Lecture supply chain management chapter 6 measuring performance sc

4/13/20

Chapter 6: Measuring
performance SC

Lecturer: Bui Thi Bich Lien

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Contents

1

Introduction

2

Logistics performance evaluation of Coyle

3

Logistics performance evaluation of Lambert

4

Logistics performance evaluation of M. Hugos

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Learning objectives
vDefine a concise set of metrics for measuring
the performance of a company’s supply chain
operations
vUse performance data to spotlight problems
and opportunities

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1. Introduction
vTo get the performance desired from supply
chains requires a company to monitor and control
its operations on a daily basis.

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A Good Measure

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2. Logistics performance evaluation of Coyle
vQuality
vCost
vTime
vOther/supporting

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2.1 Quality
v Overall customer satisfaction
v Processing accuracy
v Perfect orders fulfillment
§ On time delivery
§ Complete order
§ Accurate product selection
§ Damage free
§ Accurate invoice
§ Forecast accurate
v Planning accuracy
§ Budgets and operating plans

§ Schedule adherence
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2.2 Cost
v
v
v
v
v

Finished goods inventory turns
Days sales outstanding
Cost to serve
Cash to cash cycle time
Total delivered cost
§ Cost of goods
§ Transportation costs
§ Inventory carrying costs
§ Materials handling costs
v All other costs
§ Information systems
§ Administrative
v Cost of excess capacity
v Cost of capacity short fall

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2.3 Time
vOrder cycle time
vOn-time delivery/receipt
vOrder cycle time variability
vResponse time
vForecasting/planning cycle time

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2.4 Other/supporting

vApproval exceptions to standard
§ Minimum order quantity
§ Change order timing
vAvailability of information

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3. Logistics performance evaluation of Lambert

vCustomer satisfaction
vCustomer value-added
vTotal cost analysis
vProfitability analysis, includes revenue
considerations
vStrategic profit model
vShareholder value

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4. Logistics performance evaluation of Michael Hugos
vCustomer service
vInternal Efficiency
vDemand Flexibility
vProduct development

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4.1 Customer service
vCustomer satisfaction:
§ Responsiveness
§ Efficiency
vCustomer service evaluation indicators:

§ BTS
§ BTO

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4.1 Customer service
BTS

BTO

- Complete order fill rate

- Customers response time

- On time delivery rate

- On time delivery rate

- Value of total back orders and
number of back orders

- Value of late orders and number
of late orders

- Frequency and duration of back
orders

- Frequency and duration of late
orders

- Return rate

- Number of warranty returns and
repairs

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Customer service: some KPI

Order entry
accuracy

Orders entered exactly as specified by the customer/total
orders entered

Order status
communication
accuracy

Orders for which order status is communicated
correctly/total orders with status communication request

Invoice

Accuracy

invoices with perfect match of items, quantities,
prices/total invoices

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4.2 Internal Efficiency
vThe ability of a company or a supply chain to use
their assets as profitably as possible.
vAssets include anything of tangible value such as
plant, equipment, inventory, and cash
vPopular measures of internal efficiency are:
üInventory value
üInventory turns
üReturn on sales
üCash-to-cash cycle time

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vInventory value:
§ to match inventory availability (supply) with sales
(demand) and not have excess inventory left over

§ let inventory exceed sales is in a growth market
where the value of the inventory will increase
vInventory turns (T&E-turn and earn):
§ measure the profitability of inventory by tracking
the speed with which it is sold or turned over
during the course of a year
§ Turns = Annual Cost of Sales / Annual Average
Inventory Value
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Inventory Turns
Turns

Average
inventory

Inventory
carrying cost

(1) = i

VND (2)

VND (3)

1
2
3
4
5

6
7
8
9
10

150,000,000

Incremental
savings in
carrying costs
(tiết kiệm tăng
dân
VND (4)

Cummulative
saving in
carrying cost
(tiết kiệm luỹ
tiến)
VND (5)

Assuming: ICC (inventory carrying cost) = 30% average inventory=> ICC (turn 1)= average
inventory * 30% = 150 000 000 * 30% = 45 000 000
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Return on sales
vReturn on sales: how well an operation is being run. It
measures how well fixed and variables costs are
managed and also the gross profit generated on sales
§ Return on Sales = Earnings before Interest & Tax /
Sales
§ The higher the ROS the better.
§ There are times though when a company may
deliberately reduce this number in order to gain or
defend market share or to incur expenses that are
necessary to achieve some other business objective.

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Cash-to-cash cycle time
vThe time it takes from when a company pays its
suppliers for materials to when it gets paid by its
customers
§ Cash-to-Cash Cycle Time = Inventory Days of
Supply + Days Sales Outstanding – Average
Payment Period on Purchases
§ The shorter this cycle time the better.
§ Accounts receivable may be large due to late
payments caused by billing errors or selling to
customers who are bad credit risks..

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v Inventory turns =

!"#$"&'""(##")(
*+,-.',.''-,'.$,+.)/,"&01+,1$"-2

v Average aggregate value of inventory = (average
inventory for item i)x(unit value item i)
v Days of supply =

*+,-.',.''-,'.$,+.)/,"&01+,1$"-2
34565478449554:9
;<=9>?5

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vCost of goods sold: $ 425 million
vProduction materials and parts: $4,629,000
vWork in process: $17,465,000
vFinished goods: $12,322,000
vInventory turns?
vDays of supply?

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4.3 Demand Flexibility
vActivity cycle time: the amount of time it takes to perform
a supply chain activity such as order fulfillment, product
design, product assembly, or any other activity that supports
the supply chain

vUpside flexibility: the percentage increase over the
expected demand for a product that can be accommodated

vOutside Demand flexibility: the ability to quickly provide
the customer with additional products outside the bundle of
products normally provided

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4.4 Product Development
v Measures a company or a supply chain’s ability to design,
build, and deliver new products to serve their markets as
those markets evolve over time.
v Technical innovations, social change, and economic
developments cause a market to change over

§ Percentage of total products sold that were introduced in the
last year
§ Percentage of total sales from products introduced in the last
year
§ Cycle time to develop and deliver a new product

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