Kpi improving supply chain management gillette company

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  • KPIs: Improving Supply Chain Performance ManagementNortheast Supply Chain Conference and Exposition Framingham, MASeptember 19 21, 2004Tim Dolan, C.P.M.Manager, New Product SupportGlobal Procurement OrganizationThe Gillette Company

  • Agenda The Gillette Company OverviewKey Performance Indicators What Are They?The Case for Measuring Indirect KPIsDeveloping Indirect KPIsSample KPI ScorecardGuidelines and Benefits

  • Gillette HistoryFounded in 1901 by King C. GilletteBoston, Massachusetts

  • World-Class Brands, Products, People$9 Billion in Sales (2003)Multinational CorporationGillette - Recognized Brand Worldwide32 Manufacturing Centers15 Countries200+ MarketsApproximately 29,000 employees worldwide4 primary Business UnitsGroomingBlades & RazorsPersonal CareBatteriesOral CareAppliancesInnovative: 47% of Sales from Products less than 5 years old

  • Gillette Products

  • What are Key Performance Indicators (KPIs)?KPIs are measurements of a supplier or service providers performance in key activity areasPriceDeliveryQualityPerformance to schedule Total product cost Product reliability and consistency

  • KPIs have historically been used to measure direct material suppliers performance

    PriceCost reductionsCost competitivenessDeliveryQuantityOn-time deliveryPaperworkShipment conditionQualityRejected and nonconformingProcess capability, data/samples

  • History of Indirect KPIsJim Kilts Circle of DoomCentralize procurementImplement Strategic Sourcing (SSI)KPIs sustain strategic sourcing savingsSource: Jim Kilts Is An Old-School Curmudgeon, Fortune, December 30, 2002 Trade PracticesSupply ChainFinancial Practices

  • What is Indirect Spend?

    Computer/TelecomEnergy/UtilitiesPrinting/Marketing/AdvertisingEmployee BenefitsOffice ProductsMROTravelFacilitiesProfessional ServicesFleetLogisticsCapital EquipmentIndirect spend is the sum of expenditures for goods or services that are not components of the end product or service delivered to a customer

  • The average indirect spend for Fortune 500-size companies is 50% of total spendUtilities/ Engineering ConstructionConsumer ProductsAerospace, Defense, DoD and DoE ContractingSource: CAPS Critical Issues Report, September 2003($ Millions)

  • Purchase Spend as a Percentage of Total Purchase SpendMedian spend = $434MOther:AccountingFacilities LegalLogisticsReal EstateTemp LaborTravel

    Construction/EngTotalSource: Defining and Determining the Services Spend in Todays Services Economy, CAPS, July 2003Marketing ITPro ServicesIndirect Goods 21%Services 33%ManufacturingDirect Material 51%InventorySpend for services accounts for more than half of a companys indirect spend

  • Participants in a recent CAPS survey expect indirect spend for services to increaseIndirect Spend - Services($ Millions)5-yr CAGR = 5%Source: Services Purchases: Not Your Typical Grind, Inside Supply Management, September 2003Note: Chart represents respondents median spend

  • Developing KPIs for Indirect Suppliers

  • Definitions of Supplier CriteriaUltimate objective is to be able to quantifiably measure and compare individual suppliers performanceHow well does the supplier deliver on the terms, conditions and prices agreed to in the contract?

    How well does a supplier satisfy our customers from a product or service quality perspective?

    How cost competitive is the supplier from an industry perspective and from a historical perspective?

    How well does the supplier continue to enhance the product/service, process or cost?

    Evaluation criteria for indirect suppliers can be grouped into three categories

  • AttributesObjective and subjective attributes are necessary for measuring indirect suppliersSpecific KPIs can be tailored to meet the needs of various suppliers

  • Indirect KPIs can use a 1 to 5 scale to score KPIs and a weighting system which allows some flexibility, but keeps weights significant and relatively consistentIndirect Supplier Evaluation CriteriaStandard Scores5=Superior far exceeds expectations4=Exceeds expectations3=Meet expectations2=Does not meet expectations1=Needs improvement; significantly does not meet expectations

    Allowing flexibility with category weighting ensures that the KPI scorecard is tailored to meet the unique needs of the measured supplier

  • Contract Compliance

  • Contract Compliance AttributesActual costs versus budgetService level resultsOn time deliveryReturn rateOrder and billing accuracyAverage lead-timeContract compliance attributes mirror the suppliers contractual commitments

