OMSAN LOJİSTİK

Key Performance Indicators & Inventory Benchmarking

Inventory Planning and Management

Latin America Logistics Center

Logistics Management Series -

Key Performance Indicators

KeyPerformance

Indicators

Customer Service Inventory SupplyTransportation & Distribution

Warehousing LOGISTICS

% Entry Error% Status Error

% Invoicing Error

% Entry Error% Status Error

% Invoicing Error

Order Entry TimeProcessing Time

Order Entry TimeProcessing Time

Orders per Hour-Person

Orders per Hour-Person

Total CustomerService Cost

Total CustomerService Cost

% Fill Rate% Forecasting

Accuracy

% Fill Rate% Forecasting

Accuracy

ReplenishmentCycle

Forecasting Scope

ReplenishmentCycle

Forecasting Scope

Inventory TurnoverInventory Turnover

Total InventoryCarrying Cost

Total InventoryCarrying Cost

% Perfect Purchase Orders

% Perfect Purchase Orders

Purchase OrderCycle

Purchase OrderCycle

Purchase OrdersPer Hour-Person

Purchase OrdersPer Hour-Person

Total SupplyCost

Total SupplyCost

% On Time% Undamaged

% Documents Error

% On Time% Undamaged

% Documents Error

Transit TimeDelivery Cycle

Transit TimeDelivery Cycle

% Fleet Use% Fleet Use

Total Cost ofTransportation & Distribution

Total Cost ofTransportation & Distribution

% Delivery Accuracy% Stock Accuracy

% Delivery Accuracy% Stock Accuracy

WarehouseOrder Cycle

WarehouseOrder Cycle

Units perHour-PersonWarehousing

Density

Units perHour-PersonWarehousing

Density

Total WarehousingCost

Total WarehousingCost

% PerfectOrders

% PerfectOrders

Total LogisticsCycle

Total LogisticsCycle

Perfect Orders perHour-Person

Assets turnover

Perfect Orders perHour-Person

Assets turnover

Total Logistics CostROA

Value Added

Total Logistics CostROA

Value Added

Key Performance Indicators in Inventory Management

• Financial– Inventory Carrying Cost

(ICC)– Inventory Carrying Cost on

Sales (% ICC/Sales)– Average Inventory Value

(AIV)– Inventory as % of Sales– Return on Investment (ROI)– Return on Investment per

Category

• Productivity– Inventory Turnover Rate

(ITR)– SKUs per Person– Purchase orders per hour

• Quality– Forecasting Accuracy – Inventory Accuracy– Fill Rate– % Perfect Orders

• Response Time– Purchase Order Cycle

Financial Indicators

• Inventory Carrying Cost (ICC)

• Inventory Carrying Cost on Sales

• Average Inventory Value (AIV)

• Inventory as % of Sales

• Return on Investment (ROI)

• Return on Investment per Category

Inventory Carrying Cost (ICC)

• Is the addition of all costs for holding inventary

ICC = %ICR x AIV

• Is calculated multiplying the Inventory Carrying Rate by the Average Inventory Value

Inventory Carrying RateRanges from 15% to 45%

• Opportunity Cost of Capital– Shareholders Expected Return on Investment = ROI =

25%

• Warehousing = 4%

• Loses = 2-5%– Damages

– Evaporation

– Obsolescence: Out of Date, Packaging changes

• Insurance, Taxes = ?

Inventory as a % of Sales

11.4%

12.2%

12.4%

13.7%

13.9%

15.0%

15.9%

16.0%

17.8%

18.2%

20.1%

20.1%

25.0%

10.0% 12.0% 14.0% 16.0% 18.0% 20.0% 22.0% 24.0% 26.0%

Singer

TI

NCR

Digital

Motorola

HP

Honeywell

IBM

Kodak

Xerox

Control Data

Emersen

Unisys

Inventory as a % of Sales

Inventory as a % of Sales

Return on Inventory Invesment (ROI)

Company A Company BSales 1,000,000.00$ 1,000,000.00$ Profit 200,000.00$ 200,000.00$

Average Inventory Value 400,000.00$ 800,000.00$ Return on Inventory 50% 25%

Return on Inventory Investment = Turnover/Average Inventory Value• Which Company would you Prefer?

