Strategic Supply Chain Management - Supply Chain Online

210 Strategic Supply Chain Management
“on-time delivery” was based on the percentage of products received by
customers within one day of the order being placed. However, while the
business units reported good results, customers were complaining about
delivery performance, and a customer satisfaction survey showed that the
company was performing worse than its competition.
A closer look revealed that the order desk used a default of next-day
delivery except when a product was not available. Products were considered
available if they were either in a local distribution center or scheduled
to arrive the next day. Customers who ordered a product that was not
available were given an estimate of when it would be delivered.
Of course, customers expected delivery the next day or on the estimated
date provided by the order desk. They measured on-time performance
based on these dates, as did the industry association that reported
customer satisfaction data. The company, on the other hand, based its calculations
on the assumption that only products that were not available at
the time the order was placed had missed their target. Missed “next day”
deliveries were not tracked, nor were failures to meet the estimated dates
provided when the requested products were not available immediately. In
addition, business units calculated their performance on a per-item basis,
whereas customers based their measurement on whether or not the entire
order was received on time.
Following this analysis, management established two new metrics
for order-delivery performance. The first was on-time delivery to commit,
defined as the percentage of complete orders received by customers on the
delivery date that the company committed to. When a later delivery date
was requested by the customer, the commit date was updated accordingly.
The second metric, order-fulfillment cycle time, tracked the elapsed time
between when an order was received by the company and when the product
was delivered to the location specified by the customer.
Interestingly, by analyzing the discrepancy between performance as
reported by the business units and performance as reported by customers, the
company made a valuable discovery: Customers valued an accurate delivery
date for their entire order more than they valued 24-hour turnaround. This
insight led the company to reassess its entire service-level strategy.
CASE IN POINT: PERFORMANCE MANAGEMENT AT 3COM
In 2003, 3Com Corporation, a leading maker of networking products, set
out to develop a way to use performance management to help execute its
business strategy. The company’s sales, marketing, product management,