OMSAN LOJİSTİK

Management Applications of Performance Metrics

1. Track progress2. Benchmarking3. Investment justification4. Gain perspective on business and solutions

Auditing & Goal Tracking

POCT (24/72)

VU (65%/95%)

COCT (42/24)

LCSR (17%/10%)

LWFP (2.4/1)

IT (2/8)

SD (8/6)

IA (90%/97%)

POP (45%/75%)

VAS (5/5)

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Company XGoal

Benchmarking Corporate Performance Measures

• Process vs. Performance Benchmarking• Internal vs. External Benchmarking• Public vs. Private vs. Competitive Benchmarking

Major Issues in Benchmarking• Selecting Partners• Selecting KPIs• Comparability Issues

Cost Components 1975

Transportation

Inventory Carrying Charges

Warehousing

Admin. / Order Processing

$.068

$.058

$.048

$.015

$.035

$.020

$.024

$.016

TOTALS $.189 $.095

Herbert W. Davis, 2003

2003

$.033

$.021

$.020

$.012

$.086

2003

Average Mfg

Example of Public Benchmarking: Logistics Cost Components

The AMAT benchmarking exercise story: from public to private, from

standard to normalized…• Increasing top management concern over inventory

planning and financial implications• Decision to evaluate current performance at similar

companies and operations• AMAT Inventory Turns = 1.8• AMAT Line Fill Rate = 92%• Logistics at AMAT qualified as a support organization for

service parts in the high-tech electronics segment.• Some results…

AMAT public benchmarking effort. We used sources such as Cass Logistics, Herb Davis,

and the IOMA Report.

1.8

5.85 4.6

5.3 5.1 4.6 4.33.7 4

30

5.54.3 4.8

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AMAT public benchmarking effort. In this case we were looking for line fill rate by industry, being careful with the way companies calculate this KPI

“We look terrible, we are more complex that all of the other companies”

1.8

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98.6% 98.5%

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We are different… (sure)We are more complex … (sure)

Lets see what makes you more complex• 1.      number of commodities and part numbers • 2.      SKU introduction and purging rates • 3.      SKU substitutability and interchangeability • 4.      response time requirements • 5.      number of suppliers and customers • 6.      availability of timely, true consumption data • 7.      geographic spread of the logistics network • 8.      risk of obsolescence • 9.      demand variability • 10. inventory management risk

Grading complexity in all benchmarking data points using the 10 factor analysis.

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Number and Range of Commodities and SKUs 3 4 3 3 3 3 5 2 4 4 4 4 3 5 4 1 5 5

Rate of Introduction/Purging of New SKUs 3 5 3 4 4 4 5 3 4 4 4 5 4 5 4 1 5 5SKU Substituability/ Interchangability 3 5 3 4 4 4 3 4 3 3 3 5 5 3 3 1 5 5Response Time Requirements 3 5 3 3 3 3 3 3 3 3 3 5 2 3 3 4 3 5Number of Suppliers & Customers 4 2 4 5 5 5 5 5 5 5 5 2 3 5 5 2 4 5

Availability of Timely, True Demand Data 3 4 3 4 4 4 3 4 2 2 2 4 3 3 2 1 4 5

International vs. Domestic Logistics Network 2 5 2 5 5 5 5 5 4 4 4 5 4 5 4 1 5 5Obsolesence Risk 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 5Demand Variability 2 3 2 2 2 2 3 4 2 2 2 3 3 3 2 1 3 5Inventory Management Risk 2 4 2 2 2 2 3 4 3 3 3 4 3 3 3 2 4 5

Totals 26 38 26 33 33 33 36 35 31 31 31 38 31 36 31 16 40 50

Control points Coca-Cola (5) and Defense Logistics Agency (40).

We processed the raw data to create an Inventory Performance Index (IPR) and then

plotted the IPR vs. Complexity Turns Fill Rate Turn

Ranking Fill

Rank IPR Complexity Complexity

Index Complexity Weighted

IPR

Applied Materials

1.8 92.0% 3 4 7 38 0.76 5.32

Baker Hughes 2 65.0% 4 1 5 38 0.76 3.80 John Deere 2.2 97.0% 5 9 14 36 0.72 10.08 Caterpillar 1.7 94.7% 2 5 7 36 0.72 5.04 Lucent Technologies

4 95.0% 8 6 14 35 0.70 9.80

Caterpillar Logistics

6.5 97.4% 9 13 22 33 0.66 14.52

Xerox 7 97.0% 11 11 22 33 0.66 14.52 Lanier 2.5 97.0% 6 10 16 33 0.66 10.56 IBM 3.6 88.0% 7 3 10 33 0.66 6.60 Toyota Service Parts

