Improving On-Time Delivery

Customer ABC Classifications

and Standard Lead Times

Presented to Western Mass. APICS Chapter #19

By Thomas G. Cantin, CPIM

Copyright 2010 All rights reserved

ABC Classifications

• Inventory ABC Classifications

A - 20% of items represent 80% of $

B - 30% of items represent 15% of $

C - 50% of items represent 5% of $

• Customer ABC Classification

Based upon total sales revenue

Use yearly totals to avoid seasonality

Rankings may be modified

ABC Customer Classification

QUANTITY RUNNING REVENUE RUNNING

Units Total Percentage Dollars Total Percentage

A WORLWIDE EMPORIUM 207,771 207,771 28.2% $548,530.92 $548,530.92 15.8%

A ROCK SOLID 73,921 281,692 38.2% $412,269.68 $960,800.60 27.6%

A BELLA VILLA 70,840 352,532 47.8% $456,253.76 $1,417,054.36 40.7%

A CAPITAL COMPANY 66,504 419,036 56.9% $189,368.40 $1,606,422.76 46.1%

A DANUBE INC. 54,209 473,245 64.2% $312,204.23 $1,918,626.99 55.1%

A RED ZINGER 52,756 526,001 71.4% $214,862.36 $2,133,489.35 61.3%

A WINE & BRINE 32,634 558,635 75.8% $249,767.78 $2,383,257.13 68.5%

A BROWN & COMPANY 31,884 590,519 80.1% $163,352.48 $2,546,609.61 73.1%

A FRENCH CONNECTION 24,057 614,576 83.4% $183,439.47 $2,730,049.08 78.4%

A CAMERA WEAR 20,299 634,875 86.1% $188,737.60 $2,918,786.68 83.8%

B CTS WEATHERPROOF 17,184 652,059 88.5% $73,240.45 $2,992,027.13 85.9%

B SNOW WHITE 16,386 668,445 90.7% $57,694.38 $3,049,721.51 87.6%

Lead Times

• Planning Horizons

• Demand Rates

• Manufacturing or Service Environment

– Mass Customization

– Flow

– Cellular

– Job Shop

– Engineer to Order

– Project Management

Lead Time Calendar FEBRUARY

S M T W T F S

21 22 23 24 25 26 27

28 1 2 3 4 5 6

MARCH

S M T W T F S

7 8 9 10 11 12 13

14 15 16 17 18 19 20

21 22 23 24 25 26 27

28 29 30 31 1 2 3

Lead Time Calendar FEBRUARY

S M T W T F S

21 22 23 24 25 26 27

28 1 2 3 4 5 6

MARCH

S M T W T F S

7 8 9 10 11 12 13

14 15 16 17 18 19 20

21 22 23 24 25 26 27

28 29 30 31 1 2 3

Lead Time Calendar FEBRUARY

S M T W T F S

21 22 23 24 25 26 27

28 1 2 3 4 5 6

MARCH

S M T W T F S

7 8 9 10 11 12 13

14 15 16 17 18 19 20

21 22 23 24 25 26 27

28 29 30 31 1 2 3

Improving On-Time Delivery

• Where are you now?

• Where do you want to be?

• SMART Goal format

– Specific (by business segment or Customer)

– Measurable (is data readily available?)

– Attainable (do you have the resources?)

– Realistic (not just a hope or a dream)

– Tangible (time-based)

Starting Point

2006-2008 Actual

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

OEM

SS

OEM 90.0% 88.0% 87.9% 87.2% 74.5% 82.0%

SS 88.0% 84.0% 89.3% 87.8% 72.4% 76.8%

YE YE Q1 Q2 Q3 Q4

2006 2007 2008 2008 2008 2008

Using a Decision Map

• On-Time Delivery is one of the most

important high-level, strategic objectives.

• Must get key stakeholders involved.

• S&OP meeting is a good starting point

– Materials/Capacity

– Operations

– Sales & Customer Service

– Shipping/Logistics

Completed Decision Map

Assumptions:

A1: Material is available at each

operation as planned and scheduled.

A2: Associates are available at agreed

staffing levels with the correct skill sets.

A3: Actual customer orders and

forecasts are received far enough in

advance to allow for proper planning and

fulfillment.

A4: Product is automatically allocated by

the system.

Success Factors:

S1: Achieve On-Time delivery of:

OEM SS

January 89% 87%

February 90% 88%

March 91% 89%

Q1 90% 88%

S2: Achieve 95% (units) fill rate and

90% (item) fill rate against stocking

levels by the end of the first quarter.

Decision Objective:

What is the best way to

improve our on-time

delivery performance?

Other Objectives:

1. Institute a cycle-counting program.

2. Reduce overall inventory levels.

Option 1:

Re-allocate resources to match

production capabilities to actual

mix & volume demanded.

Option 3:

Perform value-stream mapping

in order to identify key product

families.

Option 4:

Utilize available capacity

within each product line to

support stocking levels.

Option 2:

Increase set-up reduction

efforts to provide greater

scheduling flexibility.

Constraint 4:

Provided that we can rely on

forecasts and stocking levels to

be relatively accurate.

Constraint 3:

Provided that we can minimize

the impact of non-conforming

materials.

Constraint 2:

Provided that we can avoid

overtime expenses in excess of

target (budgeted) amounts.

Constraint 1:

Provided that we understand

what the actual production rates

are for each department.

Relevant Concerns:

1. There may be (cultural) resistance

to change policies and procedures .

