supply chain key performance indicators

8/7/2019 Supply Chain Key Performance Indicators

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We support

com anies in creatin

more value for their

customers Su l Chain Ke Performance Indicators


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2

GC&P Performance Measurement System (LOGOS)

Logistics Costs

Customer Service AnalysisSupplier Service Analysis

Vendor Rating

Cross Analysis

Cross Analysis

FactoryWHRM

WHFP

CustomersSuppliers

na ys s

OLE Anlaysis

Flow Index


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3

Customer Service: Order Line Dates

Date

Received

Date

Entered

Date

Required

Date

Promised

Date of Last

Shipment

Time

Customer Waiting Time

FLEX

Delay

Order Lead Time


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4

Customer Service: Which Indicators?

Indicators representing an average: e.g. Average customer waiting time, average flexibility,

, .

Indicators representing a percentage: e.g. On time delivery (% of order lines delivered on, ,

lead time (% of order lines delivered within a lead time of XX-days)

Note: Both the avera e and the indicators have the advanta e of bein sim le to calculate

and to understand, but at the same time they do not give a comprehensive overview of what ishappening.

Indicators represented by a histogram or curve : e.g. Customer Waiting Time Curve,

Flexibility Curve, Reliability Curve, Order Lead Time Curve, etc.

Indicators can be calculated either on the total number of order lines, or just on a few of them

(for instance: order lines of a particular product / item range, order lines by customer, orderlines related to a certain period). In such cases we speak of analysis segmentation.


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Customer Service: The 4 Service CurvesCustomer Waiting Time Curve

2000

2500

Flexibility Curve

10000

12000

A CWT Curve like this is almost To be flexible is fine, but only if the service

500

1000

1500

LineN

4000

6000

8000

LineN

impossible (one-item-only companies).But it could show more peaks as relatedto the product ranges.

policies are shared with customers. Shouldthe Flex curve be erratic, it might bedisastrous for the company!

0

1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81

Days of Customer Waiting Time

0

2000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

Days of Flexibility

Reliability Curve

3000

3500

Order Lead Time Curve

1800

2000

1500

2000

2500

LineN

600

800

1000

1200

1400

LineN

The OLT curve shape is affected by

the trend of the other three curves.

0

500

-36 -9 -5 -1 3 7 11 15 19 23 27 31 35 43 49 59 69

Da s of Dela

0

200

400

1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89

Days of Lead Time


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7

Customer Service A Real Example of Order Lead Time Curve

Service policies designed with accuracy: Someitems will be delivered in 1 week and others in2-3 weeks.

Generally speaking, customer is happy to find that service policies are well defined, ,

are delivered sooner.


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8

Customer Service: Files and Data NeededItem Master File

Item Code

Description

Customer Database

Customer Code

Company Nameant o e

Standard Cost

Lead Time

Unit of Measurement

eature ountryFeature 2 (Area)

Feature 3 (Category)

Feature 4 (Etc.)eature

Feature 2Feature 3Feature 4 (Etc.)

Order Lines

Order Number

Shipment LinesPlant Code

Warehouse Code

r er ne um er

Order DateRequired Delivery Date

Confirmed Delivery Date

pment um erShipment Line

Order Number

Order Line Number

Customer Code

Item

Plant Codepment ate

Quantity ShippedNote 1 (Order Type)Order Not Completed (Y/N Flag)Order Cancelled (Y/N Flag)

Note: All the data in the above lists can be retrieved from any information

system.


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9

Customer Service Some Tips to Consider

The fundamental service measurement indicators are:

Reliability Curve

Order Lead Time Curve

The customer waiting time and flexibility are not always possible to calculate, since thedelivery date as requested by customer is sometimes not managed by IT systems.

It could be interesting to measure the speed at which a confirmation of delivery date is

g ven to t e customer.

For a meaningful analysis, a long time frame (from 6 months to 1 year) should be

cons ere .

Indicators can be calculated on the basis of order lines, of quantities or by amount (How


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10

Customer Service Some Tips to Consider

Indicators can be calculated either in working days or calendar days.

