Benchmarking

Mike Ledyard
Partner
Supply Chain Visions

Continental Traffic Service, Inc.

9th Annual Client Focus Group
May 19th 2004

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 In This Session…

Lessons from the Real World

Ten Steps to Benchmarking

Measuring Up

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 Lessons Learned in the Real World

If you are not going to take action based on the results, don’t
measure it!
In other words, “Don’t measure what you won’t change!”

Key questions that must be asked and answered:

Will I change my behavior, or ask my people to change their
behaviors, based on this measure?
Does the potential benefit to be gained from this information
exceed the cost of obtaining it?

You will have a greater immediate impact measuring loading

factors and utilization of contracted carriers than total cost to serve

Build from key components up to the overall process measures, but

know where you are going before you begin
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 10 Step Path to Benchmarking Success 1

Articulate your strategy

Determine your critical processes
Develop process measures
Identify your Key Performance Indicators (KPI’s)
Collect your data
Research “best in class”
Compare performance levels
Determine reasons for low performance
Identify action initiatives
Continuous improvement

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upply Ledyard and Vitasek, “To Benchmark, Or Not, Is Not Really A Question,”
CTSI Logistics Forum, Vol. 5, No. 1, pp. 1-3
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 Strategy Comes First

“Would you please tell me which

way I ought to go from here? “
asked Alice.
“That depends a good deal on
where you want to get to.”
“I really don’t know,” replied
Alice.
“Then it doesn’t matter which
way you go,” said the cat.

Lewis Carroll
Alice's Adventures in Wonderland

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 Tactical Plans Support Strategy

Tactical plans are derivatives in support of identified goals and

objectives
Scorecards measure Critical Success Factors
Business Profitable
Profitable
Objectives Growth
Growth

Increase
Increase Strategic Increase
Increase Retail
Retail //
New
New Products
Products Wholesale
Wholesale Sales
Sales Imperatives Direct
Direct Sales
Sales

Mission-
Critical
Initiatives

Tactical
Plans

Measures of
Success

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 Determine Critical Processes

A Process View of the Supply Chain

Supplier Focal Company Customer

Planning,
Information Forecasting & Information
Products Scheduling
Cash

Services Fulfillment Value-added Fulfillment

Conversion
Sourcing & Processes Sourcing &
Procurement Procurement

Logistics Functions

Keebler, Manrodt, Durtsche and Ledyard (1999), Keeping Score: Measuring the Business
Value of Logistics in the Supply Chain, Chicago, IL: The Council of Logistics Management

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 Process Measures vs. Results Measures

Results Measures
Usually functionally oriented
Usually focused on one aspect of a process
Measures components of a process – but not the whole process
If left unchecked, drive suboptimization

Process Measures
Are usually company-wide or customer focused
Are cross functional in nature (and sometimes cross company)
Measure the “total effect” of a process
Drive overall optimization of costs and customer satisfaction

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 Develop Process Measures

The composition of a process measure is based on the

composition of the process being measured
Function Function Function

Process

Activity
Activity Activity Activity
Activity
Task

Task

Task

Task

Task
Task

Task

Task
Task

Task

Task

Task

Task
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 Cycle Time – Make-to-Stock

Fulfillment Cycle Time

Order Entry & Order Pick / Pack / Delivery and

Processing Ship Receipt
Order Receipt &

Order Entry into

Average Order

Shipment Date
Processed/Wk
Processed/Hr

Received/Wk

Picked/Hour
Verification

Receipt by
Customer
System

Orders
Orders
Orders
Orders

Size

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 Measures Drive Behaviors

Bad Better Best

Measure - 98% Fill Rate for a - 97% On Time to - 95% Perfect Order
Distribution Center in 48 Customer Request Fulfillment
hours

Kinds of - Expedited orders to - Cross functional view - Cross functional view

Behavior manufacturing to work with OM and to work with OM and
Created - Airfreight shipments Manufacturing Manufacturing and
- Large inventories on - Large inventories on Transportation
hand to prevent out of hand to prevent out of - Overall order accuracy
stocks stocks and quality – including
invoicing
Does Not - Did it arrive when the - How much did it cost - How much did it cost
Consider customer wanted? to fill the order? to fill the order?
- How much did it cost to - Customer complaints
fill the order (quality or accuracy)
- Cycle time up or down
the supply chain (tail)
- Customer complaints
(quality or accuracy)
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 Logistics Measures in Context
Companies should strive for “balanced” measures that are more process and strategic in nature

Results Measures Process Measures Strategic Measures

Reliability Fill rates by customer, commodity
Available for customer pickup per
request
Errors by line item, activity, reason
code, etc.
Cycle count accuracy
On-time delivery to commit, request Perfect order fulfillment (right item,
Order cycle time variability right qty, right place, right time,
Order processing accuracy defect free, correct documentation)
Forecasting accuracy Overall customer satisfaction
Planning accuracy
Manufacturing schedule adherence
Stockouts against forecast

