enterprise resource planning performance measurementsbuker.com/files/uploads/2010/01/erp.pdf · erp...

Buker, Inc.Management Educationand Consulting WWW.BUKER.COM

800-654-7990email: info@buker inc..com

Enterprise Resource PlanningPerformance Measurements

Introduction To “Class A”ERP Performance Measurement 1

I. Enterprise Resource Planning (ERP) 3Top Management Planning 4Operations Management Planning 5Operations Management Execution 6

II. Performance Measurement 7Performance Report Card 10Performance History 11

III. Detail Performance Measures 12Business Plan 12Demand Plan 12Operations Plan 13Master Production Schedule 13Materials Planning 14Bills of Material 14Inventory Control 15Routings 15Supply Partners/Logistics 16High Velocity Manufacturing 16Schedule Performance 17

IV. Conclusion 18

Contents

Table Of Contents

Financial performance has been the primary measure of success inmost manufacturing companies. Manufacturing companies havedeveloped financial planning systems and financial statements formeasuring their performance on a regular monthly, quarterly, andannual basis. Financial plans are generally stated in terms of Sales,Gross margin, Income, Investment and Return on Investment(ROI). These financial performance measurements have beendeveloped and documented by the accounting profession and arewell accepted by management and stockholders of manufacturingcompanies.

Manufacturing companies have not, however, done as well atdeveloping effective operating systems and operating performancemeasurements. Today, manufacturing companies need to establisheffective operating systems and operating performancemeasurements to enable them to effectively manage businessoperations and meet business and financial objectives.

Much has been written about Manufacturing Planning and Controlsystems. In addition to numerous books, articles, video tapes andseminars are widely available on this subject. MaterialRequirements Planning Systems (MRP) were developed in manymanufacturing companies during the 1970’s. Since then, completesoftware packages supporting MRP have been established. Thishas resulting in a heightened awareness of the need for soundmanagement leadership and direction if the software tools are to beeffectively utilized. The focus in manufacturing managementsystems has moved toward a "total system of managing," referredto as Enterprise Resource Planning (ERP).

1

Introduction To “Class A” ERPPerformance Measurement

Enterprise Resource Planning is a method to effectively manage thetotal resources in a business enterprise. In high performancecompanies ERP extends beyond the four walls of the factory toinclude a company’s trading partners – suppliers and customers.

This article describes in detail one of the milestones that eachcompany must achieve – a level of excellence knows as "Class A"ERP. In other works "doing the basics in manufacturingmanagement with excellence."

A "Class A" level of performance is achieved by attaining a 95%score in each of a particular set of operating (non-financial)measures. The measures as well as the measurement process isdefined in this article and organized as follows:

I. Enterprise Resource Planning (ERP)• Top Management Planning• Operations Management Planning• Operations Management Execution• Closed Loop ERP

II. Performance Measurement:A Measurement Process• Performance Report Card• Performance History

III. Detail Performance Measures

IV. Conclusion

2

Introduction To"Class A" ERP Performance Measurement

Manufacturing companies need Enterprise Resource Planning toeffectively run their business – a methodology to plan and controlthe total resources of the company and effectively focus theseresources on the best marketplace opportunities. ERP embraces allfunctions of a manufacturing company – Marketing,Manufacturing, Materials, Engineering, Finance, QualityAssurance, Human Resources, Information Technology, Suppliersand Customers. They must work together to develop and execute atotal company game plan if business objectives are to be achieved.

The functions of Enterprise Resource Planning can be discussed inthree groups which represent levels of management planning andexecution.

