Winning Performance Through Supply Chain Benchmarking Chris Gardner Cheryl Harrity APQC

1. Winning Performance Through Supply Chain Benchmarking Chris Gardner Cheryl Harrity APQC April 5, 2005

2. Agenda • Introduction and Overview • The Objectives and Approach of Open Standards Benchmarking CollaborativeSM (OSBC) Research • Benchmarking Overview • Best Practices Research • Logistics • Procurementt • Q&A

3. APQC Mission …to work with people in organizations around the world to improve productivity and quality by: • Discovering, researching, and understanding emerging and effective methods of improvement; • Broadly disseminating our findings through education, advisory and information services; and • Connecting individuals with one another, and with knowledge and tools they need to improve

4. OSBC Research • Standard process framework: the APQC Process Classification FrameworkSM (PCF) • Standard measures for processes: Measures tied to the PCF • Common database: Confidential, online tool for collecting data using common measures; available for contributors to use for performance analysis and improvement

5. The APQC Process Classification FrameworkSM

6. OSBC Supply Chain Database Modules • Procurement • Logistics • Customer Order Management • Manufacturing • New Product Development

7. Why Should We Benchmark? • Allows an organization to understand its operational performance relative to external benchmarks. • Provides an opportunity to link top performance to key business practices. • Enables an organization to assess operational progress over time.

8. What Should We Measure? • Key Performance Indicators (KPIs) - Normalized and objective quantitative values used to assess operational performance / health. • Supporting Indicators - “Drill-down” information that provides insights into performance: • Measurement categories: • Cost Effectiveness • Staff Productivity • Process Efficiency • Cycle Time Note: These categories are reviewed together.

9. What Should We Measure? (continued) Cost Effectiveness: Provides information concerning how well operating cost are managed. Examples Procurement • Total cost of procurement per purchase order Logistics • Total cost of logistics per logistics full-time equivalent employee (FTE) Customer Order Management • Total cost of customer order management function per <$1,000> revenue

10. What Should We Measure? (continued) Staff Productivity: Provides insights into output or work volume for each full-time equivalent employee (FTE). Examples Procurement • Total purchase orders processed per procurement FTE • Total number of active suppliers in vendor masterfile per FTE Customer Order Management • Sales orders per FTE

11. What Should We Measure? (continued) Process Efficiency: Provides insights into how well procedures and systems are supporting the operation. Examples Procurement • Percentage of supplier orders delivered on time Logistics • Order fill rate Customer Order Management • Perfect order performance rate

12. What Should We Measure? (continued) Cycle Time: Indicates the duration to complete a task. Examples Procurement • Average hours to place a purchase order Logistics • Average dock-to-stock time in days Customer Order Management • Average time a sales order is received until manufacturing / logistics is notified

13. What is a “Best Practice”? • “Best practice” has become an often used term in business dialogue. • Many “best practices” may be leading edge, but only have anecdotal support regarding linkages to good performance. • Practices tied to enhanced performance that have some objective support will offer the greatest potential for management.

14. Finding Support for a “Best Practice” • Performance data can be used to help identify practices linked to good performance. • A research approach can tie performance and practices using statistical techniques such as cross tabulation or correlation. • Valid support can only point to a possible connection between a practice and performance.

15. APQC Research • The following information provides a summary of best practices research conducted by APQC. • The information originates from the following APQC’s OSBC database. • Database participants come from multiple industries and geographies. • Findings reported in this presentation are limited to the data gathered from study and database participants, and should not necessarily be used to make inferences about other study populations or specific industry groups.

