1. Logistics/Supply Chain Control
The logistician is now a process manager and no longer just an activities administrator.
Chapter 16
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2. Controlling in Logistics/Supply Chain Management
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3. A Control Paradigm
Definition The process where planned performance is brought into line or kept in line with desired objectives.
Control can be represented as a model whose key elements are:
Inputs, process, and outputs
Standards and goals
Performance measurement
Monitoring
Corrective action
Control systems are:
Open-loop
Closed-loop
Modified

4. Schematic of Control Process
Elements of the control process
Standards
or goals
Monitor
Comparison by manager, consultant, or computer
Corrective action
Performance reports
Process
Ongoing supply chain activities
Inputs
Outputs
Supply chain activities
and customer service
levels
Activity costs and
customer service
External and internal forces and changes
16-4
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5. Open-Loop Control System
Service and
inventory level goals
Corrective action:
Monitor
Adjust supply
The manager
Reports on cost
and service
Process
Inputs
Outputs
Warehouse
Stock resupply
operation
Stockouts and
inventory costs
Demand
16-5
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6. Closed-Loop Control System
Decision rule
When L < ROP,
order Q*
Computer
report on L
Corrective action:
Adjust supply
Demand, D
Inputs
Outputs
Stock resupply, Q
Inventory
on hand, L
Inventory standards
for Q* and ROP
Process
Warehouse
operation
16-6
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7. Modified Control System
Inventory standards
for Q* and ROP
Decision rule
When L < ROP,
order Q*
Computer
report on L
Process
Warehouse
operation
Corrective action
Stock order on supplier
Demand, D
Inputs
Outputs
Stock resupply, Q
Inventory on hand, L,
stockouts and inventory costs
Manager
Reports on costs,
service, product promotions,
production
schedules, etc.
16-7
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8. Auditing Performance Reasons for conducting an audit
Bring logistics system in line with the inherent demand characteristics
Identify opportunities for improvement
Understand the nature of logistics in the firm and its relative costs
Determine if logistics meets its performance goals
Elements to evaluate
Customer service levels
Transportation costs
Inventory costs
Demand levels
Purchase costs

9. Benchmarking Performance
Establishes an external reference point
Compares company performance to the best-in- class
Sources of benchmarking data
Consulting firms
University research centers
Trade associations
Sponsored studies
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10. Cost-Service Statement
This Year
Last Year
Budget/Target
Physical Distribution
Transportation of finished goods
Freight charges inbound to warehouses
$2,700,000
$2,500,000
$2,800,000
Delivery charges outbound from warehouses
3,150,000
2,950,000
3,000,000
Freight charges on stock returns to plant
300,000
250,000
275,000
Extra delivery charges on back orders
450,000
400,000
Subtotal
$6,600,000
$6,100,000
$5,475,000
Finished goods inventories
Inventories in transit
280,000
260,000
Storage costs at
warehouses a
1,200,000
600,000
1,000,000
Materials-handling costs at warehouses
1,800,000
1,600,000
1,700,000
Costs of obsolete stock
310,000
290,000
plants
470,000
460,000
Materials-handling costs at plants
520,000
510,000
$4,580,000
$4,020,000
$4,230,000
Order processing costs
Processing of customer orders
$830,000
$840,000
$820,000
Processing stock replenishment orders
170,000
165,000
160,000
Processing of back orders
440,000
$1,440,000
$1,305,000
$1,280,000
Administration and overhead
Proration of unallocated managerial expenses
$240,000
$220,000
$230,000
Depreciation of owned storage space
180,000
Depreciation of materials-handling equipment
100,000
Depreciation of transportation equipment
50,000
70,000
$ ,000
$ ,000
Total distribution costs
$13,190,000
$11,995,000
$12,545,000
Cost-Service Statement
16-10
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11. Cost-Service Statement (Cont’d)
Physical Supply
Transportation of supply goods
Freight charges inbound to plant
$1,200,000
$1,400,000
$1,115,000
Expedited freight charges
300,000
250,000
350,000
Subtotal
$1,500,000
$1,650,000
$1,465,000
Supply goods inventories
Storage costs on raw materials
$300,000
$375,000
$275,000
Materials-handling cost on raw materials
270,000
245,000
260,000
$570,000
$620,000
$535,000
Order processing
Processing of supply orders
$55,000
$50,000
Costs of expedited orders
10,000
$65,000
$60,000
Administration and overhead
supply goods
Proration of unallocated managerial expenses
$40,000
Depreciation of owned storage space
30,000
Depreciation of materials-handling equipment
40,000
Depreciation of transportation equipment
25,000
$145,000
$155,000
$135,000
Total supply costs
$2,280,000
$2,485,000
$2,195,000
Total distribution costs
$13,190,000
$14,480,000
$14,740,000
Total logistics costs
$15,470,000
This Year
Last Year
Budget/Target
16-11
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12. Cost-Service Statement (Cont’d)
Customer Service
Percentage of warehouse deliveries within
92%
90%
90%
one day
Average in-stock
percentage b
87%
85%
85%
Total order cycle
time c
(a) Normal processing 7 2 6 2 6 2
(b) Back-order
split delivery processing 10 3 10 3 10 3
Back orders and split deliveries
(a) Total number
503
490
490
(b) Percentage of total orders
2.5%
2.7%
2.5%
Orders filled complete
90%
86%
87%
Customer returns due to damage, dead
stock, order
processing errors, and late
1.2%
2.6%
1.0%
deliveries d
Percentage of available production time
shutdown due
to supply out-of-stocks
2.3%
2.4%
2.0% a
Includes space, insurance, taxes, and capital costs. b
Percentage of individual product items filled directly from warehouse stocks. c
Based on the distribution of order cycle times at the 95 th
percentile. d
Percentage of gross sales.
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16-12

