APQC - blueprint logistics

Blueprint for Success: Logistics
SPECIAL ACKNOWLEDGEMENTS
APQC wishes to acknowledge the Open Standards Benchmarking CollaborativeSM
Advisory Council and its members for their ongoing contribution to APQC
research efforts and success. We offer a special thanks to IBM Global Business
Services for generously providing thought leadership in supply chain management
and other areas.
There would not be Open Standards Benchmarking data and benchmarks if not for
the hundreds of organizations that contribute their data, benchmark to achieve
world-class performance, and believe open standards will help them get there faster.
APQC would also like to thank Supply Chain Visions and CSCMP for their input
and updates for the second edition of this book.
WRITING TEAM
First edition written by Cheryl Harrity, Lisa Higgins, and Kate Vitasek.
Second edition updated by Marisa Brown, Rob Spiegel, Joe Tillman, and Erin
Williams.
APQC
123 North Post Oak Lane, Third Floor
Houston, TX 77024
www.apqc.org
Copyright ©2011 by APQC
All rights reserved, including the right of reproduction in whole or in part in any
form.
Manufactured in the United States of America
ISBN 10: 1-60197-161-3
ISBN 13: 978-1-60197-161-6
Blueprint for Success: Logistics
Table of Contents
Logistics’ Strategic View
1
Process Classification FrameworkSM (PCF)
2
Key Performance Indicators
8
Benchmarks and Process Performance Drivers
12
Case Studies
25
Arrow Electronics, Inc.
25
ATC Logistics & Electronics
28
Office Depot
31
Carolina Logistics Services
34
APPENDIX 1
PCF Section 4.0 Deliver Products and Services
37
APPENDIX 2
Supply Chain Planning Key Performance Indicators (PCF 4.1)
41
Procurement Key Performance Indicators (PCF 4.2)
42
Manufacturing Key Performance Indicators PCF (4.3)
43
Logistics Key Performance Indicators (PCF 4.5)
43
Product Development Key Performance Indicators (PCF 2.0)
44
APPENDIX 3
Glossary of Terms
ENDNOTES
45
49
Blueprint for Success: Logistics
List of Figures
Figure 1: APQC Process Classification Framework (PCF) Overview
3
Figure 2: PCF 4.5 Manage Logistics and Warehousing
4
Figure 3: Time and Resource Allocation by Logistics Process
5
Figure 4: Percentage of Orders Shipped on Time and Complete
13
Figure 5: Customer Order Cycle Time
14
Figure 6: Total Cost of Logistics per $1,000 Revenue
15
Figure 7: Logistics Cost Breakdown
16
Figure 8: Total Cost of Logistics per Sales Order Shipped
17
Please note that the source for all data included in Figure 3 through Figure 8 is
APQC’s Open Standards Benchmarking in logistics (www.apqc.org/log).
Blueprint for Success: Logistics
Logistic’s Strategic View
In the past, many organizations have viewed logistics activities mainly in terms of
warehousing and transportation. Today’s executives are taking a much broader view,
examining the logistics function as a strategic opportunity for process improvement,
cost savings, and customer satisfaction. APQC’s latest benchmarking results
illustrate the substantial effect top performance in logistics activities can have on
these areas. This raises the questions of what can be learned from high-performing
organizations to realize dramatic improvements in logistics and whether differences
are due to industry-specific parameters or to the benefits of assimilating practices
regardless of industry.
Traditionally, organizations have focused on back-office infrastructure for
efficiencies in process, productivity, and cost. Now, organizations are beginning to
view supply chain processes such as logistics as the keys to competitive advantage,
realizing that logistics functions and supporting processes can profoundly impact an
organization’s bottom line.
Many organizations are implementing systems for measuring their logistics
operations that allow them to identify, quantify, and target their improvements.
While focusing on measurement and benchmarking performance is good, many
organizations still fail to understand a fundamental point: Improvement in
performance measurement is driven in large part by implementing improved
processes. As such, this document goes beyond the information in most
benchmarking reports to provide insights into the actual best-practice process
enablers that are driving the results, in essence outlining a blueprint for success that
organizations can follow to help set them ahead of the pack.
APQC’s Blueprint for Success series provides a road map for achieving best-practice
performance in logistics. Included, you will find a framework for logistics activities
and how they relate to the enterprise; key measures for executive, managerial, and
operational views of performance; the latest benchmarks for performance; and indepth case studies demonstrating how leading organizations have achieved their
performance levels.
©2011 APQC. ALL RIGHTS RESERVED.
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Blueprint for Success: Logistics
Process Classification FrameworkSM
(PCF)
Too often, organizations view the implementation of performance metrics as a cure
for all their problems. Months or years later, many of these same organizations are
frustrated to find that, after expending time and money to collect data and track
performance, the end result is lacking the expected cost savings or performance
improvement. In order to understand the results, one must first understand the
process and its relationship to the enterprise. To assist organizations in
understanding process-based thinking, APQC first developed its Process
Classification Framework (PCF) in 1992. Today, version 5.2.0 of the PCF is one of
the most widely adopted tools APQC offers and provides a framework for many
organizations to develop process-based thinking and management.
The PCF represents a series of interrelated processes that are socio-technical in
nature, business-critical, and represent the major dimensions of an enterprise. The
PCF enables organizations to understand their inner workings from a horizontal,
process viewpoint, beginning with an overarching view of the enterprise. The PCF
then delves into a taxonomy of categories, process groups, processes, and activities.
Figure 1 outlines the entire PCF, beginning with Section 1.0 Develop Vision and
Strategy and ending with Section 12.0 Manage Knowledge, Improvement, and
Change. This document focuses on Section 4.0 Deliver Products and Services and
will specifically address Section 4.5 Logistics. An outline of the entire 4.0 section is
included as Appendix 1.
©2011 APQC. ALL RIGHTS RESERVED.
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Blueprint for Success: Logistics
APQC Process Classification Framework (PCF) Overview
Figure 1
In many organizations, logistics is often oversimplified to include only
transportation; however, logistics involves many activities that span several
departments, functions, and budget areas. It is important to remember that to
improve logistics performance overall, all areas must be treated with equal
consideration. (See Figure 2 to understand the complete activities involved in a
traditional logistics process.)
©2011 APQC. ALL RIGHTS RESERVED.
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Blueprint for Success: Logistics
PCF 4.5 Manage Logistics and Warehousing
4.5.1 Define logistics strategy (10338)
4.5.1.1 Translate customer service requirements into logistics requirements (10343)
4.5.1.2 Design logistics network (10344)
4.5.1.3 Communicate outsourcing needs (10345)
4.5.1.4 Develop and maintain delivery service policy (10346)
4.5.1.5 Optimize transportation schedules and costs (10347)
4.5.1.6 Define key performance measures (10348)
4.5.2 Plan and manage inbound material flow (10339)
4.5.2.1 Plan inbound material receipts (10349)
4.5.2.2 Manage inbound material flow (10350)
4.5.2.3 Monitor inbound delivery performance (10351)
4.5.2.4 Manage flow of returned products (10352)
4.5.3 Operate warehousing (10340)
4.5.3.1 Track inventory deployment (10353)
4.5.3.2 Receive, inspect, and store inbound deliveries (10354)
4.5.3.3 Track product availability (10355)
4.5.3.4 Pick, pack, and ship product for delivery (10356)
4.5.3.5 Track inventory accuracy (10357)
4.5.3.6 Track third-party logistics storage and shipping performance (10358)
4.5.3.7 Manage physical finished goods inventory (10359)
4.5.4 Operate outbound transportation (10341)
4.5.4.1 Plan, transport, and deliver outbound product (10360)
4.5.4.2 Track carrier delivery performance (10361)
4.5.4.3 Manage transportation fleet (10362)
4.5.4.4 Process and audit carrier invoices and documents (10363)
4.5.5 Manage returns; manage reverse logistics (10342)
4.5.5.1 Authorize and process returns (10364)
4.5.5.2 Perform reverse logistics (10365)
4.5.5.3 Perform salvage activities (10366)
4.5.5.4 Manage and process warranty claims (10367)
4.5.5.5 Manage repair/refurbishment and return to customer/stock (14195)
Figure 2
©2011 APQC. ALL RIGHTS RESERVED.
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Blueprint for Success: Logistics
So how are organizational resources spending time today? APQC’s most recent
research indicates that 59 percent of organizations’ logistics resources are consumed
by warehouse operations, 19 percent by outbound transportation, and the remaining
22 percent by defining strategies and planning inbound material flow (Figure 3). The
following sections outline each of the major activity areas.
Time and Resource Allocation by Logistics Process
10%
19%
12%
59%
Define Logistics Strategy
Plan Inbound Material Flow
Operate Warehousing
Operate Outbound Transportation
N = 118
Figure 3
4.5.1 DEFINE LOGISTICS STRATEGY
Defining logistics strategy is at the heart of any logistics organization and should be
the focal point for developing logistics operations. In order for a logistics
department to function as a best-in-class organization, communication is the key to
bringing these groups together, building a shared vision, and recognizing
improvements.1 Defining logistics strategy is the process during which logistics
networks are designed, key performance indicators are defined, and outsourcing
needs are communicated to the procurement department. This is also when a
decision must be made regarding automation and technology implementation.
APQC research shows that only 10 percent of logistics-related resources are
allocated to this function. Unfortunately, in many organizations, executives don’t
understand the logistics functions as well as they should and don’t know enough
about the logistics processes to understand what drives the costs and overall
performance.2 It is important that today’s professional logistician perform the key
practices associated with developing a solid logistics strategy. Once an organization’s
logistics strategy is defined, it becomes critical to clearly communicate the logistics
©2011 APQC. ALL RIGHTS RESERVED.
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Blueprint for Success: Logistics
strategy and to be able to collect and compile the data necessary to ensure good
performance metrics.
4.5.2 PLAN INBOUND MATERIAL FLOW
Inbound material flow processes focus mainly on the receipt of material coming
into the organization and returned product. Included in this process are activities
such as planning inbound material receipts, managing inbound material flow,
monitoring inbound delivery performance, and managing the flow of returned
products. According to APQC research, only about 12 percent of FTEs within a
logistics support organization are involved in this process.
The process typically requires coordination and communication with the
procurement department and collaboration with external suppliers to ensure
acceptable on-time delivery performance and quality of the product being received.
4.5.3 OPERATE WAREHOUSING
The most resource-intensive logistics process is warehouse operations. As such, it is
not surprising that this process consumes an average of 59 percent of an
organization’s FTEs. This process includes receiving, inspecting, and storing
inbound deliveries; tracking product availability; picking, packing, and shipping
products; tracking inventory accuracy; and tracking third-party logistics storage and
shipping performance. This process is the most involved and usually has the greatest
opportunity for process improvement.
4.5.4 OPERATE OUTBOUND TRANSPORTATION
The outbound transportation function encompasses activities such as transportation
and delivery of product, delivery performance, fleet management and maintenance,
and freight payment processing. Organizations in APQC research allocate 19
percent of their logistics resources to the area of outbound transportation
management.
In today’s world, customer requirements for shipping are becoming more
customized and complex, especially in the high-tech and retail sectors. As such,
many organizations are finding it more and more challenging to meet customer
requirements for the physical delivery of their products. Case in point is the
complexity of sorting through what it means to be on time. A recent Warehouse
Education and Research Council study found that a lack of agreed-upon standards
for defining on-time delivery is challenging for shippers, with on-time delivery
definitions ranging from on the agreed-upon day (17.9 percent), on the requested
day (26.3 percent), or—most stringent—at an appointment time (22.7 percent). Still
others define on time even more vaguely.3
With many choices of carriers in the market today and the emergence of
organizations specializing in freight payment, outbound transportation is often a
©2011 APQC. ALL RIGHTS RESERVED.
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Blueprint for Success: Logistics
function that many best-in-class organizations prefer to outsource to organizations
that excel at transportation management.
