OMSAN LOJİSTİK. Performance Measurement in Logistics and Supply Chain Processes Strategic...

OMSAN LOJİSTİK

Performance Measurement in Logistics and Supply Chain

ProcessesStrategic Logistics Management

- Leadership Program -

04/19/23

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.

04/19/23

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)…

04/19/23

… and this is the way we see the logistics function and its processes …

Consumption Point

(Factory, Store, User,

Consumer)

Sourcing Point(Supplier,

Factory, Store, User)

Fulfilling your service promise, while optimizing

system’s resources

Fulfilling your service promise, while optimizing

system’s resources

Logistics (bridge)

Logistics

04/19/23

… and logistics processes are the components of the bridge that holds the stream of materials,

information and funds…

04/19/23

Each logistics process has a specific role to assure the support of service levels and the optimization of resources.

Customer Service

Inventory Planning

SourcingTransportation & Distribution

Warehousing & DC Operations

Define logistics service policyCapture demand

Define inventory levels to fulfill demand

Select optimal sourcing mix to meet inventory requirements

Optimize O-D lanes to meet response time requirements

Fulfill orders with local

inventory to meet response

time requirements

04/19/23

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

04/19/23

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

Sales Data. Item Data.

LogisticsProfilingPlatform:

Item ProfileCustomer

ProfileCustomer-Item

Sales ProfileOrder Profile

InventoryProfile

OperationsProfile

LogisticsActivityProfile.

•Sources of data

•Establish relationships

• Identify decisions to be made

OrderMaster

Order HeaderOrder Detail (Lines)

04/19/23

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

0

500,000,000

1,000,000,000

1,500,000,000

A B CBill-to Category

A DFUs

B DFUs

C DFUs

Total Customer/Item ABC

0%

20%

40%

60%

80%%

To

tal (In

ven

to

ry o

r S

ale

s)

A DFUs B DFUs C DFUs

6/18/93 Inventory "Snapshot"

% Sales by Category

Management Strategy

Inventory Strategy6/18/93 "Snapshot" versus Strategy

04/19/23

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?

Item Number

Item Number

Pair Frequency

189-2-4

493-2-1

007-3-3

119-2-1

999-1-8

207-4-2

662-1-9

339-7-4

112-3-8

189-2-1

493-2-8

007-3-2

119-2-7

999-1-6

207-4-4

662-1-1

879-2-8

112-3-4

58

45

36

30

22

15

12

9

6

04/19/23

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

2%

3%

5%

10%

15%

10%

5% 5%

10%

15%

10%

5%

1% 1% 1% 1% 1% 1% 1% 1%

0%

2%

4%

6%

8%

10%

12%

14%

16%

10 25 50 75 90 99

% of Lines

% Pallet Ordered

04/19/23

Profiles are different from performance measures in the sense that they don’t “judge” the effectiveness of a

process, they just describe it!

Revenue $000s

Freight $000s

Weight 000lbs. Cases Shipments

Freight /Revenue

Japan 17,680$ 413$ 284 12,390 15 2.33%Taiwan 8,295$ 104$ 232 9,210 17 1.25%Hong Kong 1,375$ 16$ 42 1,670 9 1.17%Australia 883$ 36$ 30 1,335 9 4.12%New Zealand 395$ 11$ 11 511 6 2.81%Malaysia 1$ 1$ 0 3 1 56.25%

Asia-Pacific 28,630$ 581$ 599 25,118 57 2.03%

Canada 1,234$ 45$ 49 2,756 8 3.61%Mexico 226$ 8$ 10 344 3 3.65%U.S. 16,705$ 446$ - - - 2.67%

NAFTA 18,164$ 499$ 59 3,100 11 2.74%

Netherlands 1$ 4$ 13 366 2 387.50%Europe 1$ 4$ 13 366 2 387.50%

Guatemala 2$ 2$ 3 105 1 108.33%Latin America 2$ 2$ 3 105 1 108.33%

OVERALL 46,796$ 1,085$ 673 28,690 71 2.32%

0%

50%

100%

150%

200%

250%

300%

0

50

100

150

200

250

300

350

Standard Deviation/AverageDays in 1992 with Activity

A&B Items

Forecast profile for 2 SKU’s

Freight profile by location

04/19/23

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

04/19/23

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 2Emp ID: 563 Sup ID: Bob Area: D2 Employee Name: Roman, Peter

