DevelopingAnOverviewofSupplyChainPerformanceMetricsProcess,RecommendationsMcKinseyOctober2003ThisdocumentgivesanoverviewofthedifferentmetricsthatcanbeusedtomeasuresupplychainperformanceTheSupplyChainCoE’sobjectiveistodefineabenchmarkingframeworkcapableof:Comparinggenericmetricperformancesforuseonprojects.Capturingfurtherbenchmarkingdatainaconsistentformat.TheLondonShop’stask:Developanoverviewofthedifferentmetricstomeasuresupplychainperformance.Selectthemostimportantmetricsthatcanbeusedacrossindustries.Discusshowthemostimportantmetricslinkotheroperationalmetricswithineachstageofthesupplychain.SuggesthowthesupplychainCoEshouldcontinueconcerningthistopic.WeusedinformationfromseveralsourcesduringourprojectInternalandexternaldocuments:Highlevelbenchmarkingframeworkforsupplychainperformance(H.Cook):ShopStudy(March1997)accessinginformationfromavailableexpertsandpastprojects.Supplychainbenchmarksandbestpractice(DowPolyurethane&EpoxyApril1995).SupplyChainBenchmarkAssessment(March1997).Supplychainappraisalandbenchmarks:(clientXSeptember1997).DiscussionswithsupplychainCoE:GrahamColclough.AndrewMorgan.LeeSherman.DeborahHuff(CapMcKinsey).PossibledatasourcesPerformancemeasurementisanimportantbutcomplexsubjectThisdocument’saninitialstepintherightdirection.Companiesseetheneedformetrics......butdevelopingthe“right”setofmetricsisachallenge“Ifyoucan’tmeasure,youcan’tmanage,youcan’tmotivate”EstablishingthepropermeasureswithinanorganisationenhancescontinuousNocommonlyused“model”.Businessissuesthatwarrantperformancemeasurement:Differbetweenindustries.Differwithinindustry.Changeovertime.Thereisnoone“right”answerFocusAccountabilityCommunicationLinkingstrategytoaction

AssigningaccountabilitytotakeactionwhenneededMeasuringprogresstowardsgoalsthroughinteractivecommunicationandeducationWeusedagenericsupplychainframeworkasabasisforouranalysis...SupplyChainFrameworkSuppliersPurchasingInformationFlowForecasting&ProductionPlanningCustomerServiceInventoryManagementInbound

LogisticsManufacturingMaintenanceMarketing&SalesOutbound

LogisticsIntegrated

SupplyChain

ManagementCustomersThisframeworkalignswiththeCoEPOVandisalsosimilartoframeworkforthesupplychaindiagnosticsinventorydatabase....andconcludedtherearethreestrategicobjectivesweshouldfocusonwhenanalysingthesupplychainKeymetricsmustgiveinformationonhowacompanyisperformingagainstoldstrategicobjectives.Strategicobjectives:QualityTimeCostProducts/servicesaccordingtocustomerexpectationsOnagreedtimeAtreasonablecostPurchasingInformationFlowForecasting&ProductionPlanningInventoryManagementInbound

LogisticsManufacturingMaintenanceMarketing&SalesOutbound

LogisticsIntegrated

SupplyChain

ManagementCustomerServiceSupplyChainFrameworkNB:BoundariesNPDISupportfunctionsTailortocompanyspecific(BSC)objectivesWebeganwithabrainstormingsessiononthekeydriversforquality,timeandcostThecompletepicturecanbefoundintheappendix.Welookedatthesupplychainfromthecustomer’sperspective.Webrainstormedon“whatcouldgowrongalongthesupplychain”:Whataredriversofperformancefromaquality,timeandcostpointofview.PriceServiceProductqualityProductquantityProductdeliveryLatearrivalLatedeliveryInventorycostProductcostProduc-tioncostDeliverycostCustomerservicecostQualityTimeCostMakingtheirclientspecificwarrantsattentionRespectallsourcesofdata:

Understandtheirrelationships—the“causaltree”:

RecognisedCross-Industry;In-IndustryandIn-Companysimilaritiesanddifferences.Blind-sidedIntuition Opinion Discussion Survey FunctionalMeasures KPIsExternalBestPracticeQualitativeQuantitativeObjective1KPI

