Link (Non)Financial To Supply Chain Performance Metrics


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Measuring the right things and measuring it right

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Link (Non)Financial To Supply Chain Performance Metrics

  1. 1. Link (Non)Financial to Supply Chain Performance Metrics Measuring the right things and measuring it right Anand Subramaniam
  2. 2. <ul><li>“ Isn't it interesting that the same people who laugh at science fiction listen to weather forecasts and economists? ” </li></ul><ul><ul><li>- Kelvin Throop III </li></ul></ul>
  3. 3. Highlights <ul><li>Metric – Overview </li></ul><ul><li>Metrics – Supply Chain & (Non)Financial </li></ul>
  4. 4. Metrics - Overview
  5. 5. Enterprise-Wide Supply Chain Management Planning Evaluating Selecting Purchasing/ Contracting Revenue Management Using Disposing Distributing Processing Storing Warehousing Managing Inventory Receiving/Accounts Payable Supply Chain & (Non)Financial metrics
  6. 6. Problems with traditional metrics <ul><li>Failure to meet customer expectations </li></ul><ul><li>Sub-optimisation of some metrics at the expense of others (due to poor internal alignment) </li></ul><ul><li>Conflict within the supply chain (due to poor external alignment) </li></ul><ul><li>Missed opportunities to outperform the competition </li></ul>
  7. 7. Example: Measuring Inventory Turns Inventory Turns The problem is that not all inventory turns are equal Inventory is usually cheaper further back in the supply chain Many companies use inventory turns as a measure of its efficiency !! Caveat: this might not be the case if the cost of money varies between firms in the supply chain Inventory turns also doesn’t consider risk and the value of post-ponement Typically, an improvement in inventory turns close to the retailer is more valuable than one further back
  8. 8. Metrics - Supply Chain & (Non)Finance Why? To allocate benefits and burdens between functions and between firms To align activities and share performance goals To extend the “line of sight” in the supply chain To determine the relationship between corporate and supply chain performance To differentiate the supply chain & to obtain a competitive advantage Is a prerequisite to successfully implement a supply chain strategy To encourage cooperative behavior both between functions and between firms
  9. 9. Steps - Develop SC & (Non)Finance Metrics 1. Map the supply chain 3. Develop customer & supplier P&L statements 4. Realign processes & activities to achieve the objectives 5. Establish (non)financial measures / metrics 6. Compare shareholder value & market capitalisation across firms 2. Analyse each link & determine where value can be created
  10. 10. Metrics – Supply Chain & (Non)Financial
  11. 11. <ul><li>“ Good judgment comes from experience and experience comes from bad judgment .” </li></ul><ul><ul><li>- Barry LePatner </li></ul></ul>
  12. 12. SC Metric - Customer <ul><li>DRP performance </li></ul><ul><li>Customer complaints </li></ul><ul><li>% resolution on first call </li></ul><ul><li>Overall customer satisfaction </li></ul>Efficient <ul><li>Demand variability </li></ul><ul><li>Planning cycle time </li></ul><ul><li>Service system flexibility </li></ul><ul><li>% of customers sharing information </li></ul>Effective
  13. 13. SC Metric - Customer (Contd.) <ul><li>Lost sales </li></ul><ul><li>Query time </li></ul><ul><li>Time to market </li></ul><ul><li>Perceived value </li></ul>Efficient <ul><li>Shelf space </li></ul><ul><li>Forecast accuracy </li></ul><ul><li>Utilisation of POS data </li></ul><ul><li>Payment (invoice) accuracy </li></ul>Effective