Late deliveries do not just decrease the customer satisfaction. They can even show one or

more among the following:

1. Lack of service olicies.2. Inability to determine the delivery date.

3. Problems with the production planning.

4. Insufficient production capacity.

An erratic shape of the Order Lead Time Curve shows that a delivery date determination

policy is missing.

Beside meaning a lack of service to customers, partial deliveries cause a cost increase for

handling and transportation.

Indicators can be also used as a tool in negotiations with customers.


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11

Exercise 02-01

Draw the on time delivery Curve and the Order Lead time Curve for the Company

CINZANO

Calculate the average delay and the average order lead time

How man lines have been delivered with a dela of less than 1 week?

Is the customer service the company is providing good or not?


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12

One often-used classification is related to the flow of materials into, through, and out of a

manu ac ur ng organ za on:

Raw materials: purchased items received which have not entered the production process.

Work-in-process: raw materials that have entered the manufacturing process and are beingworked on or waiting to be worked on.

Finished goods: products that are ready to be sold as completed items.

Distribution inventories: finished oods located in the distribution s stem.

MROs: item used that do not come part of the product (maintenance supplies, spare parts and

consumables such as lubrificants, cleanin staff


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13

Wh Inventories

Anticipation inventory: inventories are built up in anticipation of future demand, for example they

are created ahead of a peak selling season.

Fluctuation inventory (safety stock): inventory is held to cover random unpredictable fluctuations

in supply and demand.

Lot-Size inventory: items purchased or manufactured in quantities greater than needed immediately

Trans ortation inventor : the exist because of the time needed to move oods from one location

to another such as from a plant to a distribution center.

Hedge inventory: some products such as minerals and commodities are traded on a worldwidemarket. The price of this products fluctuates according to orld supply and demand.

Information System data is not updated

Designers do not standardize components which causes unnecessary increases in complexity.


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The following costs are considered in inventory management decisions:

Item costs: is the price paid for a purchased item. For an item manufactured in-

house, the cost includes direct material, direct labor, and factory overheads.

Carrying costs include all expenses incurred by the firm because of the volume ofinventory carried (capital cost, storage cost, risk cost such as obsolescence, damage,

, .

Ordering costs: are those associated with placing an order either with the factory ora supp er purc ase or er cost, pro uct on contro costs, set up costs

Stockout costs: if demand during the lead time exceeds forecast we can expect astockout


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15

Inventor Mana ement - Introduction

.

Need of inventor mana ement olicies.

TO MAKE

DECISIONS

IN ORDER TO PROVIDE

THE REQUIREDWHEN TO ORDER?

ABOUT CUSTOMER SERVICEHOW MUCH TO

ORDER?


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16

Cross Analysis StepsClassify items into groups: Raw Materials (RM), Work in Process (WIP), Finished Products (FP).

Determine the average stock and annual usage per each item.

Multiply the average stock and the annual usage by the item standard cost.

Classify the items according to their annual dollar usage and average stock value.

ClA

ClB

ClC

ClDClass

AClass

BClass

CClass

D

STOC

Cl B

USAGE K

Cl D

Cl C

Class Class Class Class

STOCK

A B C D


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17

Stock Usa e

ota

Stock

Usage

Item N

Stock

Usage

IT

Item N

Stock

Usage

IT

Item N

Stock

Usage

IT

Item N

Stock

Usage

IT

Item N


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18

Turns

Total Average Stock==

, ,

1,506,061= 4 Turns / Year

What do the inventory turns mean? At the very least it means that with 1.5 M of inventory acompany is able to generate 6 M in sales.

=Total Average Stock 1.506.061

Supply Average Daily Shipments=

16.577=

(55 Working Days)

Days of Supply is a measure of the equivalent number of days of inventory on hand, based onusage.


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19

Stock Control - Files and Data Needed

Item Master File

Part Number

Stock file

Part NumberDescription

Plant Number

Standard Cost

Plant Number

Warehouse Number

Quantity on HandFeature 1 (Part Type)

Feature 2 (Category)

Feature 3 (Family)

Date

WH Transaction File

Feature 4 (Etc.)

