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

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Richard Zhu/Logistics Management

What is Benchmarking?
Competitive Benchmarking is
the continuous measurement of the companys 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
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Key Consideration Dimensions in Logistics Benchmarking

Logistics

output, i.e., achieving customer service goals and customers perception of performance Performance should be compared to the best of the class. Dont 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!

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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
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Understand the Process

Sales and marketing function Customer order status Accounting Shipping customer order

Back order Inventory available

Invoicing

Inventory file

Process order

Customer Order

Credit checking Production Shipping documents

Warehouse withdrawal

Transport scheduling

Material procurement

Production schedule

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Identify Critical Points

Customer Service
Sales and marketing function Customer order status Accounting Shipping customer order

Inventory Mgmt
Inventory available

Back order

Invoicing

Order fulfillment
Inventory file Process order Warehouse withdrawal

Customer Order

Credit checking Production Shipping documents

Transport scheduling

Production Mgmt
Material procurement Production schedule

Supplier Mgmt
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Benchmark against Best in Class

Supplier Performance & Mat. Inv. Production plan vs actual Inventory availability Perfect order fulfillment Service level performance Consumer satisfaction

Supplier Mgmt

Prod. Mgmt

Inventory Mgmt

Order Fulfill

Customer Service

End user

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Practices Uncovered by Xerox via Non-competitive Benchmarking

Type of company Drug wholesalers Appliance components Electrical components manufacturer Photographic film manufacturer Catalogue fulfillment service bureau Practice Electronic ordering between store and distribution center Forklift handling of up to six appliances at once Automatic in-line weighing, bar code labeling, and scanning of packages Self-directed warehouse work teams Recording of item dimensions and weight to permit order-filling quality assurance based on calculated compared with actual weight
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Supply Chain Mapping and Throughput Efficiency

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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 time
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X 100 %

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Value Added Through Time

100% % of Total Value Added Secondary conversion

Throughput efficiency is only around 25%!

Shipping Ship to customer 34 38

Primary conversion

Packaging

50% Supplier lead time Inbound material

10%

10

14

18

22

26

30

Weeks in Supply Chain

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Distribution center pick

Product Variety Through Time

50 No of Variety

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Packaging 2nd Conversion

5 2 6 10 14 18 22 26 30 34 38

Weeks in Supply Chain

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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

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Pipeline Mapping
Length 60 days
Fiber store (20)

Volume 175 days

Finished goods store (20) DC (15) Store (10)

Grey stock (15) Yarn finished Raw material store (10) (10) Yarn store (5) (5) (5) (2) Knitting (10) Dyeing & finishing Finished fabric (7) (1)

Commodity market

Spinning (15)

Sewing (18) (2) Component cutting (5) Manufacturer

End user

Spinning

Fabric supplier

Retailer

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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
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Assignment?
Define

the supply chains of the products or services for the company you are working for. Map out those supply chains using 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.

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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:

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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?
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Supplier and Distributor Benchmarking - some typical measures

Interfaces

Supplier e.g.
Quality On-time

Internal e.g.
Throughput

Distributor e.g.
Value-added

performance Stock availability

times On-time performance Stock availability

services Customer concern Delivery performance

e.g.

Communications Schedule

e.g.

Communications Requirements Partnership

integration Co-makership

planning

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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
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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 Management

The CLM has more than 10,000 members and hosts one of the most valuable Annual Conferences in the field

Chartered Institute of Logistics and Transport

The CILT has over 24,000 members, forged by the merger of two UK Logistics & Transport entities in May 1999

International Warehouse Logistics Association

The IWLA has over 550 members including 3PL, 4PL, public and contract warehouses as well as their suppliers

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The Balanced Scorecard

Developed

in early 1990s by Robert Kaplan (Harvard Business School) and David Norton. A system for strategic management, that enables organisation to clarify their vision and strategy and translate them into action.
Develop metrics, collect data and analyse!
Financial

measures reflect the past, but does not provide guidance for information-age companies to create future value. Provides a clear prescription as to what companies should measure (for long-term investment in customers/suppliers, technology and innovation).
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The Balanced Scorecard

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The Balanced Scorecard for Logistics

Identify mission-critical performance indicators (< 20) for management to meet strategic goals 1. Articulate logistics and supply chain strategy

2.

To fit with overall corporate and marketing goals Better, faster, cheaper, closer Processes leading to better order achievement, shorter pipelines, lower costs, stronger relationships

What are the measurable outcomes of success?

3.

What are the processes that impact these outcomes?

4.

What are the drivers of performance within these outcomes?

Identify by cause-and-effect analysis, devise and measure key performance indicators and indices
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Supply Chain Operations Referencemodel (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
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What is a Process Reference Model?

Process reference models integrate the well-known concepts of business process reengineering, benchmarking, and process measurement into a crossfunctional 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
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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

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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

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SCOR: Three levels of process detail

1.

Top level
Defines the scope and content for the SCOR model Basis of competition performance target set Representation of the companys supply chain using 30 core process categories

2.

Configuration level

3.

