nullDeveloping An Overview of Supply Chain Performance MetricsDeveloping An Overview of Supply Chain Performance MetricsProcess, RecommendationsMcKinsey
October 2003This document gives an overview of the different metrics that can be used to measure supply chain performanceThis document gives an overview of the different metrics that can be used to measure supply chain performanceThe Supply Chain CoE’s objective is to define a benchmarking framework capable of:
Comparing generic metric performances for use on projects.
Capturing further benchmarking data in a consistent format.
The London Shop’s task:
Develop an overview of the different metrics to measure supply chain performance.
Select the most important metrics that can be used across industries.
Discuss how the most important metrics link other operational metrics within each stage of the supply chain.
Suggest how the supply chain CoE should continue concerning this topic.We used information from several sources during our projectWe used information from several sources during our projectInternal and external documents:
High level benchmarking framework for supply chain performance (H .Cook):
Shop Study (March 1997) accessing information from available experts and past projects.
Supply chain benchmarks and best practice (Dow Polyurethane & Epoxy April 1995).
Supply Chain Benchmark Assessment (March 1997).
Supply chain appraisal and benchmarks: (client X September 1997).
Discussions with supply chain CoE:
Graham Colclough.
Andrew Morgan.
Lee Sherman.
Deborah Huff (Cap McKinsey).Possible data sourcesPossible data sourcesCIPS (UK): Purchasing (& Supply Chain).
APICS (US): Supply Chain.
CAPS (US): Purchasing & Supply Chain (US & Legal):
Research Benchmark Industry Listings (http://www.capsresearch//htm).
NAPM (US): Purchasing.
Kaiser Associates: Benchmark Specialist Consultant.
US University Research: New global initiative (investigating entry opportunities—Bob Ackerman).Performance measurement is an important but complex subjectPerformance measurement is an important but complex subjectThis document’s an initial step in the right direction.Companies see the need for metrics. . .. . . but developing the “right” set of metrics is a challenge“If you can’t measure, you can’t manage, you can’t motivate”
Establishing the proper measures within an organisation enhances continuousNo commonly used “model”.
Business issues that warrant performance measurement:
Differ between industries.
Differ within industry.
Change overtime.There is no one “right” answerWe used a generic supply chain framework as a basis for our analysis . . .We used a generic supply chain framework as a basis for our analysis . . .Supply Chain FrameworkPurchasingInformation FlowForecasting & Production PlanningCustomer ServiceInventory ManagementInbound LogisticsManufacturingMaintenanceMarketing &
SalesOutbound LogisticsIntegrated Supply Chain ManagementThis framework aligns with the CoE POV and is also similar to framework for the supply chain diagnostics inventory database.. . . and concluded there are three strategic objectives we should focus on when analysing the supply chain. . . and concluded there are three strategic objectives we should focus on when analysing the supply chainKey metrics must give information on how a company is performing against old strategic objectives.Supply Chain FrameworkNB: Boundaries
NPDI
Support functionsTailor to company specific (BSC) objectivesWe began with a brainstorming session on the key drivers for quality, time and costWe began with a brainstorming session on the key drivers for quality, time and costThe complete picture can be found in the appendix.We looked at the supply chain from the customer’s perspective.
We brainstormed on “what could go wrong along the supply chain”:
What are drivers of performance from a quality, time and cost point of view.PriceServiceProduct qualityProduct quantityProduct deliveryLate arrival Late deliveryInventory costProduct costProduc-tion costDelivery costCustomer service costQualityTimeCostMaking their client specific warrants attentionMaking their client specific warrants attentionRespect all sources of data:
Understand their relationships—the “causal tree”:
Recognised Cross-Industry; In-Industry and In-Company similarities and differences.Making their client specific warrants attention (cont.)Making their client specific warrants attention (cont.)Recognise Cross-Industry; In-Industry; and In-Company similarities and differences.