WH Transaction type file

Transaction T e

em um er

Plant NumberWarehouse Number

DescriptionPlant Number

Warehouse Number

Quantity Handled

Transaction Date

Note: All the above data can be retrieved from any information system.


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20

Cross Analysis Some Tips to Consider

The stock for each item can be either the Average Stock or Stock on Hand. Average Stock is abetter measure.

The choice of transactions types is very important in running the cross and turns analysis.

In calculatin the item usa e do not include internal transfers.

In case the number of items having neither consumption nor stock (DD class) is high, it

might be that standard costs have not been calculated for all items.

The Cross Analysis should be run for Raw Materials (RM), Work-In-Process (WIP) andFinished Products (FP).

Flow curves show stock and lead time trends in time. The curve shape shows seasonality, the

number of orders, the number of pickings and the frequency of pickings. These arephenomena which cannot be seen in a simple Cross Analysis.

Flow curves on a single-code provide what is usually called the Item Logistics History .


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21

Exercise 02-02

.

Comment on the final results.

On which parts number would you work to increase the turnover ratio?


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22

Manufacturing Lead Time Introduction

c= op oor

= Work Center

b

=

a

Sin le Lead Time

Cumulated Lead TimeStart End

Routing a c+ b +

Flow Curves /Distribution Curves

STD Time Flow Index


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23

Manufacturing Lead Time - The 5 Elements

Manufacturing lead time is the time normally required to produce an item in a typical lot quantity.

,

order is completed and loaded into stock.

Queue Time: Amount of time the job is waiting at a work center before operation begins.

Setup Time: Time required to prepare the work center for operation.

Run Time: Time needed to run the order throu h the o eration.

Wait Time: Amount of time the job is in the work center before being moved to the nextwork center.

Move Time: Transit time between work centers.

Queue Setup Run Wait Queue Setup Run Wait

Move

Among the above elements, the only one that generates value is Run Time;all the otherelements are Waste Time.Generally speaking, 95% of the production lead time is Waste Time.


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24Manufacturing Lead Time Flow Curves

K

LoadLoad WIP/BacklogWIP/Backlog

UnloadUnloadLead TimeLead Time

tFlow Curves are the best tool to show the manufacturing lead time of a work center or of the

whole manufacturin rocess.

The main problems in using the flow curve method are: determining the initial WIP, choosing the

unit of measure and the unit of time.


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25Manufacturing Lead Time The Flow Index

Lead Time

Run Time

The Flow Index measures the relationship between Lead Time and Run Time.A Flow Index of 10 means that for each cycle time unit there are 10 lead time units. In other words: for each

, .


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26Manufacturing Lead Time A Flow

n ex a cu at on xamp eSeq

Descri tionAvg

RT minRT Avg Lot LRT LRT

u. ays s ze pcs m n ays

15 Hydraulic Presses 7,6 55 0,115 76 4.201 9

20 Preparations 6,4 18 0,038 89 1.605 3

25 Automatic welding 10,0 44 0,092 8 334 1

30 Manual welding 5,7 38 0,079 14 549 1

35 Turning 5,8 120 0,250 39 4.681 10

40 Drilling and riveting 3,7 137 0,285 10 1.404 3

45 Intermediate check 3,5 12 0,025 8 96 0

ec rop ores s p an , ,

55 Transit 1,8 0 0,000 0 0 060 Final check 3,9 12 0,025 6 69 0

TOT 51,0 512 1,067 13.550 28

FI = a / b = 47.8

T


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27Manufacturing Lead Time Files and Data

Item Master FilePart Number

Description

Work Center Master FileWork Center Number

DescriptionPlant Codestandard Cost

Lead Time

Unit of Measurement

Routing FilePart Number

Work Center NumberFeature 1 (Part Type)

Feature 2 (Category)Feature 3 (Family)Feature 4 (Etc.)

