2/22/2002richard zhu/logistics management1 benchmarking the supply chain

2/22/2002 Richard Zhu/Logistics Management 1

Benchmarking the Supply Chain


Outline

Benchmarking the supply chain Supply chain mapping and throughput efficiency Supplier and distributor benchmarking Supply-Chain Operations Reference Model Managing the supply chain of the future - the new

organizational paradigm The seven principles of supply chain management


What is Benchmarking?

Competitive Benchmarking isthe continuous measurement of the company’s products, services, processes and practices against the standards of best competitors and other companies who are recognized as leaders

Who are doing it?– Xerox started the practice in 1981, then became popular in all major

international companies, e.g. Motorola– There are international organizations specialized in this service, e.g.,

Global Benchmarking Council, American Productivity and Quality Center

– Asian Benchmarking Clearinghouse, Hong Kong Benchmarking Clearinghouse


Key Consideration Dimensions in Logistics Benchmarking

Logistics output, i.e., achieving customer service goals and customer’s perception of performance

Performance should be compared to the ‘best of the class’. Don’t limit your effort to players inside the industry only!

Logistics processes, i.e., not enough to just measure the output, processes which generate the output should also be measured!

Benefits of Benchmarking

Enable best practices from any industry to be creatively incorporated into the benchmarked process

Provide stimulation and motivation to professionals involved in implementing benchmarked findings

Breaks down ingrained reluctance to change (more receptive to ideas from another industry)

May identify technological breakthroughs from other industries (e.g. bar-coding)


Benchmarking Logistics Process

Key Steps Understand the structure of the process, i.e., process

mapping, process analysis, flow charts Identify the critical processing steps, i.e., process

bottlenecks, critical path Benchmark those critical processing steps against

‘best in class’ Measure performance at supplier/customer interface Derive the most effective processes and adopt the best

control and measurement tools


Understand the Process

CustomerOrder

Inventoryavailable

Creditchecking

Inventoryfile

Customerorder

status

Shippingcustomer

order

Processorder

Sales andmarketingfunction

Production

Accounting

InvoicingBackorder

Productionschedule

Materialprocurement

Shippingdocuments

Warehousewithdrawal

Transportscheduling


Identify Critical Points

Supplier Mgmt

Production Mgmt

Inventory Mgmt

Order fulfillment

Customer Service

CustomerOrder

Inventoryavailable

Creditchecking

Inventoryfile

Customerorder

status

Shippingcustomer

order

Processorder

Sales andmarketingfunction

Production

Accounting

InvoicingBackorder

Productionschedule

Materialprocurement

Shippingdocuments

Warehousewithdrawal

Transportscheduling


Benchmark against ‘Best in Class’

Supplier

Mgmt

Inventory

Mgmt

CustomerService

End user

Inventoryavailability

Perfect orderfulfillment

Consumersatisfaction

Productionplan vs actual

SupplierPerformance& Mat. Inv.

Service levelperformance

Prod.Mgmt

OrderFulfill


Practices Uncovered by Xerox via Non-competitive Benchmarking

Type of company Practice

Drug wholesalers Electronic ordering between store and distribution center

Appliance components Forklift handling of up to six appliances at once

Electrical components manufacturer

Automatic in-line weighing, bar code labeling, and scanning of packages

Photographic film manufacturer

Self-directed warehouse work teams

Catalogue fulfillment service bureau

Recording of item dimensions and weight to permit order-filling quality assurance based on calculated compared with actual weight


Supply Chain Mapping and Throughput Efficiency


Throughput Efficiency

Value-adding time is time spent doing something which creates a benefit for customer (i.e., the right product in the right place and at the right time)

Non-value-adding time is time spent on activities that can be eliminated with no reduction in benefit to the customer

Throughput efficiency is defined as:

Value-added time

End-to-end pipeline timeX 100


Value Added Through Time

2 106 14 18 22 26 30 34 38

10%

50%

100%

Sup

plie

r le

ad ti

me

Inbo

und

mat

eria

l

Pri

mar

y co

nver

sion

Sec

onda

ry c

onve

rsio

n

Pac

kagi

ng Shi

ppin

g

Dis

trib

utio

n ce

nter

pic

k

Shi

p to

cus

tom

er

Weeks in Supply Chain

% of Total Value AddedThroughput efficiency

is only around 25%!


