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Posts Tagged ‘performance’


A decade ago people used to believe that people, process and technology are the three Business enablers.  John F Kennedy once said, “the Chinese use two brush strokes to write the word ‘crisis.’ one brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger–but recognize the opportunity”. In today’s world globalization propels the business growth and at the same time, presents massive challenges in the form of supply chain.  This phenomenon called globalization impacts the economy, product life cycle, society, environment and personal life too.

I am not sure if anyone measured the increase in competition due to globalization, but surely the globalization has immensely improved sustainable competitiveness in many organisations.  In order to be competitive in this world of uncertainties and volatile market conditions, we need a successful formula that could deliver and address challenges such as global reach, price competitiveness, agility and rapidity to reach the market, improved production and supply lead time, make vs. buy decisions, identifying non-core activities and outsourcing, improved operating profit after capital charge, on top of all this, EVA, total customer satisfaction and happy investors.  The role of the supply chain has never been as important as it is in today’s globalized economy. Supply Chain speed and agility have become two key levers for competitive differentiation and increased profitability. Today’s supply Chain successfully handles all the challenges identified above and converts those challenges into opportunities in order to deliver competitive advantage to the organisation. And it is proved time and again  that Supply Chain is the core business enabler apart from people, process and technology.

Today there is no dearth for technology, we have variety of technological tools that offer variety of automation, the need of the hour is the people who can understand the business dynamics and customer expectations and develop effective supply chain processes that adds value and delivers competitive advantage and sustainability to the business.

Supply Chain delivers broadly four competitive advantages to the business and that includes, cost benefits, flexibility benefits, quality benefits and last but not least is the lead time benefits.  These benefits are driven through Planning, Continuous Improvement, Quality (standard work to achieve consistency) and the ability to reach global customers faster and efficiently.

The below figure shows the supply chain functional pyramid:

Pic1Whereas the business is not a charity, in order to be successful, it has to generate profits keep the shareholders happy and encourage them to invest more money into the business.  George W Bush rightly pointed out that, “you can’t do today’s job with yesterday’s methods and be in business tomorrow”.  And that is where we need effective, advanced and cutting-edge supply chain processes and efficiencies.  A good business leader should create a vision, articulate it passionately and drive towards completion.  Any good vision will have four “P”s in it, people, process, product and profitability.  If you look into the business objectives pyramid, you will find all these elements in one form or the other.

The below figure shows the Business Growth and Prosperity Pyramid:

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The Alignment:

In the month of December 2013, Hitachi Consulting group report (published in Europe) indicated that 80% of supply chain managers do not see their supply chain as an enabler of business strategies within their organisation.  Greg Kinsey, VP of Hitachi Consulting, said: “The results from our survey make one thing very clear – disconnect between a company’s business transformation strategy and the day-to-day management of the supply chain remains a serious, yet hidden, problem for many organisations.  Hence, it is absolutely necessary to align the supply chain transformation strategy with the business strategy in order to excel in today’s dynamic, challenging, volatile, confusing, compelling, and exasperating world of business.  The below figure explains the alignment between supply chain transformation and business growth and prosperity with right people, processes and with the help of technology.

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It is very critical that the supply chain transformation is well aligned with business growth and prosperity strategies.  The below figure illustrates the path for the alignment.

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Organizations may have to recognize that the supply chain transformation and alignment with the organisational goals and objectives delivers a competitive market differentiation.  The uniqueness sells; let us not forget that uniqueness’s core objective is to create that magic of alignment between supply chain and organisational goals.  In order to achieve the short and long term goals the transformed and aligned supply chain will have critical influence on business and organisational outcomes and to large extent on the shareholders and customers.

It is worth concluding this article with 7 simple supply chain lessons taught by Steve Jobs of Apple Computers (Source: Supplychain247.com)

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Leadership Pyramid Showing Vision Values Empowerment and Encouragement

Establish positive attitude and demonstrate your integrity to engage the team; and engagement leads to commitment and commitment results in enhanced productivity and improved productivity produces economic benefits to the Customers (Superior Quality and Cost Effective Products), Shareholders (Improved return on Investment), Employees (Career Growth and Job Certainty) and to the Organisation (Improved Brand Equity and Superior Financial Results).  Supply Chain is a team game and without cohesive and collaborative team you go nowhere.  In order to achieve all this; one should have the right attitude.  Someone appropriately commented that, “a bad attitude is like a flat Tyre, you can’t go anywhere till you change it”.

