Executing the Supply Chain: Modeling Best-in-Class Processes and Performance Indicators by Gimeno Anne

Author:Gimeno, Anne...
Language: eng
Format: epub
Published: 2014-05-21T22:06:38.926000+00:00

Although the third mechanism is now regarded as the most adequate, executives are often uncomfortable with it as it reports lower percentages. A typical question is “Why report a 89.4% performance if there is another similar mechanism that reports 97.8%?”

Figure 3.5. Adjusting the report

The correct approach requires a target-based adjustment on how to report the performance of OTIF using the multiplication process. The following example simulates the impact of a 97% performance of process (a), on-time delivery, when all subprocesses have the same target of 99%.

As expected, the multiplication algorithm shows the higher oscillation (from targeted 95.1% to achieved 93.2%). If the organization is to report the output of the algorithm’s calculation (93.2%), it may communicate the wrong message. Therefore, an adjustment is conducted.

The achieved result is compared to the target. This will accurately inform that the OTIF performed 98% of the expected target, which is more likely to communicate the right message. This adjustment is recommended as usually the maximum value for a given performance indicator is 100%, which is not the case for OTIF based on the multiplication algorithm.

Another classic example of an efficacy performance indicator is the line fill rate (LFR), which represents the number of order lines delivered to the client compared to the total lines ordered. Suppose, for example, that the organization delivered 11 out of 15 ordered lines: LFR = (Ordered line attended) / (Total ordered lines) = 11 / 15 = 73%.

The LFR depends on several subprocesses such as supplier and production performance, forecasting accuracy, distribution efficacy, inventory holding policy, and many others. Because the LFR performance indicator output represents the aggregated performance of a set of complex processes, it is considered to be an efficacy indicator.

An efficacy indicator may be built from efficiency indicators or by other efficacy indicators or even by a combination of the two. This mechanism is illustrated in the next figure. The adaptability indicators may also be built according to various combinations of other metrics.

The adaptability performance indicators are usually customized to address the specific needs of the organization.

Figure 3.6. Types of performance indicator

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