START 9731 15:30 0 0 11 0 0 0 0 0 0 0 0 0

DRY 5779 15:41 98% 82 84 0 4 2 141 197 4108 118 197 84 141

MEET 1772 17:05 0 0 18 0 0 0 0 0 0 0 0 0

DRY 5842 17:23 B 95% 62 65 0 3 0 110 155 2489 106 150 65 154

DRY 6166 18:43 L 90% 64 71 0 3 2 102 169 3300 117 169 71 140

DRY 6637 20:24 107% 63 59 0 2 2 88 141 2749 114 148 59 141

BATT 7804 21:23 0 0 13 0 0 0 0 0 0 0 0 0

DRY 6671 21:36 B 20% 23 117 0 2 1 39 52 628 43 52 117 27

STOP 3829 23:48 0 0 0 0 0 0 0 0 0 0 0 0

**TOTAL** 74% 294 396 42 14 9 480 71413274 498 716 396 108

Job Document Start Perf Std Dir Ind Sel Sel PiecesCode Number Time B % Mins Mins Mins Aisle Pallets Items Pieces Weight Cube Pieces Mins /hour

04/19/23

This is a higher scope measurement, actually created from the individual output measures of the

warehouse workforce.

300

400

500

600

700

800

NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT

300

400

500

600

700

800

NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT

7.0

5.0

4.0

Cases

6.0

3.0

2.0

Ho

urs

Total Cases per Month (Thousands)Total Cases per Month (Thousands) Total Labor HoursTotal Labor Hours

04/19/23

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.

V P M arke ting V P M a n ufa c tu ring

P la nn ing G ro up

O p era to r

C a ll C e n te r

O rd e r E n try

C u s tom e r S e rv ice

In ven to ry P la nn ing

M a nu fac tu rin g P la nn ing

B u yer

P ro cu re m e nt

S u pp ly M a n ag e m e nt

T ra nsp o rta tion

F o rk lif t O p e ra to r

D C 1

W a re h o us ing

D is trib u tion

V P L og is tics V P A dm in istra tion

P re s ide n t & C E O

B o a rd o f D ire c to rs

S h a re h o ld e rs

Management Planning

Supervisor Operator

+

+ ScopeControl

AggregationAlignment

FrequencyDetail

Coherence

04/19/23

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)

04/19/23

This financial measure applies to the DC, by process and

presented in a way relative to total warehousing cost

Receiving10%

Shipping20%

Order Picking

55%

Storage15%

Types of Financial MeasuresAggregateBy Unit

Relative (%)

04/19/23

Productivity is measured at the resource level, identifying the

expected output of its consumption.

What’s the resource?

What’s the Output?

Pr = Output r

Consumption r

04/19/23

The first step in determining productivity measures is identifying the logistics resources involved in

every process and activity…

HumanResource

Facilities

MachineryEquipment

Fleet

Inventory

Systems

04/19/23

Logistics Resources

CorporateLogisticsSystem

Logistics Output

In reality, logistics is a system which receives input (resources)

and after some activities (processes) generates output…

Can you tell what the logistics output should be?

04/19/23

Productivity measures could be use to predict additional resource consumption when output will

increase and performance remains equal

WHS Inventory Turn Projections

4.7

5.1

4.44.2

4.4

4.7 4.8

5.1

5.4

4.2 4.2 4.2 4.2 4.2

3.43.63.7

3.94.0

3.0

3.5

4.0

4.5

5.0

5.5

1994

1995

1996

1997

1998

1999

2000

2001

2002

Tu

rns

CASE I. WHS Turns Improve

CASE II. No Turns Improvement

CASE III. Turns Decrease 4% per year

Disney World was predicting additional warehousing space requirements based on inventory turns reduction and equal storage density

04/19/23

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…

t1t4t0 t2 t3

t5

04/19/23

Customer order cycle times will begin at the first point of contact with a customer until the order is delivered and collected

24

72

24

48

2

2

Order Entry Time

Order Processing Time

Purchase Order/ManufacturingCycle Time

Warehouse Order Cycle Time

In-Transit Time

Collections Time

Elapsed Time in Hours

04/19/23

Total Manufacturing Cycle Time… This chart comes from a Coca-Cola Bottler computing their real

