Performance measurement and controls in SCM.

Chapter No.07By:- Israr K. Raja

Benchmarking

• A method for identifying and importing best practices in order to improve performance

• The process of learning, adapting, and measuring outstanding practices and processes from any organization to improve performance

Importance of Benchmark

• Identify opportunities to improve performance

• Learn from others’ experiences

• Set realistic but ambitious targets

• Uncover strengths in one’s own organization

• Better prioritize and allocate resources

Types of Benchmarking

• Internal benchmarking– a comparison of internal operations such as one site (or project team) against another within the same company.

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• Competitive benchmarking – a comparison against a specific competitor for the product, service or function of interest.

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• Generic benchmarking – a comparison of business functions or processes that are the same, regardless of industry or country.

The Benefits of Benchmarking

• Benefits include:

•  · Better performance in meeting customer needs & requirements.

• · Establishing effective business goals and objectives.

• · Measuring true productivity.

• · Becoming competitive

• · Identifying & implementing best practice in business processes

For A successful benchmarking

• In practice, the main requirements for success are:

· A strong and active commitment from senior management to lead and implement the benchmarking process

· A willingness to change and adapt based on the benchmarking findings.

· A realisation that the competition is constantly changing.

· An openness to new ideas, creativity and innovativeness in their application to existing processes. · A continuous benchmarking effort.

· A willingness to share information with benchmarking partners (e.g. other organisations)

Commonly accepted factors of measuring business excellence

• · Leadership

• · Policy & strategy

• · People management

• · People satisfaction

• · Resource management

• · Business Process

• · Customer satisfaction

• · Business results

Short Comings of BMBenchmarking has some inadequacies which must be clearly recognised and understood before continuing the exercise:

 · Don't try and benchmark too many things to begin with. Select two or three key areas, and then gradually add others over time.

· Don't waste time benchmarking things that are just "nice to know". Every benchmark should aim to improve performance in an area that contributes to profits or customer satisfaction.

· Be precise in defining what is to be measured. A lack of clarity can lead to confusing an inappropriate benchmarks

 · Test the benchmarks internally before consulting with outside companies.

· Remember that your organisation's priorities may change with time, and so your benchmarks should be regularly reviewed (and changed if necessary) to reflect this.

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

– Website address: www.supply-chain.org

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” – 30 categories of process-type combinations

SCOR Level 3:

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

Goals of SCM Performance Measurement

• Better alignment of channel capabilities and customer requirements and expectation

• Increased optimization of collective channel operations

• Increased visibility to demand and supply• Increased opportunities for collaboration• Increased opportunities for channel alignment• Increased opportunities for information exchange• Increased profitability

SCM Performance Attributes

• Velocity• Visibility• Collaboration• Trust • Customer focus• Flexibility• Security (risk management)• Compliance and Environmental Excellence

Obstacles Hindering Performance Effort

• Technical barriers, such as difficulty locating, cleansing, and integrating data from multiple sources

• Design problems that stem from not understanding how to use methodologies, strategy maps, and appropriate performance indicators and targets

• Social constraints, such as an organizational culture • adverse to measurement and accountability, non

supportive executive team, unrealistic standards, and conflicting goals.

SCOR Model

• Plan• Source• Make• Deliver• Return

Plan

• • Demand/Shipment Forecast • • Accuracy• • Adherence to Plans• • Inventory Turns• • Planning Cycle time

Source

• Procurement Costs• Vendor Lead Times• Materials Quality• Materials • Inventories

Make

• Production Costs• Product Quality• Changeover Time• Capacity Utilization

Deliver

• On-Time Shipment• On-Time Delivery• Order Fulfillment• Returns

Return

• Packaging Return• Carbon Footprint• Energy Reduction

SCOR Metrics and Performance Attributes

• Supply chain reliability :- Delivery of right product, to right place, at right time =Perfect order fulfillment

• Supply chain responsiveness:- Supply chain speed providing product to the customer =Order fulfillment cycle

• Supply chain flexibility:- Agility of a supply chain to respond to marketplace change=Upside supply chain flexibility, Upside/Downside supply chain adaptability

• Supply chain costs :-Costs associated with operating the supply chain =SCM cost, Cost of goods sold

• Supply chain asset management:-Effectiveness in managing assets to support demand Satisfaction =Cash-to-cash cycle time, Return on supply chain fixed assets