4.5.5 MANAGE RETURNS/MANAGE REVERSE LOGISTICS
Reverse logistics is an area that is mostly ignored because it is not a revenue
generating function. However, with Internet and catalog sales exploding, there are
more than 100 million packages a year that are being returned by consumers. The
total estimated cost of these returns is $100 billion, and these numbers are growing
each year. As more consumers utilize television, catalogs, and the Internet to make
purchases, reverse logistics will continue to be an area that can be a lost opportunity
to improve margins if it continues to be ignored.4
Even in the best organization, there are sometimes customers that either do not get
what they ordered or receive a product that is defective. It is imperative to customer
satisfaction that a clear process is in place to either replace the product or credit the
customer for the return. Included in the returns process are the activities of
authorizing and processing returns, performing reverse logistics and salvage
activities, and managing and processing warranty claims.
©2011 APQC. ALL RIGHTS RESERVED.
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Blueprint for Success: Logistics
Key Performance Indicators
How does an organization go about analyzing and improving logistics functions?
The process begins by determining which key performance indicators (KPIs) are the
most important to its business model, analyzing the relationship between
performance indicators, tracking performance in the specific KPIs, and using the
data to help drive process improvements where needed. The following section
discusses some of the top KPIs being used in organizations today. It also looks at
best practices from organizations that have already begun measuring these KPIs.
Key performance indicators should be at the heart of every logistics function.
Without the ability to measure, improvement is—at best—very difficult, if not
nearly impossible. KPIs can be difficult to measure if one is trying to compare
apples to oranges, and can often end up becoming subjective and confusing instead
of objective and quantifiable. That is why APQC, with the assistance of a crossindustry advisory council, created Open Standards BenchmarkingSM for process
frameworks, measures, and benchmarks.
The Open Standards Benchmarking database was created to help organizations
compare their practices to those of other organizations, regardless of industry, and
currently provides executive, management, and operating measures along with
corresponding benchmarks for more than 60 functions and 250 processes that span
the enterprise. This tool helps organizations ensure that metrics and measurements
are being handled in a manner that will promote objective and quantifiable results.
Moving far beyond the numbers, the Open Standards repository also identifies
enabling factors driving high performance across a wide range of industries. These
factors include business models, technological enablement, process characteristics,
and management practices.
There are literally hundreds of possible metrics that organizations can use to
measure their performance. No matter what is being measured, it is important to
measure not only internal performance, but also performance of suppliers. Talk to
any organization that has a world-class logistics department, and they will all agree
that cost is only part of the price paid for logistics services. Beyond these key
indicators, APQC also provides a balanced and meaningful set of measures that
have been widely adopted for operational aspects of logistics. (See Appendix 2.)
APQC recognizes the following as essential performance indicators that
organizations should use in assessing logistics effectiveness and efficiency.
 On-time and complete delivery
 Total cost of logistics per sales
 Order accuracy
order shipped
 Order cycle time
 Perfect order index
 Warehouse cost as a percentage
of revenue
©2011 APQC. ALL RIGHTS RESERVED.
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Blueprint for Success: Logistics
Each KPI is described in the next section with definitions and calculations for
tracking.
ON-TIME AND COMPLETE DELIVERY
Traditionally, organizations have focused on two key operating metrics—on-time
shipments and line or unit fill rate. While these measures are good, APQC believes
they are too internally focused and instead encourages organizations to focus on ontime and complete delivery.
This measure is the number of orders delivered on time and complete per the
customer-requested arrival date. This is a measure that sometimes causes
controversy; many organizations calculate delivery based on when a product leaves
the facility (i.e., is shipped), not when it is actually received by the customer.
However, a true calculation of this measure will take into account the actual delivery
of the product to the customer.
Calculation:
Total orders on time and complete/Total orders shipped
Because this measure emphasizes delivery, it becomes very important to have an
integrated and tight connection with the outbound transportation functions. It also
becomes important to have a good method for tracking the performance of carriers
and good visibility into product availability to promise for delivery, since one cannot
ship what one does not have in stock.
ORDER ACCURACY
This indicator primarily measures the accuracy of the warehouse. The definition of
this measure is the percentage of orders that are picked, packed, and shipped
perfectly. In a nutshell, this measure examines whether the customer received
exactly what he or she ordered.
Calculation:
Orders shipped without errors/Total orders shipped
ORDER CYCLE TIME
The order cycle time metric can involve many departments and functions. It is
defined as the time from order placement to delivery of product. It may include
order entry, purchase of components and raw materials for production, time to
receive raw materials and convert to finished product, time to pull components and
manufacture product, time to pick finished goods and prepare for shipment, and
©2011 APQC. ALL RIGHTS RESERVED.
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Blueprint for Success: Logistics
transit time. The clock starts on this metric when a customer places an order and
stops when the final product is delivered to the customer.
Calculation:
Actual delivery date - Customer order date
WAREHOUSE COST AS A PERCENTAGE OF REVENUE
Warehouse cost as a percentage of revenue measures the total cost of warehouse
operations as a percentage of total organization sales. This is an indicator of logistics
profitability and includes both the fixed and variable costs of warehouse operations,
including but not limited to labor costs, rent for building space, equipment
depreciation, and cost of supplies.
Calculation:
Total warehouse cost / Total revenue
TOTAL COST OF LOGISTICS PER SALES O RDER SHIPPED
The total cost of logistics includes the four key logistics processes: define logistics
strategy, plan inbound material flow, operate warehousing, and operate outbound
transportation. Within each process, the following cost categories should be
included: personnel, systems, overhead, outsourced, freight (for Operate Outbound
Transportation), and other costs.
The cost per order measurement is composed of both fixed and variable costs. It is
calculated as the total logistics costs divided by the total number of orders shipped.
This measure takes into account things such as space rent, utilities, equipment
depreciation, labor costs, and cost of supplies. Logistics and operations
professionals have traditionally used unit rate metrics, such as cost per package, cost
per line, cost per pound, cost per order, and similar terms. While these measures
make sense at the operations level, they are not helpful for finance when looking at
the bottom line. As costs within the logistics department are reduced, gains must be
translated into such things as impact in cost of goods sold (COGS); sales, general,
and administrative (SG&A) costs; operating income; and net operating income
(NOI) in order for the chief financial officer to understand the numbers. This is
where static-free, inter-departmental communication is imperative. Best practices
can help meet any organization’s requirements for logistics cost performance, and
industry contacts can help identify the most appropriate practices to emulate.5
©2011 APQC. ALL RIGHTS RESERVED.
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Blueprint for Success: Logistics
Calculation:
Total Cost of Logistics/Total Orders Shipped
PERFECT ORDER INDEX
The perfect order measurement is much more boundary-spanning than other
traditional, functional metrics. The perfect order index refers to flawlessly taking and
fulfilling a customer order. It includes taking the order correctly, allocating inventory
immediately, delivering product on time, and sending an accurate invoice.
Perfect order performance is calculated by APQC as follows: (percentage of
complete orders) multiplied by (percentage of orders with on-time delivery)
multiplied by (percentage of orders damage free) multiplied by (percentage of orders
with accurate documentation) then multiplied by 100. Appropriate values are in the
range of 0 to 100, for example: 0.98 x 0.97 x 0.99 x 0.82 = 0.7716 * 100 = 77.16.
Calculation:
% of orders complete * % of orders delivered on time * % orders damage free *
% of orders with correct documentation
©2011 APQC. ALL RIGHTS RESERVED.
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Blueprint for Success: Logistics
Benchmarks and Process
Performance Drivers
Benchmarking, a widely embraced improvement methodology, is the systematic
process of searching for best practices, innovative ideas, and highly productive
operating methods that lead to preeminent performance. Benchmarking facilitates
the comparison of similar processes across organizations and industries in order to
measure operational performance, establish performance targets, and assess
operational progress.
APQC believes that to successfully improve productivity, quality, and sustainable
growth, an organization must first understand its current position and limitations in
terms of cost, productivity, and efficiency. Once this is understood, benchmarking
provides the ability to compare to others in such a way that results in understanding
successfully demonstrated practices, the factors that enable high performance, and
adaptation and deployment of results in rapid improvement. APQC houses and
maintains the Open Standards Benchmarking as a result of this belief.
In a climate of rapid global innovation, methodically studying the metrics, practices,
and strategies of top organizations can expedite the average organization’s progress
and improvement. Organizations that use benchmarking effectively discover ways to
reduce costs as well as increase efficiency, profit, and performance. In the process,
they learn how to make better-informed decisions and manage change more
effectively.
APQC can provide a detailed assessment of your organization’s performance
compared to APQC’s robust Open Standards database: www.apqc.org/osb.
BENCHMARKS FOR PERFORMANCE
The following are key benchmarks for performance in logistics.






On-time and complete delivery
Order accuracy
Order cycle time
Logistics cost as a percentage of sales
Total cost of logistics per sales order shipped
Perfect order index
On-Time and Complete Delivery
When examined across a set of indicators, APQC’s benchmarking data shows that
top performers have a much higher percentage of orders shipped on time and
complete than organizations in the bottom quartile. In fact, top performers deliver
close to 10 percent more complete orders on time. Figure 4 shows top performers
©2011 APQC. ALL RIGHTS RESERVED.
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Blueprint for Success: Logistics
with 98.0 percent of orders shipped on time and complete versus only 88.8 percent
for lower-performing organizations.
Percentage of Orders Shipped on Time and Complete
98.0%
100%
95.0%
88.8%
80%
60%
40%
20%
0%
Top Performer
Median
Bottom Performer
N = 179
Figure 4
One contributing factor separating the top performers from the rest of the pack is
the use of warehouse management systems (WMS), which increase the order fill
rate. The mean performance in order line fill rate is 94.6 percent for organizations
that have adopted WMS versus only 89.4 percent for organizations that have not
adopted WMS.
Order Accuracy
Order accuracy is a metric that is directly tied to customer satisfaction levels. If
customers do not receive the correct product, they are likely to become dissatisfied
and do business elsewhere.
Inventory accuracy is very important because organizations cannot fill an order for
something that they do not have.
According to APQC’s benchmarking study, Order Management: a Core Competency,
including Johnson & Johnson Health Care Products, Higbee Inc., Lever Brother
Inc., and Rhone-Poulenc Rorer, 100 percent of the study’s best-practice
organizations operate on centralized systems and use common data files. This aids
in expediting orders and improving order accuracy.
©2011 APQC. ALL RIGHTS RESERVED.
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Blueprint for Success: Logistics
Order Cycle Time
Order fulfillment cycle times (also known as lead times) are critical performance
indicators denoting an organization’s ability to fulfill orders quickly and meet
customer demand. The results of APQC’s research show a nearly 15-day (14.9)
difference between top and bottom performers and a nearly 11-day (10.9) difference
between median performers and bottom performers (Figure 5).
Customer Order Cycle Time (in days)
20
17.9
15
10
5
7.0
3.0
0
Top Performer
Median
Bottom Performer
N = 338
Figure 5
One of the enablers of success within high-performing organizations in order cycle
time is their ability to develop and deploy their own practices to compensate for
unreliable supplier deliveries. High performers experience the same rate of supplier
on-time delivery as low performers: a median of 90 percent as compared across
industries. However, high performers put processes in place that are designed to
compensate for late supplier deliveries and are able to fill orders at higher levels.
The following section will look at the process drivers that allow top performers to
perform at high levels despite similar on-time delivery rates for top and bottom
performers.
Logistics Cost as a Percentage of Sales
Cost measures are the most traditional measures used to evaluate process
performance, but they must be balanced with measures that target customer service
levels. Figure 6 contains the results of APQC’s research in total logistics cost per
$1,000 revenue.
©2011 APQC. ALL RIGHTS RESERVED.
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Blueprint for Success: Logistics
Total Cost of Logistics per $1,000 Revenue
$70
$63.64
$60
$50
$38.95
$40
$30
$20
$20.60
$10
$0
Top Performer
Median
Bottom Performer
N = 50
Figure 6
Many organizations are using this measurement as a way to justify the addition of or
upgrades for technology. Cost reduction was one reason unanimously cited by Open
Standards Benchmarking participants as the main reason to upgrade or implement
technology. APQC research shows that using systems such as advanced planning
and scheduling (APS) software can help an organization work more efficiently.