Unscheduled Stops2%

Cleaning2%

Unloading Material1%

Replenishment3%

Reviews0%

Decontamination1%

Corrections2%

Maintenance3%

Loading Material2%

Test Batch6%

Calibration2%

Production76%

Replenishment

Unloading Material

Cleaning

Decontamination

Loading Material

Test Batch

Calibration

Production

Maintenance

Corrections

Unscheduled Stops

Reviews

04/19/23

This is Amoco’s Rail Car Cycle Time Analysis. It’s used

to predict real vehicle utilization…Rail Car Cycle Times(Days)

Commodities

Feedstock Intermediate Polymers Total

Rail Car TripPreparation Time

2.1 5 7.1

Loading Time 0.1 0.1 0.2Staging Time 2.1 22 24.1Transit Time 9 6.3 9 24.3Trip Delay Time N/A N/A N/A N/AUnloading Time N/A N/A N/A N/ADetention Time 7.3 21 28.3Return Time 8.2 10 18.2

Sub-Total 9 26.1 67.1 102.2

Maintenance* 1 1 2Detention** 0.6 0.6 1.2

Total Rail Car CycleTime (Days)

9 27.7 68.7 105.4

04/19/23

The DC is full of response time measurements. Dock-to Stock times, Order Picking Times, Warehouse Order

Cycle Times, etc.

55%

15%10%

20%

0%

10%

20%

30%

40%

50%

60%

Traveling Searching Extraction Other

04/19/23

“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

C o m m u nica tio n S ta tus

O rd e r P ro ce ss ing

P ro d uc t A va ila b ility

Q u an tity P ro du ct

O rd e r Fu lf illm en t @ D C

L o ca tion D a m a ge -F ree

O rd e r D e live ry

In vo ice & C o llec tion

P e rfe c t O rd e r !!!

O rd e r E n try

Wha

t is

take

s to

“cr

eate

” a

perf

ect o

rder

?

04/19/23

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%

04/19/23

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)

04/19/23

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

04/19/23

If the LPS is designed around processes and measurement types, it might look like this…

Entry Error %Status Error %Invo ice Error %

OrderEntry Tim e,

OrderProcessing Time

Custom erOrders

per Hour

Custom er ServiceCosts

Custom er Service

Fill Rate %Forecast

Accuracy%

Days ofInventory

InventoryTurnover

InventoryCarrying Cost

Lost Sa lesCost

Inventory P lanning

PerfectP /O%

PurchaseOrder CTSupplier

Lead Time

PurchaseOrders

per Hour

ProcurementCosts

Supply

On-Tim e%Damage-Free%

PerfectDocum entation%

In-TransitTime

Loading/UnloadingTime

FleetUtilization

Shipm ents perPerson-Hour

TransportationCosts

Transportation

ShippingAccuracy%Inventory

Accuracy%

W arehouseOrder

Cycle Time

Units perM an-Hour,

S torageDensity

W arehousingCosts

W arehousing

PerfectOrder

Percentage

LogisticsCycle Time

Cash-to-CashCycle Time

PerfectsOrders

per Log isticsFTE, ROLA

TotalLog istics Cost

LogisticsValue Added

Logistics

LogisticsPerform ance

System

Page 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)

0

1

2

3

4

5

Company X

World-Class

04/19/23

The architecture of the LPS (Excel Spreadsheet)…

Corporate Param eters

Logistics O utput

SourceData

W orkforce Cost W age Rates

W orkforce

Space Equipm ent Fleet

Logistics Assets

* Carrying Rate

Asset Cost

Third-Party Expenses

ResourceConsum ption

Response System

Inventory P lanning

Supply

Transportation

W arehousing

ProcessCosts

Logistics Financials

Logistics Productivity

Quality

Response Tim es

Gap Analysis

Financial Justification

LogisticsPerform ance

Logistics Performance System

04/19/23

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

04/19/23

$0

$100

$200

$300

$400

$500

$600

$700

$800

Billions

USA

Germany

France UK

$900

Japan

$1000

Robert Delaney, Cass Information Systems, Inc

Some public, performance benchmarks: Global Logistics Cost & Logistics Cost as a % of GDP in the

U.S.