Positive attitude leads to great leadership and great supply chain results (Source: Gartner Supply Chain Top 25)

Top 25 SC Companies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

last 4 years comparison top supply chain

 

 

 

 

 

 

 

 

 

 

Believe in creating a successful future and not predicting the future!

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on behalf of a third party

Image by Lєaтнєянєaят via Flickr

At the outset I would like to clarify that this article is not going to deal with outsourcing risks.  The focus is on Supply Chain risks in an outsourced environment.  Risk in managing supply chains is high due to several reasons such as Terrorism, Shrinkage, Quality, Natural disasters, IP Thefts, and Vandalism etc.  The risk magnifies if the some or total operations are outsourced. Twenty five percent CAPGEMINI 2010 outsourcing survey participants have indicated that loss of control as one of the reasons for not outsourcing.

In order to outsource and to mitigate the supply chain risks collaboration becomes very critical in an outsourced environment.  According to CAPGEMINI 2007 report practitioners reveal a gap between the desire to work collaboratively with 3PLs and how to go about it. Collaboration means equal participation whereas 35% of the CAPGEMINI 2005 survey participants have indicated that the time and effort spent on managing Logistics functions not reduced.  This could mean practitioners believe that outsourcing means total responsibility transfer to 3PLs and no participation or minimal participation from their side.  Outsourcing means handing over the control over operations to a third party but the ownership rests with the outsourcing companies and they cannot disown the responsibility. One should clearly understand that the outsourcing is confined to activity but not the function.  The functional responsibility rests with the outsourcing company and they may have to execute the activity in collaboration with the service provider.

Time and again shippers (outsourcing companies) repeatedly pointed out that 3PL (third party logistics) companies do not have the project management capabilities and they fail during the transition due to lack of industry specific knowledge and also due to lack of process integration capability across supply chain. These teething issues if not addressed properly could lead to relationship failures.  Hence, the problem is not supply chain risks but the lack of collaboration in tackling the issues.  In order to highlight the seriousness of the issue, I reviewed the last five CAPGEMINI outsourcing surveys and the trend indicates consistency.

In my opinion, top three reasons that could lead to supply chain risks in an outsourced environment would be lack of project management skills, unsatisfactory transition and lack of knowledge based skills.  Surprisingly the feedback over the last five years was consistent and we see 20% improvement in case of knowledge based skills.  This could be due to more skilled force joining 3PL companies and we have seen recently 3PL companies recruiting practitioners as subject matter experts and to manage the projects.  What is disturbing is that on an average 15% survey respondents have indicated that 3PLs are unable to form meaningful and trusting relationships.  In my opinion this is a cause of concern.  The recent survey conducted by CAPGEMINI (2009) indicated that only 25% of the shippers felt that the outsourcing is “extremely successful” and further 64% participants felt that outsourcing is “somewhat successful”.   If the outsourcing community is not totally happy with the outsourcing outcomes or performance, managing risks through collaboration could become a serious issue.

How secure are the shippers about the security provided by 3PL companies?

The 2008 CAPGEMINI survey did indicate that majority of the respondents are comfortable with the security arrangements.  Around 22% have indicated somewhat secure and 2% indicated that not secure.  Supply Chain security is paramount and even if 2% were unhappy, it needs immediate attention.  These risks could lead to major customer satisfaction issues.  That could be the reason why 25% non-outsourcing respondents (2009 survey) indicated that they do not outsource due to loss of control over operations.  Some of the serious security breaches indicated in the 2008 survey included the following:

  1. In one case, 2GB branded USB sticks were replaced with 1GB but appeared as 2GB to users.
  2. Another case involved falsified Italian airplane parts that were later rumoured to have contributed to accidents.

