RFID Metrics for Closed Loop RFID Systems
By user742203 on Jul 04, 2008
When measuring the efficiency of a supply chain, there is no better indicator of fulfillment man holes and planning stop signs than that holy grail of metrics - "The Perfect Order". It is an elusive goal to most and is subjected to various influencers like the "perfect" matching of supply to demand as close to the pickup time as possible, maintaining as real a visibility picture of the various echelons of supply etc.
So, where are we now? Of course there are acceptable levels of perfection, especially in a discipline as fraught with uncertainties as operations. Even so, recent studies conducted reveal an interesting and optimistically challenging set of facts. On an average companies only managed 52% perfect fulfillment of their customer orders (see table below)
Imperfect Tendencies - Missing the Mark
What is a Perfect Order?
On Time - delivered to the requested or promised date and time
Complete - no partials over a period of time
Damage Free - unless it is refurbished, based on contract
Correct Invoice - usually has implications on finance integrating with Sales & operations
Research shows we are missing the mark
84% -WERC/DC Velocity: This is a percentile of all the above contributors.
80% -AMR study: From a different analyst
23% -Retail Compliance Council
Source: WERC 2006
What is more startling about the table above is the % of Perfect vendors within Sample = 9.5%, if that is the long tail, then where would the average vendor fall, obviously 52%.
Of course there are different disciplines contributing to making the order perfect, accurate forecasting, optimal planning to those forecasts and of course execution systems that can fulfill demand, match supplies and coordinate tasks. Of course, some of the inefficiencies are just poor business processes and outdated practices or software.
Now we have a new implement to achieving this Perfect Order - RFID, we will go ahead to explore how to identify processes for adoption, measure pilots and prove or disprove benefits. By reading between the lines you will be able to see that this approach is a short term budget qualifier and a long term continuous improvement methodology.
RFID would in essence make the job of locating, tracking those elusive supplies much easier and by transference make the matching process more efficient and streamlined. Before we go into how that can be done, we need to understand what a perfect order is. There is a perfect order to a customer and a seller, operationally of course to a seller, this means the least cost - inventory acquisition and holding, labor and space, order processing and so on, we ignore pricing and other non supply chain factors for perfection outside for now. To a customer, perfect order in our world is measured by correct item shipped, in time, without any damages.
Figure 1a: Measurement Metrics and suggested RFID solutions
Figure 1b: Measurement Metrics and suggested RFID solutions
Figure 1c: Measurement Metrics and suggested RFID solutions
Metrics for Comparison - Level 2 and 3 Metrics
From the benchmarks it is clear that the two major contributors to an imperfect order are "% on-time delivery" and "% complete". With sample averages for "% on time delivery" at 51.7% and "% complete" 47.7%, there is significant opportunity for improvement. It is, necessary for us to drill down to level 2 and 3 processes to be able to identify what can be improved and more importantly, what can be tracked for improvement. As industry standards for metrics gain wider adoption, companies can benchmark against industry specific best-practices, this also enables companies the opportunity to implement continuous improvement using similar scales.
Adopting Cycle Time metrics for Intra Facility Activities
While the above metrics and the facilitating RFID capabilities that benefit companies are useful, it is leveraging RFID and associated transactions and processes at the most granular levels that interest this professional. To actually adopt and measure for the purposes of continuous improvement, tracking and measured should be done at the task level.
Fig 2a: Fulfill and Deliver Cycle Time Metrics
Taking Intra-Facility operations as an example, we can again leverage and derive SCOR standards to track, measure and benchmark activities. Since Cycle Time KPI's at are the most granular level, these are the best indicators of actual efficiency improvements. This approach can be adopted during pilots to quantify possible benefits if approval is required for actual adoption.
Of course the schematic above is only a partial representation of what can be measured and what needs to be tracked. In conclusion: in order to improve order fulfillment, companies must go down to this level (II, III and lower) to track down potential improvements with regard to labor efficiency, inventory accuracy and tactical optimization.