The three levels of management planning and execution are:

• Top Management PlanningHigh level strategic plans

• Operations Management PlanningDetailed and specific plans

• Operations Management ExecutionExecuting the detailed and specific plans

3

I. Enterprise Resource Planning(ERP)

PERFORMANCE MEASUREMENT

HIGH VELOCITY MANUFACTURING

SUPPLY PARTNERS/LOGISTICS

PLANNINGOK? no

yes

MATERIALS PLANNING

MASTER SCHEDULING

RESOURCESOK? no

yes

OPERATIONS PLANNING

DEMAND/PRODUCT PLANNING

BUSINESS PLANNING

BILLS OFMATERIAL

ROUTINGS

INVENTORY

ENTERPRISE RESOURCE PLANNING

Objectives

Demands

Resources

Products

Material

Parts

Hours

Accountability

FEEDBACK

TOPMANAGEMENT

PLANNING

OPERATIONSMANAGEMENT

PLANNING


EXECUTION

Top Management is responsiblefor developing a strategicBusiness Plan for the company.The Business Plan includesmarket, product and profitobjectives.

The Demand Plan is the forecast of customer demand for theproducts which will generate the dollar sales volume required bythe Business Plan

The Operations Plan is theallocation of manufacturingresources to produce the productsrequired to meet the customerdemand from the Demand Plan.

The Top Management PlanningProcess is a monthly function. TheBusiness, Demand and OperationsPlans of a company need to bereviewed and subsequently updatedon a monthly basis. In mostbusinesses, this monthly plantypically extends out twelve months.Each succeeding month the plan isextended one more month to providea twelve month rolling plan.

The Top Management Plan is the responsibility of the president orgeneral manager. The planning activity includes Marketing,Engineering, Manufacturing, Financial and Human Resourcemanagers. The plan is the strategic "What, How Much, andWhen?" at the market, product, resource and profit levels. It acts asa framework or constraint within which more detailed operatingplans can be developed. It is Top Management’s definition ofobjectives for Operations Management Planning.

4

Top Management Planning

OPERATIONS PLANNING

DEMAND/PRODUCT PLANNING

BUSINESS PLANNING Objectives

Demands

Resources

TOPMANAGEMENT

PLANNING

TotalDemands

TotalResources

InventoryCapacity

ActualForecast

Operations Planning Objective

Operations Management isresponsible for taking thestrategic plan and translating itinto specific and detailedoperating plans. OperationsLevel Management must planthe detailed material and

capacity requirements to meet the Business Plan.

Operations Management Planning is a weekly process. Both thedevelopment of the plan and the subsequent review and update ofthe plan need to be accomplished each week.

Operations Management plans the detailed product and mix to beproduced with the Master Production Schedule. The MasterProduction Schedule is a specific, weekly statement of what is tobe produced. It is a schedule of production, not demand. TheMaster Production Schedule is then translated into detailedMaterial and Capacity Plans. The Materials Plan is a statement ofrequirements for both manufactured and purchased material.

The Operations Management Plan is a detailed "What, How Much,and When?” of Material and Capacity Plans to meet the BusinessPlan objectives. It defines objectives for Operations Managementexecution.

The data base, which includes bills of material, inventory statusand routings, is required to support the Operations ManagementPlanning Activities. The Bill of Material specifies the parts ormaterials needed to produce the product. The Routing specifies theprocess or the operations that need to be performed. The InventoryStatus includes the on-hand quantity and location of the items thatare available to produce the product.

5

Operations Management Planning

MATERIALS PLANNING

MASTER SCHEDULING

RESOURCESOK? no

yesBILLS OFMATERIAL

ROUTINGS

INVENTORY

Products

Material


PLANNING

Operations ManagementExecution is the detailed "What,How Much, and When?" inmaterial, hours and dollars ofproduction.

Operations ManagementExecution typically implies daily activities. As the performance ofpurchasing and manufacturing execution improves, the timeinterval in which the plan is developed and measured becomes lessthan daily increments.

Supply Partners/Logistics is responsible for executing the materialplans for purchased materials, parts, and services. Manufacturingis responsible for executing the capacity and material plans in HighVelocity Manufacturintg.

The objective of Operations Management Execution is to produceproducts that meet customer needs, to execute the Business Planand achieve Top Management’s market, product and profitobjectives. This cannot be accomplished and sustained without ahigh commitment to quality and continuous improvement by allemployees.

Closed Loop ERP

For the first time, Top Management can be assured that theirstrategic objectives in the Business Plan are, in fact, driving thedetailed operating plans. There is now an interrelationship betweenthe Top Management planning and Operations Managementplanning and execution. No longer is the translation of the planlost somewhere between the president or general manager’s officeand the activities on the manufacturing floor.