KPI

KPI

KPIObjective2KPIandxxxmeasure“Dualservice”measures(cost&time)“Hardwired”andtennonsPush-pullMakingtheirclientspecificwarrantsattention(cont.)RecogniseCross-Industry;In-Industry;andIn-Companysimilaritiesanddifferences.Interfacethesolutiontothecurrentclients’measures,systems,processesandculture:...andguidemigrationovertime.Ensureaccountabilityforcollectingandactioningisclear.ProposedSupplyChainKPIsKPI’shelptoidentify“where”theperformanceproblemiswithinthesupplychain,andsteertowardsareastoexplore“why”.Accuracy(as%ofsales)Customersatisfaction%ofsatisfiedcustomersTotalcycletimeTime(forcustomer)fromplacingordertoreceivinggoods%ofproductsdeliveredontimeTotalsupplychaincostas%ofsalesCostperproductsoldas%ofsalesCostas%ofsales%ofproductsdeliveredaccordingtocustomerorder(quantity/quality)%ofcustomerssatisfiedwithservice%ofproductsorderedalreadyinstockDefectrateofproductsas%ofproduction%ofgoodsdeliveredaccordingtoorder(quantity/quality)bysupplierTimefromorderplacementtoreceptionofgoodsTimefromproductionordertodeliveryintofinishedproductwarehouseDowntimeas%oftotalproductiontime%ofgoodsdeliveredontimebysupplierCostas%ofsalesCostas%ofsalesCostas%ofsalesNumberofstockturns/yearsTotalSupplyChainForecastingPurchasingInboundLogisticsManufacturingMaintenanceInventory

ManagementMarketing&SalesCustomerServiceOutboundLogisticsQualityTimeCost%ofactivesuppliersthataccountfor90%oftotalpurchasevalueNeedtoidentifyM&SKPIsBEWAREofinter-relationshipsEachstageofthesupplychainhasavarietyofmetricstomonitoroperationaleffectivenessThesemetricshelpidentify“why”thereisaperformanceproblem.ForecastingPurchasingInboundLogisticsManufacturingMaintenanceQualityTimeCostActualvs.forecastedsales%ofdatawhichcanbeusedwithoutmodificationintheplanningprocess%ofallactivesuppliersthataccountfor90%oftotalpurchasevalue%ofcorrectordersplaced#ofalternativesourcesofsupply#ofsuppliersinvolvedinproductdevelopment/innovation#ofsuppliersperpurchasingemployee(purchasingprofessional)#ofvendorsproductsorderedPurchasingheadcountas%oftotalheadcount%ofgoodsdeliveredaccordingtoorder(quantify/quality)bysupplier#ofcarrieralliances#ofovershipments%ofdirectmaterialpurchasesthatarenotinspectedatincomingqualityassurance,goingfromstocktodock%ofdirectmaterialpurchasesthatarenotinspectedatincomingqualityassurance,goingfromstocktoproduction%ofordersdeliveredwithoutunplannedcommunicationorspecialattentionDefectrateofproductsas%ofproductionScraprateas%ofproduction#ofchangesperproductionperiod%ofgoodsrepackagedAductioncapacityTimefromorderplacementtoreceptionofgoodsTimefromproductionordertodeliverintofinishedproductwarehouse%ofaccountspayablehandledbeforeduedate%ofaccountspayablehandedin1–30days%ofaccountspayablehandledin31––60days%ofaccountspayablehandledin61––90days%ofaccountspayablehandledinover90days%ofsuppliersconnectedviaEDIAverageactualtimetodeveloped/negotiateacontract%ofgoodsdeliveredontimebysupplierProportionofsupplierswhodeliverdailyProportionofsupplierswhodeliverfrequentlythanmonthlyProportionofsupplierswhodelivermonthlyProportionofsupplierswhodelivertwiceweeklyResponsetimetoschedulechangesResponsetimetounforeseenproblemsTurnaroundtimeonrejecteditemsAverageproductionleadtimeCurrentmanufacturingleadtimeMinimumproductionleadtimeDowntimeas%oftotalproductiontimeDowntimeduetopartsshortage(orstockoutsingeneral)HoursofunplanneddowntimeCostas%ofsalesCostas%ofsalesCostas%oftotalcostsCostoforderspurchased(rangeCostofvendortransactions(range)CostofexpediterepairmaterialsPurchasingspendpersupplierPurchasingspendperpurchasingemployee(purchasingprofessional)Costas%ofsalesCostas%oftotalsalesCostas%ofsalesCostpersaleableunitCostperunitproducedCostas%ofsalesCostperunitproducedSource:H.CookNosofstrategies,or“uptime”service-basedcontractsInadditiontotheKPIseachstageofthesupplychainhasavarietyofmetricstomonitoroperationaleffectiveness(cont.)InventoryManagementMarketingandSalesCustomerServiceOutboundLogisticsTotalSupplyChainQualityTimeCost%ofproductsorderedalreadyinstockDefectrateofproductsas%ofproductsleavingwarehouseAccuracyofinventoryrecordsInventoryvs.servicelevelItemsininventoryas%oftotalunitpurchasesObsoletevs.activeinventory%ofcorrectorderstaken#ofadditionalsalesfromcustomerreferrals#oforderchangesas%ofordersfilled%ofordershandledwithcommitmenttoproduct/servicedeliveryonfirstcall%ofcustomerssatisfiedwithservice#