  • Customer Satisfaction

  • While KPIs measured with objective data are the most reliable, it can be argued that they do not capture the entire picture in regards to supplier performanceTraditional KPI constraints:Difficult to evaluate the interactions of supplier personnel with customersQuality can only be measured in regards to damage or breakdown, and is difficult to measure for servicesStrong traditional supplier KPI data does not necessarily indicate whether or not the customer is satisfiedCustomer Satisfaction Surveys provide mechanism to help evaluate supplier performance

  • Customer Satisfaction Surveys capture the customers opinions in regards to supplier performance.Supplier Interaction: Infrequent ___ Moderate____High ____Questions:I feel the supplier provides high quality goods and services.I feel the supplier provides high value for the cost.I would recommend this supplier to others.When I have questions, this supplier responds in a timely manner.If there is an issue, this supplier resolves the issue in a timely manner.If there is an issue, this supplier resolves the issue to my satisfaction.In my opinion, this supplier deserves recognition as a top supplier.Scale:1: Strongly Disagree2: Disagree3: Neutral4: Agree5: Strongly AgreeCustomer satisfaction surveys can be a primary determinant of customer satisfaction

  • A comprehensive supplier measurement system can mitigate customer satisfaction survey limitations

    Customer satisfaction tends to be overwhelmed by bad experience, even if the bad experience was not the suppliers faultMost recent experience is recalled; not overall supplier performanceSurveys tend to be subjectiveA single negative response can skew resultsResponse rate tends to be lowEvaluate responses in relation to other KPI data. Conduct enough surveys to mitigate this effectAdjust weighting for Customer Satisfaction Survey where commodity has a great deal of objective dataUtilize statistically significant sample size and possibly discard highest and lowest scoresTarget key customers with vested interest and explain significance of KPIIssuesMitigating Techniques

  • Cost Competitiveness and Continuous Improvement

  • Benchmarking establishes cost competitivenessSupplier vs industrySupplier vs other benchmarkStandard or target pricesShould cost pricesPrice paid indicesConsumer Price Index (CPI)Ecommerce capability

    Comparing supplier pricing against benchmarks assists in avoiding price creep

  • Cost Competitiveness and Continuous Improvement GuidelinesIn addition to KPIs that measure cost versus competition and industry standards, continuous improvement, supplier process improvements and/or cost saving targets can be establishedDefine baseline spend that generates the savings target

    Cost Saving Guidelines 5=Superior far exceeds expectations6% or more 4=Exceeds expectations4 6% 3=Meet expectations2 4% 2=Does not meet expectations0 2% 1=Significantly does not meet expectations0%

  • Collecting the Data

  • Evaluate the costs/benefits of each data collection method availableData collection is the most difficult and time-consuming activity in the KPI process. However, it is integral to a successful KPI program.

  • A wide range of sources can provide measurement dataERP SystemsSupplier-provided reportsThird-party dataIndustry benchmarksCustomer Satisfaction SurveysData WarehouseAttaching the data and documentation to the scorecard validates scoring and makes it possible for the supplier to take corrective action

  • The KPI Scorecard

  • Sample Scorecard - Temp Labor KPIs

    Sheet: Scorecard

    Sheet: ContractCompl&CustSatis

    Sheet: Cost&ContnuousImprov

    Sheet: Glossary

    Global Procurement Balanced Scorecard

    TEMPORARY LABOR : ABC Staffing

    Target Performance

    Actual Performance

    Weight

    Weighted Score

    Contracts Compliance

    4.0

    4.0

    0.3

    1.2

    Cost Competitiveness

    4.0

    4.3

    0.3

    1.2899999999999998

    Customer Satisfaction

    4.0

    3.0

    0.2

    0.6000000000000001

    Continuos Improvement

    4.0

    3.7

    0.2

    0.7400000000000001

    OmniMark Cutoff

    4.0

    Vendor Score

    3.83

    OmniMark Eligible

    No

    SUPPLIER:

    ABC Staffing

    Contract Compliance

    Customer Satisfaction

    Metric

    Act

    Score

    Weight

    Weighted

    Metric

    Act

    Score

    Weight

    Weighted

    Confirmation of Order Delivery w/i 2 hours

    Candidates Received Survey (beginning of process)

    Superior

    1.0

    0.0

    Superior

    1.5

    Excellent

    95-100%

    0.1

    0.4

    Excellent

    >=90%

    4.0

    0.3

    0.0

    Good

    92-95%

    3.0

    0.1

    0.0

    Good

    >=80%

    3.0

    0.3

    0.0

    Needs Improv

    90-92%

    2.0

    0.1

    0.0

    Needs Improv

    >=70%

    2.0

    0.3

    0.0

    Not Acceptable

    =80%

    3.0

    0