  14. 14. Financial Metric - Customer <ul><li>Sales </li></ul><ul><li>Discounts </li></ul><ul><li>Gross Margins </li></ul><ul><li>Days Sales Outstanding </li></ul><ul><li>Sales / Sale Rep Labor Hours </li></ul>Efficient <ul><li>Market Share </li></ul><ul><li>Same Store Sales </li></ul><ul><li>Customer Disputes (Warranty, returned goods etc.) </li></ul>Effective
  15. 15. SC Metric - Distribution <ul><li>Line Item Fill </li></ul><ul><li>On-Time Delivery </li></ul><ul><li>Invoice Accuracy </li></ul><ul><li>Inquiry response time </li></ul><ul><li>Over / Short / Damaged (Warehouse fill rate and quality) </li></ul>Efficient <ul><li>Order fill rate </li></ul><ul><li>Quantity fill rate </li></ul><ul><li>Returns Handling </li></ul><ul><li>Stock-outs / Backorders </li></ul><ul><li>Range of Products/Services </li></ul><ul><li>Order cycle time and variance </li></ul>Effective
  16. 16. Financial Metric - Distribution <ul><li>Freight Costs </li></ul><ul><li>Cash to Cash Cycle </li></ul>Efficient <ul><li>Total Delivery Cost </li></ul>Effective
  17. 17. SC Metric - Receiving <ul><li>Time to Market </li></ul><ul><li>On-Time Delivery </li></ul><ul><li>Incoming Material Quality </li></ul>Efficient <ul><li>Returns Handling </li></ul><ul><li>Processing Accuracy </li></ul><ul><li>Receiving Cycle Time </li></ul>Effective
  18. 18. Financial Metric - Receiving <ul><li>Total Receiving Cost </li></ul><ul><li>Order / Lines Stocked per Labor Cost Unit </li></ul>Efficient <ul><li>Overtime Labor </li></ul><ul><li>Cost of Returns </li></ul><ul><li>Receiving Cost Variance </li></ul>Effective
  19. 19. SC Metric - Procurement <ul><li>Forecast Accuracy </li></ul><ul><li>Processing Accuracy </li></ul><ul><li>Orders Processed/Labor Unit </li></ul><ul><li>Deviation from Primary Vendor </li></ul><ul><li>Cost Deviation from Contract Price </li></ul>Efficient <ul><li>Order Cycle Time </li></ul><ul><li>Order Cycle Time Variance </li></ul>Effective
  20. 20. Financial Metric - Procurement <ul><li>Unit Costs </li></ul><ul><li>Landed Cost </li></ul><ul><li>Expediting Costs </li></ul>Efficient <ul><li>Total Procurement Cost </li></ul>Effective
  21. 21. SC Metric - Fulfillment <ul><li>Lines Picked per Hour </li></ul><ul><li>Quality of Documentation </li></ul>Efficient <ul><li>Supplier Inventories </li></ul><ul><li>Channel Inventories </li></ul><ul><li>Combined Shipments </li></ul>Effective
  22. 22. Financial Metric - Fulfillment <ul><li>Labor Utilisation </li></ul><ul><li>Inventory Turns </li></ul><ul><li>Inventory Value </li></ul><ul><li>Warehouse Utilisation </li></ul><ul><li>Inventory Carrying Costs </li></ul>Efficient <ul><li>Logistics Cost / Unit </li></ul><ul><li>Inventory Reduction </li></ul><ul><li>In-Transit Inventories </li></ul><ul><li>Inventory Obsolescence </li></ul><ul><li>Inventory Count Accuracy </li></ul>Effective
  23. 23. SC Metric - Transport <ul><li>Damages </li></ul><ul><li>Driver Reliability </li></ul><ul><li>Shipment Accuracy </li></ul><ul><li>On-Time Shipment </li></ul>Efficient <ul><li>Delivery Times </li></ul><ul><li>Carrier Choices </li></ul><ul><li>Urgency/Responsiveness </li></ul>Effective
  24. 24. Financial Metric - Transport <ul><li>Truck Freight Cost </li></ul><ul><li>Inbound Freight Cost </li></ul><ul><li>Outbound Freight Cost </li></ul>Efficient <ul><li>Back Hauls </li></ul><ul><li>Freight Audit </li></ul><ul><li>Continuous Moves </li></ul><ul><li>Total Transportation Cost </li></ul>Effective
  25. 25. Conclusion <ul><li>A good measurement system is critical to drive the desired performance and to achieve the goals of the supply chain strategy </li></ul><ul><li>The metrics need to be aligned not only within the firm, but between firms as well </li></ul><ul><li>Both customer and supplier P&Ls should be used to measure the impact of improvements </li></ul>
  26. 26. <ul><li>“ Facts are facts and will not disappear on account of your likes .” </li></ul><ul><ul><li>- Jawaharlal Nehru </li></ul></ul>
  27. 27. <ul><li>Good Luck </li></ul><ul><li> </li></ul>