ofcomplaintsas%oftotalorders#ofphonecallstocustomerservicedevelopmentperordershipped#ofcomplaintsduetoOn-timedelivery;OrderEntry;Packaging;Productquality;ShippingError#ofcomplaintsas%oftotalorders#ofcustomercontactsperorder#

ofenquiries(includingcomplaints)thatwerenotansweredtothecustomerssatisfaction#ofinformationrequestsas%ofcustomerorders%ofcallsabandoned,answeredbyrecording,delayed%ofcustomercontactthroughcustomerservice%ofcustomerfollow-uphandledbyCustomerServiceRepresentative;DepartmentManager;FieldRepresentative;ResponsibleManager%ofinvoicescontainingerrors%ofordersdeliveredcompleteandwithouterror(orderfillrate)%ofordersthataredamagedonarrivalatcustomersite%ofrespondentsthatcanhandlecomplaintswithouthandingofftootherperson/dept.Average%ofdisputedinvoices%ofproductsdeliveredaccordingtocustomerorder(quantity/quality)Degreeofutilisationoffacilities(%)Equipmentutilisation—loadEquipmentutilisation—weightTimefromorderplacementtostartofdeliveryCustomersatisfaction(rating)%ofsatisfiedcustomers%ofinformationoncredithistorylimitavailableOn-line%ofinformationonopen-orderhistoryavailableOn-line%ofinformationonoutstandingbalanceavailableOn-line%ofinformationonpricingavailableOn-line%ofinformationonproducthistoryavailableOn-line%ofinformationonproductIDcodeavailableOn-line%ofinformationonshippingpointsavailableOn-lineRatioofoperationslabouras%ofpassivelabourAverage#ofordersrejectedAverageproducttimeinwarehouseNo.ofdaysconsumptioninstock(A-goods)No.ofdaysconsumptioninstock(B-goods)No.ofdaysconsumptioninstock(C-goods)No.ofdayssafetystock(A-goods)No.ofdayssafetystock(B-goods)No.ofdayssafetystock(C-goods)No.ofproductswithduplicationstockPlanneddaysofinventoryonhand%ofaccountsreceivablesettledbeforeduedate%ofaccountsreceivablesettledin1–30days%ofaccountsreceivablesettledin31–60days%ofaccountsreceivablesettledin91days%ofaccountsreceivablesettledin61–90daysDeliverytime%ofproductsdeliveredearly#ofdeliveriespermanhour%ofordersdeliveredontime(asdefinedbycustomer)%ofordersdeliveredwithanaveragedelayof1monthAverage#ofdaysdelayafterscheduledshipdateTotalcycletimeTime(forcustomers)fromplacingordertoreceivinggoods%ofproductsdeliveredontimeAveragecustomerquotedleadtimeAverageleadtimefromreceiptofordertoshipmentAveragetimetakentoaccessinformationCashtocashcycleLongestcustomerquotedleadtimeNewproductintroductiontimeProductchangeovertimeShortestcustomerquotedtimeTimefromreceiptofordertoreceiptofshipmentbycustomerTimetakentorectifyincorrectordamagedordersAveragetimetakentorespondtorequestsCostas%ofsales#ofstockturns/yearCostas%ofcostofgoodspurchasedCarriedworthofexpiredlotsA-goodsasapercentofinventoryAveragestocklevelB-goodsasapercentofinventoryC-goodsasapercentofinventoryInventorycostas%oftotalassets(grossassets)MaximumstocklevelMinimumstocklevelCostas%ofsalesCostas%ofsalesCostperdelivery#ofroutemilesperdelivery#ofwarehousingfacilities#ofwarehousingoflocations%oftransportationunitsownedbycompanyCostperorderCostperrouteTotalsupplychaincostas%ofsalesCostperproductsoldas%ofsales%ofprofitfrombasepurchase%ofprofitfromincreasedpurchases%ofprofitfrompremiumpricing%ofrevenuegeneratedbylargest

