Hashmi, Sara Ahmad

Zhang, Weiwei

DSpace@MIT

MIT	Global	Scale	Network	MIT SCALE RESEARCH REPORT The MIT Global Supply Chain and Logistics Excellence (SCALE) Network is an international alliance of leading-edge research and education centers, dedicated to the development and dissemination of global innovation in supply chain and logistics. The Global SCALE Network allows faculty, researchers, students, and affiliated companies from all six centers around the world to pool their expertise and collaborate on projects that will create supply chain and logistics innovations with global applications. This reprint is intended to communicate research results of innovative supply chain research completed by faculty, researchers, and students of the Global SCALE Network, thereby contributing to the greater public knowledge about supply chains.  For more information, contact MIT Global SCALE Network Postal Address:  Massachusetts Institute of Technology 77 Massachusetts Avenue, Cambridge, MA 02139 (USA) Location:  Building E40, Room 267 1 Amherst St.  Access:  Telephone: +1 617-253-5320 Fax: +1 617-253-4560 Email: scale@mit.edu Website: scale.mit.edu Research Report: MISI-2016-5Performance Metrics for Food & Beverage Supply ChainsSara Ahmad Hashmi and Weiwei Zhang	MIT	Global	Scale	Network	 For full thesis version please contact: Professor Shardul Phadnis Director of Research MISI No. 2A, Persiaran Tebar Layar, Seksyen U8, Bukit Jelutong, Shah Alam, 40150 Selangor, Malaysia. Phone: +6 03 7841 4845 Email: sphadnis@misi.edu.my           By Sara Ahmad Hashmi and ZHANG Weiwei Thesis Advisor: Dr. Asad Ata  Summary: This research is performed to identify key performance indicators (KPIs) for Food and Beverage (F&B) supply chains at a strategic decision-making level. By interviewing subject matter experts from academia and a global F&B company in China, this research provides a framework of prioritizing KPIs for F&B supply chains. The results obtained from the methodology have been analyzed to provide recommendations to the sponsor about the importance and implementation along with the ownership of the KPIs with the help of a RACI  (Responsibility, Accountability, Consulted, Informed) responsibility matrix.     Sara Ahmad Hashmi received a Bachelor of Engineering in Electrical from the University of Engineering and Technology Lahore, Pakistan. Prior to the SCM program, she was a Procurement Engineer in Descon Engineering Ltd in Lahore, Pakistan.     Weiwei Zhang received a Bachelor degree in business management from North China Electric Power University. Prior to the SCM program, she worked as a financial analyst for several multi-national companies before changing career to supply chain field.       Introduction  “Coffee Cup” is a global Food & Beverage (F&B) company with more than 24,000 stores in around 70 countries. They recently ventured in to China, which is a relatively newer market to them. They have around 1,700 stores in more than 90 cities in Mainland China with around 25,000 supply chain partners. China operations are run through three Distribution Centres, located in Shanghai, Beijing and Guangzhou with 10 satellite frozen depots in Beijing, Xi’an, Wuhan, Chengdu, Chongqing, Xiamen, Guangzhou, Kunming, Nanning and Haikou. “Coffee Cup” is in the phase of expanding its operations and business in China. Their vision is to provide “Best-in-Class Services and Operations” to its customers. Despite their global operations, “Coffee Cup” needs to establish a performance measurement system with relevant key performance indices (KPIs) to support its vision and objectives in China, as the already established KPIs are insufficient to address the diversity of suppliers, varied business nature compared to other regions, tastes and cultural differences and sustainable growth. So, “Coffee Cup” wants to set up its performance measurement system with KPIs which Performance Metrics for Food & Beverage Supply Chains KEY INSIGHTS  • The proposed framework and methodology can be used at any stage of supply chain to identify most important KPIs for supply chain. • Upstream traceability to ensure “Sustainable Sourcing” and downstream traceability to ensure “Flexibility of Service” and “Food Security” till it reaches the customer in the best quality and in appropriate time are identified as most important KPIs for F&B supply chains. • Sourcing, followed by CRM, has been identified as an imperative area to be focused upon for performance improvement, for “Coffee Cup”.  address Flexibility, Efficiency and Sustainability (FES) in its supply chain. This research intends to provide “Coffee Cup” with a set of KPIs critical to Flexibility, Efficiency and Sustainability (FES) of supply chain and recommendations related to the implementation of the KPIs in order to support their objectives in the new market, which are “Satisfied Store Partners, Fuel Profitable Growth and Proud Logistics Partners”.  Literature Review Supply Chain KPIs Characteristics & Identification  According to Beamon, (1999), a key point in the definition and implementation of supply chain metrics is that the strategic goals and the supply chain performance measures of an organization are directly linked and the later should be aligned with the former. In order to measure the performance of any supply chain, metrics have to be defined, upon which the performance of a supply chain should be gauged and have defined some rules which should be kept in context while defining the measures like Name, Objective, Measure etc.   