15.7%

12.311.4

10.4 10.3 10.1 10.1 9.9 10.1

1980198019851985 19901990 19951995 19961996 19971997 199819981999199920002000

$1 Trillion+$1 Trillion+

04/19/23

WALL STREET & SUPPLY CHAIN GLITCHES WALL STREET & SUPPLY CHAIN GLITCHES

861 companies reviewed 1989 through 1998: Georgia Institute of Technology, http://gtresearchnews.gatech.edu/newsrelease/CHAINR.html

Stock drop of 8.62% = $120 million decrease in shareholder value

04/19/23

0

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

Data source for DC Inventory Turns in the U.S. is WERC (Warehousing Education and Research Council)

04/19/23

Cost Components 1975

Transportation

Inventory Carrying Charges

Warehousing

Admin. / Order Processing

$.068

$.058

$.048

$.015

$.035

$.020

$.024

$.016

TOTALS $.189 $.095

Herbert W. Davis, 2001

2000

$.033

$.021

$.020

$.012

$.086

2000

Average Mfg

Logistics cost components have evolved over time. Herb Davis database has been recording Total Logistics Cost since 1970. This could be a good source of public,

performance benchmarks

04/19/23

Department Stores Publishing HardwareTelecommunications & Utilities Medical Electronics Manufacturing

Service Parts Health, Beauty & CosmeticsFood & BeverageMail Order Public Warehouses

Department Stores Publishing HardwareTelecommunications & Utilities Medical Electronics Manufacturing

Service Parts Health, Beauty & CosmeticsFood & BeverageMail Order Public Warehouses

ORDERS / HOURORDERS / HOUR.1 to 6.1 to 6

LINES / HOURLINES / HOUR2.5 to 13.22.5 to 13.2

PIECES / HOURPIECES / HOUR1.2 to 14351.2 to 1435

CASES / HOURCASES / HOUR.7 to 117.7 to 117

ORDER CYCLE TIMEORDER CYCLE TIME2 to 24 HOURS2 to 24 HOURS

ORDER CYCLE TIMEORDER CYCLE TIME2 to 24 HOURS2 to 24 HOURS

ERRORS PER LINEERRORS PER LINE.03 to 1.2.03 to 1.2

ERRORS PER CASEERRORS PER CASE.15 to 1.15 to 1

INVENTORY ACCURACYINVENTORY ACCURACY95.5 to 99.9895.5 to 99.98

INVENTORY ACCURACYINVENTORY ACCURACY95.5 to 99.9895.5 to 99.98

ERRORS / ORDERERRORS / ORDER.05 to 3.5.05 to 3.5

DOCK TO STOCKDOCK TO STOCK4 to 48 HOURS4 to 48 HOURS

DOCK TO STOCKDOCK TO STOCK4 to 48 HOURS4 to 48 HOURS

GEORGIA TECH METRICSGEORGIA TECH METRICS

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…

04/19/23

AMAT public benchmarking effort. We used sources such as Cass Logistics, Herb Davis, and the IOMA Report.

1.8

5.85 4.6

5.3 5.1 4.6 4.33.7 4

30

5.54.3 4.8

1.5

6.5

11.5

16.5

21.5

26.5

31.5

Applie

d M

ate

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Com

pute

rs

Sem

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Tele

com

munic

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Ele

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s

Ele

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s P

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Com

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achin

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Aircra

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art

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Aircra

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Part

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Japan A

uto

Part

s

Moto

r V

ehic

le P

art

s

EU

Ele

ctr

onic

s

Japan E

lectr

onic

s

Industry Category

Inven

tory

Tu

rns

92.0%

90.0%

97.0%96.0%

92.0%

94.0%

86.0%

88.0%

90.0%

92.0%

94.0%

96.0%

98.0%

App

lied

Mat

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U.S

. Mot

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Japa

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Japa

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Indu

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Her

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avis

Dat

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Industry Category

Fill

Rat

e

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

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…

1.8

10

2

7.1

1.7

6.5

3.7

7

36

30

2.5 2.2 2.8

6.8

4.40.947 3.6

92.0%

98.6% 98.5%

94.7%

97.4%95.0%

97.0%95.0%

97.0% 97.0%

80.3%

83.4%

88.0%

65.0%

1

6

11

16

21

26

31

36

App

lied

Mat

eria

ls

Am

erite

ch

Bak

er H

ughe

s

Bel

lSou

th

Cat

erpi

llar

Cat

erpi

llar

Logi

stic

s

Sat

urn

Xer

ox

Toyo

ta S

ervi

ceP

arts

Mits

ubis

hi

Lani

er

Kod

ak S

PC

John

Dee

re

Mac

k Tr

ucks

For

d C

S

Jagu

ar

IBM

Company

Turn

s

60.0%

65.0%

70.0%

75.0%

80.0%

85.0%

90.0%

95.0%

100.0%

Fill

Rat

e

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 • 10. inventory management risk