customergroup(top20%)Costperproductsoldas%ofsalesOperatingprofitpercustomeras%of

operatingcostspercustomerTotalcostperorderTotalcostperunitproducedCostas%ofsalesSource:H.CookGiventhemultitudeofmetricswesuggesttoanalysesupplychainperformanceusingahierarchyofmeasures...diggingthroughthecausaltreetoimprovebusinessperformance.KeyKPISupportingMetricsOtherOperationalMeasuresTypeofMeasureExampleHighestLevelUseWhoUsesItForecastingaccuracy(as%ofsales)IntegratedsupplychainGenericbenchmarkingConsultantTopmanagementSupplychainstagemanager%ofsuppliersconnectedviaEDISupplychainstagediagnosticConsultantSupplychainstagemanagerA-goodsasa%ofinventorySupplychainstagediagnosticSupplychainstagemanagerObjectiveFind““where”theproblemiswithinthesupplychainIdentifythe““why”withinthesupplychainstageGivemorein-depthinformationaboutsupplychainstageForexample,thequalityofcustomerserviceperformancecanbeclearlymeasuredatthreedifferentlevelsQualityKeyKPI’sSuggestedSupportingMetricsOtherOperationalMeasures%ofcustomerssatisfiedwithservice#ofcomplaintsas%oftotalorders#ofphonecallstocustomerservicedepartmentperordershipped#ofcomplaintsdueto:orderentry,packaging,shippingerror,...)%ofcallsabandoned,answeredbyrecording,delayed,...%ofcomplaintshandledby:customerservicerep.,departmentmanager,...KPI’swillbemeasuredforgenericbenchmarks,whilstoperationalmetricswillbemeasuredbyacustomerservicemanager....#ofcomplaintsthatwerenotansweredtocustomersatisfactionAveragenumberofordersrejectedKeyKPI’sSuggestedSupportingMetricsOtherOperationalMeasuresOutboundlogisticsperformance...%ofproductsdeliveredaccordingtocustomerorder(quantity/quality)(Thesecanoftenbedrivenbycustomerservicemetrics)Degreeofutilisationoffacilities(%)Equipmentutilisation(load/weight)Deliverytime%ofordersdeliveredontime(asdefinedbycustomer)#ofdeliveries/manhour%ofordersdeliveredearly%ofordersdeliveredwithanaveragedelayof1monthAveragenumberofdaysofdelayafterscheduledshipdateCostas%ofsales#ofroutemilesperdelivery#ofwarehousingfacilities/locations%oftransportationunitsownedbycompany...CostperdeliveryCostperorderCostperrouteQualityTimeCostKeyKPI’sSuggestedSupportingMetricsOtherOperationalMeasuresQualityTimeCostFormaintenance,commonlyusedsupplychainperformancemetricsrelatetotimeandcostThequalityofmaintenanceiscommonlymeasuredbylagmeasuresintermsofcostorasaproductionmeasure(downtime).Wesuggesttheuseoftwoleadmeasuresthatproactivelymonitormaintenanceperformance....NumberofservicecontractNumberoftrainingdaysformaintenancestaffDowntimeas%oftotalproductiontimeCostas%ofsalesCostperunitproducedDowntimeduetopartsshortage(orstockoutsingeneral)HoursofunplanneddowntimeJustremember...Alargenumberofmetricsexist,sobeselective.Astepbystepapproachtomeasuringsupplychainperformanceshouldbeundertakeninordertoavoidbeingoverwhelmedbydata.Thefollowingsegmentationgivesussuchanapproach:23keyKPI’sallowustoidentify“where””theproblems”existwithinthesupplychain.Keysupportingmetricsthenallowustoanswer““why””theproblemsexist.Operationalmetricsallowustogoanalysethesupplychainstageinmoredetail.The““right”setofmetricsdoesnotexistforagivenindustryorevenaspecificcompany.The““right”setofmetricsisdynamiclikethebusinessitmeasuresandwillchangewiththetypeofindustry/problemandovertime....NextStepsfortheSupplyChainCoEAgreeonhowyouwillgoforwardafterthisproject.Agreeonobjectives,scopeandaccountabilities.Eg.DiscussifeachGMTneedsitsownsupplychainmetrics.Furtherpopulatethesupplychainbenchmarkingframework.SeeexampleforPurchasing.Championing(S.Beck/Disc.Heads)....androll-out.Continuousimprovementprocess.AppendixKPIDefinitions.CausalTrees:QualityTimeCostPurchasingData:KPIs&Benchmarksa:CAPSResearch:ChemicalPurchasingBenchmark1997;H.Cookshopresearch.IndustrySectorBenchmarkingRange/BestPractice(Validatesource)AverageManufacturing(Validatesource)ChemicalsBestPractice(Validatesource)GlobalChemicalPurchasinga0.06%–3.0%0.30%MeasureQUALITYTIMECOSTAutomotive(Global)aPharma.(Global)aEng./Constr.(Global)a