13. Audit Instruments (Cont’d)
The productivity report
This
This
Last
Quarter
Company
Industry
Productivity Measure
Quarter
Quarter
Last Year
Standard
Average a
Transportation
Freight costs as a
percentage of distribution
31%
30%
32%
29%
31%
costs
Damage and loss claims
as a percentage of freight
0.5%
0.5%
0.6%
0.5%
0.5%
costs
Freight costs as a
percentage of sales
9.6%
9.2%
10.2%
9.0%
8.8%
Inventories
Inventory turnover
4.5
4.4
5.0
4.7
6.0
Obsolete stock to sales
0.1
0.1
0.3
0.1
0.2
Order Processing
Orders processed per labor
hour 50 45 55 50 50
Percentage of orders
processed within 24 hours
96%
92%
85%
95%
93%
of receipt
Order processing costs to
the total number of orders
processed
$5.50
$4.95
$5.65
$5.00
16-13
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14. Productivity Report (Cont’d)
Warehousing
Percentage of cube utilized
75%
70%
70%
70%
70%
Units handled per labor
200
250
225
200
200
hour
Customer Service
Stock availability
(percentage of orders
filled from primary stock)
98%
92%
90%
90%
85%
Percentage of orders
delivered within 24 hours
72%
70%
61%
85%
90%
of receipt
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15. Performance Control Graph
Control graph for inventory turnover
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16. SCOR Model The SCOR model:
Links processes or supply chain activities to performance measures, best practices, and software requirements
Provides a systematic approach for identifying, evaluating, and monitoring supply chain performance
Has a broad scope beginning with a demand forecast or order placement and ending with final invoice and final payment
Accepts process description that can be product specific
Has a five component framework of plan, source, make, deliver, and return
Incorporates five performance measures of reliability, responsiveness, flexibility, costs, and efficiency of asset utilization
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17. Scope of the SCOR Model
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16-17

18. Process “Thread” Diagram
P=plan, S=source, M=make, and D=deliver
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19. Performance Metrics SC Performance Attribute Metric
Delivery Reliability
Delivery performance
Fill rates
Perfect order fulfillment
Responsiveness
Order fulfillment lead-times
Flexibility
Supply chain response time
Production/vendor flexibility
Costs
Cost of goods sold
Total SC management costs
Value-added productivity
Warranty/returns processing costs
Asset Management Efficiency
Cash-to-cash cycle time
Inventory days of supply
Asset turns
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16-19

20. Linking Processes and Metrics
16-20
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21. Artificial Intelligence in Control
Artificial intelligence refers to computer recognition of adverse patterns in the performance reports and makes suggestions as to the courses of action that might be taken to correct the adverse performance patterns.
Pattern recognition
Performance patterns
Courses of action
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