Interface the solution to the current clients’ measures, systems, processes and culture:
. . . and guide migration over time.Ensure accountability for collecting and actioning is clear.Proposed Supply Chain KPIsProposed Supply Chain KPIsKPI’s help to identify “where” the performance problem is within the supply chain, and steer towards areas to explore “why”.Accuracy (as % of sales)Customer satisfaction% of satisfied customersTotal cycle timeTime (for customer) from placing order to receiving goods% of products delivered on timeTotal supply chain cost as % of salesCost per product sold as % of salesCost as % of sales% of products delivered according to customer order (quantity/quality)% of customers satisfied with service% of products ordered already in stockDefect rate of products as % of production% of goods delivered according to order (quantity/quality) by supplierTime from order placement to reception of goodsTime from production order to delivery into finished product warehouseDowntime as % of total production time% of goods delivered on time by supplierCost as % of salesCost as % of salesCost as % of salesNumber of stock turns/yearsTotal Supply ChainQualityTimeCost% of active suppliers that account for 90% of total purchase valueBEWARE of inter-relationshipsEach stage of the supply chain has a variety of metrics to monitor operational effectivenessEach stage of the supply chain has a variety of metrics to monitor operational effectivenessThese metrics help identify “why” there is a performance problem.Actual vs. forecasted sales
% of data which can be used without modification in the planning process% of all active suppliers that account for 90% of total purchase value
% of correct orders placed
# of alternative sources of supply
# of suppliers involved in product development/innovation
# of suppliers per purchasing employee (purchasing professional)
# of vendors products ordered
Purchasing head count as % of total head count% of goods delivered according to order (quantify/quality) by supplier
# of carrier alliances
# of overshipments
% of direct material purchases that are not inspected at incoming quality assurance, going from stock to dock
% of direct material purchases that are not inspected at incoming quality assurance, going from stock to production
% of orders delivered without unplanned communication or special attentionDefect rate of products as % of production
Scrap rate as % of production
# of changes per production period
% of goods repackaged
Actual vs. production capacityTime from order placement to reception of goodsTime from production order to deliver into finished product warehouse % of accounts payable handled before due date
% of accounts payable handed in 1–30 days
% of accounts payable handled in 31–60 days
% of accounts payable handled in 61–90 days
% of accounts payable handled in over 90 days
% of suppliers connected via EDI
Average actual time to developed/negotiate a contract% of goods delivered on time by supplier
Proportion of suppliers who deliver daily
Proportion of suppliers who deliver frequently than monthly
Proportion of suppliers who deliver monthly
Proportion of suppliers who deliver twice weekly
Response time to schedule changes
Response time to unforeseen problems
Turnaround time on rejected itemsAverage production leadtime
Current manufacturing leadtime
Minimum production leadtimeDowntime as % of total production time
Downtime due to parts shortage (or stock outs in general)
Hours of unplanned downtimeCost as % of salesCost as % of sales
Cost as % of total costs
Cost of orders purchased (range
Cost of vendor transactions (range)
Cost of expedite repair materials
Purchasing spend per supplier
Purchasing spend per purchasing employee (purchasing professional)Cost as % of sales
Cost as % of total salesCost as % of sales
Cost per saleable unit
Cost per unit producedCost as % of sales
Cost per unit producedSource: H. CookNos of strategies, or “uptime” service-based contractsIn addition to the KPIs each stage of the supply chain has a variety of metrics to monitor operational effectiveness (cont.)In addition to the KPIs each stage of the supply chain has a variety of metrics to monitor operational effectiveness (cont.)QualityTimeCost% of products ordered already in stock
Defect rate of products as % of products leaving warehouse
Accuracy of inventory records
Inventory vs. service level
Items in inventory as % of total unit purchases
Obsolete vs. active inventory% of correct orders taken
# of additional sales from customer referrals
# of order changes as % of orders filled
% of orders handled with commitment to product/service delivery on first call% of customers satisfied with service
# of complaints as % of total orders
# of phone calls to customer service development per order shipped
# of complaints due to On-time delivery; Order Entry; Packaging; Product quality; Shipping Error
# of complaints as % of total orders
# of customer contacts per order
# of enquiries (including complaints) that were not answered to the customers satisfaction
# of information requests as % of customer orders
% of calls abandoned, answered by recording, delayed
% of customer contact through customer service
% of customer follow-up handled by Customer Service Representative; Department Manager; Field Representative; Responsible Manager
% of invoices containing errors
% of orders delivered complete and without error (order fill rate)
% of orders that are damaged on arrival at customer site
% of respondents that can handle complaints without handing off to other person/dept.
