Key Performance Indicators in the Food Supply Chain

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1 INTRODUCTION 2,1 1 Background 2,1 2 Environmental pressures 4. 1 3 Logistical trends 4,1 4 Performance measurement in logistics 6. 1 5 Choice of Key Performance Indicators 7,1 6 Survey methodology 9. 1 7 Composition of the sample 10,2 SURVEY RESULTS 14. 2 1 Vehicle fill 15,2 2 Empty running and return of empties 18.
2 3 Time utilisation 20,2 4 Deviations from schedule 24. 2 5 Fuel efficiency 27,3 SUMMARY 32,4 FUTURE DEVELOPMENT OF THE KPI INITIATIVE 34. References 36,Acknowledgement and contact details 37. 1 Modifications to the 1998 KPI survey 38, 2 Results of a follow up survey of participants 39. 3 List of participants 44,1 Introduction,1 1 Background.
Companies have come under mounting pressure to improve the fuel efficiency of their road. freight transport operations As fuel typically accounts for 25 30 of the cost of operating a. heavy goods vehicle reductions in the fuel bill can have a significant impact on total transport. costs By economising on fuel use companies can also make an important contribution to the. national policy goal of cutting emissions of exhaust pollutants and carbon dioxide. Through its Energy Efficiency Best Practice Programme EEBPP the government has been. providing companies with impartial authoritative information on energy efficiency techniques. and technologies This has disseminated the results of research on fuel consumption in the road. freight sector In the 1960s and 70s much of this research focused on engine design and. performance Later work examined the aerodynamic profiling of the vehicle chassis In the early. 1990s efforts were made to supplement these technical measures with new management. initiatives particularly on driver training driver incentive schemes and fuel monitoring These. were extended into broader fleet management programmes which give much greater. prominence to fuel efficiency in vehicle purchase decisions vehicle maintenance and load. Up until the 1990s most fuel efficiency measures were confined to the transport operation By. this time however many companies were managing their transport within a broader logistical. framework with the aim of improving the co ordination between warehousing inventory. management production planning and customer service A study which we undertook for the. EEBPP in 1995 6 examined the effects of wider logistical trends on fuel consumption in the. road freight sector and indicated how by changing the structure and operation of their logistical. systems companies could economise not just on fuel but on their overall demand for freight. transport 1 This suggested that the objective should not simply be to reduce fuel consumption. per km travelled but also to reduce the number of vehicle kms travelled in distributing a given. amount of product Most of the logistical measures identified by this research could be adopted. by individual companies These were publicised in an EEBPP leaflet published in 1996 2. It has become increasingly apparent however that while individual companies can make. substantial savings in fuel use much greater gains can be achieved at a supply chain level where. trading partners are prepared to work together to improve transport efficiency After all the. efficiency with which a company operates its vehicles is inevitably constrained by the. requirements of suppliers distributors and customers above and below it in the supply chain. With the development of supply chain management and efficient consumer response ECR. companies at different stages in the supply chain have been trying to co ordinate their logistical. activities primarily with the goal of minimising inventory The aim is now to exploit this closer. supply chain co operation to achieve better utilisation of transport capacity and thereby reduce. the energy intensity of distribution operations, The energy savings accruing from broader supply chain initiatives are likely to be greater in some. sectors than others The food and drink sector was considered to offer good potential for three. 1 It accounts for almost a quarter of all the freight movement by road in the UK measured in. tonne kms 3, 2 It is one of the fastest growing categories of road freight traffic. 3 Around 15 of food movements require temperature control and this proportion is steadily. rising as an increasingly large share of food expenditure is going on fresh chilled and frozen. products It has been estimated that refrigeration accounts for around 40 of total energy. consumption in the frozen food supply chain This is therefore a sector which is. intrinsically energy intensive, Refrigerated trailers also cost twice as much as conventional box trailers to buy and are 15 20. more expensive to operate 4 Concern has also been expressed about the high level of noxious. emissions from vehicle refrigeration units which are not subject to the European emission. standards apply that to tractor engines and tend to use dirtier fuel. The Cold Storage and Distribution Federation CSDF whose members are involved in. temperature controlled distribution at different levels of the supply chain has actively promoted. collaborative initiatives designed to improve the utilisation of refrigerated vehicles Working in. association with the EEBPP it has sought to develop a standard set of Key Performance. Indicators KPIs which can be used to measure transport efficiency both at company and. sectoral levels In 1997 we were commissioned by ETSU which manages the EEBBP to assist. with the development of these KPIs and to organise a survey of the transport operations of a. sample of companies in the frozen food sector to test the KPI methodology Eleven companies. participated in this pilot survey and agreed to monitor the activities of their fleets over a 48 hour. period in October 1997, The results of this survey were summarised in two earlier reports 5 6 and discussed at length with. participating companies and other interested parties Following this consultation process it was. decided to repeat the exercise in October 1998 with a much larger sample of fleets carrying. ambient and chilled food products as well as frozen Summary results of this survey were. published as an EEBPP Energy Consumption Guide earlier this year 7 This report presents the. results of a more detailed analysis of the KPI data. 1 2 Environmental Pressures, Increasing priority is being given to the reduction in noxious emissions from heavy goods.
