordination of logistics flows is critical to capture untapped savings and cost reduction opportunities in business.Companies are complex logistics systems and interact within interdependent supply chains…
Keeping discipline in creating, tracking and improving performance pays off
The theory of performance measures holds in any industry, any country, any business process
Be critical of your performance system, always try to reduce, consolidate, eliminate redundant inefficient ratios
Establishing key performance measures reflects the way you see things (your logistics strategy)…Some upfront comments…
(Factory, Store, User, Consumer)
Fulfilling your service promise, while optimizing system’s resources
(Supplier, Factory, Store, User)
Customer Service that holds the stream of materials, information and funds…
SourcingEach logistics process has a specific role to assure the support of service levels and the optimization of resources.
Define logistics service policy
Fulfill orders with local inventory to meet response time requirements
Define inventory levels to fulfill demand
Optimize O-D lanes to meet response time requirements
Select optimal sourcing mix to meet inventory requirements
Profiling that holds the stream of materials, information and funds…
Descriptive system of logistics activities
Neutral numbers, statistics
Measuring System Design
Good vs. Bad
Action oriented numbers
Logistics Projects JustificationLogistics performance measures will basically define success in fulfilling an overall role or a specific role
Gaining understanding of your logistics activities that holds the stream of materials, information and funds…
Stimulate creative thinking
Identify quick fixes
Logistics activity profiling is the analysis of historical transaction data for the purposes of projecting activity and determining resource requirements.
Order Detail (Lines)
Some profiles will look like this. Customer segmentation and product segmentation are examples of it. Some decisions based on profiles could be …
DC Operations are full of opportunities to profiling. Be sure to avoid “paralysis for analysis” by making sure every profile is tied to a specific issue or decision to make
Profiles are different from performance measures in the sense that they don’t “judge” the effectiveness of a process, they just describe it!
Freight profile by location
Forecast profile for 2 SKU’s
Logistics Performance System looks at: sense that they don’t “judge” the effectiveness of a process, they just describe it!
Measurement Types (Porter)
Level of Detail
Aggregation (and dis-aggregation)
AlignmentA Logistics Performance System (LPS) has some features to be considered…
Detailed Report per Employee at the Warehouse sense that they don’t “judge” the effectiveness of a process, they just describe it!
Date: 01/27/94 Shift 2
Emp ID: 563 Sup ID: Bob Area: D2 Employee Name: Roman, Peter
Job Document Start Perf Std Dir Ind Sel Sel Pieces
Code Number Time B % Mins Mins Mins Aisle Pallets Items Pieces Weight Cube Pieces Mins /hour
START 9731 15:30 0 0 11 0 0 0 0 0 0 0 0 0
DRY 5779 15:41 98% 82 84 0 4 2 141 197 4108 118 197 84 141
MEET 1772 17:05 0 0 18 0 0 0 0 0 0 0 0 0
DRY 5842 17:23 B 95% 62 65 0 3 0 110 155 2489 106 150 65 154
DRY 6166 18:43 L 90% 64 71 0 3 2 102 169 3300 117 169 71 140
DRY 6637 20:24 107% 63 59 0 2 2 88 141 2749 114 148 59 141
BATT 7804 21:23 0 0 13 0 0 0 0 0 0 0 0 0
DRY 6671 21:36 B 20% 23 117 0 2 1 39 52 628 43 52 117 27
STOP 3829 23:48 0 0 0 0 0 0 0 0 0 0 0 0
**TOTAL** 74% 294 396 42 14 9 480 714 13274 498 716 396 108Look at these next two charts… Both measure productivity at the warehouse. Same purpose, different context, scope, detail and frequency
Total Cases per Month (Thousands)
Total Labor Hours
Control is a principle in any good LPS. Nobody should be measured by things he/she can’t control. The control levels will largely depend on your own logistics organization design.
Management Planning Supervisor Operator
People & Assets
Resource, Activity (Output), Process
Logistics financial measurements are the most common and intuitive type of KPIs. Accounting practices however may restrain the possibility to compute logistics cost accurately.
Logistics Decision Objective = Max (Corporate EVA)
Logistics Decision = Min (Operating Cost + Capital Cost + Lost Sales)
Types of Financial
What’s the Output?
What’s the resource?
Can you tell what the logistics output should be?
Disney World was predicting additional warehousing space requirements based on inventory turns reduction and equal storage density
A cycle time measurement will capture the total elapsed time of an activity from beginning to end.
It’s like having customers and suppliers with mental stop watches…Time measurements in logistics report the velocity at which a certain process is conducted
Elapsed Time in Hours
“Manufacturing” perfect orders is the real goal of a logistics system. LPS includes quality measures to address this objective. The “POP” is a close approximation to TQM in Logistics
What is takes to “create” a perfect order?
is entered correctly logistics system. LPS includes quality measures to address this objective. The “POP” is a close approximation to TQM in Logistics
has available inventory
has the right amount of the right products
is damage free
arrives at the right location
is communicated electronically
has no invoice/collections errors
The probability of shipping a perfect order is the multiplication of the probabilities of the 8 independent events. All logistics functions are represented in this KPI!