ROICategory

ROISubcategory

ROI per Supplier

ROI per SKU

Category GM

SubcategoryGM

Gross Margin per Supplier

Gross Margin per SKU

Traditional Management

Category Management

ProfitabilityAccountability

Inventory Management per Category

Financial Performance Indicators

Total Cost Inventory Management

Productivity IndicatorsInventory Management

• Inventory Turnover

• Productivity of People in Inventory Management and Planning

Inventory Turnover Rate (ITR)Turnover Indicators

Rates

Global Inventory Turnover

Global Cost of Sales / Global Average Inventory Value

Inventory Turnover Per Region

Cost of Sales per Region / Average Inventory Value per Region

Turnover per Country

National Cost of Sales / National Average Inventory Value

Local Inventory Turnover

Local Cost of Sales / Local Average Inventory Value

Turnover in one Facility

Cost of Sales in a Facility / Average Inventory Value in a Facility

Turnover per Category

Cost of Sales per Category / Average Inventory Value per Category

Turnover per Supplier A

Cost of Sales of Supplier A / Average Inventory Value of Supplier A

Turnover per SKU

Cost of Sales per SKU / Average Inventory Value per SKU

The Logictics ScorebordTM

Costs – Sales Inventory Rates

CumulativePercent of % of Implied Implied Annual Number ofShipment Shipment Sales COGS Inventory Inventory Weeks ofVolume Volume (in Millions) (in Millions) (in Millions) Turns Inventory

Germany 23% 23% $116.04 $58.85 $4.53 12.99 4.00Italy 16% 39% $80.72 $40.94 $6.28 6.52 7.98France 15% 54% $75.68 $38.38 $6.21 6.18 8.41UK 14% 68% $70.63 $35.82 $4.32 8.29 6.27Spain 10% 78% $50.45 $25.59 $1.74 14.70 3.54Netherlands 4% 82% $20.18 $10.23 No WHSE ---- 0.00Sweden 4% 86% $20.18 $10.23 $1.32 7.75 6.71Belgium 3% 89% $15.14 $7.68 No WHSE ---- 0.00Switzerland 3% 92% $15.14 $7.68 $2.93 2.62 19.85Austria 3% 95% $15.14 $7.68 $1.39 5.52 9.42Denmark 3% 98% $15.14 $7.68 $0.84 9.14 5.69Norway 1% 99% $5.05 $2.56 $0.70 3.66 14.23

TOTAL 0.99 $499.46 $253.31 $30.26 8.37 6.21

Implied COGS = 51% x (Implied Sales) where 51% = 1989 COGS/1989 Net Sales 0.5071665Inventory is from Exhibit 8Annual Inventory Turns = COGS/InventoryNumber of Weeks of Inventory = 52/Annual Inventory Turns

Inventory at Polaroid’s European Subsidiaries

2.93.3

3.4

3.5

3.7

4.85.1

5.45.5

5.7

5.86

67

7.28

17.9

38.390.6

0 5 10 15 20

Books Publishing & Printing

Drugs and Medicines

Surgical Instruments

Photographic Equipment & Supplies

Aircraft Parts

Canned Goods

Electronic Components

Household Electrical Appliances

Motorvehicle Parts

HVAC Equipment

Knitw ear

Broadw oven Fabrics

Carpets & Rugs

Industrial Chemicals

Envelopes, Stationary, Tablets, etc.

Coated & Laminated Paper & Tape

Dairy Products

New spapers

Periodicals

High

Average

Low

Source: Robert Morris Associates

Inventory Turnover per Industry

2.3

5.8

5

4.6

5.35.1

4.64.3

3.74

5.5

4.3

4.8

1.5

2

2.5

3

3.5

4

4.5

5

5.5

6

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Industry Category

Inv

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Tu

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Spare Parts IndustryInventory Turnover Analysis

Inventory Turns in Selected Industries

27

2.1

12

21

4.6

16

47

15

0

10

20

30

40

50

Food PackagingMaterial

Mining

Industry

Inve

nto

ry T

urn

s

Low

Average

High

Inventory Turnover Benchmark per Industry

Inventory Profile Analysis (IPA)

An agregate technique that compares An agregate technique that compares Current InventoryCurrent Inventory with with Target InventoryTarget Inventory

per SKU.per SKU.