Organizations with APS in place need fewer FTEs for both planning inbound
material flow and operating warehousing because the software helps the
organization better manage making decisions in the face of multiple constraints.
Similarly, warehouse management solutions enable organizations to manage
inventory in real time with visibility into current inventory locations and levels.
APQC’s research shows that this visibility enables organizations to streamline the
processes related to shipping and delivery.
So what are the cost drivers? Figure 7 illustrates that after freight, personnel and
overhead costs continue to be the largest costs within logistics, with 35 percent of
costs spent on people and overhead. These personnel are mainly supporting
distribution operations, transportation, and warehousing.
©2011 APQC. ALL RIGHTS RESERVED.
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Blueprint for Success: Logistics
Logistics Cost Breakdown
Personnel Cost,
21%
Systems Cost,
3%
Freight Cost,
51%
Overhead Cost,
14%
Other Cost, 2%
Outsourced
Cost, 9%
N = 50
Figure 7
Cost per Order
When looking at the difference between top and bottom performers in the area of
cost, the differences are dramatic. APQC research shows that top performers have a
cost per order that is more than $878 less per order than those organizations
performing in the bottom quartile. As Figure 8 shows, top performers have a total
cost per order of only $86.75, as opposed to $313.69 for the median performers.
The spread is much more dramatic when looking at bottom performers; this group
has a staggering cost of $965.12 per order shipped.
©2011 APQC. ALL RIGHTS RESERVED.
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Blueprint for Success: Logistics
Total Cost of Logistics per Sales Order Shipped
$1,200
$965.12
$1,000
$800
$600
$400
$200
$313.69
$86.75
$0
Top Performer
Median
Bottom Performer
N = 44
Figure 8
Perfect Order Index
The perfect order index is a boundary-spanning measure that views achievement of
an organization’s success across the entire fulfillment process. The measure is a
compilation of organizations’ performance in the areas of on-time delivery,
completeness, damage, and correct documentation/invoicing.
According to research, it isn’t uncommon to see this number within the 50 percent
to 60 percent range when it is first measured.6 The Warehouse Education Research
Council found that the average perfect order performance is between 84 percent
and 87 percent.7 What this means is that between 13 percent and 16 percent of all
orders being shipped have some form of failure. This may be an eye-opener for
many organizations, especially those that use functional metrics such as on-time
shipments and line/unit fill rate as a proxy for customer satisfaction.
©2011 APQC. ALL RIGHTS RESERVED.
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Blueprint for Success: Logistics
PERFORMANCE DRIVERS
So just how do top performers manage to perform so well? What are they doing
differently? APQC’s research reveals there are 11 key drivers to high performance.
Each of these drivers is explored next in detail to help shed light on what highperforming organizations are doing differently and how this can be used to drive
performance improvements. APQC looks at what drives performance in four
discrete categories:
1. people,
2. process,
3. technology, and
4. organization structure.
While technology certainly plays a crucial role in improvements, it is not the only
thing that makes a difference. Communication and collaboration should also be key
areas of focus when driving change within a logistics organization.
People Performance Drivers
Use Collaboration When Dealing with Suppliers, Customers, and Employees
Supplier performance is an important element in meeting order fulfillment cycle
time goals with minimal levels of inventory. An organization’s relationship and
collaborative practices with its suppliers can be a key to ensuring best-in-class supply
chain responsiveness.
One organization that uses collaboration to improve processes, both with suppliers
and employees, is ModusLink. ModusLink realized that its global customers
expected a consistent level of quality from its manufacturing and distribution
operations regardless of location; that is, global customers wanted consistent quality
standards. ModusLink believed that having globally consistent quality processes and
measurements across its facilities would be a key competitive advantage and benefit
for clients. Both the processes for completing the work as well as the outcomes
should be consistent, transparent, and standard.
As such, ModusLink began to build in a framework and systemic method to
leverage knowledge and create stability through global process standardization. In
order to achieve this, the organization knew it had to fully understand its global,
regional, and local processes. These processes had to be benchmarked internally,
with competitors, and with world-class firms. ModusLink standardized process
terminology definitions, which allowed it to constructively analyze and prioritize the
plethora of tasks in a way that could be mutually understood and prioritized.
Results of this effort were identified in several areas. First, a greater understanding
of how benefits were delivered to the customer was identified. This led to overall
corporate savings by reducing waste and redundancy. In addition, ModusLink was
able to reduce inventory levels while increasing customer service levels. For
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Blueprint for Success: Logistics
instance, one project—a supply chain conditioning and execution project—was
recognized by the Supply Chain Council with a Supply Chain Award of Excellence
for realizing a 64 percent reduction in working capital, a 35 percent reduction in
inventory costs, and a 61 percent reduction in order turnaround time.8
Develop and Maintain Good Relationships with Outsource Partners
Organizations that develop and optimize relationships with their outsource partners,
treating them as long-term partnerships rather than just organizations that provide
individual services, experience a more efficient and cost-effective level of service.9
One best-in-class organization that understands the value of maintaining good
relationships with outsource providers is Jaguar. Jaguar maintains its leading
position and quality brand image with excellence in aftermarket and service support,
something the Jaguar team delivers through a long-standing partnership with
Unipart Logistics. The two companies have worked together for more than 20 years.
Unipart Logistics delivers global logistics services to more than 700 Jaguar dealers
by investing in the creation and implementation of unique processes and products
to maintain continuous improvement to its service for Jaguar. It supports the car
maker’s expansion into emerging markets, such as China and Russia, by project
managing the delivery of new warehouse facilities. After the facility has “gone live,”
Unipart continues to deliver ongoing aftermarket parts logistics and business
services support. Unipart Logistics is fully vested in Jaguar’s business, from a new
model’s development through to its launch, and the support continues throughout
the car’s lifespan.10
Process Performance Drivers
Use Demand Planning Techniques to Aid in Inbound Material Planning and
Management
As organizations continue to explore ways to improve the quality of delivery to
customers and to reduce the costs of providing high levels of responsiveness, it is
clear that the what, where, and when of logistics assume even higher levels of
importance.
Today’s customer, from the retail or business consumer to the distributor to the
original equipment manufacturer (OEM) all the way back through the supply chain
to the component suppliers, insists on the availability of the desired product at the
desired place and time. The only way to ensure this requirement is met is by
properly anticipating and planning for demand. The common practice of forecasting
requirements based on historical usages, with a limited vision into the ultimate endconsumer demand, creates multiple opportunities for problems due to mismatched
supply and demand.
One organization that is using demand planning techniques to drive improvements
is Foster Grant. Foster Grant was able to significantly improve its short- and
medium-term forecasting by simply reconfiguring its existing system to be more
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Blueprint for Success: Logistics
flexible and to provide a more accurate picture of customer demand. This new
system has become the basis upon which Foster Grant has built their entire supply
chain management strategy.
As a result, Foster Grant has seen month-to-month inventory levels decrease by 33
percent. Year-to-year peak inventory is down 46 percent, and order fill rates are up
to 98.9 percent from an average of 94 percent. It is also possible for the
organization to forecast consumer demand up to five months in advance with only
30 percent to 35 percent forecast error. This new system has also allowed Foster
Grant to close all overflow warehouses because warehousing space requirements are
down 40 percent as a direct result of better forecasting.11
Consolidate Inventory and Processes
In best-practice organizations, geographical requirements are considerations in
consolidation initiatives.12 One best-practice organization in the area of
consolidating inventory is Toyota Motor Company. Toyota Motor Company used
consolidation efforts to develop a new distribution network that has given it a partslogistics network that supports business growth and maximizes customer
satisfaction.
Toyota uses a two-tiered approach to providing after-sales support to 1,200 car
dealers, 200 Lexus dealers, and 100 forklift dealers throughout the United States.
The first tier is made up of two large distribution centers that feed parts to nine
smaller sites around the country. In addition, Toyota discovered that it could
improve customer satisfaction levels at the dealers and cut costs by opening a new
distribution center that handles only Lexus parts. This allowed Toyota to eliminate
the need for high-priced expedited transportation of parts to Lexus dealerships and
resulted in $2 million in savings for the organization. This new distribution facility
has already paid for itself not only in financial gains but in increased levels of
customer satisfaction by providing faster deliveries of parts at a lower cost.13
Another example of a best-in-class organization that has used consolidation of
inventory and processes is Delta Faucet Company. Delta was able to consolidate
orders by adding a centralized distribution center (CDC). The CDC allowed Delta
to send single shipments to customers at a lower cost rather than making multiple
shipments from several warehouse facilities at a much higher cost. According to
Delta, the organization has been able to respond in near-real time to changes in
demand while still maintaining a 100 percent on-time shipment rate.14
Use Lean Warehouse Processes Such as Cross Docking
More and more organizations are searching for ways to eliminate waste in their
logistics operations. One technique organizations are using is to apply Lean
principles to their warehouse and logistics operations. Lean techniques, most noted
for their success in improving manufacturing operations, are now becoming an
effective tool for improving efficiencies in logistics and supply chain areas.15
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Blueprint for Success: Logistics
One Lean technique organizations are using is cross docking. Cross docking is a
planned activity in which an inbound shipment has a planned outbound shipment
already scheduled. Using cross docking eliminates touches and cost associated with
putting inventory away and then pulling it again for scheduled production jobs.
When an item is received and electronically scanned, the system will look to the
open order file to find its outgoing order. The item is then moved from receiving
directly to the order staging area, order pick area, or an outbound vehicle. In some
cases, shippers will send an advance ship notice (ASN) via electronic data
interchange to alert the receiving facility that the material is coming. This allows the
receiving facility to more productively schedule order picking and outbound
deliveries.
Many types of cross docking exist, most based on the time it takes to move the
inventory through the facility. However, all are intended to either minimize or
eliminate the need to put incoming inventory into storage. Another goal is to
minimize the number of touches for each order. The key to accomplishing this is to
link the receiving activity with open order status.16 Cross docking is the ultimate
example of a touch-once philosophy in action.
“The idea of cross docking is simple,” said Chuck Waddle, the executive vice
president of FKI Logistex’s sales, warehouse, and distribution group. “You’re
receiving a product that’s already in demand. Rather than put it into storage and
then pull it back out later, it’s put immediately on a conveyor system and delivered
to the shipping station.”17
Some organizations use a cross-docking technique known as pool distribution. By
utilizing this technique, organizations are able to maintain cycle times, hold down
freight costs, use fewer distribution centers, and minimize the chance of damaging
products because the number of touch points are reduced along the way. Pool
distribution is sending a full truckload of product to a regional less-than-truckload
(LTL) carrier. The LTL carrier then breaks down the full truckload into individual
shipments and transfers the product directly to the outbound trucks for delivery to
the final destination.18
Implement Specific Practices That Focus on Inventory Accuracy
According to APQC research, the keys to inventory accuracy in high-performing
organizations include:
 regular and frequent inventory cycle counting,
 order receiving accuracy measures (i.e., count and receipt entry accuracy),
 storage and handling accuracy measures (location and movement record
accuracy),
 shipping accuracy measures (selection accuracy), and
 return receipt accuracy measures (count and disposition record accuracy).
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Blueprint for Success: Logistics
One of the easiest ways organizations can improve inventory accuracy is through a
good cycle counting program. Instead of doing one large, annual inventory count,
many organizations choose to count smaller numbers of items more often, even
daily. According to the APICS Dictionary, cycle counting is “an inventory accuracy
audit technique where inventory is counted on a cyclic schedule rather than once a
year. Tangible and intangible assets must be well documented and reported
accurately.”19 By counting small amounts of inventory on a daily or weekly basis, the
year-end manual inventory of all stock may be avoided. Additionally, by examining
where errors are made, a root cause may be found and corrected. Only by learning
from mistakes can organizations avoid future errors.