16. Boeing BP – US Fuels Charles Schwab Cisco Systems Delphi Packard Systems Eastman Kodak Eaton Corporation ExxonMobil Chemical Company Federal Aviation Administration Gillette GM-Saturn Johnson & Johnson Lexmark International Maytag Corporation Motor Coach Industries International Pfizer Raytheon State Department Texas Instruments UPS Westinghouse Electric Xerox Corporation OSBC Research Participants

17. Procurement Using Performance Measurement and Best Practices to Drive Results

18. Procurement – PCF: 4.2 Processes Develop Sourcing Strategies 4.2.1 Select Suppliers and Develop/Maintain Contracts 4.2.2 Order materials and services 4.2.3 Appraise and Develop Suppliers 4.2.4 Activities • Management activities • Develop procurement plan • Clarify purchasing requirements • Match needs to supply capabilities • Analyze company’s spend profile • Seek opportunities to improve efficiency and value • Management activities • Identify suppliers • Certify and validate suppliers • Negotiate contracts • Manage contracts • Management activities • Process/review requisitions • Approve requisitions • Solicit/Track vendor quotes • Create/distribute purchase orders • Expedite orders and satisfy inquiries • Record receipt of goods • Research/resolve exceptions • Management activities • Monitor/Manage supplier information • Prepare/Analyze spending and vendor performance • Support inventory/production processes

19. Procurement: Key Performance Indicator Reporting

20. Procurement: Key Performance Indicator Reporting

21. Procurement: Key Performance Indicator Reporting

22. Procurement: What Practices Contribute to Success

23. Procurement: What Practices Contribute to Success

24. Procurement: What practices contribute to success

25. Procurement: What Practices Contribute to Success

26. Procurement: Success Rate of Established Practices • Those who have implemented automated methods process twice as many purchase orders per FTE and have fewer FTEs in the process.

27. Procurement: Success Rate of Established Practices • Those who have a formal supplier approval program appear to receive better lead times and experience better raw material turn rates than those that do not.

28. Procurement: Keys to Success • Business partner integration • Supplier forums • Open relationships with supplier partners • Business allocation based on performance • Prompt response to operating areas • Increased use of EDI • Automated purchasing approvals • Execution, implementation, influence • Metrics • Continuous process improvement

29. Logistics Using Performance Measurement and Best Practices to Drive Results

30. Operate Warehousing 4.5.3 Manage Returns: Manage Reverse Logistics 4.5.5 Logistics – PCF: 4.5 Processes Operate Outbound Transportation 4.5.4 Define Logistics Strategy 4.5.1 Plan Inbound Material Flow 4.5.2 Activities • Management activities • Translate customer service requirements into logistics requirement • Design logistics network • Communicate outsourcing needs to procurement, as required • Develop and maintain delivery service policy • Define key performance measures • Management activities • Plan inbound material receipts • Manage inbound material flow • Monitor inbound delivery performance • Manage flow of returned products • Management activities • Track inventory deployment • Receive, inspect, and store inbound deliveries • Track product availability • Pick, pack, and ship product for delivery • Track inventory accuracy • Track third-party logistics storage and shipping performance • Management activities • Plan, transport, and deliver outbound product • Track carrier delivery performance • Manage transportation fleet • Process and audit carrier invoices and documents • Authorize and process returns • Perform reverse logistics • Perform salvage activities • Manage and process warranty claims

31. Logistics: Key Performance Indicator Reporting

32. Logistics: Key Performance Indicator Reporting

33. Logistics: Key Performance Indicator Reporting

34. Logistics: What Practices Contribute to Success

35. Logistics: What Practices Contribute to Success

36. Logistics: What Practices Contribute to Success

37. Logistics: What Practices Contribute to Success

38. Logistics: Success Rate of Established Practices • Those who have implemented automated methods process twice as many purchase orders per FTE and have fewer FTEs in the process. Replace with Logistics cross-tab

39. Logistics: Keys to Success • Communication • Focus on customers • Responsiveness • Good forecasting and planning • Good people • Inventory visibility • Local management team and staff commitment to plan and customer requirements • Clearly established and communicated measurements • Clearly defined objectives • Real-time order information and manipulation • Key metrics for the entire customer value stream

40. Executive Level: Comprehensive Benchmarks

41. Executive Level: Comprehensive Benchmarks

42. Questions and Answers