%ofcorrectordersplaced#ofalternativesourcesofsupply#ofsuppliersinvolvedinproductdevelopment/innovation#ofactivesuppliersperpurchasingprofessional#ofvendorsproductsordered%ofallactivesuppliersthataccountfor90%oftotalpurchasevalue%ofpurchaseshandledbypurchasingdepartmentPurchasingheadcountas%oftotalheadcount%purchaseshandledbypurchasingfunction%spendonlong-termbasis(>2yrs)%firmsusingconsortiumbuyingTrainingperpurchasingprofessional%ofaccountspayablehandledbeforeduedate%ofaccountspayablehandedin1–30days%ofaccountspayablehandledin31–60days%ofaccountspayablehandledin61–90days%ofaccountspayablehandledinover90days%ofsuppliersconnectedviaEDIAverageactualtimetodeveloped/negotiateacontract%goodsdeliveredontimebysupplierTimefromorderplacementtoreceiptofgoodsCostas%ofsalesCostas%oftotalcostsCostoforderspurchased(rangeCostofvendortransactions(range)CostofexpediterepairmaterialsPurchasingspendpersupplierPurchasingspendperpurchasingPurchaseDept.expense(￠per$sales)65%

29%4%1%1%9weeks59%$24.8m31/100￠18cos￡12bn

2–26weeks50%

42%6%1%1%61%26.515/100￠!0cos$23bn

50–8720%

1–10%

6–182 9–2675–75%

0.3%–4.5%

1657.9%

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2226

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272

0.4%27%26%42hrs

3021

5.5%

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79%

33%

1%19%2610/100￠19cos$3.5bn459/100￠ServiceProductDeliveryWrongInfo.HigherPricesThanCompetitorsHigherMarginThanCompetitorsBadlySetCustomerExpectationsWrongOrderInformationUnabletoMeetCustomerDemandProducedFaultyGoodsProductsDamagedAfterMfgPriceProductQuantityProductQualityDeliveredFaultyGoodsQualityDidNotHave

theRight

MaterialsForecasts

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FailureHuman

FailureTechnical

FailureLateArrivalLate

DepartureLateArrivalInformation

FailureInfrastructure

FailureProduct

FailureWrong

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toWrong

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inStockFaulty

ProductHuman

FailureTechnical

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FailureDidNotProduce

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Capacity

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