Closed Loop ERP provides the methodology to manage amanufacturing company. It is a formal process for a companymanagement team to communicate objectives and measureperformance. It defines objectives, performance measurements andaccountability for each functional area, checking the performanceof each function back to the Business Plan. It has checkpoints forall levels of management. It has a feedback loop. It has interactiveplanning and execution. It promotes teamwork and cooperation. Itis a management process which has proven to be effective inrunning a manufacturing company.

6

Operations Management Execution


HIGH VELOCITY MANUFACTURING

SUPPLY PARTNERS/LOGISTICS

PLANNINGOK? no

yes

Parts

Hours

Accountability


EXECUTION

Measurement is a veryimportant part of themanagement process.Setting objectives, tolerancelimits, developing actionplans, allocating resources,assigning responsibilities,implementing plans,measuring performance forfeedback and correctiveaction are all part of theClosed Loop Managementprocess. A definitive set ofoperating performancemeasurements, similar to

the financial performance measurements, help manufacturingmanagement close the loop in the management process, and trulymanage the company operating performance.

Five Steps To Performance Results

1. Establish measurable objectives.

2. Measure present performance.

3. Identify problem performance areas.

4. Develop an action plan with resources andresponsibilities for solving the problem performance areas.

5. Measure performance on a regular basis and go to #3.

Performance objectives should be set to include a performancetarget and performance date, i.e.,

Inventory Accuracy75% by June 185% by September 195% by December 1

Performance measurements generally include tolerance limits ortime fences, i.e.,

Delivery Performance95% within 72 hours by June 195% within 48 hours by September 195% within 24 hours by December 1

7

II. Performance Measurement

MANAGEMENT CYCLE

FEED BACK

RESOURCESCONTROL

LIMITS

OBJECTIVE GOAL ACTION

PLANACTION

MEASUREMENTRESPONSIBILITIES

FEED BACK

PERFORMANCE

+ 5%

- 5%

Define Objective1.

Set Goals & Limits2.

Develop Action Plan3.

Measure Performance4.

Provide Feed Back5.

Performance measurement depends on valid plans and realisticobjectives. Performance measurement enables management toclose the loop on the management process.

The concept of "Class A, B, C or D" Companies was firstintroduced in 1977. the premise was that there are classes ofcompanies based on different levels of performance. This was thefirst attempt to develop performance measurement for amanufacturing company. The performance measurements chartdefines the "Class A, B. C or D" user, with numerical performancemeasurement, and indicates the characteristics for each class ofuser.

What level of operatingperformance are you gettingin your manufacturingcompany? How do youevaluate your performance?Do you identify problemperformance areas andprioritize them formanagement attention andaction? Do yousystematically monitor youroperating performance andinitiate action to improveyour company’sperformance?

8


CLASS PERFORMANCE CHARACTERISTICS

A 95%

B 80%

C 70%

D 50%

Complete Closed Loop System. Top Managementuses the Formal System to run the business.All elements average 95% to 100%.

Formal System in place but all elements are not working effectively. Top Management approves but does not participate. Elements average 80% to 95%.

MRP is order launching rather than planning priorities.Formal and Informal System elements are not tied together.Some sub-systems not in place. Elements average 70% to 80%.

Formal system not working or not in place. Poor dataintegrity. Little management involvement, little user confidence in system. Elements are 50% or below.

Enterprise Resource PlanningPerformance Rating Chart

A good set of operating performance measurements will enableyou to evaluate your operating performance, identify problemperformance areas, assign responsibilities, and prioritize problemsfor management attention. They will enable you to monitor andimprove the performance of your company. A systematic review ofperformance allows you to identify and diagnose developingproblems early, and within reasonable tolerance limits to avoidcrisis management. Performance measurements are an importantmanagement tool for monitoring and improving performance andfor achieving the company business objectives.

