Measuring And Improving Performance

1. Measuring and
Improving
Performance
By: Genwil M. Ilagan

2. Objectives of this chapter.
 ACKNOWLEDGE the significance of performance
measurement
 DESCRIBE many supply chain performance
metrics
 DISCUSS the best precautions and how to
employ them.
 USE Benchmarking
 CONDUCT a supply chain analysis utilizing
various charts.
 DESCRIBE several methods for enhancing
logistics

3. Measuring Performance
 We have established the supply chain's
structure and demonstrated how to coordinate
the movement of items.
 We require a means of expressing how
effectively it functions currently and how it
might be improved.

4. We have to answer 4 questions:
1. What are we doing now?
Analyzing the current methods, aims, and
operations of logistics.
2. What do we want to do in the future?
Giving new aims and clear objectives
for improvement.
3. What is the best way to get here?
Looking at options and implementing
the best.

5. We have to answer 4 questions:
4. . How do we know that we are getting there?
Measuring performance, comparing actual
results with expectations.

6. Measures for Logistics
 Managers in every organization have to
measure the performance of logistics. If they
don't take measures, they have no idea how
well they are doing. The problem is finding
what to measure and how to measure it - an
old maxim says, 'what you can't measure, you
cannot manage'.

7. Measures For Logistics
 Financial measures are popular, as they are
easy to find and give a broad view. They also
have weaknesses as they concentrate on
past rather than current performance.
Financial performance can show that
something is wrong, but it does not show what
is wrong or how to correct it.

8. Capacity and Utilization
 The capacity of an organization is not fixed,
but depends on the way that resources are
used. Two organizations can use identical
resources in different ways, and get different
throughputs. The capacity gives a direct
measure of performance and management
skills for both organizations to measure.

9. Different types of Capacity
 Designed Capacity – is the maximum possible
throughput in ideal conditions.
 Effective Capacity – is what we can actually
achieve in the long term;
 Actual Throughput - shows what we actually
achieved.

10. Example
 A call center company can accommodate
1000 calls an hour.
They can achieve this for a short period. But
after some instances are present. The
effective capacity is 850 calls an our. In one
typical hour Ellison actually handled 710 calls.
This shows that they were working below
capacity and have not fully used their
resources .

11. Utilization
 Shows the proportion of the designed
capacity that is actually used .
Example : A vehicle fleet that is designed to
deliver 100 tons of materials a week. This is its
designed capacity. If the fleet only delivers 60
tons in one week:
utilization =
𝑎𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑢𝑠𝑒𝑑
𝑑𝑒𝑠𝑖𝑔𝑛𝑒𝑑 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦
=
60
100
=60%

12. Productivity
 Productivity is one of the most widely used
measures of performance.
Total Productivity - Relates throughput of a
supply chain to the amount of resources used.
total productivity =
𝑡𝑜𝑡𝑎𝑙 𝑡ℎ𝑟𝑜𝑢𝑔ℎ𝑝𝑢𝑡
𝑡𝑜𝑡𝑎𝑙 𝑟𝑒𝑠𝑜𝑢𝑟𝑐𝑒𝑠 𝑢𝑠𝑒𝑑

13. There are four types of partial productivity
relating the throughput to different types of
resource.
 Equipment Productivity – such as the number of costumer
visits per van, weight moved per forklift, or miles flown
per aeroplane.
 Labor Productivity - such as the number of deliveries per
person, tonnes move per shift , or orders shipped per hour
worked
 Capital Productivity – such as the amount stored for each
pound of investment , deliveries per unit of capital ,
throughput per dollar invested in equipment.
 Energy Productivity - such as the number of deliveries per
litre of fuel, amount stored per kilowatt–hour of electricity,
or the value added for each pound spent on energy.

14. Other Measures
Some common measures of performance
include:
 Reliability of Delivery
 Total travel time and distance
 Delivery Cost
 Costumer Satisfaction
 Frequency of service
 Loss and Damage

15. Other Measures
 Availability of Special Equipment
 Helpfulness of Drivers
 Time to load and unload
 Total weight moved
 Number of errors in deliveries
 Errors in processing and administration
 Size and capacity of vehicles
 Skills of drivers.
 Utilization of Vehicles.

16. Other Measures
 In business, we often have to find ways of
assigning numerical values to intangible
factors. Sometimes we use surrogate
measures, such as the number of complaints
received. More often we use notional scales,
so we might ask customers to rate some
factor on a scale of one to five.

