Unit-5

LSCM Notes

LSCM Performance
Logistics Performance or Supply Chain Performance is a critical factor that determines
how effectively an organization manages the flow of goods, services, and information
across the entire supply chain. It encompasses a range of activities aimed at optimizing
the movement, storage, and distribution of goods from suppliers to customers. Effective
logistics performance is key to a successful supply chain, ensuring that the right product
reaches the right place, at the right time, in the most cost-effective way.

Dimensions and achieving excellence

To achieve excellence in logistics and supply chain management performance,
organizations must focus on key dimensions and adopt best practices to enhance
efficiency, responsiveness, and competitiveness. Here are the key dimensions and how
to achieve excellence in each:

1. Cost Efficiency
Dimension: Minimizing operational costs while maintaining high service levels.
Achieving Excellence:

● Optimize transportation routes and modes to reduce fuel consumption.

● Improve warehouse management to minimize storage costs and reduce waste.
● Leverage economies of scale in purchasing and production.
● Use data analytics for cost control and identifying cost-saving opportunities.

2. Speed and Responsiveness

Dimension: Ability to deliver goods quickly and respond to market demand fluctuations.
Achieving Excellence:

● Implement just-in-time (JIT) systems to reduce lead times and stock levels.
● Use real-time tracking and monitoring technologies to improve delivery accuracy
and reduce delays.
● Strengthen supplier relationships to ensure fast replenishment and flexible
production.
● Build agile logistics networks that can quickly adapt to disruptions.

3. Service Quality and Reliability

Dimension: Consistently meeting or exceeding customer expectations for delivery
accuracy, timeliness, and product availability.
Achieving Excellence:

● Improve order fulfillment processes to enhance accuracy and timeliness.

● Utilize advanced inventory management systems to maintain optimal stock levels
and prevent stockouts.
● Enhance communication with customers and partners to ensure clarity and
reliability in service.

4. Sustainability
Dimension: Incorporating environmentally friendly practices into logistics and supply
chain operations.
Achieving Excellence:

● Optimize transportation to reduce fuel consumption and carbon emissions.

● Invest in energy-efficient warehouses and use of recyclable packaging materials.
● Collaborate with suppliers and partners to promote sustainable practices
throughout the supply chain.
● Measure and report on sustainability metrics to ensure long-term environmental
impact reduction.

5. Innovation and Technology Integration

Dimension: Leveraging technology to streamline processes, improve decision-making,
and enhance overall logistics performance.
Achieving Excellence:

● Adopt automation in warehouses and transportation management to reduce

errors and increase speed.
● Use data analytics, artificial intelligence (AI), and machine learning for demand
forecasting and route optimization.
● Integrate cloud-based systems for end-to-end supply chain visibility and
collaboration.
● Embrace blockchain technology for secure and transparent transactions across
the supply chain.

Conclusion: Excellence in logistics and supply chain management performance is

achieved by focusing on cost efficiency, speed, service quality, sustainability, and
technology integration. Organizations that excel in these areas will not only reduce
costs and improve customer satisfaction but will also build a competitive, resilient, and
future-ready supply chain.

Supply Chain Measures:

● Benchmarking
● SCOR model
● Logistics score board
● Activity Based Costing
● Economic Value Added Analysis
● Balance Score card approach
● Lean thinking
● Six sigma

Bench marking

In logistics and supply chain management (LSCM), benchmarking involves comparing a

company’s logistics and supply chain processes with those of industry leaders or
competitors. This allows organizations to identify best practices, performance gaps, and
areas for improvement. Benchmarking in LSCM helps companies improve efficiency,
reduce costs, and enhance customer service by adopting proven strategies and
technologies. The core of the current interpretation of benchmarking is:

● Measurement of own and the benchmarking partners' performance level, both for
comparison and for registering improvements.

● Comparison of performance levels, processes, practices, etc.

● Learning from the benchmarking partners to introduce improvements in their own

organization.

● Improvement is the ultimate objective of any benchmarking study.

Importance of Benchmarking:
The benchmarking provides the basis for logistics and supply chain improvement
efforts, organizational changes, mergers & acquisitions, competitive threats and cost
reduction initiatives. It also helps in developing new objectives, setting new performance
standards, metrics and redesigning processes and procedures.

Types of Benchmarking in Supply Chain:

The supply chain activities in an organization should be reviewed continuously to
identify the lags to be eliminated and the scope for any further improvement. A series of
benchmarking tests on supply chain operations will enable an organization to attain this
perfection. There are three types of benchmarking and each type of benchmarking
provides useful and valuable information to upscale the supply chain operations of the
business unit.

● Internal benchmarking - It focuses on the internal processes of a company.

● External benchmarking processes of the company. It examines the external

● Competitive benchmarking - It analyses the processes of competitors within the

same industry.

Process of Benchmarking

Many organizations have developed their own process. All approaches or processes
are fundamentally the same and are based on Deming's Plan-Do-Check-Act (PDCA)
cycle.