Performance measurement can be started today. A new computeror new computer reports are not required. Much of the informationrequired for Performance Measurement is already available in mostcompanies. What is needed is a management team thatunderstands the importance of the performance measurementconcept. A team that will set performance objectives willsystematically measure performance, and will begin to practicePerformance Measurement as part of the Closed Loop ManagementProcess.

The Performance Report Card (on page 10) will enable you toevaluate your company’s operating performance. It should be usedas a tool to review and record your performance. The PerformanceReport Card includes performance objectives and the performancemeasurement for each functional area and a total performancerating for your company. After reading the rest of this article, fillin your performance, calculate your average performance, anddetermine your company’s class of performance.

The Performance History (on page 11) should be used to recordyour monthly performance. It will enable you to monitorperformance of your company by functional area and in total on aregular basis. You can begin taking the actions required to improveyour company’s total performance. Companies who havesuccessfully used this approach have seen their monthlyperformance improve leading to "Class A" in 12 months. Inpursuit of "Class A," the first year payback in direct benefits hasproven to be over 250% Return on Investment for these companies.

9


In pursuit of “Class A,”the first year paybackin direct benefits hasproven to be over 250%Return on Investmentfor these companies.

10

COMPANY DATEBY

PERFORMANCE REPORT CARD

FUNCTIONALAREA RESPONSIBILITY

PERFORMANCEOBJECTIVE

PERFORMANCEMEASUREMENT

RETURN ONINVESTMENT

BUSINESSPLANNING

GENERALMANAGER

SALESPERFORMANCE

DEMAND/PRODUCTPLANNING SALES

PRODUCTIONPERFORMANCE

OPERATIONSPLANNING MANUFACTURING

MPSPERFORMANCE

MASTERSCHEDULE MANUFACTURING

SCHEDULERELIABILITY

MATERIALSPLAN MATERIALS

BILL OF MATERIALACCURACY

BILLS OFMATERIAL ENGINEERING

INVENTORYACCURACY

INVENTORYCONTROL MATERIALS

ROUTINGACCURACYENGINEERINGROUTINGS

SCHEDULEPERFORMANCEMANUFACTURINGHIGH VELOCITY

MANUFACTURING

SCHEDULEPERFORMANCEPURCHASINGSUPPLY PARTNERS

LOGISTICS

DELIVERYPERFORMANCE

DELIVERYPERFORMANCE

GENERALMANAGER

AVERAGECLASS TOTAL

PERFORMANCE

OPE

RAT

ION

SM

ANAG

EMEN

T EX

ECU

TIO

ND

ATA

BASE

OPE

RAT

ION

SM

ANAG

EMEN

T PL

ANN

ING

TOP

MAN

AGEM

ENT

PLAN

NIN

G

11

BU

SIN

ES

SP

LA

N

DE

MA

ND

/PR

OD

UC

TP

LA

N

OP

ER

AT

ION

SP

LA

N

MA

ST

ER

S

CH

ED

UL

E

MA

TE

RIA

LS

PL

AN

BIL

LS

OF

MA

TE

RIA

L

INV

EN

TO

RY

CO

NT

RO

L

RO

UT

ING

S

SU

PP

LY

/PA

RT

NE

RL

OG

IST

ICS

HIG

H V

EL

OC

ITY

MA

NU

FA

CT

UR

ING

DE

LIV

ER

YP

ER

FO

RM

AN

CE

TO

TA

L

AV

ER

AG

E

CL

AS

S

JAN

.F

EB

.M

AR

.A

PR

.M

AY

JUN

EJU

LY

AU

G.

SE

PT

.O

CT

.N

OV

.D

EC

.F

UN

CT

ION

AL

AR

EA

TOP MANAGEMENTPLANNING

OPERATIONSMGMT. PLANNING

DATA BASE OPERATIONSMGMT. EXECUTION

PERFORMANCEP

ER

FO

RM

AN

CE

HIS

TO

RY

YE

AR

12

Business PlanThe objective of the Business Plan is to develop themarket, product and financial plans for the company. TheBusiness Plan is the responsibility of the president orgeneral manager. The Business Plan is top management’sstrategic plan of "What, How Much, and When?" formarkets, products and profit to meet the company’soverall business objectives. The Business Plan shouldstate dollars of Income, dollars of Investment and a rateof Return on Investment for each month and for the year.(Return on assets is also used if investment control is notpart of the company Business Plan).