Process Element level

Defines companys 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
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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; postdelivery customer support
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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
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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 methods SCOR must accurately reflect how a supply-chains 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
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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 primary point-to-point material flows using solid line arrows. 3. Place planning process categories (using dashed lines) to show links with execution processes. 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.
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Summary of Supply Chain Operations Reference-model (SCOR)

Metric type Outcomes 1. Perfect order fulfillment Customer Satisfaction / Quality 2. Customer satisfaction 3. Product quality Diagnostics 9. Delivery to commit date 10. Warranty costs, returns and allowances 11. Customer inquiry response time 12. Source/Make cycle time 13. Supply chain response time 14. Production plan achievement 15. Value added productivity

Time

4. Order fulfillment lead time

Costs Assets

5. Total logistics costs

6. Cash-to-cash cycle time 16. Forecast accuracy 7. Inventory days of supply 17. Inventory obsolescence 8. Asset performance 18. Capacity utilization

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

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Characteristics of Companies at the Leading Edge of Logistics

Survey by Council of Logistics Management in North America: Exhibit an over-riding commitment to customers Emphasise planning Encompass a significant span of functional control Commit to external alliances with service providers Have a highly-formalised logistical process Place a premium on operational flexibility Employ comprehensive performance measurement Invest in state-of-the-art information technology
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Concerning organisational structure, leading edge firms:

Have had formal logistics organisations longer Tend to have logistics headed by an officer-level executive Adopt more fluid approach to logistics organisation; encourage frequent re-organisation to take advantage of opportunities Favour centralised control Becoming more centralised as they adapt organisational structure to corporate mission More apt to execute boundary-spanning or externally-oriented logistics functions Tend to manage more beyond or extended functional responsibilities not traditionally considered part of logistics
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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 accommodating special or non-routine requests Are better positioned to handle unexpected events Are more willing to use outside service providers Place a premium on how well the service company performs in managing itself and its service to clients More apt to view service-provider relationships as strategic alliances Anticipate greater use of outside services in the future
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Concerning managerial behaviour, leading edge firms:

Expend more effort on formal logistics planning Are more apt to publicise their performance commitments and standards by issuing specific mission statements Are more apt to have chief logistics officers involved in business unit strategic planning Respond effectively to non-planned events Regularly use a wider range of performance measures, including asset management, costs, customer service, productivity and quality Are more significant users of information processing technology and enjoy a higher quality of information systems (IS) support Typically have more state-of-the-art computer applications and are planning more updates and expansions Are more involved in new technology such as electronic data interchange (EDI), artificial intelligence (AI), etc.
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New Logistics Organisational Paradigm

New Competitive Environment

Supply chain vs. Supply Chain Speed Responsiveness Supply chain visibility Seamless collaboration

Virtual Organisations

New Paradigm: An interdependent confederation of mutually complementary competences and capabilities, competing as an integrated supply chain against other supply chains. Collective strategic development Win-win thinking Open communications
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Supply Chain of the Future

From

supplier-centric to customer-centric From push to pull From inventory to information From transactions to relationships From `trucks and sheds to `end-to-end pipeline management From functions to processes From stand-alone competition to network rivalry

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Supply Chain of the Future

From supplier-centric to customer-centric

From cost minimisation to agility

From push to pull

Requires flexibility

From inventory to information

Better visibility of real demand, less reliance on forecasts and safety stock

From transactions to relationships

Customer retention, relationship marketing

From `trucks and sheds to `end-to-end pipeline management

Network optimisation and time-compression

From functions to processes

Cross-functional, market-facing, team-based

From stand-alone competition to network rivalry

Extended enterprise, partnerships
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What Does It Take to Manage the Supply Chain of the Future?

Paradigm Shift
From supplier-centric to customer-centric From push to pull From inventory to information From transactions to relationships

Leading to
Design of customer-driven supply chains

Competence Required
Market understanding; customer insight

Higher levels of agility and Management of complexity and flexibility change Capturing and sharing Information systems and information on real demand information technology expertise Ability to define, measure and manage service requirements by market segment Understanding of the cost-toserve and time-based performance indicators Specific functional excellence with cross-functional understanding; team working capabilities Relationship management and win-win orientation

Focus on service and responsiveness as the basis for customer retention From `trucks & sheds A wider definition of to `end-to-end pipeline supply chain cost management From functions to Creation of crossprocesses functional teams focused on value creation From stand-alone More collaborative competition to network working with supply chain rivalry partners

Supply Chain Orchestration

Virtual

organisation and the extended enterprise heightened requirement for managing the added complexity.

Commonly-agreed

agenda driving the achievement of supply-chain goals. Supply chain strategy subscribed to by all entities in the chain. Orchestrator usually the most powerful member? Li & Fung example.

The Seven Principles of Supply Chain Management

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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

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Summary of Learning Objectives

Benchmarking

the supply chain Supply chain mapping and throughput efficiency Supplier and distributor benchmarking The Balanced Scorecard SCOR Managing the supply chain of the future - the new organizational paradigm The seven principles of supply chain management

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References
Christopher, M., Logistics and Supply Chain Management, 3rd edition, FT-PrenticeHall, 2005. 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.

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