17. Other Measures
 The average value of stock held by a warehouse is an
important measure of its performance. It is based on the
average number of units held, multiplied by the unit value.
When this is summed for all products, we get an average total
inventory value for a warehouse.
 Average total inventory value = ∑ (average number of units
held × unit value)

18. Week Supply
 Weeks’s Supply =
𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑡𝑜𝑡𝑎𝑙 𝑖𝑛𝑣𝑒𝑡𝑜𝑟𝑦 𝑣𝑎𝑙𝑢𝑒
𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑤𝑒𝑒𝑘𝑙𝑦 𝑡ℎ𝑟𝑜𝑢𝑔ℎ𝑝𝑢𝑡

19. Stock Turnover
 𝑆𝑡𝑜𝑐𝑘 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 =
𝑎𝑛𝑛𝑢𝑎𝑙 𝑡ℎ𝑟𝑜𝑢𝑔ℎ𝑝𝑢𝑡
𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑡𝑜𝑡𝑎𝑙 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑣𝑎𝑙𝑢𝑒

20. Other common measures of
warehouse performance include:
 Average stock value
 Changes in stock value
 Utilization of storage area and volume
 Proportion of orders met from stock
 Proportion of demand met from stock
 Weeks of stock held
 Stock turnover
 Order cycle time

21. Other common measures of
warehouse performance include:
 Number of orders processed
 Cost of each stock transaction
 Customer services
 Errors in order picking
 Damage and loss
 Special storage facilities

22. Other common measures of
warehouse performance include:
 We could also make similar lists for other
functions of logistics, such as with
procurement, where we could measure the
performance by the cost per transaction.
These lists are obviously not complete, and in
different circumstances many other measures
might be important to assess how well
companies do their job.

23. Balancing Different Measures
 Different measures of productivity give different
views of what makes up the world of logistics -
from miles per litre of fuel efficiency to sales per
square metre to the amount of automation in a
warehouse. To get a reasonable picture of
logistics we have to take a balanced view of all
these measures. But which measures are most
important?

24. Balancing Different Measures
 The measures give basic information for
managers to use in their decisions, and they show
how well the supply chain is achieving its goals. is
to have a fast flow of materials through the chain,
managers should measure this speed of
managers should measure different aspects of
cost, but not worry so much about utilization.
Unfortunately, managers often ignore this advice
and use inappropriate measures that are the
number of clients they speak to and not the quality
of their service, double booked seats

25. To give a reasonable view of
logistics, a measure must:
 relate to the objectives of the supply chain
 focus on significant factors
 be measurable
 be reasonably objective
 look at current performance, not historical
 allow comparisons over time and with other
organizations
 be easy to understand by everyone concerned
 be difficult to manipulate to give false values
 be useful in other analyses.

26. Comparing Performance
Standards For Comparison
 see how well objectives are being achieved
 compare the current performance of logistics with
performance in the past
 make comparisons of logistics with other
organizations
 compare the performance of different parts of the
supply chain
 make decisions about investments and proposed
changes

27. Comparing Performance
 measure the effects of changes to the supply
chain
 help with other internal functions, such as
wage negotiations
 highlight areas that need improving.

28. There are four ways of judging
performance, using comparisons
with:
 Absolute Standards – which give the best performance
ever achieved.
 Target Performance - which is a more realistic target
that is agreed by managers, who want to set tough, but
attainable, goals.
 Historical Standard - which look at performance that
was actually achieved in the past. As organizations are
always looking for improvement, we can regard this as
the worst performance that might be accepted.
 Competition Standard - which looks at the performance
actually being achieved by competitors.

29. Benchmarking
 With benchmarking, an organization
compares its performance with a competitor.
To be blunt, organizations use benchmarking
to find ideas for logistics that they can copy or
adapt.

30. STEPS IN BENCHMARKING

31. Analyzing A Supply Chain
 Suppose that we benchmark a competitor's
purchasing system, and find that it is ten percent
cheaper than ours.
 In other words, we need some way of describing
the detailed operations in the supply chain; we
want some means of listing the individual activities
and showing the relationships between them.
 The easiest way of doing this is with a process
chart.

32. We could describe
the main activities as:
 receive request to purchase materials
 check departmental budgets and get clearance to
purchase
 make a short list of possible suppliers and send a
request for quotations
 examine quotations received and pick the best
 discuss, negotiate and finalise terms and conditions
 issue a purchase order for the materials
 do any necessary follow-up and expediting
 arrange payment of the supplier’s invoice.

33. Process Chart
 We can draw an informal process chart for
this in the form of a flow chart (shown in
Figure 8.4). This informal chart gives a
general view of the process, but it does not
give many details. A better approach starts by
describing all the activities as:

34. A better approach starts by
describing all the activities as:
 operation: where something is actually done
 movement: where products are moved
 storage: where products are put away until they
are needed
 delay: where products wait for something to
happen
 inspection: to test the quality.

35. Then we can track a series of activities and
describe exactly what happens. For this,
we use the following six steps.
 Step 1: List all the activities in their proper
sequence from the start through to the finish.
 Step 2: Classify each activity as an operation,
movement, inspection, delay or storage. Find the
time taken and distance moved.
 Step 3: Summarize the activities by adding the
number of activities, total times, rate of doing each
activity, and any other relevant information.

