Redefining the Perfect Order Metrics

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Redefining the Perfect Order Metrics

• Dee Biggs
• GMA IS/ LD Conference
• April 12, 2005

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Agenda

• Background
• Current Metrics
• Suggested Metrics
• Implications

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Background

• The current metrics defining perfect order is
  about seven year old
• Current metrics were established by a joint
  industry team from FMI and GMA
• However, the current joint industry team working
  on collaboration recommended they be revised and
  updated
• A committee was assigned and work began in the
  Fall of 2003

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Team Members

• Marianne Timmons Wegmans
• Bob Mooney Meijer
• Leona Meikle Land O Lakes
• Joe Wisdo Pfizer
• Dee Biggs Welch Foods

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Why do we need Perfect Order metrics ?

• To measure and improve our Joint Supply Chain
• To identify those measure that are critical to
  the success of our Joint Supply Chain

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Supply Chain Council

• Defines Perfect Order Fulfillment as the
  performance of the supply chain in delivering
• The correct product
• To the correct place
• At the correct time
• In the correct condition
• In the correct package
• In the correct quantity
• With the correct documentation
• To the correct customer
• With a correct invoice

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Current Metrics
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Current Metrics

• Orders Shipped Complete
• On-Time Delivery
• Accurate and timely invoice
• No Damage

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Complete Order

• A complete order is shipping every case ordered,
  in the exact quantity shown on the order
• If the order is changed, the objective is to ship
  the revised order complete
• This measurement can only be either 100
  performance or 0 performance per order, as the
  order is either complete or incomplete

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On-Time Delivery

• An on-time delivery is a delivery on the day and
  at the time requested by the warehouse
• The margin of error is defined by plus or minus
  30 minutes
• In the event the warehouse cannot accept the
  order on that day and time and the order must be
  rescheduled, the measure is against the
  rescheduled date, not the original date

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On-Time Delivery

• The specific time of arrival is measured at the
  moment the truck arrives and is prepared to be
  unloaded
• For example, if the trucker checks in on time,
  waits three hours, but was ready to unload at the
  appointed time, the order is on-time

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Accurate Invoice

• An accurate invoice is one in which no changes
  have occurred, with a few exceptions
• In the event multiple deductions are applied to a
  single invoice each invoice creating a
  deduction, if valid, must be treated as an
  invalid invoice

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Accurate Invoice

• In the event of a deduction for a non-invoiceable
  item, like a late delivery or a cut order, the
  invoice is considered accurate
• In the event an invalid deduction occurs, the
  invoice is accurate

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Damage-free Shipment

• A damage-free order is one in which the customer
  receives the product and does not reject anything
  due to damage
• This can be measured via the bill of lading, as
  the customer will sign the bill as short due to
  damage and reject the product

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Damage-free Shipment

• In the event of hidden damage, due to the
  uncertainty of when and how it happened, this
  metric will not be impacted

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Suggested New Metrics
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Suggested New Metrics

• Cases shipped vs. ordered
• On-Time Delivery
• Data synchronization
• Damage (unsaleables)
• Days of supply
• Order cycle time
• Shelf level service

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Cases Shipped vs. Ordered

• A simple ratio of cases shipped to cases ordered
• Also known as fill rate
• Example ordered 100 cases, shipped 99, fill rate
  is 99
• Should reflect customers last iteration of the
  order
• Replaces orders shipped complete

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Cases Shipped vs. Ordered

• Measure this based on when the order is scheduled
  to ship, not when you actually ship the product
• For example, if the order is held one day so
  product can be produced, this should be measured
  as a cut, because the product was not available
  on day scheduled for shipment

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On-Time Delivery

• On-time will be defined as one hour early, but
  not late
• For example, if the appointment is at 8am,
  on-time will be defined as 7am to 8 am
• Anytime after the appointment will be considered
  late
• Current metrics is /- 30 minutes of the
  appointment

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On-Time Delivery

• If customer cannot receive on the date desired by
  buyer, and appointment is delayed, the delivery
  will not be counted as late, if the manufacturer
  was ready to meet the initial appointment date
• Manufacturers are recommended to measure on-time
  delivery to both the buyers desired delivery date
  and the carriers appointment date in most cases
  they will be the same

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On-Time Delivery

• Customer pick-ups will also be measured to the
  appointment time
• Manufacturers are recommended to separate shipped
  orders from pick-ups when reporting on-time
  delivery results

