Supply chain assignment on: Operational Performance & Measurement for Supply Chains
Content:
- Executive Summary………………………………………………………………3
- Introduction………………………………………………………………………4
- Operational performance…………………………………………………………4
- Measurement of performance…………………………………………………….5
- Importance of operational performance to supply chain success…………………5
- Measuring customer accommodation performance………………………………..6
6.1 Perfect orders…………………………………………………………………6
6.2 Absolute performance…………………………………………………………7
6.3 Customer Satisfaction…………………………………………………………7
- Types of supply chain metrics……………………………………………………..7
7.1 Cash-to-cash conversion time………………………………………………….7
7.2 Supply-chain response time……………………………………………………8
7.3 Dwell-time……………………………………………………………………..8
7.4 On-shelf in-stock percentage…………………………………………………..8
- Benchmarking……………………………………………………………………..8
- Importance and types of benchmarking……………………………………………9
- Conclusion…………………………………………………………………………10
Executive Summary:
Intend of the report is to provide a literature review on operational performance and measurement for supply chains. Therefore, to organize the entire report, it has been continued in some parts. The first segment of report describes operational performance including monitoring, controlling and directing and also explains its importance to supply chain success. Next part of report highlights the customer accommodations for an operational performance. This begins with taking perfect orders and ends up with customer satisfaction after an absolute performance. Further portion of report discusses about various types of supply chain metrics including cash-to-cash conversion time, supply-chain response time, dwell time, and on-shelf in-stock percentage. Afterwards, it provides an insight of benchmarking, its importance in marketing and lastly different types of benchmarking available being used by the companies.
Introduction:
Operations are the basis of an efficient supply/distribution or manufacturing. For that every organization is required to have a solid foundation. Before starting an operation, companies usually set some standards against operational performance. After completion, firm’s performance is measured against standard or prearranged pointers of effectiveness, competency and other accountabilities such as operation cycle time, productivity, waste diminution and authoritarian compliance (Clargo, 2002).
Further, it is measured for supply chain’s success because measurement is the heart of systematic management and without the capability to independently measure operational performance and how it is changing all other tools and resources unfocussed and subjective. Besides, consistent improvement is the key to best favorable operational performance. Next section of report has been taken for brief understanding of Operational performance, its monitoring, directing, controlling, and measurement (Rouse, 2009).
Operational performance:
Operational performance is focused on developing the productivity of the core business. It may include financial, security, environmental and people results. According to an author, operational performance refers to the assessable phases of the results of a company’s process, such as consistency, production cycle time and inventory/supply turns (Voss al, 2002).
Successful operational performance is generally increased under the following circumstances.
- Operational performance objectives are associated with the vision and business unit tactics.
- The business is made all set to evaluate and acknowledge the drivers of good and bad performance and then it focuses on the core impact areas (Clargo, 2002).
With setting objectives of operational performance, it is also ensured that some activities will be a part of effective monitoring of staff performance, so that areas of improvement in process could be identified for attaining resources to accomplish the organization’s operational plan. In this context of achieving operational excellence, companies’ staff requires up-to-date information about the performance of the structure and practices that they manage (Farahani, Rezapour & Kardar, 2011).
Furthermore, one of the authors represented that if distributors want to bring excellence to their work, they need to have lean thinking and take a fresh look at their core business procedures and then identify blockages and superfluous activities. In that case, they need to direct and control following activities in their performance:
- Customer invoice processing
- Product receipt, storage & account payable
- Supply chain and logistics management
- Inside sales/customer service
- Inventory accuracy and cycle counting
- Performance metrics
- Optimizing management’s role (Coleman, 2010)
After monitoring, directing & controlling activities, performance should be measured so that the loopholes and improved/developed areas can be raised out by the management. Forthcoming part of the report discuss on how to measure the performance.
Measurement of performance:
A large number of different types of methods can be used to measure the performance. But the main features that make a performance measurement structure effective include universality, inclusiveness, measurability and consistency. Moreover, in order to evaluate operational performance, the measurement system must comprise some performance signs that can measure “product-flow” processes (Downes & Fisher, 2008). These include following indicators:
- Receiving/inspection
- Put-away storage
- Product maintenance (Shepherd & Gunter, 2006)
- Order picking
- Staging, dispatching and returns (Neely, Gregory, & Platts, 1995).
Importance of performance to supply-chain success:
The progressively flattening world is continuously evolving and impacting the way companies do their businesses. A company’s success depends on developing innovative supply chain strategies and performing excellently that help the company win (Rungtusanatham al 2003).
It has been noticed that businesses and supply chains have become significantly more global over the last decade due to its efficient operational performance. Moreover, between 1995 and 2010, the numbers of transnational organizations have increased more than double (Corsten & Kumar, 2005).