vehicles chiefly NOx and PM10s As a result of the wider adoption of vehicles meeting higher. Euro emission standards emissions of these pollutants are expected to fall sharply over the next. 5 6 years 8 The continuing growth of CO2 emissions from the road freight sector is a more. serious cause for concern The Government has set a target of reducing CO2 emissions by 20. between 1996 and 2010 Lorries account for around 5 of total CO2 emissions in the UK and. this proportion is expected to grow, Serious concern has also been expressed about increasing traffic congestion It has been. predicted that traffic congestion on the motorway network will be roughly 20 worse in 2007. than in 1997 9 Such congestion can significantly inflate transport costs and reduce the. productivity of production and distribution operations Supply chain initiatives can ease the. effects of congestion in several ways By raising vehicle load factors and reducing empty running. they can slacken the rate of lorry traffic growth They can also result in the rescheduling of. deliveries to off peak periods and through improved communication between supplier and. customer provide more information on the progress of vehicles across the road network. 1 3 Logistical Trends, While environmental pressures to cut emissions have been intensifying logistical pressures to cut. inventory improve warehouse productivity and improve customer service have been depressing. load factors and making it more difficult for companies to schedule their vehicles efficiently. Within the fast moving consumer goods FMCF sector application of the quick response. principle has been of shortening order lead times increasing delivery frequency and declining. order sizes A survey of forty four frozen food manufacturers in the UK in 1998 showed how. the move to quick response replenishment is affecting logistical operations 10 Table 1. Table 1 Past and predicted trends in key logistical variables. 1995 1998 2001,Average order lead time days 6 0 3 8 3 1. Average frequency of delivery per week 2 1 3 4 4 3. Average consignment size pallet loads 11 8 10 1 8 6. In the absence of load consolidation initiatives these trends will depress load factors and vehicle. productivity Many firms have observed that there is a discontinuity in the delivery cost curve. causing unit delivery costs per pallet to rise dramatically when drop size falls below a certain. threshold Increased frequency of delivery is also straining reception facitilites at distribution. centres creating the need for tighter scheduling of inbound flows and often causing delays. These scheduling constraints can limit opportunities for return loading and the development of. complex multiple collection and delivery routes which can make more effective use of vehicle. A conflict has emerged therefore between the desire to make distribution operations more. environmentally sustainable and the drive for quick response replenishment Supply chain co. ordination can help to reconcile these conflicting objectives by helping to maintain or improve. vehicle utilisation, Collaboration between companies at different levels of the supply chain has traditionally been. inhibited however by three factors, 1 The adversarial nature of the trading relationships and mutual fear that one party will behave.
opportunistically and capture an unfair share of the benefits. 2 The absence of an organisational framework within which companies can openly exchange. views develop joint initiatives and benchmark their operations. 3 Uncertainty about each company s current level of transport efficiency and the overall. efficiency of freight movement across the supply chain. The CSDF has successfully fostered a spirit of openness and co operation among a large group. of companies engaged in the distribution of frozen food and thus helped to overcome the first. two constraints In helping to develop a series of KPIs it has addressed the third constraint. creating a standard yardstick against which firms can measure their performance. 1 4 Performance Measurement in Logistics, The use of KPIs to monitor the efficiency and effectiveness of logistics is discussed at length by. the Nevem Workgroup 11 Caplice and Sheffi 12 and Ploos van Amstel and D hert 13 Long lists. of possible KPIs have been compiled to assess the performance of virtually every aspect of a. logistical operation, The selection of KPIs for the present study was tightly restricted in several respects First they. related solely to the transport function Second it was decided to exclude any reference to the. cost of transport operations as many companies would consider this sensitive information and. as a consequence be discouraged from participating The KPIs were designed therefore to. measure operational rather than commercial performance Third unlike many performance. measurement systems which are internal to a single business and thus tailored to its. requirements the KPIs adopted for this project had to win acceptance from firms across a. whole sector They had also to relate to the wider impact of transport operations on the. environment in contrast to many of the traditional metrics which are concerned only with. economic efficiency, Caplice and Sheffi have differentiated three types of logistical KPI. Utilisation indices which measure input usage and are usually expressed as a ratio of the actual. input of resources to some normative value This norm might for instance be the maximum. carrying capacity of a vehicle, Productivity indices which measure transformational efficiency and typically take the form of. input output ratios, Effectiveness indices which measure the quality of process output as a ratio of the actual quality.
achieved to some norm, Our survey employed all three types of KPIs ensuring that the assessment was broadly based. and concerned with both inputs and outputs Although the project had an important. environmental dimension no attempt was made to define energy or emission standards for road. freight operations Swedish research14 has established such standards for freight transport. operations which would cut the use of non renewable energy and emissions of air pollutants to. sustainable levels The present study was concerned with the relative energy intensity of. companies road freight operations rather than with absolute energy efficiency targets. Discussions were held with senior managers of manufacturing retailing and logistics providers. heavily involved in food distribution to canvas their opinions on possible KPIs At a think tank. session they debated the various options and examined the practical problems they might. present The derivation of the KPIs was therefore a bottom up exercise involving close. consultation with industry The KPIs had to meet several requirements They had to be. defined in clear and unambiguous terms so that they could be easily understood by staff. responsible for data collection,capable of direct and deta. measure operational rather than commercial performance Third unlike many performance measurement systems which are internal to a single business and thus tailored to its requirements theKPIs adopted for this project had to win acceptance from firms across a whole sector They had also to relate to the wider impact of transport operations

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