Product Variety Through Time

2 106 14 18 22 26 30 34 38

5

25

50

Weeks in Supply Chain

No of Variety

Packaging

2nd Conversion

Supply Chain Map

A time-based representation of the processes and activities involved as the materials/products move through the supply chain.

Horizontal time – time spent in process (manufacturing, transit, assembly/packaging, etc.)– Time required for system to respond to increase in demand

Vertical time – time spent by product/WIP standing as inventory– (Horizontal + vertical time) = time required to ‘drain’ system of

inventory

Multi-component products – total pipeline determined by the slowest moving item


Pipeline Mapping

Commoditymarket

End user

Fiber store(20)

Spinning (15)

Yarn finishedstore (10)

Yarn store(5)

Knitting (10)

Grey stock(15)

(7)

Dyeing &finishing

(5) (5)

Raw material(10)

Finished fabric

Componentcutting (5)

Sewing (18)

Finished goodsstore (20)

DC (15)

Store (10)

(2)(2)

Spinning Fabric supplier Manufacturer Retailer

Length 60 days Volume 175 days


How to Use Supply Chain Mapping

It provides a powerful basis for logistics reengineering projects

It makes the total process and its associated inventory transparent

It measures product or service supply chain efficiency (i.e., value-added vs. non-value-added time)

It highlights the consequences of some ‘rules’ and ‘policies’ the company is imposing (or has inherited) in the areas of inventory, purchasing, production planning, and vendor management


Assignment?

Define the supply chains of the products or services for the company you are working for. And map out those supply chains suing the tools learnt in this class;

Calculate the supply chain efficiency of your company, and benchmark it against other players in the industry;

Identify issues in the supply chain and propose reengineering projects for the company.


Supplier and Distributor Benchmarking

In reviewing your supplier and distributor relationship and benchmark it against the ‘best in class’, the emphasis should be on assessing their contribution to overall supply chain performance (efficiency and effectiveness). Some of the key issues are:– willingness to work as a partner / co-maker

– commitment to continuous improvement

– acceptance of innovation and change

– focus on throughput time reduction

– utilization of quality management procedures

– use regular and formal benchmarking processes themselves

– do they seek to improve communication with you?

– are they flexible? Customer-focused?


Supplier and Distributor Benchmarking - some typical measures

Supplier Internal Distributor

QualityOn-time performanceStock availability

CommunicationsSchedule integrationCo-makership

Throughput timesOn-time performanceStock availability

CommunicationsRequirements planningPartnership

Value-added servicesCustomer concernDelivery performance

e.g. e.g. e.g.

e.g. e.g.

Interfaces


Setting Benchmarking Priorities

Which processes and entities in the supply chain are of strategic importance

Which processes and entities have a high relative impact on the business economics (costs, revenue, asset performance, and human productivity)

Where there is a choice between ‘make’ and ‘buy’ (processes of high impact on performance /productivity and hard to source from suppliers)

Where there is internal readiness to change


Who to Benchmark against? The Supply Chain Council represents a wide spectrum of

industries and other related institutions (700+ members)– Supply Chain Operations Reference-model (SCOR)

Council of Logistics ManagementThe CLM has more than 10,000 members and hosts one of the most

valuable Annual Conferences in the field

Institute of Logistics and TransportThe ILT has over 24,000 members, forged by the merger of two UK

Logistics & Transport entities in May 1999

International Warehouse Logistics AssociationThe IWLA has over 550 members including 3PL, 4PL, public and contract

warehouses as well as their suppliers

The Balance Scorecard

Identify key performance indicators for management to Identify key performance indicators for management to meet strategic goalsmeet strategic goals