Step 1: Arrange what to benchmark

The benchmark focuses on the activities of the organization which will yield the
maximum profit. In logistics, there are too many areas and processes to benchmark,
hence, it needs to be focused on and selected properly for improvement.

Step 2: Make out comparable organizations

Selecting the right partner organization is also one of the important benchmarking
mechanisms. While selecting the companies the following information needs to be
considered:

Do we need to approach the competitors?

Do they have better activities and operations?

The number of benchmark partners required?

How to identify the various areas of interest of partner organizations?

Step 3: Data and information collection

The next step is to identify and understand the process of data and information
collection on the activities, processes, terminology and time period in the supply chain.
The improper process will lead to failure in both the analysis and comparison activities.

Hence, the forum needs to be established to discuss and resolve any queries that arise
during the process. Subsequently, the deadline for each stage of the data and
information needs to be set and monitored to avoid loss and lengthy process.

Step 4: Identify the performance gap

A thorough analysis is to be deployed after collecting the data to convert the raw data
into useful information. Any queries need to be addressed to the supplying organization
and resolved at the earliest. After analy zing the data, a comparison is to be made and
gaps are to be analyzed by concentrating on the key areas.

Step 5: Future performance levels

This step analyses the benchmark performance gap as a snapshot. This level looks into
cost, productivity and quality by comparing with the current gap. This will help the
organization to increase the rate of innovation and improvement within the organization.

Step 6: Communicate the finding and obtain acceptance

Step 7: Establish a functional goal

It is important that the success of any benchmarking needs to be shared through a

message. Plan and revised plans are to be regularly updated in the organization.

After reaching or identifying detailed functional goals, it can be established. But careful
consideration, organization atmosphere should be given to the adaptability of these
enablers to the organization.

Step 8:Expand an action plan

To achieve the desired objectives or goals, the action plan describes each of the key
actions at a functional level. It can be developed in a detailed manner based on desired
levels of the desired performance, behaviour and changes in the system of process to
grasp the organizational achievement.
Step 9: Implement and monitor

After implementing the benchmarking, the companies must keep monitoring their
operational performance, and assess whether competing organizations have initiated or
developed superior practices.

Step 10: Recalibrate benchmarks

It is important that, after successful implementation and regular monitoring, the

organization should have a continuous search for improvement. The search will result in
the expansion of the process or practices.

SCOR Model

The Supply Chain Operations Reference (SCOR) model is a widely used framework for
evaluating and improving supply chain performance. It focuses on five core processes:
Plan, Source, Make, Deliver, and Return.

1. Plan: Strategies for demand forecasting, capacity planning, and balancing resources
with requirements.

2. Source: Activities related to procurement of materials and supplier management.

3. Make: Manufacturing, assembling, or producing goods.

4. Deliver: Managing orders, transportation, and distribution to customers.

5. Return: Handling product returns and reverse logistics.

The SCOR model provides standardized metrics and benchmarks, enabling
organizations to identify inefficiencies, streamline processes, and improve overall
logistics and supply chain performance.

Logistics Scoreboard

The logistics scoreboard is a performance measurement system that evaluates logistics

operations using key performance indicators (KPIs). It focuses on areas like
transportation, warehousing, order fulfillment, and inventory management.
1. Key Metrics: Delivery reliability, transportation costs, order accuracy, and inventory
turnover.

2. Usage: Helps organizations monitor progress, identify problem areas, and implement
corrective actions.
For example, tracking on-time delivery rates helps improve customer satisfaction, while
analyzing cost per shipment enables cost reduction strategies.

Activity-Based Costing (ABC)

Activity-Based Costing is a method that assigns costs to products, services, or

customers based on their actual resource consumption. In logistics, ABC helps break
down costs into specific activities, such as:

1. Transportation Costs: Costs incurred for different modes of transport.

2. Warehouse Costs: Allocating costs based on space utilization or labor hours.

3. Order Processing Costs: Calculating costs per order based on processing time and
resources.
ABC provides a clear picture of cost drivers and helps organizations make informed
decisions to improve profitability and operational efficiency.

Economic Value Added (EVA) Analysis

Economic Value Added is a financial performance metric that measures the value a
business generates over its cost of capital. In logistics and supply chain management,
EVA helps assess:

1. Investment Efficiency: Whether investments in logistics infrastructure, like

warehouses or transport fleets, are yielding positive returns.

2. Operational Efficiency: Whether logistics costs are minimized without compromising

service quality.
For instance, improving route optimization in transportation reduces costs, enhancing
EVA by increasing net operating profit.

Balanced Scorecard Approach

The balanced scorecard evaluates organizational performance from four perspectives:
Financial, Customer, Internal Processes, and Learning & Growth.

1. Financial Perspective: Metrics such as logistics cost reduction and return on

investment.

2. Customer Perspective: Measuring customer satisfaction through delivery accuracy

and service quality.

3. Internal Process Perspective: Tracking process efficiency, such as order cycle time
and inventory turnover.

4. Learning & Growth Perspective: Focusing on employee development, technological

advancements, and innovation in logistics operations.
The balanced scorecard ensures that logistics and supply chain goals align with broader
organizational objectives, providing a holistic view of performance.