Technology Performance Drivers
Use Radio Frequency Bar-Coding, Automated Handling Systems, or RFID in the
Receiving, Warehousing, Picking, and Shipping Functions
According to the Council of Supply Chain Management Professionals (CSCMP),
best-practice organizations have fully automated information exchange (via Internet,
XML-based standards, or EDI) that is used in conjunction with bar code,
automated material handling, or RFID-compatible systems.20 The use of RFID
technology improves order accuracy and helps reduce order cycle times—especially
in terms of improving efficiencies in the receiving process. This, in turn, helps to
decrease labor costs, which positively impacts cost per order.
Giant Eagle is one organization that is successfully using automation to improve
performance. The organization has implemented the use of technology in the form
of robotic pallet trucks in its distribution facilities. A robotic pallet truck follows a
predetermined transportation grid system to its assigned location where it will
unload and return to the dock or another location for a pickup. The technology has
allowed the organization to increase work force productivity and reduces on-the-job
injuries. This has resulted in a documented time savings of one minute per pallet in
terms of daily putaway, and it has reduced human travel from 750 miles a day to 250
miles.21
Progressive organizations are turning to RFID as a method for asset management,
capturing data, improving inventory accuracy, and enhancing visibility of a product’s
flow through the supply chain. Recent reports are that the market for RFID
technology is expected to grow at a compounded annual growth rate of 19.5 percent
through 2014.22
A common deployment in the warehouse setting involves installing read portals at
each dock door. When product is unloaded from the trailer and onto the dock, the
systems reads the product, or captures data, at the pallet (case or item) level as it
passes through the portals. Several pilot studies with retailers, such as JCPenney’s,
found four common uses for item level RFID: locating product, signaling out of
stock occurrences, loss prevention, and inventory counting. Specifically, tagging
individual retail items has helped retailers in the pilots to improve inventory
accuracy from about 62 percent to more than 95 percent.23
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Blueprint for Success: Logistics
RFID technology is expected to have an enormous impact on the supply chain,
especially for warehouses. In addition, organizations that ship goods from overseas
or use contract manufacturers between the supplier and OEM will have the ability
to more closely track materials. Organizations will also benefit from the improved
data regarding consumption and lead-time of inventory.24
Implement a Warehouse Management System
When properly used, the WMS produces tangible results: It provides a way to
automate and fundamentally account for all of the various procedures in the
warehouse, from receiving to put-away to picking and shipping. The software
liberates the use of storage, permitting random storage throughout the facility to
maximize space and inventory instead of relying on pre-assigned storage locations.
The improved quality and accuracy of deliveries that ensues from using a WMS
results in reduced returns and back orders and improved customer satisfaction.
These execution systems accomplish all of this while providing a real-time snapshot
of the facility’s activities, resources, and inventory levels.
While the level of improvement varies from organization to organization, those
implementing WMS typically see improvements in service levels. APQC research
shows that the average order line fill rate is 95 percent for organizations that have
adopted a WMS versus only 89 percent for organizations that have not adopted a
WMS.
By introducing discipline and consistency into the process, the implementation of a
WMS can also improve performance of returns and reverse logistics by integrating
these processes into the overall business. Use of a WMS can also provide better and
timelier feedback about returns, which can then be directly tied back to the
consumer through order management.25
Moving from a traditional warehousing organization to a fulfillment organization
was a challenge for Dart Warehouse Corporation. In initiating this move, Dart had
to develop a sound and comprehensive method for managing customer returns. The
organization accomplished this successful transition with the help of a WMS. The
WMS was particularly valuable in helping Dart improve its returns process. At every
step, the returns process is controlled by the WMS. After a return is received, it is
sent via automated conveyor to a processing center equipped with a computer and
scanning table. The product bar code is scanned to bring up the original order and
an inspector determines the reason for the product return. This is logged as a reason
code within the WMS. Once this has been accomplished, the information is passed
electronically to the customer service department so that a replacement or credit can
be initiated. By implementing this automation and technology, Dart has been able to
reduce labor and has been better able to organize the processes associated with
returns.26
Use an RMA System for Returns to Increase Visibility and Level Workloads
By using a return material authorization (RMA) system for returns, organizations
can have better visibility into what is coming down the road. Obtaining information
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Blueprint for Success: Logistics
about a return before the product is received allows for more level loading of
workers and can help to reduce spikes in workload schedules.27
The use of both an RMA process and technology has helped Corporate Express
process returns much more effectively. Each of the organization’s 1,400 trucks that
make deliveries across the United States and Canada are equipped with a handheld
computer/bar code scanner. The driver can use this mobile computer to print a
return label, which is then adhered to the package. The label is generated by the
driver from information scanned off of the original package label. The driver then
takes the package from the customer and delivers it back to one of the
organization’s 38 distribution centers, where the return is processed.28
Organizational Structure Performance Drivers
Outsource All or Part of Logistics Services to Lower Warehousing and Labor Costs and
Reduce Space, Equipment, and Labor Needed
As business models become more and more complex, organizations are finding that
they have a growing need to outsource. Third-party logistics providers (3PLs) have
played a growing role in meeting this need. Since the 1990s, 3PLs have been
developing from simple providers for various parts of logistics functions into key
drivers in supply chain management. With more than $100 billion being spent on
3PLs every year, outsourcing logistics functions has become a major focus area for
many organizations in their efforts to increase productivity and decrease cost.29
The top 25 3PLs control about 30 percent of the world’s logistics budget. However,
with the expected growth of logistics outsourcing comes the introduction of new
players into the market. There are hundreds of mid-market and smaller 3PLs
emerging that specialize in a variety of logistics functions and focus particularly on
niche activities.30 Many organizations are choosing to look at these smaller 3PLs to
help meet their needs and are finding them to be flexible and cost-effective. Even
some of the larger organizations are finding the mid-market 3PLs to be capable.
Outsourcing can be a very effective way to reduce overall costs. For example,
chemicals manufacturer Hercules Inc. was looking to reduce distribution costs on a
worldwide level across its 38 manufacturing plants and chose to outsource logistics
to Odyssey Logistics and Technology. In order to reduce cost, it negotiated a fiveyear contract that offered gain-sharing opportunities to Odyssey and partnered with
the logistics organization to increase the level of service. In addition, Hercules
reduced its overall number of transportation organizations to leverage freight
volume and secure lower rates. Hercules also installed transportation planning
software to help with the automation of the shipping process and provide better
data on shipping patterns. The result is that Hercules has saved $4.5 million by using
outsourcing to leverage shipment volumes and external expertise to gain efficiencies
and cost reductions.31
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Blueprint for Success: Logistics
Case Study
Arrow Electronics, Inc.
Embracing a methodology for continuous improvement
drives leading-edge customer support at Arrow Electronics.
Continuous improvement is a way of doing business at Arrow Electronics, a $14.6
billion global provider of products, services, and solutions to industrial and
commercial users of electronic components and computer products. When
Chairman, President, and CEO William E. Mitchell joined the organization, he came
with a mission: establish a business strategy that would ensure the company’s shortand long-term success. As part of that strategy, Lean Six Sigma Continuous Process
Improvement (or as it is referred to at Arrow, “CPI”) was adopted as the driving
force for raising customer service levels and achieving operational excellence in all
aspects of the company, including Arrow’s logistics operations.
As a participant in APQC’s Open Standards Benchmarking, Arrow’s North
American Components (NAC) business, responsible for $5.2 billion of Arrow’s
overall revenue, rose to the top in logistics performance. Bruce Moser, director of
logistics planning and engineering at Arrow, said that the Open Standards
Benchmarking results helped to validate their focus and uncover additional areas
where there were opportunities for improvement. At Arrow, to understand what
customers need, Moser said they begin by defining customer requirements. The end
goal: continually exceed customer expectations—and do so in the most costeffective way possible.
Arrow embraces CPI and believes that embedding it within the organization is one
of the keys to top performance. Moser explained that being supported by talented
people good at analyzing costs helps his group to focus on processes and functions,
trying to make them as efficient as possible. He continued, noting that robust
systems—such as Arrow’s warehouse management system, transportation
management system, and bar coding— as well as a continual, strategic assessment of
the company’s logistics network, are key to running a successful logistics operation.
Moser believes that Arrow’s primary distribution centers in Reno, Nev. and Ontario,
Calif. exemplify operational excellence. “Our primary distribution centers
progressively raise the bar in service and performance and always meet the
challenge,” said Moser. These operations set the standard for customer response
capability: same-day receiving and put-away of inventory with the capability to make
that inventory available for sale within only a few hours after delivery. Further, each
facility can select and ship customer orders on the same day the order is received.
Arrow NAC put a mechanism in place to understand what customers want by
tracking and fixing any issues in quality and satisfaction. There is a system to
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Blueprint for Success: Logistics
communicate and control response to any quality and satisfaction issues, measuring
them against a target timeline for resolution. The group tracks average response
rates against an aggressive goal, which includes initial investigation of root cause and
corrective action. Employees also collect data from customers—automatically
setting the stage for improved satisfaction and ongoing improvement in operations.
Even more beneficial to the organization is the teambuilding that results from
collaborative problem solving—finding ways to work with others to determine
“why”— for example, “Why is our cost per line item higher in certain regions?” Or
bigger issues like, “How can we further reduce the effort required to pick orders?”
Or even bigger, “What practices can we set in place to meet our corporate
objectives to continuously reduce costs, but always exceed our customers’
expectations?” As part of its collaborative practices, the organization formally
identifies and disseminates best practices internally, globally. Supervisors from
different distribution centers are frequently brought together to meet and share
ideas and practices and to collaborate on areas for improvement.
To follow through, cross-functional teams are assembled to spearhead the
implementation of improvements identified in these collaborative activities. The
organization’s approach to Lean and Six Sigma principles, coupled with the cultural
embracing of continuous improvement in everything they do, sets the environment
for effective implementation of change. To oversee this activity, Arrow has
established a CPI organizational entity with global representation and sponsorship
by the company’s executive committee.
Formalized benchmarking is another aspect of continuous improvement at Arrow.
The organization uses survey participation like the APQC Open Standards
Benchmarking research as well as networking with other organizations that have
similar operational parameters. In addition, Arrow reaches out locally to form mini
consortia to share site visits and exchange data, best practices, and processes. To
enhance this practice as well as his associates’ professional growth, Moser
challenged management team members in primary distribution centers to network
and gain organizational relationships with three external companies each year. This
approach helps ensure that Arrow is continually expanding its network of
benchmarking partnerships and sharing best practices.
Internally, Arrow has established an ongoing global benchmarking program to
ensure that logistics operations around the world communicate and share best
practices. A critical element has been the establishment of standardized metrics and
reporting. “Having a common language of metrics and consistent reporting provides
the basis for comparing operational performance in North American, European,
and Asian operations,” Moser explained. “In turn, the metrics provide
substantiation of best practices and help prove the value proposition of a particular
process, approach, or technology.”
One best practices adoption came as a result of a benchmarking study that Arrow
did in Europe. Tim Kolbus, director of NAC Logistics at Arrow, said, “Our ability
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Blueprint for Success: Logistics
to visualize the benefits of improved workstation designs and improve workload
balancing resulted from this study.”
The organization also actively looks at new technologies to fill gaps identified in its
collaborative benchmarking practices. Arrow constantly monitors the market for
emerging technologies and innovations that can enhance the company’s competitive
advantage at each link of the supply chain. Benchmarking has allowed Arrow to
begin to examine and evaluate technologies such as voice response and RFID in the
context of a similar or comparable operation. “Being able to visit a company and
actually see a technology functioning in an environment similar to yours enables you
to envision and evaluate the potential for your own operations much more clearly
and quickly,” said Moser. Kolbus added, “We likely would have gotten to these
initiatives eventually, but without benchmarking we probably would not have gotten
there as quickly.”
A tremendous passion for customer service and operational excellence is key to
Arrow’s success. To this end, voice-of-the-customer and voice-of-the-supplier
programs also have been established. The organization is continually speaking with
customers and suppliers to ensure that they have a clear and complete
understanding of their expectations at each stage of the supply chain—so Arrow
Electronics can continue to exceed them.
©2011 APQC. ALL RIGHTS RESERVED.
