Logistics/Supply Chain Control

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Logistics/Supply Chain Control
The logistician is now a process manager and no
longer just an activities administrator.
Chapter 16
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Controlling in Logistics/Supply Chain Management
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A Control Paradigm
Definition The process where planned performance
is brought into line or kept in line with desired
objectives.

• Control can be represented as a model whose key
  elements are
• Inputs, process, and outputs
• Standards and goals
• Performance measurement
• Monitoring
• Corrective action
• Control systems are
• Open-loop
• Closed-loop
• Modified

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Schematic of Control Process
Elements of the control process
Standards or goals
Monitor Comparison by manager, consultant, or
computer
Corrective action
Performance reports
Process Ongoing supply chain activities
Inputs
Outputs
Supply chain activities and customer
service levels
Activity costs and customer service
External and internal forces and changes
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Open-Loop Control System
Service and
inventory level goals
Monitor
Corrective action
The manager
Adjust supply
Reports on cost
and service
Process
Inputs
Outputs
Warehouse
Stock resupply
Stockouts and
operation
inventory costs
Demand
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Closed-Loop Control System
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Modified Control System
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Auditing Performance

• Reasons for conducting an audit
• Bring logistics system in line with the inherent
  demand characteristics
• Identify opportunities for improvement
• Understand the nature of logistics in the firm
  and its relative costs
• Determine if logistics meets its performance
  goals
• Elements to evaluate
• Customer service levels
• Transportation costs
• Inventory costs
• Demand levels
• Purchase costs

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Benchmarking Performance

• Benchmarking
• Establishes an external reference point
• Compares company performance to the
  best-in- class
• Sources of benchmarking data
• Consulting firms
• University research centers
• Trade associations
• Sponsored studies

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Cost-Service Statement (Contd)
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Cost-Service Statement (Contd)
Customer Service
Percentage of warehouse deliveries within
92
90
90
one day
b
Average in-stock
percentage
87
85
85
c
Total order cycle
time
(a) Normal processing
7

2
6

2
6

2
¾
(b) Back-order
split delivery processing
10
3
10
3
10
3



Back orders and split deliveries
(a) Total number
503
490
490
(b) Percentage of total orders
2.5
2.7
2.5
Orders filled complete
90
86
87
Customer returns due to damage, dead
stock, order

processing errors, and late
1.2
2.6
1.0
d
deliveries
Percentage of available production time
shutdown due
to supply out-of-stocks
2.3
2.4
2.0
a
Includes space, insurance, taxes, and capital
costs.
b
Percentage of individual product items filled
directly from warehouse stocks.
c
th
Based on the distribution of order cycle times
at the 95
percentile.
d
Percentage of gross sales.
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Audit Instruments (Contd)
The productivity report
This
This
Last
Quarter
Company
Industry
a
Productivity Measure
Quarter
Quarter
Last Year
Standard
Average
Transportation
Freight costs as a
percentage of distribution
31
30
32
29
31
costs
Damage and loss claims
as a percentage of freight
0.5
0.5
0.6
0.5
0.5
costs
Freight costs as a
percentage of sales
9.6
9.2
10.2
9.0
8.8
Inventories
Inventory turnover
4.5
4.4
5.0
4.7
6.0
Obsolete stock to sales
0.1
0.1
0.3
0.1
0.2
Order Processing
Orders processed per labor
hour
50
45
55
50
50
Percentage of orders
processed within 24 hours
96
92
85
95
93
of receipt
Order processing costs to
the total number of orders
processed
5.50
4.95
5.65
5.00
¾
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Productivity Report (Contd)
Warehousing
Percentage of cube utilized
75
70
70
70
70
Units handled per labor
200
250
225
200
200
hour
Customer Service
Stock availability
(percentage of orders
filled from primary stock)
98
92
90
90
85
Percentage of orders
delivered within 24 hours
72
70
61
85
90
of receipt
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Performance Control Graph
Control graph for inventory turnover
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SCOR Model

• The SCOR model
• Links processes or supply chain activities to
  performance measures, best practices, and
  software requirements
• Provides a systematic approach for identifying,
  evaluating, and monitoring supply chain
  performance
• Has a broad scope beginning with a demand
  forecast or order placement and ending with
  final invoice and final payment
• Accepts process description that can be product
  specific
• Has a five component framework of plan, source,
  make, deliver, and return
• Incorporates five performance measures of
  reliability, responsiveness, flexibility, costs,
  and efficiency of asset utilization

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Scope of the SCOR Model
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Process Thread Diagram
Pplan, Ssource, Mmake, and Ddeliver
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Performance Metrics
SC Performance Attribute Metric
Delivery Reliability Delivery performance Fill rates Perfect order fulfillment
Responsiveness Order fulfillment lead-times
Flexibility Supply chain response time Production/vendor flexibility
Costs Cost of goods sold Total SC management costs Value-added productivity Warranty/returns processing costs
Asset Management Efficiency Cash-to-cash cycle time Inventory days of supply Asset turns
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Linking Processes and Metrics
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Artificial Intelligence in Control
Artificial intelligence refers to computer
recognition of adverse patterns in the
performance reports and makes suggestions as to
the courses of action that might be taken to
correct the adverse performance patterns.

• Pattern recognition
• Performance patterns
• Courses of action

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