Lean thinking

Lean thinking is a philosophy and methodology focused on creating maximum value for
customers while minimizing waste.

Lean management in supply chain management (SCM) involves applying lean

principles to streamline operations, reduce waste, and deliver more value to the
customer. Lean focuses on creating efficient processes across the supply chain by
removing non-value-adding activities (e.g., excess inventory, waiting times,
overproduction). The goal is to improve efficiency, quality, and flexibility, leading to lower
costs and faster delivery times.

Principles of Lean thinking:

The following are the five principles of lean logistics:

 ● Specific value: The customer value is identified and included in the entire supply
chain network.

● Mapping out value stream: Mapping the stream gives a clear picture of the
supply chain network in order to eliminate the processes that do not contribute to
the product. It also identifies the gaps in the processes. Eg. We get a clear
picture of where the delays and excessive inventory. It identifies and makes us
understand the importance of the value of a product from the customer's
perspective.

● Creating a product flow: Usage of specific value and mapping out value creates a
tight sequence. Hence, the product flows smoothly without interruption to the
customer on time.

● Establishing customer pull: Pullis a process to minimize a one-hand inventory

(just-in-time) by working directly on the requirement of customer demand in
production or service. It operates just in time in delivering goods instead of
accumulating the goods or stock. For the success of this system, it requires
demand information from the customers throughout the supply chain.

● Perfection: Continuously improve processes to strive for perfection by eliminating

waste.

six sigma approach in Supply Chain

Six Sigma is a data-driven methodology aimed at improving processes by reducing

defects and variability.

Six Sigma in supply chain management applies the principles of process improvement
to enhance the efficiency, quality, and reliability of supply chain processes. By
identifying and reducing waste, variability, and defects in various supply chain
stages—such as procurement, production, inventory management, and distribution—Six
Sigma helps organizations lower costs, improve customer satisfaction, and streamline
operations. The methodology ensures that processes run smoothly and consistently,
reducing delays, errors, and inefficiencies that can impact the entire supply chain.

Application of Six Sigma Approach in Supply Chain Management:

The Six Sigma approach can be applied at various stages of the supply chain to
optimize performance:
1. Supplier Quality Improvement: Six Sigma helps to reduce defects in the raw materials
or components supplied, ensuring high-quality inputs for production. By working with
suppliers using Six Sigma principles, companies can reduce variability in incoming
products and prevent downstream issues.

2. Inventory Management: It can be used to improve inventory accuracy and reduce

excess stock, which leads to better demand forecasting and just-in-time delivery. This
minimizes holding costs and avoids stockouts or overstocking situations.

3. Production Efficiency: In manufacturing, Six Sigma eliminates bottlenecks, reduces

production waste, and optimizes processes, resulting in higher output quality and fewer
product defects. This ensures that products are made correctly the first time, reducing
rework and delays.

4. Logistics and Distribution: Six Sigma can streamline the distribution process by
identifying inefficiencies in transportation and warehousing. It can optimize routes,
improve on-time delivery rates, and minimize transportation costs.

5. Customer Satisfaction: By improving process reliability and product quality, Six Sigma
increases customer satisfaction. Consistently meeting customer demands on time and
providing high-quality products strengthens customer loyalty and can provide a
competitive advantage.

6. Cost Reduction: By minimizing defects, reducing waste, and improving process

efficiency, Six Sigma can significantly lower operational costs throughout the supply
chain, leading to better financial performance for the company.

7. Data-Driven Decision Making: Six Sigma emphasizes the use of statistical tools and
data analysis, which helps in making informed decisions about process improvements,
resource allocation, and risk management within the supply chain.

Financial Advantages (Efficiency Related Advantages)

● Reduction in total inventory level.

● Lower inventory carrying cost

● Notable reduction in the obsolescence of inventory

● Less dependence on third- party storage

 ● Considerable savings in administrative operations like procurement, production,
labour, process cycle time and order management

● Reduction in quality issue costs

● Enhanced SCM operations

Service Level Advantages (Effectiveness Related Advantages)

● Timely delivery of products

● Accurate order fulfilment

● No wrong order

● dispatches

● Delivery of damaged and defect-free products

● Achievement of Higher customer service metrics like reduced order cycle time,
order fill rate, etc.

● Very few stocks out situations

● Attaining significant effectiveness in SCM operations

2m
What does Supply Chain Performance mean?
What do you understand by Economic Value Added Analysis?
Define Activity Based Costing.
What is Benchmarking?
What is the Six Sigma concept?
State any two measures of Supply Chain Performance.

5m
Mention the elements of Activity Based Costing.
State the advantages of Economic Value Added Analysis.
How does six sigma approaches improve Supply Chain?

10m
Examine the application of Six Sigma in Supply Chain Management.
Elaborate the various measures of Supply Chain Performance.
Elaborate the key steps involved in Supply Chain Benchmarking