Supply Chain security is critical to all industries but it is vital for some specific industries where any security breach could be life and death question and the example could be food contamination.  58% Food and beverages industry respondents in 2008 survey indicated that spoilage of food products creating a health risk as the biggest risk. The above mentioned survey did indicate that 3% Food and Beverage industry respondents were not secure about the arrangement, which is really a cause of concern.  Tampering was reported as the second biggest threat (45%) for life sciences and pharmaceutical companies.  This is also a life threatening risk.

Type of Supply Chain Risks:

One can divide the risks into two categories, the first one dealing with 3PL operational efficiency related risks and the second one dealing with generic supply chain risks. The trends reveal some interesting facts.

The top three risks, theft of material, material tampering and theft intellectual capital were predominant in Asia compared to global trends.  The risk of terrorist attacks and the disruptions due to natural disasters are the two top risks in North America.  Whereas Latin America faces serious supply chain risks from, smuggling of other material with the shipments, Vandalism and Spoilage of food products leading to health risks.  Europe is a mixed bag, it also faces all risks but the thefts and thefts of Intellectual capital are over and above the average global percentage.

The first three supply chain risks identified as 3PL operational efficiency related risks are quite common even in insourced operations.  As warehousing and distribution function is a non-core activity for many organizations, organizations should work in collaboration with the service provider to minimize the risks and operational disruptions.

Enhance Supply Chain Security:

Risks are inevitable and outsourcing is unavoidable (encouraged due to various benefits of outsourcing).  Hence, it is necessary to enhance the supply chain security with the help of service providers.  CAPGEMINI 2008 survey identified 12 enhancements and the participants have identified gaps in enhancing the security.  The below given chart is developed based on the data published in the above mentioned survey:

If we review top three gaps, any one would understand that it is not a challenging task to improve security.  What is lacking is proactive approach from both the shipper and the service provider.  Lack of proactive reporting with regard to thefts or any other risks is the biggest complaint by the outsourcing community and this continues to haunt the 3PL industry even today.  In most of the cases, the customer (shipper) gets to know first about the incident.  This is really frustrating for the practitioners.

RFID tags are virtually impossible to copy, making them suitable to security applications. According to “The pros and cons of RFID in supply chain management” article the cost of goods lost within supply chains among the European companies was 50 Million euros a day and the same report indicated that up to US$30 billion worth of goods are being lost each year within supply chain.  However, recent development are encouraging, one of the biggest retailer (Wal-Mart) introduced mandates for RFID adoption.

Providing alternative routing for shipments is a possibility.  However, in the peak seasons such as Christmas and Chinese New Year time it would be next to impossible for rerouting keeping in view of very limited options.

Collaboration:

Collaboration is all about working together.  The CAPGEMINI 2008 survey published how the shipper and service provider are collaborating by industry.  What is heartening to note is that 48% shippers are willing to collaborate with the service provider to enhance the supply chain security to a limited extent.  Retail dominates this segment (57%), followed by Life Science (51%) and Chemical (50%).  Thefts are very high in retail whether the operations are outsourced or insourced and life science and chemical industries face more risks if they fail to collaborate with the service providers to achieve selected security improvements.  The 2008 CAPGEMINI report indicates that the higher the company’s revenue, the more likely they are collaborating beef up security measures.

Supply chain efficiency is the back bone of organizational excellence.  According to one estimate supply chain disruptions could result in 40 percent decline in share price.  Prof. Vinod Singhal of DuPree College of Management, Georgia Institute of Technology indicated that material shortages could contribute 7.5% reduction in share value on a given day.

Today’s business success to great extent depends on logistics and supply chain performance and the role of Supply chain has never been as critical as it is today. Supply Chain speed and flexibility have become two key levers for competitive differentiation and increased profitability. In order to compete effectively in the market place Supply Chain managers drive cost improvements and that could lead to some supply chain risks.

“Many of the key risk factors have developed from a pressure to enhance productivity, eliminate waste, remove supply chain duplication, and drive for cost improvement,” says William L. Michels, CEO of consulting firm ADR North America, Ann Arbor, Mich.

Today’s supply chain professionals recognize the risk as part and parcel of supply chain management and at the same time outsourcing is also inevitable.  Hence, the trick lies in identifying the risk and mitigating the same with the help of supply chain partner.  Proactive approach and collaboration minimizes the risk element in Supply Chain.