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Blueprint for Success: Logistics
Case Study
ATC Logistics & Electronics
ATC Logistics & Electronics couples its continuous improvement methodology
with a philosophy that balances three critical components—people, processes, and
technology—to generate top-performing logistics capability and business growth.
Taking in stride growth of nearly 100 percent in one year with a goal to double the
business again in the next three years, ATC Logistics & Electronics (ATCLE)
maintains exemplary levels of logistics operational performance. As a provider of
multi-layered logistics services to Fortune 100 organizations and large corporations
such as Motorola, Nokia, T-Mobile, Ford, Sony Ericsson, Visteon, and Thales, the
organization is an expert at high-quality logistics execution customized to each of its
customers’ needs. Art Smuck, ATCLE’s vice president of operations, says that the
organization’s successful philosophy revolves around a balance of key ideals that
support and drive each other: recruit, train, and retain good people; celebrate wins,
but never lose track of processes and continuous improvement; stay on the leading
edge of technology to support what the people and processes are trying to
accomplish; and provide what the customer needs when they need it.
“People, processes, and technology make up the business,” Smuck said.
Smuck said that the trick in understanding the relative balance of the organization’s
ideals is that no one can sit on a two-legged stool: If one leg is broken, the
effectiveness of the other two is compromised. The ATCLE approach is to
constantly try to improve all three. Knowing which metrics to use and what to do
with them is critical to its continuous improvement methodology. A new look at
top-performing metrics in their inverse state also provides the opportunity to drill
down to failures and misses and determine root causes to target for improvement.
For example, an on-time metric of 99.99 percent wasn’t offering the opportunity for
improvement, so looking at an on-time failure rate of 0.01 percent allowed for a
fresh look at performance. Using these key performance indicators (KPIs) reviewed
at a frequency applicable to each operation, the organization continuously reexamines processes and practices, looking for what works and what doesn’t.
While most organizations assess performance no more than daily, the high-volume,
high-velocity processes at ATCLE need to be monitored more often.
“At some of the velocities our business operates at, if you have issues of production
or quality, you lose it. And you lose it fast,” Smuck said.
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Blueprint for Success: Logistics
Metrics are always available, but based on the critical performance parameters of
each operation, metrics are extracted at an applicable frequency. This practice allows
the organization to quickly pinpoint where processes, tools, or worker practices are
slowing down or compromising the quality of an operation. An even more proactive
benefit is that this practice also helps the organization identify over-performance,
situations when effective processes, tools, or worker practices can be shared to
improve other parts of the organization. Effective practices are integrated into the
training and certification program to make sure all associates have the opportunity
to work effectively.
Although continuous improvement methodologies like Lean principles and Kaizen
events are embedded in the tool kit, people own the process for performance and
improvement. Incentive programs support employee performance and contribution.
Employees are recognized monthly by monetary incentives for production (with
quality as the qualifier) to ensure a balance in overall performance for the customer.
But when it comes to people in a continuous improvement setting, attitude, not
aptitude, is important to ATCLE. The organization believes that all associates
should have the opportunity to affect productivity, efficiency, cost effectiveness,
safety, and quality.
A preventive corrective action request (PCAR) system was implemented to generate
suggestions in a formal, controlled communications and implementation process
that is monitored and facilitated by the quality group. All employees have access to
the system, which generates an automated response chain. Once an idea is
submitted, an automated timetable is set and an e-mail detailing the idea is routed to
the applicable department head. The department head has 48 hours to make written
contact with the person who submitted the idea. A root cause analysis is mandatory
in every case and the department head has seven days to respond with either an
action plan to implement the idea or an explanation as to why the idea cannot be
implemented. The system processes 2,000 ideas a year from employees encouraged
by a proactive and positive-attitude environment.
To support people and processes, the organization values leading-edge technology.
It has implemented fully integrated enterprise resource planning and warehouse
management systems, providing order management and inventory functionality as
well as full radio frequency directed work and multi-format barcode processing
capabilities. Specializing in application integration, it strives to meet customers’
complex interface requirements for both legacy and commercial systems, providing
rapid, stable, highly scalable interfaces to meet business needs.
This balanced approach to people, processes, and technology provides a scalable
structure to sustain and improve performance through major client implementations
and extreme growth. During a year of extreme growth, change, and challenging
implementations, ATCLE increased productivity by up to 40 percent in some areas.
Key performance indicators in cost, productivity, fill rates, and inventory accuracy,
cycle times, on-time delivery, and perfect order performance continue to appear in
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Blueprint for Success: Logistics
the top performance quartiles when benchmarked against logistics organizations
across all industries.
When it comes to benchmarking metrics and practices for continuous improvement,
ATCLE is serious. The operations management team visits several organizations per
year seeking new ideas and better practices. Management team members are
responsible for networking to find opportunities to reciprocate learnings with other
organizations. They do so through industry associations, conferences, and ad hoc
meetings. The results are significant, especially when the organization takes the nontraditional approach of looking outside of its industry and comfort zone to gain new
ideas and different ways to think about old problems. Critical operational
improvements occurred when ATCLE implemented time-sensitive metric reviews
based on ideas learned from a site visit with an organization in a totally different
business. These benchmarking visits and idea exchanges are kept informal; the team
feels that if they over-formalize this practice, they will jeopardize its effectiveness.
Going forward, the organization intends to continue to expand to adjacent and new
virtual business while maintaining current operations. To meet business
development goals, ATCLE’s solutions development team constantly maps and
gaps their current capabilities against what target clients need. Staying in line with
continuous improvement efforts, the organization strives to build its capabilities.
Celebrated discontent remains the theme of ATCLE’s future.
“OK, we’re great, what needs to be improved next?” Smuck said.
The organization seeks the ability to grow with even better control. According to
Smuck, the organization has had “real moments of genius” and “real moments with
[its] wheels off.” In some cases, all the right resources were not deployed for client
implementations, and in other cases, they didn’t fully understand client requirements
on implementations. The organization leverages those tough lessons to improve
effectiveness for the next initiative or implementation.
ATCLE will continue to leverage its people, processes, and technology as it seeks
new business opportunities and continues to improve performance in each area
through measurement and benchmarking.
©2011 APQC. ALL RIGHTS RESERVED.
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Blueprint for Success: Logistics
Case Study
Office Depot
Office Depot’s diversified business relies on a customerfocused, total supply chain optimization approach.
Office Depot Inc., founded in 1986, is one of the world’s largest sellers of office
products and an industry leader in every distribution channel, including stores, direct
mail, contract delivery, the Internet, and business-to-business electronic commerce.
Driving the evolution of Office Depot’s supply chain is the continuing
improvement of the organization. The organization began as a classic big-box
specialty retailer: 25,000–40,000 square feet of retail space per store to display large
quantities of inventory before the customers’ eyes. This format was a successful
approach during the organization’s rapid growth, but began to change with the
organization’s diversification into other segments of the office supply distribution
business.
Today, the $12 billion organization is a diversified, global presence across retail,
contract, catalog, and Internet sales in the office supply segment.
“Although most [people] think of us as a retailer, we are a diversified company with
a very diverse customer segment,” said Director of Supply Chain Vendor
Integration Mark Yoshimura. This diversity has driven a diverse supply chain, which
required a change in supply chain optimization strategy, Yoshimura said.
Office Depot’s diversification of its business has resulted in two customer segments
with unique service needs. The organization has structured itself and aligned teams
to best meet those needs. Different customers and service needs drove the
evolution of customer-focused distribution centers; a cross dock distribution model
is in place for retail stores, and a customer service center (CSC) distribution model is
used for the business segment.
When Office Depot operated its first 100 retail stores, it worked directly with the
vendor committee that supplied the finished goods displayed in stores. The
organization cut purchase orders and vendors delivered the goods straight to stores.
Yoshimura said that as Office Depot grew, it realized better distribution models
were needed to address complexities. Asking vendors to pick hundreds of store
orders each week and deliver those via UPS or less-than-truckload (LTL) shipments
to each store was laborious for vendors and the receiving store. The model evolved
to one of cross docks, which simplified logistics for retail store distribution.
Today, the organization has 10 cross docks that serve as flow-through centers.
Office Depot cuts a weekly purchase order to vendors that meets the aggregate need
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Blueprint for Success: Logistics
of its stores; purchase orders are cut at the cross dock level, segmenting the order by
cross dock destination, and then delivered at various lead times to each of the cross
docks. At each of its 10 cross docks, Office Depot then divides the vendor
deliveries to meet individual store needs and pushes them to stores later that day.
The organization makes daily deliveries to stores from the cross docks, but this push
model has been modified as well.
Both push and pull models are utilized for store inventory. The majority of the
lower-value supplies goods are pushed through the cross docks, while higher-value
technology goods are warehoused upstream at the cross docks in order to minimize
the inventory investment at more than 1,000 stores.
For its business-to-business distribution channel (i.e., contract, commercial, and
Internet group), Office Depot has 22 customer service centers (CSC) to meet the
different service needs, such as next-day delivery (free for purchases of $50 or more)
for orders purchased by 5 p.m. This is a nationwide policy that excludes a few
outlying, difficult-to-reach areas. The customer service centers act as
warehouse/distribution centers, located geographically to fulfill next-day delivery
expectations. Most CSC inventory is received directly from vendors, but
occasionally the cross docks service the CSC, as well.
The organization does not isolate processes and practices, but instead seeks to
optimize the whole supply chain. Teamwork and alignment are critical to the core
supply chain team, which engages in extensive communication, Yoshimura said. The
ideas start in merchandising, and those decisions affect the downstream supply
chain and, eventually, each store.
“Unless we have an extensive amount of communication going through there, when
you start talking about 1,000 different stores, all the different planograms we handle
on a daily basis, and 8,000 SKUs we have in our stores, there is an opportunity for
execution failures if we don’t communicate and collaborate very effectively,”
Yoshimura said.
The senior vice president of distribution is responsible for making sure that all cross
docks and CSCs are meeting performance targets to service customers in line with
organizational expectations. This includes ensuring that the expense structure meets
its goals. His support team plays a liaison role between the field operators and
corporate. For example, if the corporate inventory management team makes a
decision to expedite freight through the distribution network, it coordinates with the
corporate distribution team, which then disseminates that information to the field so
the execution can be synchronized.
Within transportation, organization-wide strategy is set at the corporate level and
then pushed to the field operators for execution. Field operators route freight from
distribution centers (cross docks and CSCs) on a daily basis. The corporate
transportation group is responsible for transportation strategy and improvement
project ideas.
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Blueprint for Success: Logistics
Network and strategy is the group that focuses on supply chain and network
optimization analysis. For example, much of its analysis focuses on throughput and
volume moving through the distribution network to service retail and business-tobusiness customers. It scrutinizes holding capacity, throughput capacity based on
projected business growth, and overall distribution infrastructure to determine the
optimal network.
Inventory management’s 60-person team comprises mostly inventory planners who
work closely with the 20 merchandising buyers in their product classifications on the
daily execution of placing purchase orders with vendors and ensuring on-time
delivery to cross docks and CSCs. The inventory planners are accountable for
forecast accuracy, capacity planning, service levels, and inventory turnover.
Inventory planners are responsible for all inventory from both channels and are
assigned to a specific category of merchandise.
The organization is evaluating its future supply chain and building design so that
only one transfer takes place to stores and business customers. The ideal is a dualpurpose building serving both stores and business customers. This vision of future
distribution buildings combines the best of both worlds. It would have the
warehousing capability of CSCs as well as the flow processes of cross docks. This
will give the organization more flexibility in inventory strategies, Yoshimura said.
Since its inception, the organization has not reconfigured its network to any great
degree. It plans to redesign the network to leverage processes and inventory to a
greater extent than the current model (cross docks to stores and CSCs to
customers). For the optimized network, Office Depot plans to:
 evaluate buildings based on new distribution and inventory management
strategies;
 build dual-purpose buildings with the space and system capabilities to service
both channels;
 streamline to one purchase order for both retail and customers; and
 leverage processes, people, overhead, inventory, and service.