Average % of disputed invoices% of products delivered according to customer order (quantity/quality)
Degree of utilisation of facilities (%)
Equipment utilisation—load
Equipment utilisation—weightTime from order placement to start of deliveryCustomer satisfaction (rating)
% of satisfied customers
% of information on credit history limit available On-line
% of information on open-order history available On-line
% of information on outstanding balance available On-line
% of information on pricing available On-line
% of information on product history available On-line
% of information on product ID code available On-line
% of information on shipping points available On-line
Ratio of operations labour as % of passive labourAverage # of orders rejectedAverage product time in warehouse
No. of days consumption in stock (A-goods)
No. of days consumption in stock (B-goods)
No. of days consumption in stock (C-goods)
No. of days safety stock (A-goods)
No. of days safety stock (B-goods)
No. of days safety stock (C-goods)
No. of products with duplication stock
Planned days of inventory on hand% of accounts receivable settled before due date
% of accounts receivable settled in 1–30 days
% of accounts receivable settled in 31–60 days
% of accounts receivable settled in 91 days
% of accounts receivable settled in 61–90 daysDelivery time
% of products delivered early
# of deliveries per manhour
% of orders delivered on time (as defined by customer)
% of orders delivered with an average delay of 1 month
Average # of days delay after scheduled ship dateTotal cycle time
Time (for customers) from placing order to receiving goods
% of products delivered on time
Average customer quoted leadtime
Average leadtime from receipt of order to shipment
Average time taken to access information
Cash to cash cycle
Longest customer quoted leadtime
New product introduction time
Product changeover time
Shortest customer quoted time
Time from receipt of order to receipt of shipment by customer
Time taken to rectify incorrect or damaged ordersAverage time taken to respond to requestsCost as % of sales
# of stock turns/year
Cost as % of cost of goods purchased
Carried worth of expired lots
A-goods as a percent of inventory
Average stock level
B-goods as a percent of inventory
C-goods as a percent of inventory
Inventory cost as % of total assets (gross assets)
Maximum stock level
Minimum stock levelCost as % of salesCost as % of sales
Cost per delivery
# of route miles per delivery
# of warehousing facilities
# of warehousing of locations
% of transportation units owned by company
Cost per order
Cost per routeTotal supply chain cost as % of sales
Cost per product sold as % of sales
% of profit from base purchase
% of profit from increased purchases
% of profit from premium pricing
% of revenue generated by largest customer group (top 20%)
Cost per product sold as % of sales
Operating profit per customer as % of operating costs per customer
Total cost per order
Total cost per unit producedCost as % of salesSource: H. CookGiven the multitude of metrics we suggest to analyse supply chain performance using a hierarchy of measuresGiven the multitude of metrics we suggest to analyse supply chain performance using a hierarchy of measures. . . digging through the causal tree to improve business performance.Key KPISupporting
MetricsOther
Operational
MeasuresType of MeasureExampleHighest Level UseWho Uses ItForecasting accuracy (as % of sales)Integrated supply chain
Generic benchmarkingConsultant
Top management
Supply chain stage manager% of suppliers connected via EDISupply chain stage diagnosticConsultant
Supply chain stage managerA-goods as a % of inventorySupply chain stage diagnosticSupply chain stage managerObjectiveFind “where” the problem is within the supply chainIdentify the “why” within the supply chain stageGive more in-depth information about supply chain stageFor example, the quality of customer service performance can be clearly measured at three different levelsFor example, the quality of customer service performance can be clearly measured at three different levelsKPI’s will be measured for generic benchmarks, whilst operational metrics will be measured by a customer service manager.
. . .Key KPI’sSuggested Supporting MetricsOther Operational
Measures% of customers satisfied with service# of complaints as % of total orders# of phone calls to customer service department per order shipped
# of complaints due to: order entry, packaging, shipping error, . . .)
% of calls abandoned, answered by recording, delayed, . . .
