SCM Performance Measurement

SCOR Model

CII Institute of Logistics SCM Performance Measurement

 Scope of Logistics & Supply
Chain
Suppliers Suppliers
’ Supplier
Organization
Productio Marketin
Customer Customer
s s’
n g Customer

Raw Raw
Materials Materials
Semi
Finished
Goods
Finished Finished Finished
Goods Goods Goods
Material Distributio
Handling n
Inbound Logistics Outbound Logistics

LOGISTICS
SUPPLY
CII Institute of Logistics CHAIN
SCM Performance Measurement
 Scope of Supply Chain

CII Institute of Logistics SCM Performance Measurement

 Value Creation

• SCM is all about creating value to

customer through efficient internal
processes
– Source
– Make
– Deliver

CII Institute of Logistics SCM Performance Measurement

CII Institute of Logistics SCM Performance Measurement
 THE VISION
Supply Chain Strategy

To be To increase the
competitive in productivity
Optimise Supply
product price
Chain Cost

Increase Increase the Supply

Satisfaction Chain Delivery Increase revenue
Reliability from current
Performance customers

To increase
To increase Supply
SUPPY CHAIN To increase the Chain Asset
Responsiveness Supply Chain Management
Flexibility Efficiency

To develop an Integrated Supply Chain

efficient Customer (Organization/Informatio To develop an efficient
Relationship n / Technology and effective financial
Management integration) process

CII Institute of Logistics CII SCM Performance

– Institute Measurement
of Logistics
 Achieving Strategic Fit
Responsive
supply chain

THE DEGREE OF SUPPLY

Responsivene CHAIN RESPONSIVENESS
ss spectrum MUST BE CONSISTENT WITH
THE IMPLIED DEMAND

? UNCERTAINTY

Efficient
supply chain

Certain Implied Uncertain

demand uncertainty demand
spectrum
Source: Chopra & Meindl / Logistics Strategy

CII Institute of Logistics SCM Performance Measurement

 Achieving Strategic Fit
Responsive
supply chain

o f t
Responsivene e F i
n c
ss spectrum Zo tegi
tra
S

Efficient
supply chain

Certain Implied Uncertain

demand uncertainty demand
spectrum
CII Institute of Logistics SCM Performance Measurement
 Changes in Supply Chain Strategy
(over the PLC)
Responsive
supply chain

Responsivene e of it
o n ic F
ss spectrum Z teg
ra
St
As products mature, the
supply chain strategy should,
in general, move from being
responsive to being efficient.
Efficient
supply chain

Certain Implied Uncertain

demand uncertainty demand
spectrum

CII Institute of Logistics SCM Performance Measurement

 The Responsiveness
Spectrum
Highly Somewhat Somewhat Highly
Efficient Efficient responsive Responsive

Integrated Traditional Most Dell:

Steel Mills: make-to-stock automotive Custom
Production manufacturer production made PCs
scheduled with and
weeks or production servers in a
months in lead time of few days
advance several weeks
with little
variety or
flexibility

7-ELEVEN JAPAN REPLENISHES ITS STORES WITH BREAKFAST ITEMS IN THE

MORNING, LUNCH ITEMS IN THE AFTERNOON , AND DINNER ITEMS AT NIGHT. A
HIGHLY RESPONSIVE SUPPLY CHAIN

CII Institute of Logistics SCM Performance Measurement

 Efficiency Responsiveness

Supply chain structure

Inventory Transportation Facilities Information

Drivers of Supply Chain Performance

CII Institute of Logistics SCM Performance Measurement

 SCM Metrics
Inventory Turns
Cycle Times
DPMO Rate-Defects per Million
Opportunities
SCM -as strong as its weak link
Monitor key areas
Make corrective action/not measure
Use correct metrics to suit business
CII Institute of Logistics SCM Performance Measurement
 SCM Metrics
 Functions Covered:
Finance
Customer
Internal Business
Training
 Areas covered:
Procurement
Production
Distribution
Warehousing
Inventory
Transportation
Customer Service