Consolidation of buildings will create inventory savings opportunities through the
aggregation of inventory and increased ability to reduce lead times through multiple
purchase orders per week. More volume in the market and more truckload
opportunities allow more opportunity for Office Depot to create multiple purchase
orders within a vendor’s cycle.
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Case Study
Carolina Logistics Services
Carolina Logistics develops reverse logistics programs,
returns management, and returns prevention processes.
Carolina Logistics Services (CLS) has been in the reverse logistics business for more
than 20 years. This case study looks at best practices CLS has used to deliver value
for its customers. The best practices described in this case study are a combination
of physical returns management practices and supply chain analysis returns
prevention studies.
CLS looked at clients whose reverse logistics programs have achieved high levels of
success. The initial catalysts for these programs often involved increases in the rate
of returns and the associated costs. Because the organizations’ returns processes
were decentralized, inconsistency and inefficiency abounded. Distribution centers
were experiencing space constraints, and returns sometimes bled over into plant and
manufacturing space. The organizations were unable to validate their returns or
issue credits to customers in a timely manner, which led to overpayment,
deductions, or chargebacks. In addition, ever-changing regulatory requirements were
making it increasingly important to minimize risks and control disposition.
Recognizing the need to streamline their processes, the organizations turned to
outsourcing because managing returns was not their core business, and they did not
want to invest in it.
The reverse logistics program at a typical CLS client originates with an advocate. For
retailers, the recommender often comes from distribution, supply chain, or
inventory management. For manufacturers, the initiative is usually driven by the
group that is experiencing the most “pain” from an inefficient returns process—for
example, the distribution and manufacturing teams whose warehouse space is
overflowing, or the finance group that sees an increase in returns.
The organization takes action by forming an approval team made up of the various
organizational functions affected by returns. Final approval for the reverse logistics
program usually comes either from a vice president of a division or jointly from the
vice presidents of operations and sales.
Each client presents a business case that addresses the full range of costs and
savings associated with a reverse logistics program, including cost to implement,
cost to maintain, and payback. The timeline for program payback ranges from three
months (if, for example, the organization simply wants policy compliance) to three
years (if, for example, the organization becomes involved in packaging changes or
returns avoidance).
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Some clients opt to conduct pilot programs with limited scope in order to validate
assumptions before making significant investments. However, pilots are not
practical in every situation; they work best in manufacturing environments. Because
retail chains rely on economies of scale, only a full-fledged program can
demonstrate optimum results.
Using Data to Break Down Silos
Every CLS client has silos, i.e., various departments and areas that are tactically
separated. Common challenges exist across the silos, but the separations prevent
employees from collectively recognizing and addressing those challenges. Although
CLS clients find it difficult to break down walls and implement reverse logistics
solutions, a few best-practice organizations—those with strong project leaders—
have been relatively successful. These organizations begin by establishing crossfunctional design and implementation teams with representatives from sales,
customer operations, distribution, legal, environmental and regulatory, logistics,
manufacturing, packaging, and quality. The best teams are able to translate benefits
into dollar amounts to justify the project to executives and secure project funding.
A cross-functional team is also a helpful forum for “trade-off discussions,” says
Sharon Joyner-Payne, vice president of marketing at CLS. “Whenever someone has
a great idea about how you want to handle a situation, the idea will have an impact
on someone else. The person with the idea sometimes does not understand that.”
For example, a member of the packaging sourcing group might suggest a way to
reduce packaging costs without realizing that the proposed change could result in
higher amounts of damaged product. The cross-functional team is responsible for
calling attention to and working around these kinds of cross-functional impacts.
Effective teams meet frequently. Usually, they begin with weekly sessions and later
adopt a less frequent monthly schedule. The most successful organizations keep the
teams in place even after implementation to facilitate process improvement.
A common theme in overcoming resistance is data availability. When sales,
marketing, warehousing, and manufacturing are given access to Web-based data,
they no longer feel powerless and are able to continually improve their processes.
In working with many clients, CLS has found that certain actions may benefit
employees and processes in one silo while negatively affecting the organization as a
whole. However, when data is shared across functional areas, leaders are able to
reach a consensus about which practices are best for the entire organization. One
example of best practice involves a CLS manufacturer client that initiated its reverse
logistics program because it lacked knowledge about deduction amounts and their
validity. CLS analyzed data from the manufacturer’s enhanced reason codes and
created a summary of retailer-level differences between the deduction amounts and
the actual returned product amounts; the manufacturer then used this summary to
identify customers with especially high numbers of returns. CLS worked with the
manufacturer to match the products with the returns, helping the manufacturer
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understand what was driving the returns. This enabled the manufacturer to design
customer-specific buying and returns programs that, over a five-year period, reduced
returns from customers by 60 percent.
Another retail client improved its process by examining summary level physical
count differences between store-claimed amounts and actual returned-product
amounts. This client was able to design a real-time reconciliation program that
rapidly identified spikes or anomalies requiring research. By spotting problems
quickly, the client could make corrections while the product was still in the pipeline.
The retailer reduced returns errors by 15 percent through retraining and
reinforcement of policy in the forward supply chain (the stores).
A third successful client uses information on the ages of returned component parts
to determine whether the parts are usable products. The organization feeds
component information into the inventory system, enabling viable returned
components to be used in place of new products. This has reduced the client’s need
for raw materials by 20 percent.
A fourth best-practice example concerns a client’s ability to adapt to industry
changes. Standards in the client’s industry were moving away from closed-code
dating systems (in which only the manufacturer can decipher a product’s expiration
date) toward open-code dating (in which expiration data is clearly readable by the
consumer). As the organization was transitioning to open coding, supply chain
analysis and reason code data collected through the returns process helped the
packaging department realize that the product had an insufficient shelf life to
survive the normal velocity of the supply chain. Packaging addressed the problem by
working with the quality group to change the product’s formula and extend its shelf
life. As a result, returns of expired product did not increase when open-code dating
was implemented. Through its reverse logistics program (which included other
initiatives in addition to the example above), the client was able to reduce damages
by 75 percent over a five-year period.
CLS has also experienced success in using returns information to address clients’
packaging problems. By analyzing returns information related to packaging types, a
client was able to determine that, no matter what type of glue was used to affix
paper labels to its bottles, damage occurred. This motivated the client to convert to
plastic labels, which reduced the number of damaged products by 91 percent.
A final example of best practice involves analyzing returns to evaluate manufacturer
promotions. Most manufacturers have promotional periods, during which they push
a product into the retail environment for a certain period of time. Through the
returns process, CLS has been able to uncover numerous instances in which the
manufacturer or retailer conducted back-to-back promotions that pushed inventory
into the pipeline when it did not have as much as 50 percent sell-through of the
original promotion. Too much inventory in the pipeline can lead to physical damage
and, for dated products, expiration risks. However, by analyzing returns data, CLS
helps clients make better promotional decisions.
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Blueprint for Success: Logistics
Appendix 1 - PCF Section 4.0
The current version of APQC’s Process Classification Framework is available at
www.apqc.org/pcf.
4.0 Deliver Products and Services
4.1 Plan for and acquire necessary resources (Supply Chain Planning) (10215)
4.1.1 Develop production and materials strategies (10221)
4.1.1.1 Define manufacturing goals (10229)
4.1.1.2 Define labor and materials policies (10230)
4.1.1.3 Define outsourcing policies (10231)
4.1.1.4 Define manufacturing capital expense policies (10232)
4.1.1.5 Define capacities (10233)
4.1.1.6 Define production network and supply constraints (10234)
4.1.1.7 Define production process (14193)
4.1.1.8 Define production workplace layout and infrastructure (14194)
4.1.2 Manage demand for products and services (10222)
4.1.2.1 Develop baseline forecasts (10235)
4.1.2.2 Collaborate with customers (10236)
4.1.2.3 Develop consensus forecast (10237)
4.1.2.4 Allocate available to promise (10238)
4.1.2.5 Monitor activity against forecast and revise forecast (10239)
4.1.2.6 Evaluate and revise forecasting approach (10240)
4.1.2.7 Measure forecast accuracy (10241)
4.1.3 Create materials plan (10223)
4.1.3.1 Create unconstrained plan (10242)
4.1.3.2 Collaborate with supplier and contract manufacturers (10243)
4.1.3.3 Identify critical materials and supplier capacity (10244)
4.1.3.4 Monitor material specifications (10245)
4.1.3.5 Generate constrained plan (10246)
4.1.3.6 Define production balance and control (14196)
4.1.4 Create and manage master production schedule (10224)
4.1.4.1 Generate site-level plan (10247)
4.1.4.2 Manage work-in-progress inventory (10248)
4.1.4.3 Collaborate with suppliers (10249)
4.1.4.4 Generate and execute site schedule (10250)
4.1.5 Plan distribution requirements (10225)
4.1.5.1 Allocate available to promise (10251)
4.1.5.2 Maintain master data (10252)
4.1.5.3 Determine finished goods inventory requirements at destination
(10253)
4.1.5.4 Calculate requirements at destination (10254)
4.1.5.5 Calculate consolidation at source (10255)
Continued on next page
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Blueprint for Success: Logistics
4.1.5.6 Manage collaborative replenishment planning (10256)
4.1.5.7 Manage requirements for partners (10257)
4.1.5.8 Calculate destination dispatch plan (10258)
4.1.5.9 Manage dispatch plan attainment (10259)
4.1.5.10 Calculate destination load plans (10260)
4.1.5.11 Manage partner load plan (10261)
4.1.5.12 Manage cost of supply (10262)
4.1.5.13 Manage capacity utilization (10263)
4.1.6 Establish distribution planning constraints (10226)
4.1.6.1 Establish distribution center layout constraints (10267)
4.1.6.2 Establish inventory management constraints (10268)
4.1.6.3 Establish transportation management constraints (10269)
4.1.7 Review distribution planning policies (10227)
4.1.7.1 Review distribution network (10264)
4.1.7.2 Establish sourcing relationships (10265)
4.1.7.3 Establish dynamic deployment policies (10266)
4.1.8 Assess distribution planning performance (10228)
4.1.8.1 Establish appropriate performance indicators (metrics) (10270)
4.1.8.2 Establish monitoring frequency (10271)
4.1.8.3 Calculate performance measures (10272)
4.1.8.4 Identify performance trends (10273)
4.1.8.5 Analyze performance benchmark gaps (10274)
4.1.8.6 Prepare appropriate reports (10275)
4.1.8.7 Develop performance improvement plan (10276)
4.1.9 Develop quality standards and procedures (10368)
4.1.9.1 Establish quality targets (10371)
4.1.9.2 Develop standard testing procedures (10372)
4.1.9.3 Communicate quality specifications (10373)
4.2 Procure materials and services (10216)
4.2.1 Develop sourcing strategies (10277)
4.2.1.1 Develop procurement plan (10281)
4.2.1.2 Clarify purchasing requirements (10282)