% of complaints handled by: customer service rep., department manager, . . .# of complaints that were not answered to customer satisfactionAverage number of orders rejectedOutbound logistics performance . . .Outbound logistics performance . . .. . .Key KPI’sSuggested Supporting MetricsOther Operational
Measures% of products delivered according to customer order (quantity/quality)(These can often be driven by customer service metrics)Degree of utilisation of facilities (%)
Equipment utilisation (load/weight)Delivery time
% of orders delivered on time (as defined by customer)# of deliveries/man hour
% of orders delivered early
% of orders delivered with an average delay of 1 monthAverage number of days of delay after scheduled ship dateCost as % of sales# of route miles per delivery
# of warehousing facilities/locations
% of transportation units owned by companyCost per delivery
Cost per order
Cost per routeFor maintenance, commonly used supply chain performance metrics relate to time and costFor maintenance, commonly used supply chain performance metrics relate to time and costThe quality of maintenance is commonly measured by lag measures in terms of cost or as a production measure (downtime).
We suggest the use of two lead measures that proactively monitor maintenance performance.
. . .Key KPI’sSuggested Supporting MetricsOther Operational
MeasuresNumber of service contract
Number of training days for maintenance staffDowntime as % of total production timeCost as % of sales
Cost per unit producedDowntime due to parts shortage (or stock outs in general)
Hours of unplanned downtimeJust remember . . .Just remember . . .A large number of metrics exist, so be selective.
A step by step approach to measuring supply chain performance should be undertaken in order to avoid being overwhelmed by data.
The following segmentation gives us such an approach:
23 key KPI’s allow us to identify “where” the problems” exist within the supply chain.
Key supporting metrics then allow us to answer “why” the problems exist.
Operational metrics allow us to go analyse the supply chain stage in more detail.
The “right” set of metrics does not exist for a given industry or even a specific company.
The “right” set of metrics is dynamic like the business it measures and will change with the type of industry/problem and over time.
. . .Next Steps for the Supply Chain CoENext Steps for the Supply Chain CoEAgree on how you will go forward after this project.
Agree on objectives, scope and accountabilities.
Eg. Discuss if each GMT needs its own supply chain metrics.
Further populate the supply chain benchmarking framework.
See example for Purchasing.
Championing (S. Beck/Disc. Heads).
. . . and roll-out.
Continuous improvement process.AppendixAppendixKPI Definitions.
Causal Trees:
Quality
Time
CostPurchasing Data: KPIs & BenchmarksPurchasing Data: KPIs & Benchmarksa: CAPS Research: Chemical Purchasing Benchmark 1997; H. Cook shop research.nullServiceProduct DeliveryWrong Info.Higher Prices Than CompetitorsHigher Margin Than CompetitorsBadly Set Customer ExpectationsWrong Order InformationUnable to Meet Customer DemandProduced Faulty GoodsProducts Damaged After MfgPriceProduct QuantityProduct QualityDelivered Faulty GoodsnullnullDefinitions for the Supply Chain KPIsDefinitions for the Supply Chain KPIsForecasting:
Accuracy (as %of sales).
Purchasing:
% active suppliers for 90% spend.
Time from order placement to receipt.
% of goods delivered on time.
Cost as % sales.
Inbound Logistics:
% of good delivered according to order (quantity/quality) by supplier.
Time from order placement to reception of goods.
% of goods delivered on time by supplier.Back Up PanelsBack Up PanelsDrivers and KPIs are however linked throughout the supply chainDrivers and KPIs are however linked throughout the supply chainThey form a “causal tree” along the supply chain which varies between industries and over time
They do not simply drive and explain just quality, time or cost, they may drive or explain all three
We have simplified the tree in this presentation:
We have left out the links and kept the model on a generic levelWe have not developed a “perfect” modelThese operational metrics should be used with careThese operational metrics should be used with careIdeally they should support key KPI’s by explaining why performance is meeting/below expectations.
They should also give an in-depth picture into how well each supply chain stage is performing.
However, their use calls for judgement:
They vary across companies and industries (which explains the large quantity of metrics available).
Many are not directly linked to key KPI’s but are useful secondary indicators of performance.
They do not necessarily link to performance at just one stage in the supply chain (but accountability must be assigned to someone within one stage).
For example: inaccurate order making could lead to more time being spent on puchasing, suppliers delivering the wrong goods and/or suppliers delivering the goods late.
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