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

Am

erite

ch

Bak

er H

ughe

s

Bel

lSou

th

IBM

Xero

x

Lani

er

John

Dee

re

Luce

nt

Tech

nolo

gies

Toyo

ta S

ervi

ce

Part

s

Mits

ubis

hi

Serv

ice

Part

s

Ford

App

lied

Mat

eria

ls

Kod

ak S

PC

Cat

erpi

llar

Cat

erpi

llar

Logi

stic

s

Coc

a-C

ola

DLA

Con

trol

Number and Range of Commodities and SKUs 3 4 3 3 3 3 5 2 4 4 4 4 3 5 4 1 5 5

Rate of Introduction/Purging of New SKUs 3 5 3 4 4 4 5 3 4 4 4 5 4 5 4 1 5 5SKU Substituability/ Interchangability 3 5 3 4 4 4 3 4 3 3 3 5 5 3 3 1 5 5Response Time Requirements 3 5 3 3 3 3 3 3 3 3 3 5 2 3 3 4 3 5Number of Suppliers & Customers 4 2 4 5 5 5 5 5 5 5 5 2 3 5 5 2 4 5

Availability of Timely, True Demand Data 3 4 3 4 4 4 3 4 2 2 2 4 3 3 2 1 4 5

International vs. Domestic Logistics Network 2 5 2 5 5 5 5 5 4 4 4 5 4 5 4 1 5 5Obsolesence Risk 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 5Demand Variability 2 3 2 2 2 2 3 4 2 2 2 3 3 3 2 1 3 5Inventory Management Risk 2 4 2 2 2 2 3 4 3 3 3 4 3 3 3 2 4 5

Totals 26 38 26 33 33 33 36 35 31 31 31 38 31 36 31 16 40 50

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

Turns Fill Rate Turn Ranking

Fill Rank

IPR Complexity Complexity Index

Complexity Weighted

IPR

Applied Materials

1.8 92.0% 3 4 7 38 0.76 5.32

Baker Hughes 2 65.0% 4 1 5 38 0.76 3.80 John Deere 2.2 97.0% 5 9 14 36 0.72 10.08 Caterpillar 1.7 94.7% 2 5 7 36 0.72 5.04 Lucent Technologies

4 95.0% 8 6 14 35 0.70 9.80

Caterpillar Logistics

6.5 97.4% 9 13 22 33 0.66 14.52

Xerox 7 97.0% 11 11 22 33 0.66 14.52 Lanier 2.5 97.0% 6 10 16 33 0.66 10.56 IBM 3.6 88.0% 7 3 10 33 0.66 6.60 Toyota Service Parts

36 97.0% 15 12 27 31 0.62 16.74

Mitsubishi 30 95.0% 14 7 21 31 0.62 13.02 Ford CS 6.8 83.4% 10 2 12 31 0.62 7.44 Kodak SPC 0.947 96.0% 1 8 9 31 0.62 5.58 Ameritech 10 98.6% 13 15 28 26 0.52 14.56 BellSouth 7.1 98.5% 12 14 26 26 0.52 13.52

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

Inventory Performance Ranking vs. Logistics Complexity

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

3,5

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DC Performance

Measures

Receiving & Putaway

Storage

Order PickingUnitizing & Shipping

WMS

Workforce &

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Disney Merchandise DC

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

Logistics Initiatives: Financial Justification Analysis

Disney’s Distribution Center

Spartan Stores’ Logistics Operation

AMOCO’s Transportation Performance Analysis

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

04/19/23

Spartan Stores computed financial savings through logistics initiatives using KPI improvements and resource reduction

calculations

04/19/23

Amoco calculated a financial improvement of getting better fleet utilization numbers and tied those improvements to TMS functionality

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