36.  Step 4: Critically analyse each activity, asking
questions like, ‘Why is it done this way?’, ‘Can we
eliminate this activity?’, ‘How can we improve this
activity?’, ‘Can we combine activities?’
 Step 5: Now revise the process to give fewer
activities, shorter times, less distance travelled,
and so on.
 Step 6: Check the new procedures, prepare the
organisation for changes, train staff, and so on
and implement the changes.

37. Format Of Process Chart

38. Precedence Diagrams
 Precedence Diagram – another format for
describing a supply chain.
 Consists of network of circles (representing
Activities)and arrows (representing the
relationships between them).

39. Multiple Activity Charts
 Its useful when a person or piece of
equipment. Is doing at any time.
 This has a time scale down the side of the
diagram, with all the participants listed across
the top. The time each participant works on
the process is blocked off

40. Improving Performance
 The main benefits of better logistics include:
Cost-cutting, efficiency and customer
satisfaction. The argument is that competitors
are always trying to get an advantage by
improving their own supply chains. This
means every organization has to keep
improving just to stay in the same place.

41. So the main benefits of better
logistics include:
 long-term survival
 lower costs
 increased profits, wages, real income, and so
on
 improved competitiveness and growth
 better job security and staff involvement
 better use of available skills

42. So the main benefits of better
logistics include:
 less waste of resources
 realistic targets for improving performance
 monitoring improving performance
 allowing comparisons between operations
 measuring management competence.

43. Improving Performance
 How do we make sure that our logistics
continue to change and improve? The best
answer is to develop an organisational
commitment to improvement - accepting that
continual change is inevitable, necessary and
beneficial. We develop a culture that
welcomes and encourages improvement in all
areas of our supply chain.

44. Finding Improvements
 Simple rules of thumb can be used to improve
logistics. These can focus on areas that
commonly cause problems in logistics. Toyota
found that the following six areas caused
most concern for them: delivery times, stock
levels, cleanliness, customer service, use of
the Web and third party services.

45.  Quality – that is too poor to satisfy customers
 Production level – making products, or having
capacity, that is not currently needed
 Processing – having unnecessary, too complicated or
time-consuming operations
 Waiting – for operations to start or finish, for materials,
repairs, and so on
 Movement – with products making unnecessary, long,
or inconvenient movements during operations
 Stock – too much stock that needs storing and raises
costs.

46. Sordy15 suggests that logistics
can be improved by aiming for
five principles:
 1. Balance, giving a smooth flow of materials
through the chain
 2. Location, with all operations in the best
positions
 3. Minimise, using the least amount of handling,
distance travelled and cost
 4. Simplify, to make everything as simple as
possible
 5. Communicate, as a good information flow gives
good material flow

47. Plan Do Act Cycle
 We need to design a structure for our logistic
improvement projects. This could include a
plan–do–check–act cycle or a team of people
whose job is to go around and positively
search for things that could be done better,
using the cycle as a starting point.

48. Plan Do Act Cycle
 plan – looking at the existing logistics, collecting
information, discussing alternatives, and
suggesting a plan for improvement
 do – where the plan is implemented, and data is
collected on performance’
 check – which analyses the performance data to
see if the expected improvements actually
appeared
 act – if there are real improvements the new
procedures are made permanent, but if there are
no improvements, lessons are learnt and the new
procedures are not adopted.

49. A reasonable one for most
problems has the following
steps:.
 1. Make everyone aware that changes are needed
to the supply chain, describing the reasons,
alternatives and likely effects.
 2. Examine current practices, identify their aims,
see how well they achieve these and identify
problem areas and weaknesses.
 3. Use benchmarking and other comparisons to
identify potential improvements and improved
methods.

50. A reasonable one for most
problems has the following
steps:.
 4. Design better procedures using the knowledge,
skills and experience of everyone concerned.
 5. Design better procedures using the knowledge,
skills and experience of everyone concerned.
 6. Design a detailed plan for implementing the
improvements, anticipating likely problems rather
than waiting for them to happen.

51.  7. Make any necessary changes to the
organization's structure, systems, facilities,
and so on.
 8. Give appropriate training to everyone
involved.
 9. Set challenging, but realistic, goals for
everyone, and make it clear how these can be
achieved.

52. A reasonable one for most
problems has the following
steps:.
 10. Have a specific event to start the new
methods.
 11. Establish milestones and monitor progress
to make sure they are achieved.
 12. Give support and encouragement to
everyone concerned.

53. A reasonable one for most
problems has the following
steps:.
 13. Have continuing discussions about progress,
problems, adjustments, and so on.
 14. Monitor and control progress to make sure
that everything continues to go as planned,
remain committed to the new methods while they
are giving improvements, and update them as
necessary.
 15. Accept that the new methods are only
temporary, and continually look for further
improvements.

54.  Organizations need a plan for the future, a
map of where they want to go and how they
can get there. Process involves continuous
improvement, with temporary changes that
will be replaced again in the future. There is
little risk, as any small change that does not
work can easily be reversed.