case example: supply industry benchmarking aerospace sub-contract machining

1 © supply chainge management ltd. 2008

Case Example:

Supply Industry Benchmarking

Aerospace Sub-contract Machining


Benchmarks Before BenchmarkSales/Employee ~£ 32,000 £ 45,000Operators/Total Employees 64% 80%

•Labour Reduction following benchmarking: 10%

•4 weeks elapsed time

•~ 5% reduction in total cost

Supply Industry Benchmarking Case Example Part 1: Aerospace sub-contract machining: pareto cost (45% of sales) = labour

22© supply chainge management ltd. 2008

Number of Suppliers in RangeNumber of Suppliers in Range

Sales/Employee is a fair Primary Efficiency Metric for aerospace industry sub-contract machining…

Small TurnedSmall Turned

Large TurnedLarge Turned

Small PrismaticSmall Prismatic

20 30 40 50 60 20 30 40 50 60 70 8070 80Sales/Employee (Sales/Employee (££,000s) for Low Volume Segments of the UK Sub,000s) for Low Volume Segments of the UK Sub--Contract Machining IndustryContract Machining Industry

Source: Industry Analysis –Survey of 200 Suppliers

Large PrismaticLarge Prismatic

++


`̀……very different Secondary very different Secondary Efficiency MetricsEfficiency Metrics……

Source: Industry Analysis – Survey of 200 Suppliers - Consultancy Assignment – Aerospace Industry: Team Questionnaires and Infocheck Reports.

++

= Operators x 100%Total Number of Employees

Co. ACo. A

Co. BCo. B











++




++


Co. ACo. A

Co. BCo. B

Aerospace Sub-contract Machining. Case Example Part 2.Pareto cost = labour (on average 45% of turnover)


Efficiency MetricsEfficiency Metrics

++Secondary Efficiency Metrics investigate drivers behind Primary Efficiency Metrics. For example:

Primary Efficiency Metric = Sales x 100%Employee

Secondary Efficiency Metric = Operators x 100%Total Number of Employees

Presuming organisation design/leanness drives down labour costs…


Two suppliers of largeprismatic aerospace machinings…

CompanyCompanyAA

CompanyCompanyBB ++


Comparing Org. Designs/LeannessComparing Org. Designs/Leanness……

Source: Team Analysis

MDMD 11 11Ops Dir.Ops Dir. 11 11Sales Dir.Sales Dir. 11 11Contracts Mgr.Contracts Mgr. 00 11QA MgrQA Mgr 00 11Chief InspectorChief Inspector 00 11Dep. Chief InspectorDep. Chief Inspector 00 11InspectionInspection 33 88NDTNDT 00 11Despatch & GIDespatch & GI 00 11AccountantAccountant 11 11OfficeOffice 33 55ProcurementProcurement 00 11IndInd. Eng.. Eng. 11 11SnrSnr. Programmer. Programmer 11 11ProgrammersProgrammers 22 55PlannersPlanners 00 22

Company Company BB

Planning ClerkPlanning Clerk 00 11Production ControllersProduction Controllers 11 11ChasersChasers 00 33OtherOther 11 00Bonus C lerksBonus C lerks 00 22Senior ForemenSenior Foremen 00 66ChargehandsChargehands 00 33Production Workers 69 67Production Workers 69 67LabourersLabourers 00 22MaintenanceMaintenance 00 44Apprentices Apprentices 00 66Cleaning StaffCleaning Staff 00 22CanteenCanteen 00 22Special Tooling Special Tooling 00 77Small MachinesSmall Machines 00 77TOTALTOTAL 86 14786 147


The impact on their businesses ?The impact on their businesses ?

Source: Industry Analysis – Survey of 200 Suppliers - Consultancy Assignment – Aerospace Industry: Team Questionnaires and Infocheck Reports. * before Tax # Previous year’s figures

•• SalesSales ££7.3m7.3m

•• EmployeesEmployees 9797

•• Sales/Employee: Sales/Employee: ££ 75k75k

•• Labour Costs/Employee:Labour Costs/Employee: ££ 20k20k

•• Largest Cost (Labour)/SalesLargest Cost (Labour)/Sales 30%30%

•• Operators/Total Employees:Operators/Total Employees: 80%80%

•• Profit Margin Profit Margin 14%14%

•• ROCEROCE 66%66%

££4.6m4.6m

170170

££ 27k27k

££ 14k14k

60%60%

50%50%

--9%9%

--

++


IndustryIndustryAverageAverage

CompanyCompany AA

2: Organisation Design/Leanness2: Organisation Design/Leanness

Labour 45%

Company BCompany B

30% 60%

++










++




++


Co. ACo. A

Co. BCo. B


Benchmarking MetricsBenchmarking Metrics

Secondary Metrics investigate drivers behind Primary Metrics.For example:

Primary Metric = Sales* x 100% Employee

Secondary Metric = Operators x 100% Total Number of Employees

Presuming organisation design/leanness drives down labour costs…

* In most industries Added Value/Employee would be a better primary metric than Sales/Employee because the sales per employee is substantially affected by the degree of vertical integration / outsourcing between businesses being compared; whereas added value per employee isn’t. However in the case of aerospace sub-contract machining suppliers, since the materials are free issued by the customer it makes little difference.







20 30 40 50 60 70 8020 30 40 50 60 70 80Sales/Employee (£,000s) for Low Volume Segments of the UK Sub-Contract Machining Sales/Employee (£,000s) for Low Volume Segments of the UK Sub-Contract Machining

IndustryIndustrySource: Industry Analysis – Survey of 200 Suppliers



Case Example: two suppliers of largeprismatic aerospace machinings…

CompanyCompanyAA

CompanyCompanyBB


With very different Primary Metrics…




20 30 40 50 60 70 8020 30 40 50 60 70 80Sales/Employee (£,000s) for Low Volume Segments of the UK Sub-Contract Machining Sales/Employee (£,000s) for Low Volume Segments of the UK Sub-Contract Machining

IndustryIndustrySource: Industry Analysis – Survey of 200 Suppliers - Consultancy Assignment – Aerospace Industry

BB Large PrismaticLarge Prismatic AA


`…very different Secondary Metrics…`…very different Secondary Metrics…


= Operators x 100% Total Number of Employees

Co. ACo. A

Co. BCo. B


Comparing Org. Designs/Leanness…Comparing Org. Designs/Leanness…

Source: Team Analysis

MDMD 11 11 Ops Dir.Ops Dir. 11 11 Sales Dir.Sales Dir. 11 11 Contracts Mgr.Contracts Mgr. 00 11 QA MgrQA Mgr 00 11 Chief InspectorChief Inspector 00 11 Dep. Chief InspectorDep. Chief Inspector 00 11 InspectionInspection 33 88 NDTNDT 00 11 Despatch & GIDespatch & GI 00 11 AccountantAccountant 11 11 OfficeOffice 33 55 ProcurementProcurement 00 11 Ind. Eng.Ind. Eng. 11 11 Snr. ProgrammerSnr. Programmer 11 11 ProgrammersProgrammers 22 55 PlannersPlanners 00 22

Planning ClerkPlanning Clerk 00 11 Production ControllersProduction Controllers 11 11 ChasersChasers 00 33 OtherOther 11 00 Bonus ClerksBonus Clerks 00 22 Senior ForemenSenior Foremen 00 66 ChargehandsChargehands 00 33 Production Workers 69 67Production Workers 69 67 LabourersLabourers 00 22 MaintenanceMaintenance 00 44 Apprentices Apprentices 00 66 Cleaning StaffCleaning Staff 00 22 CanteenCanteen 00 22 Special Tooling Special Tooling 00 77 Small MachinesSmall Machines 00 77 TOTALTOTAL 86 147 86 147

Co. BCo. BCo. ACo. A Co. BCo. BCo. ACo. A


IndustryIndustryAverageAverage

CompanyCompany AA

Organisation Design/LeannessOrganisation Design/Leanness

Labour 45%

Company BCompany B

30% 60%

i.e. Largest Cost (Labour)/Salesi.e. Largest Cost (Labour)/Sales


The impact on their businesses ?The impact on their businesses ?

Source: Industry Analysis – Survey of 200 Suppliers - Consultancy Assignment – Aerospace Industry: Team Questionnaires and Infocheck Reports. * before Tax # Previous year’s figures

• SalesSales £7.3m £7.3m

• EmployeesEmployees 97 97

• Sales/Employee: Sales/Employee: £ 75k £ 75k

• Labour Costs/Employee:Labour Costs/Employee: £ 20k £ 20k

• Largest Cost (Labour)/SalesLargest Cost (Labour)/Sales 30% 30%

• Operators/Total Employees:Operators/Total Employees: 80%80%

• Profit Margin Profit Margin 14% 14%

• ROCEROCE 66% 66%

£4.6m£4.6m

170170

£ 27k£ 27k

£ 14k£ 14k

60%60%

50%50%

-9%-9%

- -

case example: supply industry benchmarking aerospace sub-contract machining

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