The key measurement of the Business Plan is Return on Investment (ROI). ROI is the percentage derivedfrom the ratio of income over investment. In other words, the Income earned from the Investment required tosupport the Business Plan. Return on Investment is useful to evaluate the success of present as well as thepotential of new markets and products.

"Class A" Business Plan performance is meeting Income, Investment and Return on Investment objectiveswithin 5% of plan for a 95% Business Plan performance.

Demand PlanThe objective of the Demand Plan is to develop a plan oforders received (bookings) and/or shipments for thecompany’s products. The Demand Plan is theresponsibility of the Sales or Marketing vice-president ordepartment head. The Demand Plan should be stated indollars and units by product line by month and for theyear. The Demand Plan is the "What, How Much, andWhen?" of the products required to meet the anticipatedcustomer demand.

The key measurement for the Demand Plan is Demand Plan Performance. Sales management develops theDemand Plan and it is their responsibility to bring in the orders to meet the plan. Demand Plan Performanceis the Orders Received as a percent of the Planned Sales by month.

"Class A" Demand Plan Performance is meeting the Sales dollar plan (by product line) within a 5% tolerancelimit for a 95% Sales Dollar Performance, meeting the Sales Unit Plan (by product line) within 10% for a90% Sales Unit Performance. (The Sales Mix Plan at the Master Production Schedule (MPS) level is oftentracked for individual item forecast performance within 15% for an 85% Sales Mix Performance.)


FUNCTION OBJECTIVE MEASUREMENT

RESPONSIBILITY

INCOMEBUSINESSPLAN

General

Management


INVESTMENT

RETURN ONINVESTMENT

INCOME = PLAN

INVESTMENT = PLAN

RETURN ONINVESTMENT

= PLAN


RESPONSIBILITY

DEMANDPLAN

REVIEWDEMAND

PLAN

Sales


DEMAND PLANPERFORMANCE

FINISHEDINVENTORY

DEMAND PLAN =BUSINESS PLAN

BY DOLLAR& UNITS,

BY MONTH

ORDERS RECEIVED= DEMAND PLAN

BY DOLLARSBY UNITS, BY MIX

BY MONTH

FINISHEDINVENTORY =

PLANBY MONTH

Actual ROIPlanned ROI

Business PlanPerformance

= X 100

Orders ReceivedPlanned Sales

Demand PlanPerformance

= X 100

13

Operations PlanThe objective of the Operations Plan is to determine theproduction rates required to meet the Demand Plan andmaintain a desired level of finished inventory or backlog.The Operations Plan is the responsibility of theManufacturing vice president or department head. It isthe "What, How Much, and When?" for production ratesand levels of output. The Operations Plan should bestated in units of production by product line by monthand for the year.

The key measurement is Operations Plan Performance. Once the Operations Plan has been agreed upon byTop Management, it is Manufacturing’s responsibility to produce. Operations Plan Performance is the actualunits produced (by product line) as a percent of Planned Production by month.

“Class A” Production Plan Performance is meeting the Production Plan within a 5% tolerance limit for a 95%Production Plan Performance

Master Production ScheduleThe objective of the master Production Schedule is toestablish the detail product mix to be produced weeklywithin the monthly product line rates of the OperationsPlan. The Master Production Schedule is theresponsibility of Materials or ManufacturingManagement. It is the "What, How Much and When?" atthe product, model, feature, option or product mix levelfor scheduling production to meet the Demand Plan.

The key measurement is Master Production Schedule Performance. Master Production SchedulePerformance is the actual units produced as a percent of units planned to be completed by week.

“Class A” Master Production Scheduling will produce the product mix within a 5% tolerance limit for a 95%Master Production Schedule Performance.