Complete Order (Discrete Measure 1 or 0, Not Continuous Measure as Case Fill)
On-Time Delivery (1 hour +/- range (FDI) or 30 min +/- range (GMA))
Accurate Invoice (Non-Invoiceable Items have Accurate Invoice =0)Perfect Order in Food Logistics by Grocery Manufacturers of America and Food Distributors International (FDI)
Fill Rate (by unit of measurement) Measure as Case Fill)
Total Fill (Binary)
Unit Fill (Percentage)
Fill Rate (by location)
Fill Rate (by time period)
FinalOne key quality measurement in logistics is fill rate, yet this specific measurement can be computed in several different ways
The logistics performance gap analysis is used to compare logistics key performance indicators with benchmark indicators.
The gaps are used to assess strengths and weaknesses; to identify complementary logistics benchmarking partners; and to develop a cost-benefit justification of a world-class logistics initiative.
Once the LPS is in place a company can begin the auditing process with itself or other companies. A good way to capture the disparities found in an audit is through a Gap Analysis
Process vs. Performance Benchmarking logistics key performance indicators with benchmark indicators.
Internal vs. External Benchmarking
Public vs. Private vs. Competitive Benchmarking
Major Issues in Benchmarking
ComparabilityBenchmarking Logistics Performance Measures
$1 Trillion+ logistics key performance indicators with benchmark indicators.
$0Some public, performance benchmarks: Global Logistics Cost & Logistics Cost as a % of GDP in the U.S.
Robert Delaney, Cass Information Systems, Inc
WALL STREET & SUPPLY CHAIN GLITCHES logistics key performance indicators with benchmark indicators.
Stock drop of 8.62% = $120 million decrease in shareholder value
861 companies reviewed 1989 through 1998: Georgia Institute of Technology, http://gtresearchnews.gatech.edu/newsrelease/CHAINR.html
65% increase!!! logistics key performance indicators with benchmark indicators.
40 RetailersData source for DC Inventory Turns in the U.S. is WERC (Warehousing Education and Research Council)
Average logistics key performance indicators with benchmark indicators.
Inventory Carrying Charges
Admin. / Order Processing
Logistics cost components have evolved over time. Herb Davis database has been recording Total Logistics Cost since 1970. This could be a good source of public, performance benchmarks
Herbert W. Davis, 2001
DOCK TO STOCK logistics key performance indicators with benchmark indicators.
4 to 48 HOURS
ORDER CYCLE TIME
2 to 24 HOURS
95.5 to 99.98
LINES / HOUR
2.5 to 13.2
ORDERS / HOUR
.1 to 6
CASES / HOUR
.7 to 117
PIECES / HOUR
1.2 to 1435
ERRORS PER CASE
.15 to 1
ERRORS / ORDER
.05 to 3.5
ERRORS PER LINE
.03 to 1.2
Department Stores Publishing HardwareTelecommunications & Utilities Medical Electronics ManufacturingService Parts Health, Beauty & Cosmetics Food & BeverageMail Order Public Warehouses
GEORGIA TECH METRICS
Increasing top management concern over inventory planning and financial implications
Decision to evaluate current performance at similar companies and operations
AMAT Inventory Turns = 1.8
AMAT Line Fill Rate = 92%
Logistics at AMAT qualified as a support organization for service parts in the high-tech electronics segment.
Some results…The AMAT benchmarking exercise story: from public to private, from standard to normalized…
AMAT public benchmarking effort. In this case we were looking for line fill rate by industry, being careful with the way companies calculate this KPI
Good, but not good enough. We look terrible, we need more specific comparison points, because we are more complex that all of the other companies…
1. specific comparison points, because we are more complex that all of the other companies…number of commodities and part numbers
2.SKU introduction and purging rates
3.SKU substitutability and interchangeability
4.response time requirements
5.number of suppliers and customers
6.availability of timely, true consumption data
7.geographic spread of the logistics network
8.risk of obsolescence
10. inventory management riskWe are different… (sure)We are more complex … (sure)Lets see what makes you more complex
Grading complexity in all benchmarking data points using the 10 factor analysis. Control points Coca-Cola (5) and Defense Logistics Agency (40).
“A (potential) problem with benchmarking (to be sensitive to) is that it can restrict the team’s thinking to the framework of what is already being done in the company’s own industry. By aspiring only to be as good as the best in the industry, the team sets a cap on its own ambitions. Used this way, benchmarking is a tool for catching up, not for jumping ahead.”Keep it in perspective…
Hammer, M. & Champy, J. “Reengineering the Corporation: A Manifesto for Business Revolution”, 1993
Disney’s Distribution Center
Spartan Stores’ Logistics Operation
AMOCO’s Transportation Performance Analysis
Logistics measures must be “in harmony with a company's overall business strategy”. For example, “Speedy delivery (and timely) order status (updates) are part and parcel of Amazon's brand identity. If Amazon drove its logistics activities with measures focused solely on reducing delivery costs, it would cripple its ability to serve customers. (Smart managers) are fusing their logistics plan(s) with their business strategies, ensuring that what is measured in the field is valued at the top of the organization”.Final words…
From Keeping Score: Measuring the Business Value of Logistics in the Supply Chain, CLM, 1999