SCM Benchmarking & Performance

Metrics
Prof. N.Krishnamoorthy

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Discussion

Why BM & Measure ?

What will you BM & How will you measure your
and Organizational Performance?

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SCM BM / Metrics

Company information
Nature of the business
Geographical spread of the company
Major products
Turnover
Plant Capacity
Supply chain metrics
Awareness level
Current usage of different metrics

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The Way to Go About it

1. Establish Study Centers in Metros, Towns &

Special Districts
2. Validation & X check
Authenticity, Validate records with qualifier
features
Where not qualified perceptions?
To consider special products ?
Procurement BM domestic only or Global

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 SC A brief overview
Why BM?

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 The supply chain a term now commonly

used internationally encompasses every
effort involved in producing and delivery a
final product or service, from the
Due to its wide scope, supply chain
management addresses complex
interdependencies; in effect creating an
"extended enterprise" that reaches far
beyond the factory door.
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 In years past, manufacturers were the

drivers of the supply chain - managing the
pace at which products were
manufactured and distributed. Today,

customers are calling the shots,

and manufacturers are scrambling to meet
customer demands for options/styles/features,
quick order fulfillment, and fast delivery.

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 Manufacturing quality - a long-time

competitive differentiator - is
approaching parity across the board,
so meeting customers' specific demands
for product delivery has emerged as the
next critical opportunity for competitive
advantage.

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Standard Way to BM?

Industry has long lacked a standard way to
measure supply-chain performance.
Because of this, manufacturers and service
providers were unable to use a common
assessment tool - benchmarking - in the
effort to improve their performance.

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Kinds of Benchmarking

Internal
Competitor
Functional (within & competitor)
Global
Consortium BM (several cos. Pool
resources to select Best Practices.

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The process of benchmarking involves four

steps. The steps are

The identification of key measures of

performance or capacity
The selection of comparable facilities
The collection of the relevant data
The analysis of the data and the
consequent ranking of the facilities
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Special areas on Procurement BM (e.g.)

E-Procurement
Reverse Auction
Vendor Rating Annual V Meet Ratnlsn, Self-Certfcn
Aggregate Buying
Standardization of similar parts
Contract Manufacturing / Make or Buy / Outsourcing
VMI / CMI
Global / Single
MRP Systems / JIT /
Earlier Supplier involvement .. ANY OTHER //

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A brief Explanation of Metrics

Cycle Time Metrics under this
Procurement Time: It is the number of days that are
elapsed from the time when the manufacturer places an
order to his supplier to the time when he actually
receives the materials.
Production Cycle Time: It is the number of days that
are elapsed between the receipt of an order from a
customer and the completion of the product ready for
being shipped to the customer
Delivery Time: It is the number of days that elapse from
the time when a shipment leaves the manufacturers
facility to the time when it reaches the customers
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location.

Under Cycle Metrics (contd)

Total Cycle Time: It denotes the number of days that
elapsed from the time when an order is received from
the customer to the time when the payment is received
from the customer.
Supply chain flexibility: It denotes the ability of the
manufacturer to meet the sudden increase in the
demand. It is usually denoted as % of the original order.
Cash-to-cash cycle time: It refers to the number of
days between paying the suppliers for raw materials and
getting paid by the customers for the final product. It is
calculated by adding inventory days of supply to the
days of sales outstanding and subtracting the average
payment period for
material.
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Cost Metrics

In-bound transportation cost It is the cost incurred in transportation of raw

materials from the suppliers. It is denoted as a % of total manufacturing
cost.
Out-bound transportation cost It is the cost involved in the transportation
of the finished products to distributors, wholesalers etc. It is denoted as a %
of total sales.
Warehousing cost The cost incurred in the activities of storing, receiving,
picking, and shipment of finished good products. It is referred to as a% of
total sales.
Inventory carrying cost It denotes the cost involved in holding the
inventory on hand. It is given as a % of total sales.
Cost of losses & damages This is the cost incurred due to the losses and
damages that occur during the transportation of goods, which is given as a
%of total sales.

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Cost Metrics (contd)

Other Costs Other costs incurred may include the cost of
insurance, international freight clearance etc.

Total Supply chain cost It is the sum total of the in-bound

transportation cost, out-bound transportation cost, warehousing
cost, inventory carrying cost, cost of transit losses and cost of
damages.
Return inventory cost The costs associated with managing
inventory, returned for any of the following reasons: repair, refurbish,
excess, obsolescence, End-of-Life, ecological conformance and
demonstration
Return processing cost The total cost incurred in processing the
repairs, refurbished, excess, obsolete and End-of-Life products
including replacing products.
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Service / Quality Metrics

% of on-time deliveries: Percentage of times
the goods delivered, by the promised time (in
right quantity and quality).
% of supply made as per the quantity
ordered: The amount (% of Value or Volume) of
order shipped on the initial shipment verses the
amount of total ordered.
% of supply on desired quality: Percentage of
times the goods delivered in the desired quality
to the customers.

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Asset Metrics
Inventory turnover: Number of times inventory is
purchased, sold, and replaced during an accounting
period. It is measured by dividing cost of goods sold by
average inventory.
Raw material inventory holding cost: The cost of
keeping raw materials on hand.
Work in progress inventory holding cost: The cost of
keeping items that are currently used for production on
hand.
Finished goods inventory: The cost of keeping
finished items on hand.

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