Flexibility & Order fulfillment lead time by
Responsiveness customer, commodity
Fill rates by customer, commodity
% Expedite requests fulfilled by
customer
Capacity load & utilization
Backlog & back orders Upside production flexibility
Aggregate cycle times by activity Forecasting/planning cycle time
Order cycle time % Expedite requests fulfilled
Lead time from order receipt to manufacturer complete Order fulfillment lead time

Cost Costs per line, per order, per
activity, per shift, etc
Load factors, lines per order, qty
per line, etc.
Freight costs per pound by mode
and destination
Logistics costs (order mgmt + distribution + freight) as a Total supply chain management
percentage of sales cost as a percentage of sales
Freight costs as a percentage of sales to customer Total delivered cost
Distribution costs as a percentage of sales
Inventory shrink and obsolescence as a percent of sales
Labor productivity analysis
Over, short, damage as % of sales
Returns as a percentage of sales

Asset Utilization Inventory turnover Days of inventory in entire supply chain by activity Cash-to-cash cycle time
Days of inventory Total safety stocks as % of total inventory Net asset turnover, return on net
Return on investment Safety (hedge) stocks by customer assets
Return on assets Dedicated inventories by customer
Local support inventories
© 2003 Supply Chain Visions – All Rights Reserved
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(as published in Jan 2003 issue of Logistics Management)
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 What Gets Measured Gets Managed

Concentrate on measuring the right things – second emphasis on

measuring them in the most efficient manner
Segmentation is essential – by market, product, and/or customer
Don’t try to “boil the ocean”
Focus on areas of greatest concern, or greatest pain
Measuring anything that does not directly affect profitability,
productivity or safety only adds burden while diverting attention
from that which is truly important

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 Implementation – Select the Measures

Determine which 3-4 metrics are critical to your success of your

functional team
Create value add statements that are substantially under your team
or area’s control and contain measurable performance goals

VVA (Validate the Value Add) Statements

Our team adds value by Our team adds value by
maintaining 99.21% or ensuring that our
better accuracy on supplier quality is at or
material procurement above 99.67%

Our team adds value by

maintaining 98.36% or
better on-time and in-
full shipments

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 Begin Measuring

Summarize data so that results are obvious

Make it easy to see if goals are being met
Include historical data to track trends

On Time and In Full Shipments

100%

98%

96%

94%

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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

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 Research Best in Class

Benchmarking – Two Viewpoints

Only by understanding how your performance compares to
others in your industry can you identify where improvement
efforts will be beneficial
The only benchmarks that matter are your customer’s
expectations

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 Best-in-Class Companies Are Like Decathletes

Top ranking athletes across a set of events

Decathletes Accumulate the most points among all events
Win some events, but not all
Know their own strengths and weaknesses
Know the strengths and weaknesses of competitors
Focus training first on events that match their relative strengths &
events which they feel they can or must win
Spend remainder of training time and energy on the remaining events
to assure they are minimally competitive in all events

Best-in-Class Top ranking companies across a processes

Beats competitors in most areas, not all
Companies
Is not best-in-class in every performance category, but wins in
areas that match their strategies and priorities
Know their own competencies, strengths, and weaknesses
Likewise, know the same about their competitors
Spend most of their resources in those areas which in which they
must excel (in accordance with competitive knowledge, customer
and stakeholder requirements, and business strategies)
Minimally competitive in every performance category
upply Source: Performance Measurement Group
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 Understand Why You Are
Not Meeting Your Goals
A Pareto chart shows where to focus your efforts
Often, your failures are caused by another group! This data helps
point you in the right direction
Ask “Why” 5 times, if necessary

Late Order Reason Codes

35

30

25

20

15

10

0
upply Purch Documents BM Quality Picking Carrier Admin
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 Take Action

Taking action will help drive change to improve your performance

Sharing your VVA data helps mitigate emotions and finger pointing
Explore all actions to solve the problem

We are working with Purchasing to:

1) Determine which suppliers have slipped
2) Actively issue Corrective Actions for suppliers with
late shipments
3) Ensure all supplier Statement of Works/Contracts
have receiving goals outlined

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 In Practice
Our team adds value by
VVA maintaining 98.36% or better on-
The VVA Metric time delivery.
method
On Time and In Full Shipments
creates a 100%

culture for 98%

employees to Results 96%

turn data
94%
into Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

information Late Order Reasons

and take 35
30
action to Root
25
20
drive
Cause
15
10
improvement 5
0
Purch Documents BM Quality Picking Carrier Admin

We are working with Purchasing to:

1) Determine which suppliers have slipped

Action 2) Actively issue Corrective Actions late supplier

shipments

upply 3) Ensure all supplier Statements of Work/Contracts have

receiving goals outlined

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 Keep In Mind…

The greatest measures not used are not worth spending the time
Drive a culture that are “believers” in measures and not just
“collectors” or “posters”
Develop and foster an environment that utilizes performance
measures
Involve employees
Actively discuss improvement areas
Drive improvement of the business and not just pay for
performance
Information does not guarantee action
No “end” to supply chain improvements
Today’s exceptional service becomes tomorrow’s minimum cost
of doing business
You cannot fix that which you cannot measure
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 How Do You Measure Up?

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