Sequence

Run TimeSetup Time

Shop Order NumberPart NumberOrder Quantity

Shop Order Detail FileShop Order NumberPart Number

uan y omp e e

Quantity ScrappedBalanced Due

Shop Order Date

Operation NumberActual Setup TimeActual Run Time

Initial Dateop r er ue a eCompletion Date

Note: The data needed for Manufacturing Lead Time measurement are normally available in companies

Finish Date

.


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Manufacturing Lead Time A Few Tips to Consider

In order to reduce Manufacturing Lead Time, it is important to consider the following

manufacturing system items:

Layout

Capacity balance between processes (if processes are linked, a lack of balance causes

Waiting Time)

Planning and control tools

Lot size (the bigger the lot, the longer the Manufacturing Lead Time)


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Machine Efficiency Overall Equipment Effectiveness Ratio (OEE)

OEE is a method to measure the overall effectiveness of equipment. It is calculated by.

Availability Ratio

Performance Ratio

ualit Ratio

Normaly OEE is presented as a percentage.


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Efficiency Overall Equipment Effectiveness Ratio (OEE)

Potential Time

Potential Time: 24h a day X 365 days

Theoretical Available Time

Theoretical available time: (potential time days closed, hours not worked, planned maintenance)

Available Time: (theoretical available time -available time not used)

Ex: (480 m - 60 m) = 420Available time

Availability ratio: (Available time Downtime/Available time)

- =

SetupsBreakdownsWorking Time

Minor Stoppages

,

Efficiency ratio: (Run Time X totalproduction/working time)

Startup

Net Working

Reduced Speed Ex: (0,6m/units X 358 units) / 390 m = 55,1%

Real

Quality ratio: (total production defects)/Totalproduction

TimeEx: (358 units 5 units) / 358 units = 98,6%


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Efficiency Overall Equipment Effectiveness Ratio (OEE)

Work Center XY

OEE= Availability ratio X Performance ratio X quality ratio=50,4% = Production Time

Analisi delle Perdite Linea XY

29%

27%

79%

86%93%

97%99% 100%

30%

35%

70%

80%

90%

% % cum

23%

56%

15%

20%

25%

40%

50%

60%

Losses Analysis

7% 6%4%

2%

29%

5%

10%

10%

20%

30%

0%

Cambio Bobina e

setup

Regolazione e

verifica taraturatecnica

Fermo macchina

per avaria

Manutenzione

Ordinaria

Mancanza qualit

stampa

Mancanza

alimentazione dastampante

TPM Addestramento

0%


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100%100%


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Example 2: Stamping

100%100%


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Exam le 3: In ection Mouldin

100%100%


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Attivit Ore Peso%TempoT

otOEE

STAMPAGGIO 19.949 65,47% 30.471 VERO

Mancanza Personale 4.155 13,64% 30.471 VERO

Mancanza Ordini 2.828 9,28% 30.471 FALSO

Prova Stampi 1.361 4,47% 30.471 VERO

Cambi Stampo 380 1,25% 30.471 VERO

Fermi Straordinari 320 1,05% 30.471 FALSO

Cambi Colore 313 1,03% 30.471 VEROPausa Pranzo/Cena 231 0,76% 30.471 VERO

Guasti Stampo (Almeno 10 Minuti) 228 0,75% 30.471 VERO

30 471 VERO , .

Guasti Macchina (Almeno 10 Minuti) 201 0,66% 30.471 VERO

Mancanza Stampo Da Officina 77 0,25% 30.471 VERO

Pulizia (Gruppo Iniezione, Cilindro) 64 0,21% 30.471 VERO

Mancanza Componenti 47 0,15% 30.471 VERORegolazioni 47 0,15% 30.471 VERO

Guasti Robot (Almeno 10 Minuti) 26 0,09% 30.471 VERO

Materiale Difettoso 13 0,04% 30.471 VERO

Pulizia Macchina 4 0,01% 30.471 VERO

Pulizia Stam o 3 0 01% 30.471 VERO

Prova Colori 2 0,00% 30.471 VERO

Mancanza Attrezzisti 1 0,00% 30.471 VERO

TOT PERDITE 10.521 34,53%

6


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36Efficiency Files and Data Needed

Shop CalendarWork Center NumberWeek

Item Master FilePart NumberDescription

Work Center Master FileWork Center NumberDescription

DayShiftWorkstation Code

Available Time

Plant Codestandard CostLead Time

Unit of Measurement

Routing FilePart Number

Work Center NumberFeature 1 (Part Type)Feature 2 (Category)

Feature 3 (Family)Feature 4 (Etc.)