RESPONSIBILITY

OPERATIONSPLAN

REVIEWOPERATIONS

PLAN

Manufacturing


PRODUCTIONCAPACITYREVIEW

OPERATIONSPLAN

PERFORMANCE

OPERATIONS PLAN =SALES PLAN

INVENTORYBY MONTH

PRODUCTION RATESCAPACITY

CONSTRAINTSPLANNING HORIZON

ACTUALPRODUCTION =

PLANBY MONTH

+-


RESPONSIBILITY

MASTERPRODUCTION

SCHEDULEREVIEW

MASTERPRODUCTION

SCHEDULE

Materials/Manufacturing


MASTERPRODUCTION

SCHEDULEPOLICY

MASTERPRODUCTION

SCHEDULEPERFORMANCE

SUM OF MASTERPRODUCTION

SCHEDULES = MONTHLYPRODUCTION PLAN

MPS TIME FENCEPOLICY

MPS CHANGE REVIEWMPS CONSUMPION

REVIEW

ACTUAL PRODUCTION = MASTER

PRODUCTIONSCHEDULE BY UNIT &

OPTION BY WEEK

Actual ProductionPlanned Production

Operations PlanPerformance

= X 100 = %

Actual MPSPlanned MPS

Master ProductionSchedule Performance

= X 100 = %

14

Materials PlanningThe Objective of Materials Planning is to determine theschedules for materials required to produce the productand to maintain material priorities for production.Materials Planning is the responsibility of MaterialsManagement. It is the "What, How Much and When?" ofproduct at the materials level. The Materials Plan isstated in manufactured and purchased material schedulesrequired to produce the Master Production Schedule.

The key measurement is Schedule ReliabilityPerformance. Schedule Reliability indicates whether theorders are being scheduled and rescheduled with current due dates to maintain valid priorities that meet theMaster Production Schedule. It measures the reliability of the plan that is being delivered to Purchasing andManufacturing on a weekly basis. Schedule Reliability is the number of orders with valid due dates as apercent of the total number of open orders. This measure can be calculated separately for manufactured andpurchased materials planning.

“Class A” Materials Plan Performance is developing a reliable materials plan within a 5% tolerance limit for a95% Schedule Reliability Performance.

Bills of MaterialBills of Material specify the parts or materials and thequantity or amount of each, along with the assembly orprocess relationships required to produce the product.The Bills of Material are the responsibility of theEngineering function.

The key measurement is Bill of Material Accuracy. Billof Material Accuracy indicates whether the Bill ofMaterial as defined in the computer database representsthe product as it is currently being produced. Any errorin the Bill of Material (i.e., any individual component) causes the entire bill to be in error. Bill of MaterialAccuracy is the number of single level Bills of Material that are in agreement with actual production as apercent of the total number of single level bills audited. Accuracy is part number, quantity unit of measureand correct structure.

Total bills audited should include a statistically significant sample such that all single level bills are audited atleast once per year.

"Class A" Bill of Material Performance is maintaining the Bill of Material accuracy within a 1% tolerancelimit for a 99% Bill of Material Accuracy Performance.



RESPONSIBILITY

RELEASERELIABILITY

MATERIALAVAILABILITY

SCHEDULERELIBILITY

ORDERS WITHCURRENT DATES

VS.TOTAL OPEN

ORDERS

MATERIALAVAILABLE

ORDERS VS.TOTAL ORDERS

RELEASED

ON TIMERELEASED VS.

TOTAL ORDERS RELEASED

MATERIALREQUIREMENTS

PLANNING

Materials



RESPONSIBILITY

PRODUCTSTRUCTURE

ENGINEERINGCHANGE

CONTROL

OBSOLETE &SURPLUS

INVENTORY

OBSOLETEINVENTORY =5% OF TOTALINVENTORY

PLANNED ANDACTUAL

EFFECTIVITYDATES

PARTS,QUANTITIES

LEVEL BY LEVELFOR ASSEMBLY

BILL OFMATERIAL

Engineering


Orders w/Correct Due DatesTotal Open Orders

Schedule ReliabilityPerformance

= X 100

Bills In AgreementTotal Number of Bills Audited

Bill of MaterialAccuracy

= X 100

15

Inventory ControlThe objective of Inventory Control is to maintainaccurate and timely inventory status information.Inventory Control is the responsibility of the manager incharge of the stockroom or warehouse. This is the"What" and "How Much" of the inventory that is on handand available to produce the product.