Beamon has identified three types of performance measurements which have further sub-types based upon Resource, Output and Flexibility. Gunasekaran et al., (2004) defined supply chain performance indicators in terms of the various phases of a typical supply chain like Plan, Make, Source and Deliver and further defined sub-matrix on Tactical, Strategic and Operational levels for all of the above mentioned phases. Chan & Qi, (2003) summarized the key performance indicators (KPIs) of supply chain management initially in terms of qualitative and quantitative measures and elaborated various indicators in both of these categories. Gunasekaran et al., (2004) further state that for improved performance and optimization goals in a supply chain, improvement studies and performance measurement should be a recurring and continuous objective throughout the supply chain. And in order to attain this improvement goal, all stakeholders of the supply chain should work in close coordination and should be dedicated towards the shared objectives like customer satisfaction and enhanced competitiveness.  For F&B supply chain, Traceability and Quality  were determined as key concerns by Turi et al., (2014) for all participants and stakeholders, and emphasized on their importance through all stages of production, processing and distribution. In view of steadily increasing competition, feedback from the customers for products and services in general and the F&B industry in particular is gaining importance by the day. Qiao et al., (2015) came to an interesting conclusion: "Customers’ expectation from different regions is different; in other words, the tolerance of customers to service in developed region is generally not as sensitive as that in developing areas like West China. All these problems would be challenges for operators as well as the further topic for Chinese academia to study.” This means that an F&B business looking to expand in a less developed region should pay extra attention to customer sensitivities and preferences while designing and operating their supply chains as a small deviation from customer expecation may result in a large impact on the business and the metrics defined should be more towards establishing strategic relationship between suppliers and customers. Moreover, the metrics set should also cater the nature of the product a firm deals in.  A summary of KPIs identified through literature and categorized in to six key areas of supply chain and within three decision-making levels, i.e., Strategic, Tactical and Operational, is given in Figure 1.   Figure 1 - KPIs Identified and Categorized Methodology  This research provides a framework of identifying most relevant KPIs for F&B supply chain and  a combination of Fuzzy Triangular Sets and Analytical Hierarchy Process (AHP) is used to identify the highly weighted KPIs among the set of Strategic Level KPIs from Figure 1. Fuzzy Set Theory eliminates the bias of opinion of the evaluators, while through AHP, the weights are obtained for each criterion. This research provides analysis of Strategic Level KPIs, as the KPIs of a company should be aligned with its strategy, while Tactical and Operational Level KPIs are drawn from Strategic Level KPIs. The methodology of this research follows the flow provided in Figure 2.   Figure 2 - Research Methodology As depicted in Figure 2, (1) The scope, objective and background is stated initially, followed by secondary data collection, which in this case is the previous research done by researchers in the field of supply chain.  (2) Through secondary data (Literature Review), a list of KPIs is prepared. (3) KPIs are shortlisted and only Strategic Level KPIs are used for the analysis. Primary Data in the form of input from “Coffee Cup” is obtained for Strategic Level KPIs. (4) A combination of Fuzzy Set Theory (FST) and Analytical Hierarchy Process (AHP), named Fuzzy Analytical Hierarchy Process (FAHP) is used as a tool in this research. As per FAHP’s requirements to prioritize KPIs by assigning them weights, primary data is collected from SMEs in the form of Fuzzy input. This primary data is serving as a principal input to FAHP.  (5) FAHP calculates weightage of each KPI based upon the input. (6) As part of this research methodology, the highly weighted KPIs have been analyzed to emphasize their importance for the industry and for “Coffee Cup”. (7) The results of testing pilot data through this methodology are summarized and discussed. (8) This analysis of most important KPIs is further used to provide recommendations on using these KPIs along with their ownership and accountability, to “Coffee Cup”.  A breakdown of Strategic Level KPIs in FES is given in Figure 3.   