1. OMSAN LOJİSTİK

2. Performance Measurement in Logistics and Supply Chain Processes
Strategic Logistics Management
- Leadership Program -

3. Companies are complex logistics systems and interact within interdependent supply chains…
Complex flow of materials, information and funds within the four walls of a company require a strategic approach to logistics considering performance measures, process design, infrastructure and systems requirements and organization development
Logistics goes beyond the company frontier. Firms interact within interdependent supply chains along with distributors, manufacturers, third-party logistics providers, customers, etc.
Internal and external coordination of logistics flows is critical to capture untapped savings and cost reduction opportunities in business.
4/21/2017

4. Some upfront comments…
There are not perfect performance systems, but there are BAD ones!
Keeping discipline in creating, tracking and improving performance pays off
The theory of performance measures holds in any industry, any country, any business process
Be critical of your performance system, always try to reduce, consolidate, eliminate redundant inefficient ratios
Establishing key performance measures reflects the way you see things (your logistics strategy)…
4/21/2017

5. Logistics (bridge) Logistics
… and this is the way we see the logistics function and its processes …
Logistics (bridge)
Consumption Point
(Factory, Store, User, Consumer)
Fulfilling your service promise, while optimizing system’s resources
Sourcing Point
(Supplier, Factory, Store, User)
Logistics
4/21/2017

6. … and logistics processes are the components of the bridge that holds the stream of materials, information and funds…
4/21/2017

7. Fulfill orders with local inventory to meet response time requirements
Each logistics process has a specific role to assure the support of service levels and the optimization of resources.
Customer Service
Inventory
Planning
Sourcing
Transportation
& Distribution
Warehousing &
DC Operations
Define logistics service policy
Capture demand
Fulfill orders with local inventory to meet response time requirements
Define inventory levels to fulfill demand
Optimize O-D lanes to meet response time requirements
Select optimal sourcing mix to meet inventory requirements
4/21/2017

8. Measuring System Design
Logistics performance measures will basically define success in fulfilling an overall role or a specific role
Profiling
Descriptive system of logistics activities
Neutral numbers, statistics
Measuring System Design
Good vs. Bad
Action oriented numbers
Auditing
Internal focus
Benchmarking
External focus
Logistics Projects Justification
4/21/2017

9. Gaining understanding of your logistics activities
Logistics activity profiling is the analysis of historical transaction data for the purposes of projecting activity and determining resource requirements.
Gaining understanding of your logistics activities
Stimulate creative thinking
Identify quick fixes
Sources of data
Establish relationships
Identify decisions to be made
Order
Master
Order Header
Order Detail (Lines)
4/21/2017

10. Some profiles will look like this
Some profiles will look like this. Customer segmentation and product segmentation are examples of it. Some decisions based on profiles could be …
Customer Response Measures
Customer Classifications
SKU Classifications
Customer-SKU Classifications
Customer Service Policy Design
Inventory Management Performance Measures
SKU Categories for Inventory Management
Inventory Turnover and Fill Rate Targets by Logistics Segments
Forecasting Models by SKU Category
Inventory Reduction Opportunities by Logistics Segment
4/21/2017

11. Item-Order Correlation Profile helps develop DC slotting rules
Item-Order Correlation Profile helps develop DC slotting rules. Before this analysis slotting was based on a catalog product arrangement…
This is the item-order correlation of a mail order retailer.
It looks at the probability that 2 items were ordered together.
First 3-digit code corresponds to item class
Second 1-digit code corresponds to size
Third 1-digit code corresponds to color
Do you see the correlation?
What would you do different in the warehouse?
4/21/2017

12. DC Operations are full of opportunities to profiling
DC Operations are full of opportunities to profiling. Be sure to avoid “paralysis for analysis” by making sure every profile is tied to a specific issue or decision to make
Warehouse Performance Measures
SKU Categories for Warehouse Master Planning
Slotting
Storage Mode Selection
Order Picking Policies
Warehouse Layout
4/21/2017

13. Freight profile by location
Profiles are different from performance measures in the sense that they don’t “judge” the effectiveness of a process, they just describe it!
Freight profile by location
Forecast profile for 2 SKU’s
4/21/2017

14. A Logistics Performance System (LPS) has some features to be considered…
Logistics Performance System looks at:
Measurement Types (Porter)
Cost
Productivity
Response Time
Quality
Perspectives (Kaplan)
Shareholders
Employees
Customers
Suppliers
Society
Measuring Context
Control
Scope
Frequency
Level of Detail
Internal Coherence
Aggregation (and dis-aggregation)
Alignment
4/21/2017