Sequence

Run TimeSetup Time

Waste Type FileWorkstation NumberWaist Type

Shop Order Master FileShop Order Number

Part NumberOrder uantit

Shop Order Detail FileShop Order NumberPart Number

Item Number

Shop Order NumberQuantity Completed

Quantity Completed

Quantity ScrappedBalanced Due

Sho Order Date

Actual Setup TimeActual Run TimeInitial Date

uant ty crappeTime

Shop Order Due DateCompletion Date

Note: Data needed for the OEE calculations are not eas to collect. Usuall theOEE is used by companies with very advanced manufacturing systems.

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37Focus - Total Productive Maintenance

Eliminate machine stoppages with Total Productive Maintenance (TPM).

Would not it be great if you had a maintenance program that fixed your equipment before it broke?Because when your equipment is running as it should, you make products, meet deadlines and make moneywhile keeping customers happy. But if a machine breaks, it is not making you money it is costing you

money. It hits Lean Manufacturing companies even harder. Lean systems minimize excess capacity and. , .warning signs that you need help:

Equipment experiences unexplained shut-downs and failures or needs constant repair.Equipment operates at a slower speed than designed.

Productivity decreases due to machine-related problems.

.is 37%. That means the machinery is averaging only 22 minutes of operation out of every hour!

The Answer is Total Productive Maintenance (TPM).The TPM system addresses your production operation with a solid, team-based program that is proactiveinstead of reactive. It helps eliminate losses, whether from breakdowns, defects or accidents, etc.

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Focus - Total Productive Maintenance

TPM begins by measuring and analyzing your Overall Equipment Effectiveness (OEE). This not only helps diagnose problems,but also becomes the measurement to determine how successful TPM efforts are.

TPM then introduces the concept of Autonomous Maintenance, with machine operators as key members of the maintenance. , , , .

operators know their machines better than anyone. They can tell if their machine is not working perfectly, often from just the

sound or feel. They can alert maintenance people and provide excellent information. Also, when they perform routine

maintenance and lubrication, they become process owners while relieving skilled trades of simple yet time-consuming jobs., ,

maintenance quick and easy.The Big Six Wastes

TPM will also teach you how to recognize the Big Six equipment-related wastes and how to minimize them:

, , , , ,Properly implemented, TPM eliminates machine-related bottlenecks that hold up your processes and torpedo your productivity.In addition, TPM will help you achieve:

Improved machine reliability

Increased capacity without purchasing additional machines or sacrificing additional floor space

Improved teamwork between machine operators and maintenance peopleImproved safety

-A more involved, creative workforceThe ability to re-allocate your skilled workforce by having machine operators perform routine maintenanceDr. Sengupta(CEO Dr. Sengupta and Associates)

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Supplier Service

PurchaseRequisition Date

Order EntryDate

DateNeeded

DatePromised

Date Received

Paper cycle

Time

Waiting time

FLEX

Reliability

Supplier Lead Time

.

40


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40Supplier Service Files and Data Needed

Supplier Data BaseSupplier NumberCom an Name

Item Master FilePart NumberDescri tion

Feature 1Feature 2

Feature 3

Plant Numberstandard Cost

Lead Timeea ure

Purchasing Order File

n t o easurementFeature 1 (Part Type)Feature 2 (Category)Feature 3 Famil

r er ype

Order NumberOrder DateDate Needed

Goods Received File

Bill Number

Feature 4 (Etc.)

Date PromisedSupplier CodeItem Number

Order NumberOrder DateItem Number

Unit PriceReceived QuantityDate ReceivedWarehouse Number

Note: All the above data can be retrieved from any information system.