CII Institute of Logistics SCM Performance Measurement

 Effects of Interdependence on
Supply Chain Relationships
Partner High Level of
Relatively Interdependence
High
Organization’s

Powerful Effective
Dependence

Relationship

Organization
Low Level of Relatively
Low Interdependence
Powerful

Low High
Partner’s Dependence
CII Institute of Logistics SCM Performance Measurement
CII Institute of Logistics SCM Performance Measurement
CII Institute of Logistics CII SCM Performance
– Institute Measurement
of Logistics
CII Institute of Logistics CII SCM Performance
– Institute Measurement
of Logistics
CII Institute of Logistics CII SCM Performance
– Institute Measurement
of Logistics
CII Institute of Logistics CII SCM Performance
– Institute Measurement
of Logistics
CII Institute of Logistics CII SCM Performance
– Institute Measurement
of Logistics
 How Does Your Supply Chain Score ?

• Have we reduced our total cycle time (order to

shipment) by atleast 50% over the past three
years ?
• Have total Inventories decreased by atleast 50%
over the past three years ?
• Do 98% or more of our orders reach customers on
time?
• Has our supplier base been reduced by 2/3 over the
past five years?

CII Institute of Logistics SCM Performance Measurement

How Does Your Supply Chain Score ?
• Have our supplier lead times been reduced
by 50% or more over the past three years?
• Have we reduced scrap, rework and
warranty costs by at least 50% over the
past three years?
• Has our cost to produce decreased by 20%
or more over the past three years?
• Have we reduced our cost of Quality by at
least 50% over the past three years?

CII Institute of Logistics SCM Performance Measurement

 How Does Your Supply Chain Score ?

• Have we reduced the direct materials cost by atleast

10% over the past three years?
• Have we reduced our product development cycle time
by atleast 50% over the past three years?
• Have we reduced the stock out complaints by 50% in
last two years?
• Do we conduct vendor evaluation and appraisal once
in a year?

CII Institute of Logistics SCM Performance Measurement

 How Does Your Supply Chain Score ?

• The level of adaptation of Technology in

Product visibility & traceability is
satisfactory?
• Have our Inventory accuracy checking
periodicity based on logical categorization
of items?

CII Institute of Logistics SCM Performance Measurement

 Delivery performance
1) the percentage of order that are fulfilled on or
before the customer requested date
2) the percentage of order that are fulfilled on or
before the original scheduled or committed
date
• In most cases a customer will request for a date at which the product or service has
to be delivered. This is the "customer requested date".
• In response to that your company will either commit a delivery date to the
customer, or provide an indication when the customer can expect the delivery to
take place. This is the "original scheduled or committed date".
• This date is not necessarily the same as the customer requested date, as it is
possible that due to backlog or other reasons your company cannot meet the
customer requested date (or more positively, your company can deliver earlier
which the customer is willing to accept).

CII Institute of Logistics SCM Performance Measurement

 Example calculation
-1000 customer orders placed
-890 orders delivered by customer requested date (110 too late)
-of these 890 orders, 45 were delivered as partial shipments
-920 orders delivered by committed delivery date (80 too late)
-of these 920 orders, 50 were delivered as partial shipments.

• delivery performance to customer requested date:

– [890-45] / 1000 = 84.5%
• delivery performance to committed date:
– [920-50] / 1000 = 87 %

CII Institute of Logistics SCM Performance Measurement

 Fill rate

• Used when the product is shipped from

stock to the customer.
• Fill rate represents the percentage of orders
that can be shipped from stock within 24
hours of the order receipt.
• This shows how quickly your company can
respond to customer orders in the situation
where your company has decided to
produce in a make-to-stock environment.
CII Institute of Logistics SCM Performance Measurement
 Example calculation
-Total number of orders delivered to customers = 10.000
-Total number of orders with products delivered from stock = 6.000
-Total number of orders shipped within 24 hours of order receipt =
5.000

• Fill rate
• [5000] / [6000] = 83 %

CII Institute of Logistics SCM Performance Measurement

 Order fulfillment lead time
• used when the product is made to order.
• Order fulfillment lead time represents the average order lead time that can
consistently be achieved to fulfill customer orders.
• This shows how quickly your company can respond to customer orders in
the situation where your company has decided to produce in a make-to-order
environment