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Data Synchronization

• This is a measure of the percentage of item fully
  synchronized between the two trading partners
• For example, if a retailer/wholesaler buys 100
  items and 70 are fully synchronized, the metric
  is 70
• The goal here is to strive for 100
  synchronization

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Damage (unsaleables)

• The primary metric is unsaleables
• Typically measured as a ratio of unsaleables
  dollars to sales dollars
• Manufacturers are encouraged to break out
• Manufacturing damage
• Carrier damage
• Customers warehouse damage
• Store damage

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Days of Supply

• Measures days of supply at retailer warehouse and
  at the store, if possible
• Days of supply is defined as days forward
  coverage
• Measures can be expressed as days of supply,
  dollar inventory, case inventory
• Focused on identifying non-optimum levels of
  inventory at various points in the supply chain

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Order Cycle Time

• Key measure at most retailers
• Defined as the length of time between a
  manufacturer receiving an order and the actual
  delivery of the order to the customers warehouse
• Can be measured in hours, days, weeks
• Order cycle time needs to be continuing pressured
  down to aid in reducing inventory investment

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Service at the Shelf

• The singularly most important metric is our joint
  supply chain
• Hard to measure
• Currently, retailers measure voids, which
  directionally provides a service level
• However, it is not accurate in terms of defining
  true out-of-stocks

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Service at the Shelf

• The ultimate goal here is to create a fill rate
  at the store for each sku
• Example - demand is 20 units per day and 20 units
  were sold 100 service

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Old vs. New Metrics

• OLD
• Orders Shipped Complete
• On-Time Delivery
• Accurate and timely invoice
• No Damage

• NEW
• Cases shipped vs. ordered
• On-Time Delivery
• Data synchronization
• Damage (unsaleables)
• Days of supply
• Order cycle time
• Shelf level service

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The Multiplier Effect

• Some companies have multiplied each element
  together to create a single Perfect Order
  percentage
• Orders Shipped complete 95
• On-Time Delivery x 95
• Damage Free x 99.9
• Invoiced Accurately/Timely x 80
• TOTAL 72.1
• Not recommended to use the multiplier effect

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The Multiplier Effect

• One possible use of Multiplier Effect is
  combining fill rate and on-time delivery
• Some retailers currently use this metric

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Metrics we considered but .
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Parking Lot Metrics

• Warehouse to store fill rate. This information
  is typically available to trading partners in a
  CRP/VMI relationship. This is a good indicator
  of potential problems later in the supply chain.

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Parking Lot Metrics

• Service specifically on ad merchandise. This
  would be a fill rate on all ad orders as measured
  from retailer warehouse to the store.
• Backhaul, as a measure of a specific lane. This
  might be included to make sure both parties are
  focused on moving the freight in the cheapest
  possible manner that meets all service
  expectations.

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Parking Lot Metrics

• Aged inventory. The intent would be to drive
  aged inventory out of the system and have a goal
  of zero aged inventory. (Aged inventory applies
  to both warehouse shelf life and consumer shelf
  life.)
• Fees and penalties. This is a measure of fees and
  penalties between two trading partners.

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Parking Lot Metrics

• Order accuracy. This is a measure of order
  accuracy as the order gets to the manufacturer.
• Accurate and timely invoices. This is one of the
  current measures and in many ways is still a good
  measure, but is very difficult to measure. As a
  result, it doesnt get used as often as it should.

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Parking Lot Metrics

• Picking errors as a percentage of total cases
  picked, or total orders picked. The focus here
  is to identify mispicks, so they can be
  eliminated.

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Implications
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What Do I do with all this information?

• Retailers
• Establish a process to capture each key element
  of the Perfect Order
• Create a scorecard with those elements that are
  the most important to you
• Weight each item some are more important than
  others

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What Do I do with all this information?

• Retailers (continued)
• Share the data with your suppliers, and establish
  goals for each element
• If possible, put scorecard on web
• Make someone responsible, and incent them
  accordingly
• All metrics should have common definitions
• Track, monitor and adjust as necessary

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What Do I do with all this information?

• Manufacturers
• Develop a plan to measure each element
• Make someone responsible
• Select at least one customer and begin a pilot
  program to measure these elements
• Use the data to improve your joint supply chain

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Next Steps
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Next Steps

• Each company does not have to accept each metric
• However, each company is recommended to select
  those that are important and measure them
• Industry benchmarking will focus on the new
  metrics
• Suggested start date is January 1, 2006