Figure 3 - Flexibility, Efficiency & Sustainability KPIs  SMEs input from both, i.e., F&B industry and Academia is obtained to calculate weightages of Strategic Level KPIs through Fuzzy Analytical Hierarchy Process (FAHP) within FES. The results obtained are summarized below:   Table 1 - Analysis Results for Flexibility, Efficiency & Sustainability KPIs The analysis shows that in Flexibility, “Flexibility of Service” has been identified as the highly weighted KPI followed by “Product Selection”. In Efficiency, “Food Security” was ranked as the most important KPI followed by “Reliability”. In Sustainability, “Suppliers’ Traceability and Material Quality” were identified as highly weighted KPI. As a result, “Sourcing” and “CRM” have been identified as the Group KPIs Area WeightageFlexibility of Service CRM 26%Product Selection CRM 19%Delivery Performance Outbound Logistics 15%Interaction via S&OP Demand Planning 12%Supplier Relationship Sourcing 12%Cycle Time Warehouse 9%LT compared to Industry Standard Sourcing 7%Total %age 100%Food Security Outbound Logistics 23%Reliability CRM 17%Return on Investment ALL 16%Service Level CRM 16%Storage Conditions Warehouse 9%Storage Cost Warehouse 9%Forecast Level Demand Planning 6%Traceability Inbound Logistics 4%Total %age 100%Suppliers' Traceability Sourcing 37%Material Quality Sourcing 34%CO2  Emission Logistics 17%Product Selection CRM 12%Total %age 100%FlexibilityEfficiencySustainabilitymost critical areas in supply chain to be focused upon by “Coffee Cup”, as shown in Figure 4.    Figure 4 - KPIs priority after Analysis A proposal for implementing and assigning the ownership of KPIS is provided in Table 2.   Table 2 - RACI Table for KPIs Ownership Conclusion  For a F&B company to get a competitive edge in new markets like China, it needs to focus on establishing a strong performance measurement system with accountability and result-oriented approach. The KPIs defined for this system should be aligned with the supply chain strategy, which supports the overall vision of the firm. In a developing region, like China, F&B firms need to focus more on building relationships with suppliers and customers. Effective communication on both ends of the supply chain helps in maintaining a check on material sourcing means and quality and ensures the optimality of the services being provided to the consumers. A comprehensive set of KPIs is mandatory to implement to achieve it. Upstream traceability to ensure ethical sourcing and material quality, while downstream traceability to ensure food security and flexibility of service is vital for sponsor company for performance improvement. Even within a broad list of KPIs, there are some five to six metrics which are of high importance to the company. These metrics should be identified through some in-depth analysis and should be assigned an ownership so as to measure the impacts and ensure the implementation. This way, the performance measurement system should be made effective with monitoring, reporting and continuous improvement.  References − Beamon, B. M. (1999). Measuring supply chain Performance. Ohio, USA: University of Cincinnati, Cincinnati. − Chan, F. T., & Qi, H. (2003). An innovative performance measurement method for supply chain management. Supply Chain Management : An International Journal Volume 8 . Number 3, 209-223. − Gunasekaran, A., Patel, C., & McGaughey, R. E. (2004). A Framework for Supply Chain Performance Measurement. Int. J. Production Economics 87 (2004), 333–347. − Lohman, C., Fortuin, L., & Wouters, M. (2004). Designing a performance measurement system: a case Study. European Journal of Operational Research. − Qiao, L., Dawei, Z., & Xin, S. (2015). Evaluation on Service Ability of Agri-Food Supply Chain. The Open Cybernetics & Systemics Journal, 2015, 9, 986-991. − Turi, A., Goncalves, G., & Mocana, M. (2014). Challenges and competitiveness indicators for the sustainable development of the supply chain in food industry. Procedia - Social and Behavioral Sciences 124 (2014) 133 – 141.     PurchasingProductionLogisticsFlexibility of Service Maintaining promised Fill Rate A R R CProduct Selection Product Introduction and development A I R CDelivery Performance No. of on time deliveries to retail stores A C R IInteraction via S&OP Supply & Demand synchronization A C R ISupplier Relationship Establishing Strategic Relationships conducive to flexible operations A R R C ICycle Time Flexible & Efficient process to meet set cycle time A C R R ILT compared to Industry Standard LT as per industry norms A R C I I CFood Security Elimination of contamination & Theft risks A R R C IReliability Fulfillment of promises to customers A R C R C IReturn on Investment Higher Profit compared to investment R C C R A IService Level Maintaining promised Service Level A I C R RStorage Conditions Adequate arrangements to maintain quality during storage A C C R IStorage Cost Continuous efforts to optimize storage cost A R C R IForecast Level Efficient way of forecasting as per firm's needs A R R C ITraceability Visibility of shipment from start to end A R R C ISuppliers' Traceability Visibility of sourcing from all tiers of suppliers A R C I I IMaterial Quality Continuous Quality checks to ensure promised quality A R R C I ICO2 Emission Monitoring and putting efforts to reduce emission levels from operations A R R CProduct Selection (Sustainability) Efforts towards development of environment friendly products A C I I RSupply ChainResponsibility Assignment MatrixKPIs Examples of Key MetricsSales & MarketingFinanceR&DSupply ChainS – Sourcing W – Warehouse  L – Inbound & Outbound Logistics  D – Demand Planning  C – CRM 

Performance Metrics for Food & Beverage Supply Chains

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Performance Metrics for Food & Beverage Supply Chains

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