Chapter 15, 14

Vast majority of firms

(Cost of goods sold during a time period/ Average inventory valued at cost during the time period _

Item fill rate

(Number of items delivered to customers/ Number of items ordered by customers)

Order fill rate

(Number of orders delivered complete / Number of customer orders)

Line fill rate

(Number of purchase order lines delivered complete to customers/ Number of purchase order lines ordered by customers)

Value fill rate

(Total dollar value delivered to customers/ Total dollar value of customer orders)

Products whose cost or selling price

(Units sold during a time period/ Average unit inventory during the time period)

Internal groups

- Johnsons & Johnson has 150+ business units with ample opportunity to share best practices - Provides little information about performance against the competition

Net profit margin

- Manage net profit margin improvements - It is net profit divided by net sales - Measures portion of each sales dollar that is kept by the firm

Asset turnover

-Manage asset turnover improvements - It is ratio of total sales divided by total assets - Measures efficiency of management utilization of assets

Operational Assessment

A system for logistics performance assessment first requires a functional perspectives.

Disagreements arise in determining how to allocate indirect costs

Allocations are arbitrary and may result in misleading financial assessment

Segmentation of data

By channel, territory, customer, product, and supplier

Inventory days of supply

Calendar days of sales available based on recent sales activity

Number of customer returns

Damaged or defective goods

Measurement System Objectives

Effective measurement systems must be constructed to accomplish the three objectives of monitoring, controlling, and directing logistical operations.

Directing

Employee focus on system performance through motivation and reward

Product classification

Groups products, markets, or customers with similar characteristics to facilitate inventory management

True

High-achieving firm are more involved in benchmarking than average-achieving firms (True or False)

Nonrestricted benchmarking

It compares metrics and processes to best practices regardless of where the practice is found

Asset management

It considers utilization of capital investments in facilities, equipment and inventory

Perpetual review

It continuously monitors inventory levels to determine inventory replenishment needs ROP = D x T +SS

Inventory control

It defines how often inventory levels are reviewed to determine when and how much to order

Profile replenishment

It extends QR and VMI by giving suppliers the right to anticipate future requirements according to their knowledge of a product category

Measurement focus

It is a continuum ranging from operational metrics to strategic metrics

Vendor managed inventory

It is a modified QR that eliminates the need for replenishment orders

Activity-based costing

It is a partial solution to arbitrary allocations

Quick response

It is a technology-driven cooperative effort between retailers and suppliers to improve inventory velocity while matching supply to consumer buying patterns

Total logistics cost

It is aka total landed cost. Sum of order processing + inventory + transportation + warehousing and materials handling + facility network

Average order cycle time

It is average number of days elapsed between order receipt and delivery to customer

Return on investment

It is critical measure of financial success

Inventory turnover rate

It is measured differently by different types of firms

Productivity

It is measured in terms of output of goods compared with quantities of inputs Labor productivity Equipment downtime

Order cycle consistency

It is measured over a large number of order cycles and compares actual with planned performance

Inventory turnover rate

It is most common measure of performance

Financial assessment

It is needed to link supply chain performance to financial results

Cost revenue analysis

It is needed to provide a financial view of integrated logistics Accounting deficiencies make this difficult Activity-based costing (ABC)

Days of supply

It is the amount available to meet forecasted sales volume 50 days of supply ( 100 units per day forecast and 5000 units on hand)

EOQ

It is the amount that balances the cost of ordering with the cost of maintaining average inventory - Assumes demand and costs are relatively stable for the year - Does not consider impact of joint ordering of multiple products

Cost

It is the most direct reflection of logistic performance Typically measured in total dollars spent

Measurement frequency

It is the need to monitor day-to-day performance versus less frequent review to diagnose performance problems.

Downtown

It is the percentage of hours that equipment is not utilized - Forklift with a 2% annual downtime

Damage frequency

It is the ratio of number of damaged units to the total number of units

Availability

It is typically reflected by an organization's fill rate.

Benchmarking

It makes management aware of state-of-the-art business practice

Quality

It measures often include service reliability performance

Return on assets

It measures profitability generated by managing operational assets

Return on net worth

It measures profitability of funds invested by owners

Perfect order

It measures the effectiveness of the overall integrated logistical performance _________ to the total number of order completed during the same time period

Periodic review

It monitors inventory status of an item at regular intervals such as weekly or monthly ROP = D(T+P/2) + SS

Policies and parameters

It must be defined at a detailed level

Monitoring system

It performance by establishment of appropriate metrics to track and report

Controlling system

It performance by having appropriate standards of performance relative to metrics being monitored

Absolute performance

It provides a better indication of how a firm's performance impacts customers " To us, 99.5 percent on-time delivery would mean that on a typically day, over 5,000 customers received late orders."

Competitive basis

It reflects the fundamental choice between responsive or efficient logistics performance

Contribution analysis

It requires all costs be identified as fixed or variable

Net profit analysis

It requires all operating costs be charged or allocated to an operating segment

Customer service

It requires specific measures for each element of the basic service platform

Customer satisfaction

Its measurement requires monitoring, measuring and collecting information from the customer

Cost per unit of volume

Loading cost as $5.50 per order

Inaccurate information

Number of instances when ___________ is discovered

Not

Number of instances when information is _______ available on request

On shelf in stock percentage

Percentage of time a product is available on the shelf in a store

Many indirect expenses are not fixed

Rather they rise and fall based on business demand of operating segment

Dwell time

Ratio of days inventory sits idle to the days it is productively used or positioned

Financial Assessment

Recall that a balanced scorecard places significant emphasis on improving shareholder value.

Strategic profit model

Return on investment (ROI)

Segment strategy

Specifies all aspects of inventory management process for each segment of inventory

Total supply chain cost

Sum of costs across all firms in the supply chain

On time delivery

The most stringent measure of order cycle capability

Replenishment programs

They are designed to streamline the flow of goods within the supply chain

Direct costs

They are those specifically incurred because of the existence of the segment of analysis - product, customer, channel

Variable costs

They are those that change as a result of volume

Fixed costs

They are those that do not direclty change with volume

Indirect costs

They exist because of more than one segment of business

Supply chain response time

Time required for all firms to recognize a fundamental shift in demand, internalized that finding, replan, and adjust output to meet that demand

Cash-to-cash conversion time

Time required to convert a dollar spent on inventory into a dollar of sales revenue

Percentage of sales volume

Transportation cost as 15% of sales volume

Capacity utilization

Warehouse Utilization of 80% is not shipping all it is capable of shipping (Facilities and equipment)

Functional

____________ perspective on logistic measures includes these major categories 1. Cost 2. Customer service 3. Quality 4. Productivity 5. Asset management