1. Articulate logistics and supply chain strategy– To fit with overall corporate and marketing goals

2. What are the measurable outcomes of success?– ““Better, faster, cheaper”Better, faster, cheaper”

3. What are the processes that impact these outcomes?– Processes leading to better “order achievement”, shorter

pipelines, lower costs

4. What are the drivers of performance within these outcomes?

– Identify by “cause-and-effect” analysis, devise measurement indices

Supply Chain Operations Reference-model (SCOR)

Build around five major processes: Plan, Source, Make, Deliver and Return, as the cross-industry standard for supply chain management

Provides a standard way to measure supply chain performance and to use common metrics to benchmark against other organisations

– The model is regularly updated based on most recent study and research results. The latest version is V5.0.

– The Supply Chain Council provides regular workshop for its members to understand the model

– Website address: www.supply-chain.org


What is a Process Reference Model?

Process reference models integrate the well-known concepts of business process reengineering, benchmarking, and process measurement into a cross-functional framework. A Process Reference Model can:– Capture the "as-is" state of a process and derive the desired

"to-be" future state

– Quantify the operational performance of similar companies and establish internal targets based on "best-in-class" results

– Characterize the management practices and software solutions that result in "best-in-class" performance


What Does a Process Reference Model Contains?

Standard descriptions of management processes A framework of relationships among the standard

processes Standard metrics to measure process performance Management practices that produce best-in-class

performance Standard alignment to software features and

functionality


How Can a Process Reference Model be Used?

Once a Complex Management Process is captured in Standard Process Reference Model form, it can be:

Implemented purposefully to achieve competitive advantage

Described unambiguously and communicated Measured, managed, and controlled Tuned and re-tuned to a specific purpose

SCOR: Three levels of process detail

1. Top level– Defines the scope and content for the SCOR model– Basis of competition performance target set

2. Configuration level– Representation of the company’s supply chain using 30

core “process categories”

3. Process Element level– Defines company’s ability to compete in chosen market– Process element definitions, inputs, outputs, systems/tools;– Performance metrics, best practices, systems capabilities

4. Implementation level– Defines practices to achieve competitive advantage and

adapt to change

SCOR Level 1: Core Process Definitions

Plan– Processes that balance aggregate supply and demand to develop

strategies to best meet sourcing, production and delivery requirements Source

– Processes that procure goods and services to meet demand Make

– Processes that transform product to a finished state to meet planned or actual demand

Deliver– Processes that provide finished goods or services to meet demand (order

management, transportation, distribution) Return

– Processes associated with returning or receiving returned products; post-delivery customer support

SCOR Level 2:

Each SCOR process can be further described by process type: Planning

– Balance aggregated demand and supply– Occur at regular intervals, consistent planning horizon– Contribute to supply-chain response time

Execution– Scheduling/sequencing, transform product and/or moving product– Contribute to order fulfilment cycle time

Enable– Prepares, maintains, or manages information or relationships on which

planning and execution processes rely

““SCOR Configuration Toolkit” SCOR Configuration Toolkit” – 30 categories of process-type combinations

SCOR configurability

A supply-chain configuration is driven by: Plan levels of aggregation and information sources Source locations and products Make production sites and methods Deliver channels, inventory deployment and products Return locations and methodsSCOR must accurately reflect how a supply-chain’s configuration

impacts management processes and practices.

– Each intersection of two execution processes (Source-Make-Deliver) is a “link” in the supply chain

– Each process is a customer of the previous process and a supplier to the next

– Every link requires an occurrence of a plan process category

Configuring supply chain threads

Each thread can be used to describe, measure, and evaluate supply-chain configurations.

