Winning Performance Through Supply Chain Benchmarking Chris Gardner Cheryl Harrity
Performance Excellence Winning Performance Through Supply Chain Benchmarking Chris Gardner Cheryl Harrity APQC April 5, 2005 © 2005 APQC 1 Performance Excellence Agenda • Introduction and Overview • The Objectives and Approach of Open Standards Benchmarking CollaborativeSM (OSBC) Research • Benchmarking Overview • Best Practices Research Logistics Procurementt • Q&A © 2005 APQC 2 Performance Excellence APQC Mission …to work with people in organizations around the world to improve productivity and quality by: • Discovering, researching, and understanding emerging and effective methods of improvement; • Broadly disseminating our findings through education, advisory and information services; and • Connecting individuals with one another, and with knowledge and tools they need to improve © 2005 APQC 3 Performance Excellence OSBC Research • Standard process framework: the APQC Process Classification FrameworkSM (PCF) • Standard measures for processes: Measures tied to the PCF • Common database: Confidential, online tool for collecting data using common measures; available for contributors to use for performance analysis and improvement © 2005 APQC 4 Performance Excellence The APQC Process Classification FrameworkSM © 2005 APQC 5 Performance Excellence OSBC Supply Chain Database Modules • • • • • Procurement Logistics Customer Order Management Manufacturing New Product Development © 2005 APQC 6 Performance Excellence Why Should We Benchmark? • Allows an organization to understand its operational performance relative to external benchmarks. • Provides an opportunity to link top performance to key business practices. • Enables an organization to assess operational progress over time. © 2005 APQC 7 Performance Excellence What Should We Measure? • Key Performance Indicators (KPIs) - Normalized and objective quantitative values used to assess operational performance / health. • Supporting Indicators - “Drill-down” information that provides insights into performance: • Measurement categories: Cost Effectiveness Staff Productivity Process Efficiency Cycle Time Note: These categories are reviewed together. © 2005 APQC 8 Performance Excellence What Should We Measure? (continued) Cost Effectiveness: Provides information concerning how well operating cost are managed. Examples Procurement Total cost of procurement per purchase order Logistics Total cost of logistics per logistics full-time equivalent employee (FTE) Customer Order Management Total cost of customer order management function per <$1,000> revenue © 2005 APQC 9 Performance Excellence What Should We Measure? (continued) Staff Productivity: Provides insights into output or work volume for each full-time equivalent employee (FTE). Examples Procurement Total purchase orders processed per procurement FTE Total number of active suppliers in vendor masterfile per FTE Customer Order Management Sales orders per FTE © 2005 APQC 10 Performance Excellence What Should We Measure? (continued) Process Efficiency: Provides insights into how well procedures and systems are supporting the operation. Examples Procurement Percentage of supplier orders delivered on time Logistics Order fill rate Customer Order Management Perfect order performance rate © 2005 APQC 11 Performance Excellence What Should We Measure? (continued) Cycle Time: Indicates the duration to complete a task. Examples Procurement Average hours to place a purchase order Logistics Average dock-to-stock time in days Customer Order Management Average time a sales order is received until manufacturing / logistics is notified © 2005 APQC 12 Performance Excellence What is a “Best Practice”? • “Best practice” has become an often used term in business dialogue. • Many “best practices” may be leading edge, but only have anecdotal support regarding linkages to good performance. • Practices tied to enhanced performance that have some objective support will offer the greatest potential for management. © 2005 APQC 13 Performance Excellence Finding Support for a “Best Practice” • Performance data can be used to help identify practices linked to good performance. • A research approach can tie performance and practices using statistical techniques such as cross tabulation or correlation. • Valid support can only point to a possible connection between a practice and performance. © 2005 APQC 14 Performance Excellence APQC Research • The following information provides a summary of best practices research conducted by APQC. • The information originates from the following APQC’s OSBC database. • Database participants come from multiple industries and geographies. • Findings reported in this presentation are limited to the data gathered from study and database participants, and should not necessarily be used to make inferences about other study populations or specific industry groups. © 2005 APQC 15 Performance Excellence OSBC Research Participants • • • • • • • • Boeing BP – US Fuels Charles Schwab Cisco Systems Delphi Packard Systems Eastman Kodak Eaton Corporation ExxonMobil Chemical Company • Federal Aviation Administration • Gillette • GM-Saturn © 2005 APQC • • • • • • • • • • • Johnson & Johnson Lexmark International Maytag Corporation Motor Coach Industries International Pfizer Raytheon State Department Texas Instruments UPS Westinghouse Electric Xerox Corporation 16 Performance Excellence Procurement Using Performance Measurement and Best Practices to Drive Results © 2005 APQC 17 Performance Excellence Procurement – PCF: 4.2 Processes Develop Sourcing Strategies 4.2.1 Select Suppliers and Develop/Maintain Contracts 4.2.2 Order materials and services 4.2.3 Appraise and Develop Suppliers 4.2.4 Activities • Management activities • Develop procurement plan • Clarify purchasing requirements • Match needs to supply capabilities • Analyze company’s spend profile • Seek opportunities to improve efficiency and value © 2005 APQC • Management activities • Identify suppliers • Certify and validate suppliers • Negotiate contracts • Manage contracts • Management activities • Process/review requisitions • Approve requisitions • Solicit/Track vendor quotes • Create/distribute purchase orders • Expedite orders and satisfy inquiries • Record receipt of goods • Research/resolve exceptions • Management activities • Monitor/Manage supplier information • Prepare/Analyze spending and vendor performance • Support inventory/produc tion processes 18 Performance Excellence Procurement: Key Performance Indicator Reporting © 2005 APQC 19 Performance Excellence Procurement: Key Performance Indicator Reporting © 2005 APQC 20 Performance Excellence Procurement: Key Performance Indicator Reporting © 2005 APQC 21 Performance Excellence Procurement: What Practices Contribute to Success © 2005 APQC 22 Performance Excellence Procurement: What Practices Contribute to Success © 2005 APQC 23 Performance Excellence Procurement: What practices contribute to success 8.088 How often does your site perform formal reviews with your toptier suppliers using the scorecard as a basis for communication? (n=58) Never 10% 24% 19% Sporadically / issue-based reviews Monthly Quarterly 5% 41% © 2005 APQC Annually 24 Performance Excellence Procurement: What Practices Contribute to Success 8.082 Which of the following best describes the system used in the process "appraise and develop suppliers"? (n=50) 6% 2% 8% 4% Manual/spreadsheet 34% Internally developed SAP Oracle PeopleSoft 18% Ariba 28% © 2005 APQC Baan 25 Performance Excellence Procurement: Success Rate of Established Practices Those who have implemented automated methods process twice as many purchase orders per FTE and have fewer FTEs in the process. Which of the following best describes your organization's initiative to automate the procurement process? © 2005 APQC Implemented Median Not Implemented Median Total number of purchase orders processed per procurement FTE 662 328 Number of FTEs for the procurement cycle per $1 billion revenue 20 58 26 Performance Excellence Procurement: Success Rate of Established Practices Those who have a formal supplier approval program appear to receive better lead times and experience better raw material turn rates than those that do not. Does your business site have a formal supplier approval program? Metrics © 2005 APQC Yes No Median Median Average lead time on purchased materials (n=47) 22.0 7.0 Annual raw inventory turn rate (n=27) 3.0% 1.5% 27 Performance Excellence Procurement: Keys to Success • • • • • • • • • • Business partner integration Supplier forums Open relationships with supplier partners Business allocation based on performance Prompt response to operating areas Increased use of EDI Automated purchasing approvals Execution, implementation, influence Metrics Continuous process improvement © 2005 APQC 28 Performance Excellence Logistics Using Performance Measurement and Best Practices to Drive Results © 2005 APQC 29 Performance Excellence Logistics – PCF: 4.5 Processes Define Logistics Strategy 4.5.1 Plan Inbound Material Flow 4.5.2 Operate Warehousing 4.5.3 Operate Outbound Transportation 4.5.4 Manage Returns: Manage Reverse Logistics 4.5.5 Activities • Management activities • Translate customer service requirements into logistics requirement • Design logistics network • Communicate outsourcing needs to procurement, as required • Develop and maintain delivery service policy • Define key performance measures © 2005 APQC • Management activities • Plan inbound material receipts • Manage inbound material flow • Monitor inbound delivery performance • Manage flow of returned products • Management activities • Track inventory deployment • Receive, inspect, and store inbound deliveries • Track product availability • Pick, pack, and ship product for delivery • Track inventory accuracy • Track third-party logistics storage and shipping performance • Management activities • Plan, transport, and deliver outbound product • Track carrier delivery performance • Manage transportation fleet • Process and audit carrier invoices and documents • Authorize and process returns • Perform reverse logistics • Perform salvage activities • Manage and process warranty claims 30 Performance Excellence Logistics: Key Performance Indicator Reporting © 2005 APQC 31 Performance Excellence Logistics: Key Performance Indicator Reporting © 2005 APQC 32 Performance Excellence Logistics: Key Performance Indicator Reporting © 2005 APQC 33 Performance Excellence Logistics: What Practices Contribute to Success © 2005 APQC 34 Performance Excellence Logistics: What Practices Contribute to Success 15.067 How frequent are inventory cycle counts conducted for randomly selected SKUs? (n=39) 13% 3% Daily 3% Weekly Monthly Quarterly 15% 54% 13% © 2005 APQC Annually Never 35 Performance Excellence Logistics: What Practices Contribute to Success © 2005 APQC 36 Performance Excellence Logistics: What Practices Contribute to Success 15.108 Which of the following best describes the system used in the process "operate outbound transportation"? (n=24) 4% 4% 29% Manual/spreadsheet Internally developed Global Logistics (G-Log) i2 63% © 2005 APQC 37 Performance Excellence Logistics: Success Rate of Established Practices Those who have implemented automated methods process twice as many purchase orders per FTE and have fewer FTEs in the process. Which of the following best describes your organization's initiative to automate the procurement process? © 2005 APQC Implemented Median Not Implemented Median Total number of purchase orders processed per procurement FTE 662 328 Number of FTEs for the procurement cycle per $1 billion revenue 20 58 38 Performance Excellence Logistics: Keys to Success • • • • • • • • • • • Communication Focus on customers Responsiveness Good forecasting and planning Good people Inventory visibility Local management team and staff commitment to plan and customer requirements Clearly established and communicated measurements Clearly defined objectives Real-time order information and manipulation Key metrics for the entire customer value stream © 2005 APQC 39 Performance Excellence Executive Level: Comprehensive Benchmarks © 2005 APQC 40 Performance Excellence Executive Level: Comprehensive Benchmarks © 2005 APQC 41 Performance Excellence Questions and Answers © 2005 APQC 42
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