2. (Short) lead time expectations from

several customers.

Measuring On-Time Delivery

• Promise Dates given to Customers

• Customer Request Dates

• Customer Measurements

– By Entire Order

– By Line Item

– By Number of Units

• CAUTION: On-Time Delivery should not

be based upon revenue dollars shipped

The Seven Key Dates

• Order receipt date

• Order entry date

• Customer request date

• Promise date

• Completion date

• Allocation date

• Ship date

Backlog Profile in Trouble

Backlog Profile Thursday, 06/26/08

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Week Ending Dates

Qu

an

tity

Capacity

Promised

Capacit y 0 0 0 0 0 0 0 0 0 0 0 1,200 0 0 4,800 4,800 4,800

Promised 6 0 37 84 0 0 60 72 60 497 919 5,593 6,650 4,302 3,827 3,475 3,300

4/ 12/ 2008 4/ 19/ 2008 4/ 26/ 2008 5/ 3/ 2008 5/ 10/ 2008 5/ 17/ 2008 5/ 24/ 2008 5/ 31/ 2008 6/ 7/ 2008 6/ 14/ 2008 6/ 21/ 2008 6/ 28/ 2008 7/ 5/ 2008 7/ 12/ 2008 7/ 19/ 2008 7/ 26/ 2008 8/ 2/ 2008

Order Promising Mistakes

• Variable lead times given to Customers

– Earlier when slow; later when busy

– Erratic lead times from supply partners

• Improper planning parameters

– Throughput rates are not known

– Old data is being used

• Inconsistent processes

– Within planning and scheduling, customer service, production, etc.

Stop Making Bad Promises

• Institute a formal order promising process.

• Communicate changes to Customers.

• Focus on the Detailed Scheduling and

Planning required to keep the promises

you are making.

• Ensure that there is feedback within a

closed-loop planning system.

• Improve the processes and systems.

Expedite with Extreme Caution

• Expediting impedes normal product flows and gives rise to informal management systems (hot sheets, special lists, etc.).

• Do we understand why there was a request or need to expedite?

• When people are in a rush, they often get the (important) details wrong.

• Remember that when everything is a priority, then nothing is a priority.

Senior Management

• Outline problems identified from work that

has already been done.

• Use data and specific examples to relate

problems to resource allocation, as well as

internal results and impact on Customers.

• Prioritize proposed solutions and try to

provide multiple options instead of simple

“Yes” or “No” decisions.

OEM Data December 2008

Early On-Time 1 - 7 8 - 14 15 - 30 GT 30 Totals Early On Time Late

A Total 195,965 67,027 14,934 12,094 11,236 4,583 305,839 62.1% 24.3% 13.6%

B Total 61,656 44,672 8,398 8,748 4,342 2,090 129,906 47.5% 34.4% 18.2%

C Total 17,305 4,745 2,574 4,158 10,971 732 40,485 42.7% 11.7% 45.5%

Resource Allocation

• Focus on Real Bottlenecks.

• Dispel Myths of Artificial Bottlenecks or

Man-made constraints.

• Challenge or Confirm basic assumptions

inherent to the process.

• Be mindful of other objectives.

• Speak about what success will look like

and the benefits to be realized.

Scheduling & Loading

Two basic strategies:

1. Forward-scheduling, infinite capacity

• Earliest completion date

• Focus on material availability

• “Load-and-go” mentality

• Expedite incoming materials; chase orders

2. Backward-scheduling, finite capacity

• Latest start date

• Planned and scheduled around constraint

Order Policies & Lot Sizes

• Customer order minimums

– How do you incorporate your forecasts?

– What is your target service level?

• Production lot sizing (min./max.)

– Lot-for-lot

– Fixed order quantity

• Set-ups and change-overs

– Are they accounted for in planning?

Forecasts and Service Levels

Service Stocking Levels

60,000

70,000

80,000

90,000

100,000

110,000

120,000

Units

Net On-Hand Units 61,557 77,440 76,582 83,892 84,738 97,676 91,027 86,943 89,811 86,128 71,106 85,629 93,631

Target Stocking Level 117,497 117,497 117,497 110,607 110,607 110,607 110,607 110,607 110,607 110,607 110,607 110,607 110,607

Fill Rate 52.4% 65.9% 65.2% 75.8% 76.6% 88.3% 82.3% 78.6% 81.2% 77.9% 64.3% 77.4% 84.7%

2/24/2009 3/3/2009 3/10/2009 3/17/2009 3/24/2009 3/31/2009 4/7/2009 4/14/2009 4/21/2009 4/28/2009 5/5/2009 5/12/2009 5/19/2009

A Systematic Solution

1. Ability to review new orders against current backlog profile and lead times

2. Formal order promising policies/guidelines

3. Visibility of orders within MRP/DSP tools

4. Controlled order release

5. Ability to monitor progress of order

6. Capability of in-process corrective action

7. Meaningful metrics tracked and published

8. Continuous improvement of processes

Actual Results

2009 On-Time Delivery

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Month

On

-Tim

e D

elivery

%

OEM

SS

OEM 89.1% 96.1% 96.3% 96.9% 97.1% 98.1% 98.3% 98.8% 94.5% 97.7% 98.6% 98.7%

SS 77.8% 92.7% 92.0% 99.8% 99.5% 99.7% 100.0% 99.6% 99.7% 99.8% 99.8% 99.9%

January February March April May June July August September October November December

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