Customer Order Order Order Start Deemed Ready for Customer Installation
authorization receipt entry release make shippable shipment receipt complete
by Make

Make cycle time Total

transportation
time

Order fulfillment lead time

CII Institute of Logistics SCM Performance Measurement

 Example calculation
-Total number of orders delivered to customers = 10.000
-Total number of orders with products delivered make-to-order = 4.000
-The actual order lead time for each order was 30 days, 29 days, 33
days, 31 days, 27 days etc.

• Order fulfillment lead time

– [30+29+33+31+27……] / [4000] = 30 days

CII Institute of Logistics SCM Performance Measurement

 Perfect order fulfillment
• This metric is the most comprehensive top level metric to
assess your company's delivery performance.
• The metric covers whether your company delivers on
time, in full, with complete and accurate documentation
and without shipping damage.
• For this reason it should be no surprise if your company
has initially quite a low score, as the following example
shows how difficult it is to achieve the 100% score.
– When your customer places one order with you for 5 different products,
each with different quantities with a total of 4000 items, at a certain
requested delivery date, and your company manages to deliver the
4000 items on time, in full, without shipping damage, but there is a small
mistake in the invoice, this whole order will not be counted as being
perfect.

CII Institute of Logistics SCM Performance Measurement

 Example calculation
--Total number of orders received from customer = 10.000
-Total number of orders delivered to customers = 10.000
-Total number of orders delivered in full = 9.950
-Total orders delivered on time to customer requested date = 9.500
-total orders with faulty documentation = 1.000
-total orders with shipping damage = 50

• Perfect order fulfillment

– [9500 – 1000 – 50] / [10.000] = 84.5 %

CII Institute of Logistics SCM Performance Measurement

 Supply Chain Response time
• calculation represents the time it takes the integrated supply chain
to respond to an abnormal (significant) change in demand, either an
increase or decrease in demand.
• A significant change in demand means that the change in demand is
not just a one-off peak demand or downturn situation.
• Therefore using up any slack in capacity, issuing over time (or
keeping temp-staff at home) or subcontracting will not consistently
solve the situation.
• Apart from that, the inventory of raw materials and WIP will not be
able to cover this increase in demand or will become too high for the
downturn in demand as well, so additional arrangements with your
suppliers will have to be made.
• The change in demand needs to be such that a longer term solution
has to be implemented by your company.

CII Institute of Logistics SCM Performance Measurement

 Supply Chain Response time
Identification of Prepare order Start Receipt of Receipt of
need for for supplier supplier materials from materials at
materials cycle time supplier
Supplier cycle time 3 production
1 2
facility

Source cycle time

• Metrics 1
• Average time consistently achieved between the identification of the need for
materials until the purchasing process starts.
• In most companies the identification of the need for materials is triggered
either manually by a materials or purchasing planner, or by an IT system
(MRP for example). It may then take a certain time to plan the ordering of the
materials, get approvals etc. before the purchasing process starts.

CII Institute of Logistics SCM Performance Measurement

 Supply Chain Response time

• Metrics 2
– Average time consistently achieved to purchase an item from a supplier.
– This could be considered as your company’s purchasing cycle time, the
time it takes whoever is responsible in your company for preparing
purchase orders including all necessary activities as supplier selection,
supplier scheduling etc. until the purchase order is sent to the supplier.

• Metrics 3
- Average time consistently achieved between receiving materials from a
supplier until issuing these materials to the production facility.
– This time frame consists of your company’s receiving process, inbound
logistics process, possibly storing in the warehouse first, and issuing the
material to production, including all administrative activities involved.
Remember that the average time it takes is needed, not the time that can
be achieved for “rush orders”.