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Some time ago, we have reviewed the Warehouse KPIs and it time now to review the best-of-breed performance in order to bench mark the warehouse performance.  The data source is from DC Measure 2010, by Karl B. Manrodt, PhD and Kate L. Vitasek, published by WERC 2010.

The respondents were drawn from large corporations, medium size organizations and small industries.  The classification was based on company’s turnover.  The first group (31.9%) turnover is over 1 Billion US $, the second group (30%) consists of companies with turnover between 100 Million and 1 Billion US $ and the third group (38.15%) consists of companies below 100 Million US $.  In my opinion the grouping is balanced.

Some of the vital Key Measures:

If we review the top 10 metrics used by the companies (listed below) one can clearly understand how the focus has shifted to warehouse activities in order to improve overall supply chain efficiency.  All the below mentioned top 10 supply chain measures used by the survey participants are pointing towards operational efficiency.  It is a foregone conclusion that if we improve the efficiency/ productivity / cycle time, the overall operations cost would become efficient.

I have been monitoring the key measures for the last five years and I will highlight the improvement or decline in the performance level.  For the purpose of this article, I would be focussing on best-in-class performance, median performance, and the worst performance.  The logic is to understand the best performance and facilitate benchmarking.  The median performance will act as guidance for companies who cannot perform at the best-in-class rate and would continue to focus on improvement using median performance as a guide.  The worst performance is again used as an indicator for recognizing unacceptable performance.

I have divided the measures into five categories based on the nature and characteristics of the activity, the first one focuses on operations management, the second one deals with Inventory Management, the third one concentrates on Order Management, the forth one aims at Cost Management efficiencies, and the fifth one highlights Resources Management efficiency.

Operations Management:

I have included receiving, put-away, pick-n-pack and shipping activities.  In my opinion, Damage free receipts, Order pick accuracy, Cases and Pallets picking rate, complete order shipment and Damage free shipments indicate the operations management efficiency.

Please click the above graphic to magnify the image.

When we compare with 2009 best-in-class performance; dock-to-stock cycle time (23.33%) and cases picked and shipped per hour (12.11%) registered improvement in performance.  We have seen negligible efficiency improvement in handling material without damages.  We have seen decreased productivity levels in orders and pallets picked in an hour.

Inventory Management:

Inventory efficiency is the key indicator for Supply Chain efficiency, Inventory Shrinkage, Inventory in days of supply and Raw material and finished goods inventory on hand in days are considered as critical measures.  It is necessary to understand the difference between Inventory in days of supply and raw material and finished goods inventory on hand in days. Inventory in days of supply is calculated as shown below:

= Current (at the end of year/period) inventory value/ Total value of cost of goods sold.

Inventory in days of supply (13.64%) and Raw material in days (12.5%) shown improvement in 2010 compared 2009 results and this could be considered as tight inventory management as focus is to reduce inventory in the supply pipe.  We have seen 12.86% additional finished a goods carrying which is not in line with above two inventory performance indicators, this could also indicate lacklustre demand patterns noticed in the retail industry which could have caused additional inventory carrying.  Considerable (60%) improvement was noticed in case of product damages in the median group.

Order and Cost Management:

Order fill rate, Lost Sales, Distribution cost to sales are the key performance indicators in this segment.

Lost sales % and back order % has shown tremendous improvement in the best-in-class group.  This is an indication of supply efficiency.  As we all know both these performance indicators are interlinked.  The distribution cost has gone up by 20%, which could be due to low sales volume in $ and fixed warehouse costs.  Whereas the distribution cost per unit shipped has improved by up 94%, this is an indication of increase in number of units shipped but the sales value decreased; this could mean increased product discounts.  There was no increase in distribution cost in median group.  However, in-line with best-in-class results, we could notice improvement in cost of units shipped indicating increase in volume of units shipped.