41S li S i A F Ti C id


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41Supplier Service A Few Tips to Consider

e purc as ng o ce s overw e me y a y rout ne act v t es, suc as rece v ng, expe t ng,

etc. Little time is actually spent on selection and evaluation of suppliers or on stock levelanalysis.

The basic indicators to measure supplier service are On-Time Delivery and Order Lead Time.

Comparing the System Lead Time and Actual Lead Time can be of especial interest and can.

In order to get significant results from the analysis, it is necessary to take into account a timespan of at least 6 months, 1 year.

Indicators can be calculated on the basis of either order lines, volumes or value.

Indicators can be ex ressed in either workin da s or calendar da s.

Partial deliveries can affect both production and customer service. They can also cause areceiving and handling cost increase.

Indicators can be used as a tool in negotiations with suppliers.

All of the above can be applied to subcontractors, too.

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4

Vendor Rating

43Logistics Costs


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Logistics Costs

P & L of the logisticsP & L of the logistics

Operating Cost Revenues

Operations CostGeneral & Administrative

ater a s an

SubcontractorsLaborLogistic Cost Overhead

Inbound logistic Cost Internal Logistic Cost Outbound Logistic Cost

44L i i C


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Logistics Costs

Inbound Logistic Cost Internal Logistic Cost Outbound Logistic Cost

1. Personnel

(purchasing, stores

1. Personnel (planning

and control, stores

1. Personnel (customer

service, stores && inventory

personnel)

2. Warehouse

& inventory

personnel)

2. Warehouse

inventory personnel)

2. Warehouse

E ui ment

Equipment

3. Rents

Equipment

3. Rents3. Rents

4. Outbound

4. Inbound

Transportation

4. Inventory

Opportunity Cost

Transportation

5. Distribution Centers

.Opportunity Cost

6. Inventory

Opportunity Cost

45P f M t R f T bl


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Performance Measurement Reference Table

Customer On-Time Delivery > 95%

Company Inventory Turns > 10

Flow Index < 10

OEE > 85%

Supp ier On- ime De ivery > 95%

% of Logistics Cost on Revenues* < 8%

*Note: Excluding distribution centers and subsidiaries costs.

46The Purpose of Logistics Meeting


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The Purpose of Logistics Meeting

Service to customer

Stock levels (total and by part type)Production lead time

Efficiency / Productivity

Detect problems and perform analysis according to the Denim cycle (plan-do-c ec -act .

.

47

The steps in running Logistics Meeting


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The steps in running Logistics Meeting

Definition of the indicators to be adopted.Choice of the calculation tool (For example: Excel?, Access?, Business Intelligence?,e c. . e oo s ou e a gne w e corpora e sys em an cons an yupdated .Appointment of persons, each taking the responsibility of one or more indicators.

e n on o arge s or eac n ca or.Periodic status reports on indicator trends by the above persons.Gap analysis and definition of improvement actions.Follow up on improvement actions.

Participants:

Purchase Manager

Production Manager Sales Manager

Marketing Manager IT Manager

Supply Chain Manager

48

The Logistics Meeting Reporting System (1)


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Customer Service Trend

target

target

target

49The Logistics Meeting Reporting System (2)


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g g p g y ( )

Company Inventory Turns

5.991.0226.128.829

6.265.6146.000.000

7.000.000

12

14

4.000.000

5.000.000

st)value

8

10

1.946.9161.965.326

2.033.180

3,1 3,1

2.000.000

3.000.000

(S

tdco

4

6IT target

,

0

1.000.000

01/01/2002 - 31/12/2002 01/06/2002 - 31/05/2003 01/07/2002 - 30/06/2003

0

2

Usage Avg stock IT

50



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Supplier Service Trend

target

target

51

Assignment 02 05


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Assignment 02-05

See Case Study Attila in attached file.

Assignment 02-06

You want to measure your customers satisfaction.

Prepare a questionnaire to measure the customers satisfaction.You choose the business and the company type.

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References


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References

Logistics KPI Slides.

Introduction to Materials Management, Tony Arnold Chapters 9-10-11.

perat ons anagement, ge ac apters .

supply chain key performance indicators

Documents