Performance Benchmarking
(Source: AFS, 2012)
Measuring customer accommodation performance:
Customer is considered the king of market, thus measurement of customer accommodation performance is also an integral and essential part of operational assessment. It involves perfect orders, absolute performance and customer satisfaction. Customer accommodation is basically related to following (Farahani, Rezapour, & Kardar, 2011);
- Customer-focused marketing
- Customer service
- Customer satisfaction
- Customer success
- Developing customer accommodation strategy
Perfect orders: Perfect order is one such measure that truly detains the real activities of the organization and how satisfied the customers are with company’s performance (Gallagher, 2005). The value of the perfect order measurement is without equal in determining a company’s overall capability to achieve their business goals and objectives. Perfect order refers to an order which is delivered to a customer that is “complete, exact, on time, and in perfect condition” (Hoffman, 2002). Reason being, it is valuable is that it is the end result of all business operations and performances.
Absolute performance:
It is also regarded as zero-defect performance and measured on the basis of completion of delivery on time, in perfect condition and with correct documentation. Flexibility of a firm’s capability to accommodate special situations and odd or unanticipated customer requests also measure the absolute performance.
Customer Satisfaction:
It is stated that if a customer’s expectations of a supplier’s performance are met or surpassed, the customer will be satisfied.
Some following measurements are identified to assess the customer satisfaction;
- If perceived performance > = Expectations, then satisfaction
- If perceived performance < Expectations, then dissatisfaction
Customer satisfaction measurement entails companies to understand how well they are able to meet customer’s needs.
Types of supply chain metrics:
It is usually believed that a well-created framework of supply-chain metrics can enhance the opportunities for success by aligning processes across numerous firms. It targets the most lucrative market segments and gets a competitive benefit through differentiated services and lesser costs. In most organizations, the metrics that management refers to as supply chain metrics are mainly internally focused logistics measures such as lead time, cash-to-cash conversion time, settle time, fill rate, or on-time performance (Welch, 2011). Here, some of the supply chain metrics’ types have been discussed.
Cash-to-cash conversion time:
It is a basic financial concept. It is also referred as cash-to-cash or cash conversion cycle that is a composite metric that has been described as “the average days required to turn a dollar spent in raw material into a dollar composed from a customer (Farrish, Staberhofer, & Losbichler, 2010).
The cash-to-cash metric is important from both accounting and supply chain management perspectives as it determines the firm’s liquidity and organizational valuation as well (Hutchison, Farris II & Anders, 2009).
Supply chain response time:
The time it takes to rebalance the complete supply chain after finding a change in market demand is referred as supply chain response time. It is also a measure of supply chain’s competency to change quickly in response to marketplace environment changes (Li 2009)
Dwell Time:
One of the major types of supply chain metrics is dwell time. It is the period during which a dynamic process remains halted in order that a further process could take place (Marcus, 2011).
On-shelf in-stock percentage:
It is one of the most important indicators of a supply chain’s final performance from the vantage point of the customer. It has been found out on the basis of a research that across the board, the advertised items had a stock-out percentage almost double as high as the control items, regardless of the accessibility measures (Taylor & Fawcett, 2001).
Nonetheless, retailers are placing more stress on on-shelf stock percentage as a bottom-line measure of service presentation because of its latent effect on customer satisfaction.
Benchmarking:
Benchmarking is refer to comparing one’s business processes and performance metrics to organizations bests or best practices from other companies. In this context, dimensions classically measured are excellence, time and cost. In the process of benchmarking, management recognizes the best organizations in their industry, or in another industry where akin processes subsist, and compare the results and processes of those studied to one’s own results and processes. In this way, they learn how well the targets perform and, more importantly, the business processes that explain why these firms are successful (Isenberg, 2004).
Importance and types of benchmarking:
This benchmarking reveals that the key performers are within your organization and the areas where your business can make decisive changes to advance profitability, reduce costs and increase efficiency within the workplace (Clemmons, 2007)
Various types of benchmarking can be seen such internal, competitive, non-restrictive and world-class. Internal benchmarking is often a good starting point for companies desiring to engage in these activities for the first time. Competitive is also called as strategic benchmarking that examines how companies compete with one another strategically.
Furthermore, non-restrictive and world-class benchmarking is of top priority level which has no restrictions. It is core of all the benchmarking. Rather than focusing on top-to down organizations, it focuses on high level standards (Wilson & Nathan, 2009)
Conclusion:
The report can be concluded on the basis of overall discussion. It mainly talks about the link between operational performance and supply chain management. Further, it highlighted the customer accommodation performance measurements which depicted perfect order, zero-defect performance and customer satisfaction measurement levels. Going forward, cash-to-cash conversion, supply response time, dwell time and on-shelf in-stock percentage also has been discussed on the basis of researches. At the end, report discusses about benchmarking which set a level for high performance and to create a name for the company. In that case, internal, strategic, non-restrictive and world-class benchmarking also takes place to frame an overall brand name for the company.
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