CoverageCoverage (%)(%) = Current Inventory Compared to Target ( 0 to 100%)= Current Inventory Compared to Target ( 0 to 100%)

ExcessExcess (%)(%) = Anything Above Target ( no limits )= Anything Above Target ( no limits )

EjemploEjemplo

TargetTarget are 10 apples and 10 orangesare 10 apples and 10 oranges CurrentCurrent = 5 apples y 15 oranges= 5 apples y 15 oranges

CoverageCoverage = 75% (5 apples + 10 oranges = 15/20 x 100)= 75% (5 apples + 10 oranges = 15/20 x 100)

Excess Excess = 25% (5 oranges = 5/20 x 100)= 25% (5 oranges = 5/20 x 100)

IPA = 75 - 25 %,IPA = 75 - 25 %, i.e. i.e. High risks of stockouts and waste or one quarter of High risks of stockouts and waste or one quarter of

resources!resources!

IPA = 75 - 25 %IPA = 75 - 25 %

Inventory Quality Indicators

• Inventory Quality Rate (IQR)

• % Forecasting Accuracy

• % Inventory Accuracy

• % Fill Rate

• % Perfect Orders

Forecasting Accuracy Indicators• Absolute Deviation

• Algebraic Deviation

• Mean Average Deviation (MAD)

• Mean Aboslute Percentage Error (MAPE)

Accuracy of Inventory Information

• % Position without Differences

• % SKU without Differences

• Total Value of Differences

Fill Rate Evaluation

Measure Definition Conversion Unit Fill Rate (UFR) Delivered Units

Required Units

Line Fill Rate (LFR) Complete Lines Delivered Required Lines

LFR = UFRupl

Order Fill Rate (OFR) Complete Orders Delivered Required Orders

OFR = LFRlpo

upl = unidades per linelpo = lines per order

Mediciones del Nivel Servicio del Inventario (Fill Rate )

Local - Initial Global - Initial Final Unit Fill Rate (UFR)

1. UFR = Local Units Delivered/ Units Requested

2. UFR = Global Units Delivered/ Units Requested

3. UFR = Total Units Delivered/ Units Requested

Line Fill Rate (LFR) LFR = UFR upl

4. LFR = Local Lines Delivered In Full/ Lines Requested

5. LFR = Global Lines Delivered In Full/ Lines Requested

6. LFR = Total Lines Delivered In Full/ Lines Requested

Orden Fill Rate (OFR) OFR = LFR lpo

7. OFR = Local Orders Delivered In Full/ Orders Requested

8. OFR =Global Orders Delivered In Full/ Orders Requested

9. OFR = Total Orders Delivered In Full / Orders Requested

OFR =

Fill Rate PlanningAverage Inventory Value vs. Turns

Fill Rate Benchmarks per Industry

92.0%

90.0%

97.0%

92.0%

94.0%

86.0%

88.0%

90.0%

92.0%

94.0%

96.0%

98.0%

X Motor

Vehicle

Parts

Japan

Electronics

US

Industrial

Products

Herb Davis

Database

Average

Industry Category

Fil

l R

ate

Turns and Fill Rate Benchmarking per Company

80

82

84

86

88

90

92

94

96

98

100

0 2 4 6 8 10

Turns

Fill

Ra

te TANDEM

Ford CS

BellSouth

Xerox

Navistar

Coca-Cola Parts

Cummins Engine

IBMSolar Turbine

Lucent

Ameritech

IKONHyster/Yale

LanierJohn DeereKodak SPC

AMAT/IBSS

Caterpillar BoeingNovellus

Delta

0

5

10

15

20

25

30

35

40

BellS

outh

Amer

itech

Koda

k SP

C

Ford

CS

Mits

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hi

Cat

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llar

Logi

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s

Toyo

ta S

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Del

ta

IBM

Lani

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Xero

x

Nov

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s

Luce

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chno

logi

es

Lock

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Cat

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John

Dee

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Bake

r H

ughe

s

Appl

iedM

ater

ials

Boei

ng

IPR

25

27

29

31

33

35

37

39

Com

ple

xity

IPR

Complexity

Standardised Benchmarking of Inventory Performance

Complexity Factor of Inventory Management

Complexity on Inventory Performance Benchmarking

Inventory Quality Rate (IQR)

• IQR =$Active Stock/ $Total Stock.

• IQR =AIV Active / AIV Total

2

2

2

3

3,53

2

2

2

SKUs per FTE

Purchase Order Cycle

Time

Return onInventory

Perfect PO %

Inventory Carrying Cost

vs. Sales

Fill Rate

Forecast Accuracy

Inventory Accuracy

InventoryTurns

00,5

11,5

22,5

33,5

44,5

5

Gaps Analysis of Inventory Performance