36 97.0% 15 12 27 31 0.62 16.74

Mitsubishi 30 95.0% 14 7 21 31 0.62 13.02 Ford CS 6.8 83.4% 10 2 12 31 0.62 7.44 Kodak SPC 0.947 96.0% 1 8 9 31 0.62 5.58 Ameritech 10 98.6% 13 15 28 26 0.52 14.56 BellSouth 7.1 98.5% 12 14 26 26 0.52 13.52

At the end, there were only one company we could truly compare AMAT with…

Inventory Performance Ranking vs. Logistics Complexity

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IPR

IPR

Complexity

Process benchmarking may look like a gap chart against world-class practices

3,5

3,5

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4,5

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DC Performance

Measures

Receiving & Putaway

Storage

Order PickingUnitizing & Shipping

WMS

Workforce &

Workplace

World-Class

Disney Merchandise DC

Keep it in perspective…

• “A (potential) problem with benchmarking (to be sensitive

to) is that it can restrict the team’s thinking to the

framework of what is already being done in the

company’s own industry. By aspiring only to be as good

as the best in the industry, the team sets a cap on its

own ambitions. Used this way, benchmarking is a tool

for catching up, not for jumping ahead.”

Hammer, M. & Champy, J. “Reengineering the Corporation: A Manifesto for Business Revolution”, 1993

Logistics Initiatives: Financial Justification Analysis

Disney’s Distribution Center

Spartan Stores’ Logistics Operation

AMOCO’s Transportation Performance Analysis

Disney’s DC performance objectives show potential savings by improving productivity,

quality, and velocity.

Spartan Stores computed financial savings through logistics initiatives using KPI improvements and

resource reduction calculations

Amoco calculated a financial improvement of getting better fleet utilization numbers and tied those

improvements to TMS functionality

There are not perfect corporate performance systems, but there

are BAD ones!

Benchmarking

• A quality tool used to – identify best practices and

performance– understand the processes

used– determine if internal change

is needed and how it should be modified

• Process

Decide What to Benchmark

Plan the Benchmarking Process

Study Other Organizations

Learn From the Data

Use the Findings

Benchmarking Identifies Winners and Losers

World Class

Country Class

Above average

Below average

Slipping Organizations

Troubled Organizations

Winners

Survivors

Losers

“High Performance Benchmarking: 20 Steps to Success” H. James Harrington

DesiredState

DesiredState

ProcessReengineering

CustomerValue

Research

ActivityBased Costing

Performance measurement

Flowcharting

Benchmarking

Value Chain

Using the Measurement Results

Value is gained by: 1. Effectively defining objectives, processes and measurement methods

2. Accurately measuring costs, productivity, quality, and cycle time

3. Using the knowledge to make changes

Productivity Audit and Control

Goals

PerformanceReports

Corrective Actions

Monitor

INPUTS ACTIVITIES OUTPUTS

Key Definitions

• Auditing– Provides the information necessary for control– Quantify

• Control– The process where planned performance is

brought into line, or kept in line, with desired objectives

Control Systems

• Open-Loop System– Human intervention is required for corrective action.

• Low cost, flexible, management discretion used

• Time consuming, prone to bad judgment

• Closed-Loop System– Automated intervention occurs to correct problems or make

changes to system• Fast, accurate, able to handle numerous processes

• Rigid rules, lacks flexibility

Performance Audits

• Periodic examination of logistics activities to review productivity, quality, efficiency, and effectiveness – Customer service audits– Inventory audits

• Cycle counting vs.once-per-year counting

– Facility audits– Freight bill audits

• Quantify improvement opportunities and prioritize needs

Audits vs. Day-to-Day Management

• Operational assessment– periodic analysis of overall

operations– upper management driven

activity– formal review of

practices/processes– look for major flaws or

problems in system

• Performance evaluation– daily review of individual

operations– supervisor, middle

management activity– basic analysis of

productivity/quality– look for opportunities to

improve operation

Corrective Action

• Taking steps to rectify discrepancies between actual performance and goals or expenses and budgets– Minor adjustments (continuous improvement)– Major replanning (re-engineering)– Contingency planning (what-if scenario

playing)

Performance Improvement

• Communicate with employees

• Break down major operations

• Study details of each operation

• Plan methods and modifications

• Retrain employees

• Implement changes

• Measure results and make adjustments

Performance Improvement

• Minor advances result from labor effort– Improve worker productivity

• limited benefits from corrective action programs

– Improve worker efficiency/utilization• keep people busy in productive functions

– Improve worker accuracy• do things right the first time

Performance Improvement

• Effective management brings major results– Eliminate work

• do only what is necessary

• don’t duplicate efforts

– Simplify work• find the easiest way

• ask the experts for suggestions

• train and retrain

• reduce paperwork

Performance Improvement

• Effective management brings major results– Reorganize and reengineer work systems– Improve your operational knowledge

• record & evaluate productivity every day

• learn all functions

• look for improvement opportunities

– Staff operation properly • accurate forecasting

• manage proactively, stretch people

• use overtime and work rules to your advantage