CII Institute of Logistics SCM Performance Measurement

 Example calculation
-Average time for metric 1 = 1 day
-Average time for metric 2 = 3 days
-Average time for metric 3 = 2 days
-Dollar value of total annually purchased materials = 20.000
-20 suppliers in total
-12 suppliers represent 95% of 20.000
-longest supplier cycle time among these 12 suppliers = 2 months

• Supply Chain Response time

[1 + 3 + 60 + 2] = 66 days + Order fulfillment lead time
= 66 + 30 days = 96 days

CII Institute of Logistics SCM Performance Measurement

 Production flexibility

• measures the flexibility and responsiveness

of the production facilities within your
company to a change in demand.
• This can be both a significant increase or
decrease in demand.
• This metric consists of two parts:
– upside flexibility and
– downside flexibility

CII Institute of Logistics SCM Performance Measurement

 Production flexibility
• Upside flexibility is the ability of your company to respond to an unplanned 20% sustainable
increase in production. Similarly to supply chain response time, this is about a significant change
in demand that cannot be solved by temporary measures like overtime and subcontracting.
• Downside flexibility is the ability of your company to respond to a reduction in orders from your
customers where your company would not incur any cost or inventory penalties. Obviously, if the
orders are cancelled too late for your company to be able to respond, your company will already
have build the finished goods and incur inventory and perhaps obsolescence costs.

• Calculation
• upside flexibility
• [number of days required to achieve an unplanned sustainable 20% increase in
production]  result = time (in days)
• downside flexibility
• [percentage of order reduction sustainable at 30 days prior to delivery with no
inventory or cost penalties]  result = percentage

CII Institute of Logistics SCM Performance Measurement

 Example calculation
-Current production capacity utilisation is 90%
-It will take 3 months to finish a new factory and buy the necessary equipment to
increase the capacity by at least 10% (because management had planned for a new
factory 6 months ago).
-Hiring of new personnel will take 2 months
-95% of suppliers are able to increase their output by 20% in 3 months
-2 suppliers are not able to increase their output by 20%
-Sourcing for alternative suppliers takes 2 months, the supplier cycle time of the new
suppliers is 2 months, so it takes 4 months before the additional 20% will arrive at the
company
-It takes 2 months to increase the transportation capacity by the necessary 15 % (5%
capacity left with the current utilisation rate).
-5% of all orders is in finished goods stock 30 days prior to delivery
-None of these products can be used for other customers
-90% of all orders is being produced 30 days prior to delivery
-From this 90%, 10% can be used for other customers
-5% of all orders is not in production yet 30 days prior to delivery
-The raw materials have been purchased for 70% of all orders 30 days prior to
delivery
-From this 70%, 25% can be used for other customers
CII Institute
-From of 30%
the other Logistics
that has notSCM
beenPerformance
purchased 30Measurement
days prior to delivery, 40% can
 Example calculation

• upside flexibility
– The longest time it takes to follow the 20% increase
in demand is the sourcing for new suppliers. This is
the bottleneck and takes 4 months. (Production
capacity can be increased in 3 months, extra staff
can be hired in 2 months and transportation
capacity can be extended in 2 months)
– [120 days]

CII Institute of Logistics SCM Performance Measurement

 Example calculation
• downside flexibility
– For 5% of the orders, the finished goods have been produced already and they cannot
be re-used without cost penalties.
– For 90% of the orders, production has started so there is WIP. Of this WIP, 10% can be
re-used without cost penalties so this represents 9% (10% of 90%) of all orders.
– For 5% of the orders, production has not started yet so there is no WIP. Assuming the
ratio of 70% materials purchased 30 days prior to delivery also applies to this 5%
orders, 17.5% of this (70% * 25%) can be used for other customers. Another 12% (30%
* 40%) can be cancelled with the suppliers, so in total 29.5 % (17.5+12) of these orders
will not incur cost penalties. This represents 1.5% of the total orders (29.5 % * 5%).
– Thus in total 10.5% (0%+9%+1.5%) of the orders can be cancelled without incurring
cost penalties.
– [10.5%]

CII Institute of Logistics SCM Performance Measurement

 Total SCM Cost
• represents the sum of all costs your company incurs to run your integrated
supply chain.
• It is the sum of supply chain related costs for MIS, finance, planning,
inventory carrying, material acquisition and order management
• The difficulty in calculating this high level metric is in finding the right data to
be able to calculate the separate components of which it consists. In many
companies, the total cost for MIS in a certain year will be known, but which
part can be attributed to supply chain related activities and which part is
attributed to other activities can be difficult. Similarly for finance and
planning costs.