15. Detailed Report per Employee at the Warehouse
Look at these next two charts… Both measure productivity at the warehouse. Same purpose, different context, scope, detail and frequency
Detailed Report per Employee at the Warehouse
Date: 01/27/94 Shift 2
Emp ID: 563 Sup ID: Bob Area: D2 Employee Name: Roman, Peter
START :
DRY :41 98%
MEET :
DRY :23 B 95%
DRY :43 L 90%
DRY : %
BATT :
DRY :36 B 20%
STOP :
**TOTAL** 74%
Job Document Start Perf Std Dir Ind Sel Sel Pieces
Code Number Time B % Mins Mins Mins Aisle Pallets Items Pieces Weight Cube Pieces Mins /hour
4/21/2017

16. This is a higher scope measurement, actually created from the individual output measures of the warehouse workforce.
Total Cases per Month (Thousands)
Hours
Cases
Total Labor Hours
7.0
6.0
5.0
4.0
3.0
2.0
4/21/2017

17. Management Planning Supervisor Operator
Control is a principle in any good LPS. Nobody should be measured by things he/she can’t control. The control levels will largely depend on your own logistics organization design. +
Scope
Control
Aggregation
Alignment
Management Planning Supervisor Operator +
Frequency
Detail
Coherence
4/21/2017

18. Cost of Logistics Resources + Cost of Holding Logistics Assets
Logistics financial measurements are the most common and intuitive type of KPIs. Accounting practices however may restrain the possibility to compute logistics cost accurately.
Cost of Logistics Resources + Cost of Holding Logistics Assets
People & Assets
Logistics Expenses
Views by
Resource, Activity (Output), Process
Logistics Decision Objective = Max (Corporate EVA)
Logistics Decision = Min (Operating Cost + Capital Cost + Lost Sales)
4/21/2017

19. This financial measure applies to the DC, by process and presented in a way relative to total warehousing cost
Types of Financial
Measures
Aggregate
By Unit
Relative (%)
4/21/2017

20. Pr = Output r Consumption r
Productivity is measured at the resource level, identifying the expected output of its consumption.
What’s the Output?
Output r
Pr =
Consumption r
What’s the resource?
4/21/2017

21. The first step in determining productivity measures is identifying the logistics resources involved in every process and activity…
Machinery
Equipment
Inventory
Human
Resource
Fleet
Systems
Facilities
4/21/2017

22. In reality, logistics is a system which receives input (resources) and after some activities (processes) generates output…
Corporate
Logistics
System
Logistics
Resources
Logistics
Output
Can you tell what the logistics output should be?
4/21/2017

23. Productivity measures could be use to predict additional resource consumption when output will increase and performance remains equal
Disney World was predicting additional warehousing space requirements based on inventory turns reduction and equal storage density
4/21/2017

24. Time measurements in logistics report the velocity at which a certain process is conducted
A cycle time measurement will capture the total elapsed time of an activity from beginning to end.
It’s like having customers and suppliers with mental stop watches… t5 t0 t2 t3 t4 t1
4/21/2017

25. Customer order cycle times will begin at the first point of contact with a customer until the order is delivered and collected
Elapsed Time in Hours
4/21/2017

26. Total Manufacturing Cycle Time… This chart comes from a Coca-Cola Bottler computing their real
4/21/2017

27. This is Amoco’s Rail Car Cycle Time Analysis
This is Amoco’s Rail Car Cycle Time Analysis. It’s used to predict real vehicle utilization…
4/21/2017

28. The DC is full of response time measurements
The DC is full of response time measurements. Dock-to Stock times, Order Picking Times, Warehouse Order Cycle Times, etc.
4/21/2017

29. What is takes to “create” a perfect order?
“Manufacturing” perfect orders is the real goal of a logistics system. LPS includes quality measures to address this objective. The “POP” is a close approximation to TQM in Logistics
What is takes to “create” a perfect order?
4/21/2017

30. has available inventory has the right amount of the right products
The probability of shipping a perfect order is the multiplication of the probabilities of the 8 independent events. All logistics functions are represented in this KPI!
is entered correctly
has available inventory
has the right amount of the right products
is damage free
arrives on-time
arrives at the right location
is communicated electronically
has no invoice/collections errors
IS PERFECT:
97%
80%
95%
96%
72%
94%
89%
93%
48%
4/21/2017

31. On-Time Delivery (1 hour +/- range (FDI) or 30 min +/- range (GMA))
Perfect Order in Food Logistics by Grocery Manufacturers of America and Food Distributors International (FDI)
Complete Order (Discrete Measure 1 or 0, Not Continuous Measure as Case Fill)
On-Time Delivery (1 hour +/- range (FDI) or 30 min +/- range (GMA))
Damage-Free Shipment
Accurate Invoice (Non-Invoiceable Items have Accurate Invoice =0)
4/21/2017

32. Fill Rate (by unit of measurement)
One key quality measurement in logistics is fill rate, yet this specific measurement can be computed in several different ways
Fill Rate (by unit of measurement)
Total Fill (Binary)
Unit Fill (Percentage)
Case Fill
Order Fill
Fill Rate (by location)
Global
Local
Fill Rate (by time period)
Initial
At x-hours
Final
4/21/2017