1. Select the business entity to be modelled (e.g. product set)2. Illustrate the physical locations of:

– Production facilities (Make)– Distribution activities (Deliver)– Sourcing activities (Source)

3. Illustrate primary point-to-point material flows using “solid line” arrows

4. Place the most appropriate Level 2 execution process categories to describe activities at each location

5. Describe each distinct supply-chain “thread” (the set of Source-Make-Deliver supply-chain processes) to understand common, and distinct, execution process categories

6. Place planning process categories (using dashed lines) to show links with execution processes


Summary of Supply Chain Operations Reference-model (SCOR)

Metric type Outcomes Diagnostics

CustomerSatisfaction / Quality

1. Perfect order fulfillment2. Customer satisfaction3. Product quality

9. Delivery to commit date10. Warranty costs, returns and

allowances11. Customer inquiry response

time

Time 4. Order fulfillment leadtime

12. Source/Make cycle time13. Supply chain response time14. Production plan

achievement

Costs 5. Total logistics costs 15. Value added productivity

Assets 6. Cash-to-cash cycle time7. Inventory days of supply8. Asset performance

16. Forecast accuracy17. Inventory obsolescence18. Capacity utilization


Managing the Supply Chain of the Future - the new organizational paradigm


CLM Study: How the Leading-edge Firms Manages Logistics?

Concerning organization structure, leading-edge firms:– Have had formal logistics organization longer

– Are more apt to have logistics headed by an officer-level executive

– Adopt a more fluid approach to logistics organization and encourage frequent re-org to take advantage of opportunities that arise

– Tend to favor centralized control

– Are more apt to execute boundary-spanning or externally-oriented logistics functions



Concerning strategic posture, leading-edge firms:– Have a greater tendency to manage logistics as a value-

added process

– Reflect a stronger commitment to achieving and maintaining customer satisfaction

– Place a premium on flexibility, particularly in regard to accommodating special or non-routine requests

– Are better positioned to handle unexpected events

– Are more willing to use outside service providers

– Are more apt to view service provider relationship as strategic alliance



Concerning managerial behavior, leading-edge firms:– Expend more effort on formal logistics planning

– Are more apt to publicize their performance commitments and standards

– Are more apt to have chief logistics officers involved in business strategic planning

– Respond effectively to non-planned events

– Regularly use a wider range of performance measures, including asset mgmt, cost, customer service, productivity, …

– Invest in state-of-the-art information technology


New Logistics Organization Paradigm

From functions to processes From profit to performance From products to customers From inventory to information From transaction to relationship


What Does It Take to Manage the Supply Chain of the Future?Paradigm Shift Leading to Competence Required

From functions toprocesses

Integral management ofmaterials and goods flow

Cross-functional manage-mentand planning skills

From products tocustomers

Focus on markets and thecreation of customer value

Ability to define, measure andmanage service requirementsby market segment, i.e.,‘perfect order achievement’

From revenue toperformance

Focus on the keyperformance drivers ofprofit

Understanding of the ‘cost-to-serve’ and time-basedperformance indicators

From inventory toinformation

Demand-basedreplenishment and quickresponse systems

Information systems andtechnology

From transactions torelationships

Supply chain partnership Relationship management and‘win-win’ orientation


The Seven Principles of Supply Chain Management


Seven Principles of Supply Chain Management

Segment customers based on service needs Customize the logistics network Listen to signals of market demand and plan

accordingly Differentiate product closer to the customer Source strategically Develop a supply chain-wide technology strategy Adopt channel-spanning performance measures


Summary of Learning Objectives

Benchmarking the supply chain Supply chain mapping and throughput efficiency Supplier and distributor benchmarking SCOR Managing the supply chain of the future - the new

organizational paradigm The seven principles of supply chain management

References

Christopher, M., Logistics and Supply Chain Management, 2nd edition, FT-PrenticeHall, 1998.

Kaplan, R.S. and Norton, D.P., The Balanced Scorecard, Harvard Business School Press, 1996.

“Supply-Chain Operations Reference-model: Overview of SCOR Version 5.0”, Supply Chain Council, Inc., 2001.

Shapiro, B., V.K. Rangan and J.V. Sviokla, “Staple yourself to an order”, Harvard Business Review, July-August, 1992.

2/22/2002richard zhu/logistics management1 benchmarking the supply chain

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