Resources Management:

This is my favorite segment.  I strongly believe that time related positioning of resources is logistics management and logistics is part of supply chain.  Any improvement in this segment, I believe will have a direct impact on supply chain efficiency.  Warehouse Capacity utilization is an indication of business efficiency.  Equipment utilization and Human Resources turnover indicates how well warehouse operations are managed.  Last but not least workforce productivity is the proof of happy workforce.  In my opinion, happy workforce will contribute high productivity.  In order to achieve this both workers and management are equally responsible.  I am sure by this time you would have understood why this segment is my favourite.

Honey Comb %: Actual cube utilization/Total warehouse cube positions available.

All in all we have seen improvement in all performance measures.  There is a slight (3.16%) dip in the workforce productivity.  However, HR turnover has shown some great improvement. These two measures analysed together reflect the impact of financial recession.  We have seen salary cuts and uncertain job market.  I believe these two factors could have influenced these performance indicators.  However, we could see improvement in case of productivity levels in median group to an extent of 2.35%.  Any improvement in productivity irrespective of the quantum is always welcome and it is a good sign.

I would like to emphasize once again that warehouse operation is the key to the success of any supply chain.  Unless product moves seamlessly within supply chain, no supply chain would be successful.  This is a great job by the authors; I look forward to reviewing 2011 performance.

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Goals Computer Keys Showing Objectives Hope And Future

The performance indicator or key performance indicator (KPI) is a measure of performance of the business in order to benchmark against the competition and explore the possibility to improve in order to gain competitive advantage.  Warehousing function is a very critical within any supply chain.  If the products do not move seamlessly within supply chain business would face serious service-related challenges.  Hence, it is necessary to drive the performance of the warehouse through key performance indicators.  Further, in a continuous improvement environment, it is essential to benchmark against the industry standards in order to drive improvements.

What is Benchmarking?

“Benchmarking is the process of comparing one’s business processes and performance metrics to industry bests and/or best practices from other industries.” Benchmarking is essentially a process to measure a business’s processes against the competition, world standards or the business itself.

How do we benchmark and why?

The benchmark scope typically includes productivity, quality, time, and cost. The objective of this activity is to improve from learning the performance measurement in order to execute things better, faster, and cheaper.  The benchmarking effort is driven by a desire to evaluate business processes to see if they may be improved. The resulting improvements should then be related to how those improvements may be implemented to help a company better meet the requirements of its customers.

Operating cost break-up in a typical warehouse:

As you can see from the below-given pie chart (source: a recent survey of warehousing professionals) that the order picking is the most expensive operation and it is directly linked to customer satisfaction.  Any wrong pick would lead to an unhappy customer.  In order to drive improvements, it is very important to identify the cost distribution and identify improvement areas.  Generally, the improvement activities are identified based on cost or productivity linked activities.  The order pick activity is both highly labour intensive and 50% of warehouse costs were spent on this activity.

How to determine KPIs?

People, Cost, Space and Systems drive the performance inside the warehouse.  Hence, generally, warehouse KPIS are based on the above-mentioned drivers and focused on activity in order micromanage the performance.  The following activities are common in any warehouse:

  1. Receiving;
  2. Put-away;
  3. Storage;
  4. Pick-n-Pack;
  5. Shipping

Receiving:

The receiving activity is fundamental to warehousing function. Unless the merchandise is properly received, it will be very difficult to handle all other subsequent functions. The receiving function allows warehouse operators to receive product against a purchase order, and against an Advanced Shipping Notice (ASN) that has been received via Electronic Data Interchange (EDI). Receiving process could include goods physically received at the warehouse and stored or directly delivered at the customer site or cross-docked.

The relevant KPIs for receiving function should include the following:

  1. Cost – Cost of Receiving per receiving line;
  2. Productivity – Volume received per man-hour;
  3. Utilization – Receiving Dock door utilization %;
  4. Quality – Accurate receipts %;
  5. Cycle Time – Time taken to process a receipt.

Put-away:

Once receiving activity is completed, the accepted merchandise has to be stored in a location that is convenient to retrieve for further action.  This process is called put-away and this is the just reverse of order pick function.  We have different types of put-away processes.