33. If the LPS is designed around processes and measurement types, it might look like this…
4/21/2017

34. Once the LPS is in place a company can begin the auditing process with itself or other companies. A good way to capture the disparities found in an audit is through a Gap Analysis
The logistics performance gap analysis is used to compare logistics key performance indicators with benchmark indicators.
The gaps are used to assess strengths and weaknesses; to identify complementary logistics benchmarking partners; and to develop a cost-benefit justification of a world-class logistics initiative.
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) 1 2 3 4 5
Company X
World-Class

35. The architecture of the LPS (Excel Spreadsheet)…
4/21/2017

36. Benchmarking Logistics 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
4/21/2017

37. Some public, performance benchmarks: Global Logistics Cost & Logistics Cost as a % of GDP in the U.S.
15.7%
12.3
11.4
10.4
10.3
10.1
9.9
1980
1985
1990
1995
1996
1997
1998
1999
2000
$1 Trillion+ $0
$100
$200
$300
$400
$500
$600
$700
$800
Billions
USA
Germany
France UK
$900
Japan
$1000
4/21/2017
Robert Delaney, Cass Information Systems, Inc

38. WALL STREET & SUPPLY CHAIN GLITCHES
Stock drop of 8.62% = $120 million decrease in shareholder value
4/21/2017
861 companies reviewed 1989 through 1998: Georgia Institute of Technology,

39. Data source for DC Inventory Turns in the U. S
Data source for DC Inventory Turns in the U.S. is WERC (Warehousing Education and Research Council) 2 4 6 8 10 12 14 16
1995
1998
2000
52 Wholesalers
189 Manufacturers
40 Retailers
6.2
8.1
10.2
8.4
11.3
14.4
10.3
12.1
14.5
65% increase!!!
WERC, 2001
4/21/2017

40. Logistics cost components have evolved over time
Logistics cost components have evolved over time. Herb Davis database has been recording Total Logistics Cost since This could be a good source of public, performance benchmarks
2000
Average
Mfg
Cost Components
1975
2000
Transportation
Inventory Carrying Charges
Warehousing
Admin. / Order Processing
$.068
$.058
$.048
$.015
$.035
$.020
$.024
$.016
$.033
$.021
$.020
$.012
TOTALS
$.189
$.095
$.086
4/21/2017
Herbert W. Davis, 2001

41. GEORGIA TECH METRICS
Department Stores Publishing Hardware Telecommunications & Utilities Medical Electronics Manufacturing Service Parts Health, Beauty & Cosmetics Food & Beverage Mail Order Public Warehouses
ORDERS / HOUR
.1 to 6
LINES / HOUR
2.5 to 13.2
PIECES / HOUR
1.2 to 1435
CASES / HOUR
.7 to 117
ORDER CYCLE TIME
2 to 24 HOURS
ERRORS PER LINE
.03 to 1.2
ERRORS PER CASE
.15 to 1
INVENTORY ACCURACY
95.5 to 99.98
ERRORS / ORDER
.05 to 3.5
DOCK TO STOCK
4 to 48 HOURS
Meaningless unless you know the applications environment; I.e., .1 orders per hour is phenomenal if you’re producing airplanes, but pathetic if you’re shipping groceries.
4/21/2017

42. 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…

43. AMAT public benchmarking effort
AMAT public benchmarking effort. We used sources such as Cass Logistics, Herb Davis, and the IOMA Report.
4/21/2017

44. AMAT public benchmarking effort
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

45. Good, but not good enough
Good, but not good enough. We look terrible, we need more specific comparison points, because we are more complex that all of the other companies…

46. 1. number of commodities and part numbers
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
inventory management risk

47. Grading complexity in all benchmarking data points using the 10 factor analysis. Control points Coca-Cola (5) and Defense Logistics Agency (40).

48. We processed the raw data to create an Inventory Performance Index (IPR) and then plotted the IPR vs. Complexity

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

50. Process benchmarking may look like a gap chart against world-class practices. This is an example from Disney’s Warehousing Audit

51. 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

52. Logistics Initiatives: Financial Justification Analysis
Disney’s Distribution Center
Spartan Stores’ Logistics Operation
AMOCO’s Transportation Performance Analysis

53. Disney’s DC performance objectives show potential savings by improving productivity, quality, and response time.

54. Spartan Stores computed financial savings through logistics initiatives using KPI improvements and resource reduction calculations
4/21/2017

55. Amoco calculated a financial improvement of getting better fleet utilization numbers and tied those improvements to TMS functionality
4/21/2017

56. Final words…
Logistics measures must be “in harmony with a company's overall business strategy”. For example, “Speedy delivery (and timely) order status (updates) are part and parcel of Amazon's brand identity. If Amazon drove its logistics activities with measures focused solely on reducing delivery costs, it would cripple its ability to serve customers. (Smart managers) are fusing their logistics plan(s) with their business strategies, ensuring that what is measured in the field is valued at the top of the organization”.
From Keeping Score: Measuring the Business Value of Logistics in the Supply Chain, CLM, 1999