4.2.1.3 Develop inventory strategy (10283)
4.2.1.4 Match needs to supply capabilities (10284)
4.2.1.5 Analyze company’s spend profile (10285)
4.2.1.6 Seek opportunities to improve efficiency and value (10286)
4.2.1.7 Collaborate with suppliers to identify sourcing opportunities (10287)
4.2.2 Select suppliers and develop/maintain contracts (10278)
4.2.2.1 Select suppliers (10288)
4.2.2.2 Certify and validate suppliers (10289)
4.2.2.3 Negotiate contracts (10290)
4.2.2.4 Manage contracts (10291)
4.2.3 Order materials and services (10279)
4.2.3.1 Process/Review requisitions (10292)
4.2.3.2 Approve requisitions (10293)
Continued on next page
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4.2.3.3 Solicit/Track vendor quotes (10294)
4.2.3.4 Create/Distribute purchase orders (10295)
4.2.3.5 Expedite orders and satisfy inquiries (10296)
4.2.3.6 Record receipt of goods (10297)
4.2.3.7 Research/Resolve exceptions (10298)
4.2.4 Appraise and develop suppliers (10280)
4.2.4.1 Monitor/Manage supplier information (10299)
4.2.4.2 Prepare/Analyze procurement and vendor performance (10300)
4.2.4.3 Support inventory and production processes (10301)
4.2.4.4 Monitor quality of product delivered (10302)
4.3 Produce/Manufacture/Deliver product (10217)
4.3.1 Schedule production (10303)
4.3.1.1 Generate line level plan (10306)
4.3.1.2 Generate detailed schedule (10307)
4.3.1.3 Schedule production orders and create lots (10308)
4.3.1.4 Release production orders and create lots (10309)
4.3.2 Produce product (10304)
4.3.2.1 Manage raw material inventory (10310)
4.3.2.2 Execute detailed line schedule (10311)
4.3.2.3 Rerun defective items (10313)
4.3.2.4 Assess production performance (10314)
4.3.3 Schedule and perform maintenance (10305)
4.3.3.1 Determine process for preventive (planned) maintenance (Preventive
Maintenance Orders) (10315)
4.3.3.2 Determine process for requested (unplanned) maintenance (Work
Order Cycle) (10316)
4.3.3.3 Execute maintenance (10317)
4.3.3.4 Calibrate test equipment (10318)
4.3.3.5 Report maintenance issues (10319)
4.3.4 Perform quality testing (10369)
4.3.4.1 Perform testing using the standard testing procedure (10374)
4.3.4.2 Record test results (10375)
4.3.5 Maintain production records and manage lot traceability (10370)
4.3.5.1 Determine lot numbering system (10376)
4.3.5.2 Determine lot usage (10377)
4.4 Deliver service to customer (10218)
4.4.1 Confirm specific service requirements for individual customer (10320)
4.4.1.1 Process customer request (10324)
4.4.1.2 Create customer profile (10325)
4.4.1.3 Generate service order (10326)
4.4.2 Identify and schedule resources to meet service requirements (10321)
4.4.2.1 Create resourcing plan and schedule (10327)
4.4.2.2 Create service order fulfillment schedule (10328)
4.4.2.3 Develop service order (10329)
4.4.3 Provide service to specific customers (10322)
Continued on next page
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Blueprint for Success: Logistics
4.4.3.1 Organize daily service order fulfillment schedule (10330)
4.4.3.2 Dispatch resources (10331)
4.4.3.3 Manage order fulfillment progress (10332)
4.4.3.4 Validate order fulfillment block completion (10333)
4.4.4 Ensure quality of service (10323)
4.4.4.1 Identify completed orders for feedback (10334)
4.4.4.2 Identify incomplete orders and service failures (10335)
4.4.4.3 Solicit customer feedback on services delivered (10336)
4.4.4.4 Process customer feedback on services delivered (10337)
4.5 Manage logistics and warehousing (10219)
4.5.1 Define logistics strategy (10338)
4.5.1.1 Translate customer service requirements into logistics requirements
(10343)
4.5.1.2 Design logistics network (10344)
4.5.1.3 Communicate outsourcing needs (10345)
4.5.1.4 Develop and maintain delivery service policy (10346)
4.5.1.5 Optimize transportation schedules and costs (10347)
4.5.1.6 Define key performance measures (10348)
4.5.2 Plan and manage inbound material flow (10339)
4.5.2.1 Plan inbound material receipts (10349)
4.5.2.2 Manage inbound material flow (10350)
4.5.2.3 Monitor inbound delivery performance (10351)
4.5.2.4 Manage flow of returned products (10352)
4.5.3 Operate warehousing (10340)
4.5.3.1 Track inventory deployment (10353)
4.5.3.2 Receive, inspect, and store inbound deliveries (10354)
4.5.3.3 Track product availability (10355)
4.5.3.4 Pick, pack, and ship product for delivery (10356)
4.5.3.5 Track inventory accuracy (10357)
4.5.3.6 Track third-party logistics storage and shipping performance (10358)
4.5.3.7 Manage physical finished goods inventory (10359)
4.5.4 Operate outbound transportation (10341)
4.5.4.1 Plan, transport, and deliver outbound product (10360)
4.5.4.2 Track carrier delivery performance (10361)
4.5.4.3 Manage transportation fleet (10362)
4.5.4.4 Process and audit carrier invoices and documents (10363)
4.5.5 Manage returns; manage reverse logistics (10342)
4.5.5.1 Authorize and process returns (10364)
4.5.5.2 Perform reverse logistics (10365)
4.5.5.3 Perform salvage activities (10366)
4.5.5.4 Manage and process warranty claims (10367)
4.5.5.5 Manage repair/refurbishment and return to customer/stock (14195)
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Blueprint for Success: Logistics
Appendix 2
Summary of Open Standards Benchmarking
Measures
The following pages list the standard performance measures that APQC captures
for supply chain functions and processes for the Open Standards Benchmarking
database.
These measures coordinate with categories 4.0 Deliver Products and Services and
2.0 Develop and Manage Products and Services in the APQC Process Classification
FrameworkSM (PCF), the high-level enterprise model that allows organizations to see
activities from a cross-industry viewpoint.
In addition to supply chain and product development, APQC collects measures and
benchmarks in financial management, human capital management, information
technology, and many other categories and processes in the PCF. For additional
information on these measures or access to Open Standards Benchmarking, you can
contact APQC at (800) 776-9676, outside the United States at 1 (713) 681-4020, or
via e-mail at apqcinfo@apqc.org.
APQC collects key performance indicators, other quantitative performance
measures, and qualitative information in each area listed below. This appendix
highlights only the key performance indicators. Comprehensive lists are also
available from APQC.
SUPPLY CHAIN PLANNING KEY PERFORMANCE INDICATORS
(PCF 4.1)
Metric Name
Metric Category
Demand/supply planning costs per $1,000 revenue
Cost Effectiveness
Inventory carrying cost as a percentage of average annual
inventory value
Cost Effectiveness
Supply chain management costs per $1,000 revenue
Cost Effectiveness
Cash-to-cash cycle time in days
Cycle Time
Number of FTEs for the supply chain planning function per $1
billion revenue
Process Efficiency
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Blueprint for Success: Logistics
PROCUREMENT KEY PERFORMANCE INDICATORS (PCF 4.2)
Metric Name
Metric Category
Total cost of the process “develop sourcing strategies” per $1,000
revenue
Cost Effectiveness
Total cost of the process “develop sourcing strategies” per $1,000
purchases
Cost Effectiveness
Total cost of the process “select suppliers and develop and maintain
contracts” per $1,000 revenue
Cost Effectiveness
Total cost of the process “select suppliers & develop/maintain
contracts” per $1,000 purchases
Cost Effectiveness
Total cost of the process “order materials/services” per $1,000
revenue
Cost Effectiveness
Total cost of the process “order materials/services” per $1,000
purchases
Cost Effectiveness
Total cost of the process “appraise and develop suppliers” per $1,000
revenue
Cost Effectiveness
Total cost of the process “appraise and develop suppliers” per $1,000
purchases
Cost Effectiveness
Total cost of the procurement cycle per purchase order
Cost Effectiveness
Total cost of the procurement cycle per procurement cycle FTE
Cost Effectiveness
Total cost of the procurement cycle per $1,000 revenue
Cost Effectiveness
Total cost of the procurement cycle per $1,000 purchases
Cost Effectiveness
Total cost of the procurement cycle as a percentage of revenue
Cost Effectiveness
Cycle time in hours to place purchase order
Cycle Time
Average supplier lead time on purchased materials
Cycle Time
Number of FTEs for the process “develop sourcing strategies” per $1
billion purchases
Process Efficiency
Number of FTEs for the process “select suppliers
develop/maintain contracts” per $1 billion purchases
Process Efficiency
and
Percentage of purchase orders approved electronically
Process Efficiency
Number of FTEs for the process “order materials/services” per $1
billion purchases
Process Efficiency
Number of FTEs for the process “appraise and develop suppliers”
per $1 billion purchases
Process Efficiency
Number of FTEs for the procurement cycle per $1 billion purchases
Process Efficiency
Number of purchase orders processed per “order materials/services”
FTE
Staff Productivity
Number of purchase order line items processed per “order
materials/services” FTE
Staff Productivity
Total number of purchase orders processed per procurement FTE
Staff Productivity
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Blueprint for Success: Logistics
MANUFACTURING KEY PERFORMANCE INDICATORS PCF (4.3)
Metric Name
Metric Category
Warranty costs (repair and replacement) as a percentage of sales
Cost Effectiveness
Scrap and rework costs as a percentage of sales
Cost Effectiveness
Manufacturing controllable cost as a percentage of revenue
Cost Effectiveness
Total cost to manufacture per $1,000 revenue
Cost Effectiveness
Manufacturing cycle time in hours
Cycle Time
Finished goods inventory turn rate
Process Efficiency
Finished product, first pass quality yield
Process Efficiency
Unplanned machine downtime as a percentage of scheduled run time
Process Efficiency
Actual production rate as a percentage of the maximum capable
production rate
Process Efficiency
Production material handling damage as a percentage of total material
cost
Process Efficiency
LOGISTICS KEY PERFORMANCE INDICAT ORS (PCF 4.5)
Metric Name
Metric Category
Total cost of the process “define logistics strategy” per $1,000 revenue
Cost Effectiveness
Total cost of the process “plan inbound material flow” per $1,000
revenue
Cost Effectiveness
Total cost of the process “operate warehousing” per $1,000 revenue
Cost Effectiveness
Total cost of the process “operate outbound transportation” per
$1,000 revenue
Cost Effectiveness
Total cost of logistics per $1,000 revenue
Cost Effectiveness
Total cost of logistics per logistics FTE
Cost Effectiveness
Total cost of logistics per sales order shipped
Cost Effectiveness
Customer order cycle time in days
Cycle Time
Return processing cycle time in days
Cycle Time
Dock-to-stock cycle time for supplier deliveries in hours
Cycle Time
Pick-to-ship cycle time in hours
Cycle Time
Number of FTEs in the process “define logistics strategy” per $1
billion revenue
Process Efficiency
Number of FTEs in the process “plan inbound material flow” per $1
billion revenue
Process Efficiency
Number of FTEs in the process “operate warehousing” per $1 billion
revenue
Process Efficiency
Inventory accuracy
Process Efficiency
Order fill rate
Process Efficiency
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Blueprint for Success: Logistics
Metric Name
Metric Category
Number of FTEs in the process “operate outbound transportation”
per $1 billion revenue
Process Efficiency
Number of FTEs in the logistics function per $1 billion revenue
Process Efficiency
Perfect order performance
Process Efficiency
Number of annual sales orders filled per “operate warehousing” FTE
Staff Productivity
PRODUCT DEVELOPMENT KEY PERFORMANCE INDICATORS
(PCF 2.0)
Metric Name
Metric Category
Total cost of the product development function per $1,000 revenue
Cost Effectiveness
Total cost of the process "generate new product/service ideas" per
$1,000 revenue
Cost Effectiveness
Total cost of the process "design, build and evaluate product/service"
per $1,000 revenue
Cost Effectiveness
Total cost of the process "test market product/service" per $1,000
revenue
Cost Effectiveness
Total cost of the process "manufacture and support product/service"
per $1,000 revenue
Cost Effectiveness
Time-to-market in days for existing product/service improvement and
extension projects
Cycle Time
Time-to-market in days for new product/service development
projects
Cycle Time
Average time-to-profitability in months for existing product/service
improvement and extension projects
Cycle Time
Average time-to-profitability in months for new product/service
development projects
Cycle Time
Number of FTEs in the product development function per $1 billion
revenue
Process Efficiency
Percentage of existing product/service improvement and extension
projects launched on time
Process Efficiency
Percentage of new product/service development projects launched on
time
Process Efficiency
Percentage of existing product/service improvement and extension
projects launched on budget
Process Efficiency
Percentage of new product/service development projects launched on
budget
Process Efficiency
Percentage of sales due to product/services launched in the past year
Process Efficiency
©2011 APQC. ALL RIGHTS RESERVED.