  • Direct Put-away – Put-away directly to primary or serve locations.
  • Directed Put-away – Put-away directed by Warehouse Management System.
  • Batched and sequenced Put-away – Received material sorted and put-away processed in batches to maximise the efficiency.
  • Interleaving – Combine put-away and retrieval to avoid empty travel.

The KPIs for this activity should include the following:

  1. Cost – Cost per put-away line;
  2. Productivity – Put-away per man-hour;
  3. Utilisation – Utilisation % of labour and equipment;
  4. Quality – Perfect put-away %;
  5. Cycle Time – Time taken for each put-away.

Storage:

Broadly we have two types of storage systems and they are manual storage and the second one is automated storage and retrieval system (AS/RS).  Again within manual storage, we have six different types of storage and they are:

  1. Block stacking – “Units loads stacked on top of each other and stored on the floor on the storage lanes.”
  2. Stacking frames – “are either frames attached to standard wooden pallets or self-contained units made up of decks and posts.  Stacking frames are portable and enable users to stack material several loads high.”
  3. Single-deep selective pallet rack – “is a simple construction of metal uprights and cross-members providing immediate (pick-face) access to each load stored (that is, no honey combing).”
  4. Double-deep rack – “are mostly selective racks that are two pallets position deep.”
  5. Drive-in rack – “extend the reduction of aisle space begun with double-deep rack by providing storage lanes from five to ten load deep and three to five loads high.”
  6. Drive-thru rack – “is merely drive-in rack that is accessible from both sides of the rack.”

The KPIS for this activity would include:

  1. Cost – Storage cost per item;
  2. Productivity – Inventory per sq. foot;
  3. Utilization – % Location and cube occupied;
  4. Quality – % Location without inventory discrepancies;
  5. Cycle Time – Inventory days on hand.

Pick-n-Pack:

This activity again can be broadly divided into two parts.  First one deal with case picking and the second one deal with small item picking.  Further case picking can be classified into three categories.  The first one is known as Pick-face palletizing where warehouse operator palletizes at the pick-face as he/she traverses the picking tour.  The second one is downstream palletizing where cases are picked onto conveyors and sorted at the staging area.  The third one is direct loading where the cases were conveyed directly into the truck.

Further, the small item picking can be classified into three categories.  The first one is known as picker-to-stock, where the picker moves around to pick the cases.  The second one is stock-to-picker.  In this case stock was sent to the stationed picker through AS/RS machine. The third one is known as automated item picking.  In this process items are automatically dispensed into shipping cartons or tote pans.

The relevant KPIs for this activity would include:

  1. Cost – Cost of picking per order line;
  2. Productivity – Order lines picked per hour;
  3. Utilization – Picking labour and equipment utilization %;
  4. Quality –  Perfect picking lines %;
  5. Cycle Time – Order Pick cycle time per order.

Shipping:

Shipping is the last step in warehouse activity in handling shipping goods to the customer or handling stock transfers.  This process is the origin to moving product from point A to point B.

The KPIs for this activity could include:

  1. Cost – Cost of shipping per order;
  2. Productivity – Order process for shipping per man hour;
  3. Utilization – Utilization of shipping docks in %;
  4. Quality –  Perfect shipping %;
  5. Cycle Time – Shipping time (from the time order picked to physically movement of the truck) per order.

“Continuous improvement is better than delayed perfection.” Mark Twain

The above are the broad KPIs identified for each activity inside the warehouse.  Warehouse operations profile could change based on the product handled.  For instance, in a FMCG/Retail warehouse, the order picking could be manual whereas in the aerospace industry the order picking is totally automated and AS/RS is in operation.  The volume of labour deployed, the cost of operations and capital equipment deployment largely depends upon the product handled in the warehouse.  Hence, the KPIs are to be customised based on product profile.  In my opinion, the warehouse is the most happening place in any business and there is huge potential for improvements in the areas of productivity, cost and avoiding accidents which could result in operational disruption.  Activity based costing would help to monitor warehouse cost behaviour against the budgeted expenditure.  Process mapping and time and motion study will help the business to improve the productivity. The KPIs should be tangible and measurable improvements that can be identified and achieved.  I strongly believe that KPI setting is the stepping stone for performance improvement.

Cartoon Source: http://www.offthemark.com

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