CII Institute of Logistics SCM Performance Measurement

 Example calculation

total revenues = 14.000.000

1 MIS costs
-Total MIS costs were 100.000
-40% of these MIS costs can be attributed to non-SCM related activities,
2 Finance costs
-total finance costs are 200.000.
-25% of these finance costs can be attributed to the mentioned SCM-
related activities.
3 Planning costs
-5 employees are responsible for supply chain activities
-they spend 60% of their time on supply/demand planning
-labour cost per employee is 10.000 per year
-other overhead & consumables is 12.000 per year
4 Inventory carrying costs
-annual inventory carrying costs for raw materials, WIP and finished
goods = 100.000

CII Institute of Logistics SCM Performance Measurement

5 Material acquisition costs
Example calculation
-3 employees are responsible for materials management and
planning
-80% of their time is spent on supply chain activities
-total inbound and freight duties = 50.000
-10 employees work in the warehouse department
-4 of them are responsible for inbound materials receiving and
storing
-they spend 90% of their time to the mentioned SCM-related
activities
-total overhead (for warehouse, material handling equipment
etc.) is 100.000 per year.
-40% of the overhead is attributed to inbound activities (20% to
internal, 40% to outbound)
-2 employees are responsible for incoming inspections, full time
-2 persons in the engineering department and 3 persons in
quality department are responsible for material process
engineering activities
-They spend 80% of their time on the mentioned SCM-related
CIIactivities
Institute of Logistics SCM Performance Measurement
 Example calculation
6 Order management costs
-5 employees in sales are responsible for creating customer
orders and order entry, full time
-total overhead & consumables of sales is 100.000 of which 2%
can be attributed to creating customer orders
-2 employees from sales and 2 employees from logistics
department are responsible for order status tracking and
shipping
-they spend 80% of their time on the mentioned SCM-related
order fulfillment activities
-4 employees from the warehouse department are responsible
for distribution and transportation
-40% of the warehouse department overhead of 100.000 is
attributed to these activities
-total outbound freight and duties is 50.000
-there is no installation required at the customer site
-3 employees in finance are responsible for invoicing and
accounts receivable, full time.
-5% of the finance department overhead of 80.000 can be
attributed
CII Institute to them
of Logistics SCM Performance Measurement
 The calculation

• MIS costs
– [60% * 100.000] = 60.000
• Supply chain finance costs
– [25% * 200.000] = 50.000
• Supply/demand planning costs
– [60% * 3 *10.000 + 12.000] = 30.000
• Inventory carrying costs
– 100.000

CII Institute of Logistics SCM Performance Measurement

 The calculation
• Material acquisition costs
– [(80% * 3 * 10.000) + 50.000 + (90% * 4 *10.000 + 40% *
100.000) + (100% * 2 * 10.000) + (80% * 5 * 10.000 +
5.000)] = 215.000
• Order management costs
– [(100% * 5 * 10.000 + 2% * 100.000) + (80% * 4 * 10.000)
+ (100% * 4 * 10.000 + 40% * 100.000) + 50.000 + (100%
* 3 * 10.000 + 5% * 80.000)] = 248.000
• Total supply chain management costs:
– [60.000 + 50.000 + 30.000 + 100.000 + 215.000 +
248.000] / [14.000.000] = 5 %

CII Institute of Logistics SCM Performance Measurement

 Value-added productivity
• Value-Added Productivity is defined as the
measurement of cost and productivity performance
required to realize product revenue objectives.
• A higher number indicates a better use of resources
in your company’s supply chain processes.
• Calculation
• [total gross annual sales - total annual material
purchases] / total employment (in FTE)  result =
value (in $).

CII Institute of Logistics SCM Performance Measurement