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Blueprint for Success: Logistics
Appendix 3
Glossary of Terms
For additional reference, please visit CSCMP’s online Glossary of Terms:
http://cscmp.org/digital/glossary/glossary.asp
 Advanced Planning and Scheduling (APS)—Techniques that deal with
analysis and planning of logistics and manufacturing over the short,
intermediate, and long terms. APS describes any computer program that uses
advanced mathematical algorithms or logic to perform optimization or
simulation on finite capacity scheduling, sourcing, capital planning, resource
planning, forecasting, demand management, and other tasks. These techniques
simultaneously consider a range of constraints and business rules to provide
real-time planning and scheduling, decision support, available-to-promise
capabilities, and capable-to-promise capabilities. APS often generates and
evaluates multiple scenarios. Management then selects one scenario to use as
the official plan. The five main components of APS systems are demand
planning, production planning, production scheduling, distribution planning,
and transportation planning.
 Benchmarking—The process of comparing performance against the practices
of other leading organizations for the purpose of improving. Organizations also
benchmark internally by tracking and comparing current performance with past
performance.
 Best practice—A specific process or group of processes that have been
recognized as high performing based on specific criteria and that demonstrate a
best method for conducting an action. Best practices may vary by industry or
geography depending on the environment being used. Best-practice
methodology may be applied with respect to resources, activities, cost object, or
processes.
 Business review—A meeting between a purchasing department and supplier
to discuss supplier performance and improvement potential.
 Cross docking—A distribution system in which merchandise received at the
warehouse or distribution center is not put away, but instead is readied for
shipment to retail stores. Cross docking requires close synchronization of all
inbound and outbound shipment movements. By eliminating the put-away,
storage, and selection operations, it can significantly reduce distribution costs.
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Blueprint for Success: Logistics
 Cycle time—The amount of time it takes to complete a business process.
 Dashboard—See scorecard.
 Demand planning—The process of identifying, aggregating, and prioritizing
all sources of demand for the integrated supply chain of a product or service at
the appropriate level, horizon, and interval.
 Distribution center—The warehouse facility that holds inventory from
manufacturing pending distribution to the appropriate stores.
 Direct materials—Material that is used in the manufacturing/content of a
product (i.e., purchased parts, solder, SMT glues, adhesives, mechanical parts,
etc.)
 Enterprise resource planning (ERP)—A class of software for planning and
managing enterprise-wide the resources needed to take customer orders, ship
them, account for them, and replenish all needed goods according to customer
orders and forecasts. Often includes electronic commerce with suppliers.
Examples of ERP systems are the application suites from SAP, Oracle,
PeopleSoft and others.
 Freight forwarder—An organization that provides logistics services as an
intermediary between the shipper and the carrier, typically on international
shipments. Freight forwarders provide the ability to respond quickly and
efficiently to changing customer and consumer demands and international
shipping (import/export) requirements.
 FTE—Full-time equivalent. Any employee or group of employees that work
the equivalent of a full-time employee at 40 hours per week. For example, two
part-time employees working 20 hours each per week would be the FTE of one
employee.
 Key performance indicator (KPI)—A measure of strategic importance to an
organization or department. For example, a supply-chain flexibility metric is
supplier on-time delivery performance, which indicates the percentage of orders
that are fulfilled on or before the original requested date.
 Indirect materials—Material that is not used in the manufacturing/content of
a product (e.g., office supplies or parts used for maintenance and repair of
equipment).
 Logistics management—As defined by the Council of Supply Chain
Management Professionals (CSCMP): “Logistics management is that part of
supply chain management that plans, implements, and controls the efficient,
effective forward and reverse flow and storage of goods, services, and related
information between the point of origin and the point of consumption in order
to meet customers’ requirements. Logistics management activities typically
include inbound and outbound transportation management, fleet management,
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Blueprint for Success: Logistics
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warehousing, materials handling, order fulfillment, logistics network design,
inventory management, supply/demand planning, and management of third
party logistics services providers. To varying degrees, the logistics function also
includes sourcing and procurement, production planning and scheduling,
packaging and assembly, and customer service. It is involved in all levels of
planning and execution— strategic, operational, and tactical. Logistics
management is an integrating function which coordinates and optimizes all
logistics activities, as well as integrates logistics activities with other functions,
including marketing, sales, manufacturing, finance, and information
technology.”
OEM—Original equipment manufacturer. A manufacturer that buys and
incorporates another supplier’s products into its own products. Also, products
supplied to the original equipment manufacturer or sold as part of an assembly.
For example, an engine may be sold to an OEM for use as that organization’s
power source for its generator units.
PCF—A high-level, industry-neutral enterprise model developed by APQC that
allows organizations to see their activities from a cross-industry viewpoint.
Purchase order—The purchaser’s authorization used to formalize a purchase
transaction with a supplier. The physical form or electronic transaction a buyer
uses when placing order for merchandise.
Radio frequency (RF or RFID)—A form of wireless communications that
lets users relay information via electromagnetic energy waves from a terminal to
a base station that is linked in turn to a host computer. The terminals can be
place at a fixed station, mounted on a forklift truck, or carried in the worker’s
hand. The base station contains a transmitter and receiver for communication
with the terminals. RF systems use either narrow-band or spread-spectrum
transmissions. Narrow-band data transmissions move along a single, limited
radio frequency, while spread-spectrum transmissions move across several
different frequencies. When combined with a bar-code system for identifying
inventory items, a radio-frequency system can relay data instantly, updating
inventory records in real time.
Reverse logistics—A specialized segment of logistics focusing on the
movement and management of products and resources after the sale and after
delivery to the customer. Includes product returns for repair and/or credit.
Return material authorization or return merchandise authorization
(RMA)—A number usually produced to recognize and give authority for a
faulty good to be returned to a distribution center or manufacturer. A form is
generally required with a warranty/return, which helps the organization identify
the original product and the reason for return. The RPA number often acts as
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Blueprint for Success: Logistics
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an order form for the work required in repair situations or as a reference for
credit approval.
Scorecard—A performance measurement tool used to capture a summary of
the key performance indicators (KPIs) or metrics of an organization. Metrics
scorecards (dashboards) should be easy to read and usually have red, yellow, and
green indicators to flag when the organization is not meeting its targets for its
metrics. Ideally, a dashboard/ scorecard should be cross-functional in nature
and include both financial and non-financial measures. In addition, scorecards
should be reviewed regularly, at least on a monthly basis and weekly in key
functions such as manufacturing and distribution, where activities are critical to
the success of a organization. The dashboard/scorecard philosophy can also be
applied to external supply-chain partners such as suppliers to ensure that
suppliers’ objectives and practices align. Synonym: dashboard.
Stock keeping unit (SKU)—A category of unit with a unique combination of
form, fit, and function (i.e., unique components held in stock). To illustrate: If
two items are indistinguishable to the customer or if any distinguishing
characteristics visible to the customer are not important to the customer so that
the customer believes the two items to be the same, these two items are part of
the same SKU.
Supply chain—Starting with unprocessed raw materials and ending with the
final customer using the finished goods, the supply chain links many
organizations together. Also, the material and informational interchanges in the
logistical process stretching from the acquisition of raw materials to the delivery
of finished products to the end user. All suppliers, service providers, and
customers are links in the supply chain.
Third-party logistics (3PL)—Outsourcing all or much of an organization’s
logistics operations to a specialized organization.
Warehousing—The storing or holding of goods.
Warehouse management system (WMS)—The systems used in effectively
managing warehouse business processes and direct warehouse activities,
including receiving, put-away, picking, shipping, and inventory cycle counts.
Also includes support of radio-frequency communications, allowing real-time
data transfer between the system and warehouse personnel and maximizes space
and minimizes material handling by automating put-away processes.
©2011 APQC. ALL RIGHTS RESERVED.
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Blueprint for Success: Logistics
Endnotes
1
Bley, Doug. “Improving Logistics.” Strategic Finance. October 2004.
2
“Best Practices in Reverse Logistics Can Ease the Pain of Product Returns” Supply Chain
Brain. Oct. 2007.
3
Manrodt, Karl B., Tillman, Joseph M., and Vitasek, Kate L. “DC Measures 2010.” WERC
Watch. May 2010.
4
“Best Practices in Reverse Logistics Can Ease the Pain of Product Returns” Supply Chain
Brain. Oct. 2007.
5
Bley, Doug. “Improving Logistics.” Strategic Finance. October 2004.
6
Bley, Doug. “Improving Logistics.” Strategic Finance. Oct. 2004.
7
Manrodt, Karl B., Tillman, Joseph M., and Vitasek, Kate L. “DC Measures 2010.” WERC
Watch. May 2010.
8
Manrodt, Karl and Kate Vitasek. “Global Process Standardization: A Case Study.”
Journal of Business Logistics. Volume 25, Number 1. 2004.
9
Vitasek, Kate L. “The Five Golden Rules to Transforming Outsourcing
Partnerships.” Supply Chain Europe. Volume19, Number 3, May/June 2010.
10
Vitasek, Kate L. “The Five Golden Rules to Transforming Outsourcing
Partnerships.” Supply Chain Europe. Volume19, Number 3, May/June 2010.
11
Hoffman, Kurt C. “Who’s That Behind Foster Grant’s Demand Planning?” Global
Logistics & Supply Chain Strategies. Volume 6, Number 6, June 2002.
12
Supply Chain Management Process Standards Handbook, 2nd Edition. Council of Supply
Chain Management Professionals, 2009.
13
“Toyota Tunes Up its Distribution Network.” Logistics. March 2001.
14
Harps, Leslie Hansen. “Delta Taps a Centralized Approach to Growth.” Inbound
Logistics Vol. 24, No. 3. March 2004.
15
Abbott, Jeff, Karl B. Manrodt, and Kate Vitasek. “Understanding the Lean Supply
Chain: Beginning the Journey.” 2005 Report on Lean Practices in the Supply Chain.
APICS, 2005.
16
Supply Chain Operations Reference Model Version 10.0. Supply-Chain Council, 2010.
17
“Leading Retail Distribution Practices.” Modern Materials Handling. Special
Supplement. Vol. 60, No. 1, January 2005.
18
Schultz, John D. “The Shipper Who Thinks Like a Trucker.” Logistics Management. Vol. 45,
No. 1, January 2006.
©2011 APQC. ALL RIGHTS RESERVED.
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Blueprint for Success: Logistics
19
Blackstone, John H., ed. and Cox, James F, ed. APICS Dictionary. 12th edition. APICS
Educational Society for Resource Management, 2008.
20
Supply Chain Management Process Standards Handbook, 2nd Edition. Council of Supply Chain
Management Professionals, 2009.
21
Douglas, Merrill and Joseph O’Reilly. “Simplified Sorting.” Inbound Logistics Vol. 29, No.
7, July 2009.
22
Trebilcock, Bob. “RFID Update.” Modern Materials Handling. Vol. 65, No. 11, November
2010.
23
Hardgrave, Bill. “Item-Level RFID Applications in Retail.” CSCMP Explores. Vol. 7,
Summer 2010.
24
Hardgrave, Bill. “Item-Level RFID Applications in Retail.” CSCMP Explores. Vol. 7,
Summer 2010.
25
Trebilcock, Bob. “Managing Returns with WMS.” Modern Materials Handling. Vol. 59, No.
10, Oct. 2004.
26
Trebilcock, Bob. “Managing Returns with WMS.” Modern Materials Handling. Vol. 59, No.
10, Oct. 2004.
27
Riedel, Mark. “Turning Returns to Profits.” Traffic World Vol. 268, No. 26, June 2004.
28
Weinstein, Margery. “Cultivating Happier Returns.” Catalog Age. Vol. 21, No. 9, August
2004.
29
Berman, Jeff. “3PL News: Armstrong says 2009 3PL revenues down 15.1 percent.”
Logistics Management, May 2010 (retrieved December 2010).
30
Foster, Thomas. “Mid-Market 3PLs, Offering Many Services, Are on the Rise.” Global
Logistics & Supply, Aug. 2005.
31 Cook,
James A. “Why Hercules Outsourced Its Labors.” Logistics Management. April 2004.
©2011 APQC. ALL RIGHTS RESERVED.
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