A Framework for Supply Chains - Oakden chapter 15

PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd

Chapter 15

Improving Logistics

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IntroductionLearning Outcomes

After this lesson, you should be able to:• understand the need for performance

management and measurement• identify the measurement regime required within

a ‘one plan’ approach for the business• recognise the requirement and use for control of

processes• understand the main techniques that assist in the

improvement of supply chains• acknowledge the scope of responsibilities

required of a project manager.

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Performance Management• Performance Management – providing the

policies and processes that enable staff within the organisation to perform their work to the highest ability.

• Skills and contributions from individuals and teams must be recognised to achieve the best performance over time.

• Culture of individual and collective responsibility for the improvement of processes is important.

• The ease of gaining acceptance from the workforce for methods to implement improvement will differ according to the predominant culture of the country.

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Performance Management• A strong culture of performance and continuous

improvement within the organisation has to be built, otherwise responses can be as follows: Employees consider that ‘improvement’ is an excuse or

cover for future downsizing and retrenchments Staff view the proposed change as management’s

‘flavour of the month’ that will disappear with the next ‘initiative’ of the CEO

It is felt that managers are offloading their responsibilities onto staff and then not remunerating the employees for these added responsibilities

Staff consider that their external interests are of greater importance.

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ProcessesIdentifying processes• A process is a series of actions intended to

achieve a particular output which can: be described and diagrammed have its performance measured be improved.

• A process will have a number of tasks associated with it.

• The tasks can be documented using a flow process chart, in which each task (or activity) is allocated a symbol to identify what is happening.

• ‘Manage the process, not the output’.

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ProcessesVariability in processes• Variability – the random events that may occur

as a process is undertaken and which are always present as a natural part of any process.

• Variations cannot be predicted; however, the total variation in a process can be measured, using probability distribution calculations.

• Understanding variability of processes and events, for example the timing of an ocean voyage, is a major requirement of a logistician.

• The causes of variability can be described as the technology and process design elements.

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ProcessesVariability in processes• The ‘5M’ elements in a process comprise:

1. Materials

2. Methods

3. Machines

4. Manpower

5. Measurement.

• Each element is subject to variation, together with the environment (working conditions, such as temperature and humidity) under which the process is conducted.

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ProcessesVariability in processes• Common or system causes of variation are

common in occurrence, and have random outcomes, but which can be measured.

• Special or assignable causes – the cause of the variation is from outside the design of the process.

• Special causes are relatively easy to detect and assign, they can usually be removed as a factor without great expense.

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Benefits of Measurement• Measurements required for a LSP (that specialises

in distribution) are not labour efficiency, but delivery focused.

• Elements that clients are interested in: on time delivery of goods order accuracy order turnaround time inventory accuracy.

• Measures of planning effectiveness rather than indications of a need for optimal labour efficiency.

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Benefits of MeasurementEfficiency and effectiveness• Terms efficiency and effectiveness are often

used interchangeably when discussing logistics performance.

• Efficiency – maximising the benefits, while minimising effort and expenditure.

• Effectiveness is a measure related to an objective of the business, rather than a measure of output, e.g. timely customer service.

• While efficiency measures ‘doing the right thing’, effectiveness refers to ‘doing things right’.

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Principles of a Performance System

• Everyone serves a customer• All systems exhibit variability• Control the process, not the output• Measure processes based on data• People work within a system• Improvement of a system is a part of the job• Improvement is driven by plans not events• Improvement pays Feigenbaum (1951)

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Corporate Measure of Logistics Performance

• As the objective of logistics in a product company is availability, the primary measure of effectiveness should be ‘delivery in full, on time, with accuracy’ (DIFOTA).

• Probability of achieving the perfect order is calculated through multiplication of the individual measures within each of the three groups that make up the DIFOTA scorecard.

• DIFOTA provides a picture across the business of the effect that each section’s performance will have on the overall corporate measure.

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Improving Performance in Logistics

• (PDCA) cycle ‘plan, do, check, act’ – improving the performance of a process is based on analysis of a situation.

• (PDSA) cycle ‘plan, do, study, act’.• Concept of six sigma as a measure of

performance is an improvement methodology that aims to reduce the variation in processes and outcomes.

• Improving processes so they are six sigma compliant required the expansion of the PDSA cycle to the ‘define, measure, analyse, improve, control’ (DMAIC) cycle.

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Lean and agile• Just in Time (JIT) – generic name for the Toyota

production system (TPS), objective of ‘elimination of waste’.

• Toyota identified seven wastes:1. overproduction

2. waiting

3. transport/materials handling

4. processing/operations

5. inventory

6. motion – a move does not equal work

7. product defects.

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Improving Performance in LogisticsLean and agile

• The term lean was used to describe the Toyota approach and later to define a particular approach to improving organisations. Specify what does and does not create customer value. Identify all needed design, order and production steps –

the value stream. Create flow without interruption, detours, back-flows,

waiting and scrap.

• Only make what is pulled by the customer – implement pull between all steps where continuous flow is possible.

• Strive for perfection – remove layers of waste on a continuous basis.

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Lean and agile

• An agile approach is more likely to fit towards the top of the diagonal – companies are less capital intensive and therefore inherently more flexible and more reliant on their human capital.

• Agile approach addresses a more volatile demand, a high product mix or where production assets are shared across multiple products.

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Theory of constraints• Theory of constraints (TOC), also known as

constraint management, identifies that under the traditional business approach, people work to be efficient in their area of work.

• However, the sum of all the individual work centre performances is not equal to the maximum output for the system or process.

• Total throughput of the system is controlled by the capacity constrained resource (CCR) – the step in the process that has the lowest throughput.

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Business process re-engineering (BPR)• BPR – it has been argued that the commercial

world is moving too fast for incremental improvement steps and that a more dramatic reshaping of business flows is required.

• BPR specialists argue that only quantum improvements in business performance, managed through BPR techniques and significant strategic changes in business processes, can be successful.

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Improving Performance in LogisticsSupply chain operations reference (SCOR) model• A subset of BPR that is focused on supply chains.• Using SCOR enables the description of every

process within inbound, internal and outbound logistics.

• It is a process reference framework that provides the methodology to structure and define: standard processes standard metrics standard practices: EDI, CPFR etc.

• SCOR provides the pre-defined relationships between processes, metrics and practices.

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Projects in Logistics• Project – a scope of work required to achieve a

particular outcome.• Based on the scope of the project, the amount of

time, resources and money required to complete the project ‘on time and on budget’ can be calculated.

• Project plan is then developed and the project approved.

• Greatest challenge of a project is called ‘scope creep’ – where management require small changes to the scope of the project, but does not allow more time, resources or money to cover the additional requirements because they are small.

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Education

A Framework for Supply Chains - Oakden chapter 15