The key measurement is Inventory Record Accuracy.Inventory Record Accuracy indicates the accuracy of theon-hand inventory record as compared to the physicalinventory (part number by location). The count is either

right or wrong, within agreed upon tolerance limits. Only materials that need to be weighed or scale countedwill have a tolerance different than 0%. Inventory Record Accuracy is the number of parts, by location,where the physical count equals the inventory record as a percent of the total number of parts counted.

Total parts counted should include a statistically significant sample such that all parts and locations arecounted minimally once per year.

"Class A" Inventory Control Performance is maintaining inventory accuracy within a 2% tolerance limit for98% Inventory Accuracy Performance.

RoutingsRoutings specify the operations that must be performedto produce the product. Routings are the responsibility ofManufacturing, Manufacturing Engineering andIndustrial Engineering. The Routings should specify thesequence of operations, the machine or work center, thetooling or fixtures, process instructions, and the setup andrun hours for each operation.

The key measurement is Routing Accuracy. RoutingAccuracy indicates whether the Routing, as defined in thecomputer data base, represents the sequence of

operations as they are actually performed in production areas. Any error in a Routing (i.e., any individualoperation) causes the entire Routing to be in error. Routing Accuracy is the number of routings that are inagreement with the actual production methods as a percentage of the total Routings audited.

Total Routings audited should include a statistically significant sample such that all Routings are audited atleast once per year.

“Class A”Routing Performance is maintaining the routing within a 2% limit for a 98% Routing AccuracyPerformance.



RESPONSIBILITY

INVENTORYACCURACY

INVENTORYMANAGEMENT

INVENTORYINVESTMENT =INVENTORYPLAN

PHYSICAL COUNTVS.

INVENTORYRECORD

INVENTORYCONTROL

Materials



RESPONSIBILITY

WORK CENTERACCURACY

OPERATIONSEQUENCEACCURACY

METHOD& STANDARDS

ACCURACY

METHODS&

STANDARDS

OPERATIONSEQUENCING

WORK CENTERDEFINITIONROUTING

Engineering


/

Number of Parts CorrectNumber of Parts Counted

Inventory RecordAccuracy

= X 100

Routings in AgreementTotal Routings Audited

RoutingAccuracy

= X 100

16

Supply Partnerships/LogisticsThe objective of Supply Partners/Logistics is to deliverpurchased materials and services on the date needed withthe required quality and best total cost. SupplyPartners/Logistics Plan Performance is the responsibilityof Purchasing management. It is the detailed What, HowMuch, and When?" for purchased materials, parts andservices to execute the plan. The Purchasing Plan statesthe purchased items scheduled to be delivered each day,in order to achieve the Master Production Schedule.

The key measurement is Schedule Performance.Schedule Performance indicates whether purchased material is being delivered on the date needed byManufacturing. It is the number of Purchased items delivered as a percent of the Purchased items due eachday.

"Class A" Purchasing Performance delivers purchased material and services to the day scheduled within a 5%tolerance limit for a 95% Purchasing Performance.

High Velocity ManufacturingThe Objective of High Velocity Manufacturing is toproduce the quantity of manufactured materials on thedate needed to meet the Master Production Schedule.High Velocity Manufacturing is the responsibility ofManufacturing. It is the daily execution of the "What,How Much, and When?" of labor and material under theresponsibility of Manufacturing. It is a detailed executionof the "What, How Much, and When?" of labor andmaterial on the shop floor.

The key measurement is Schedule Performance.Schedule Performance indicates whether manufactured materials are being completed on time in the factory.Schedule Performance is a daily measure of the number of operations/work orders completed as a percent ofthe total number of operations/work orders due that day. High Velocity Manufacturing performance istypically stated in terms of work center schedule performance or assembly line schedule performance.

"Class A" High Velocity Manufacturing Performance meets daily manufactured schedules with a 5%tolerance limit for a 95% Performance.



RESPONSIBILITY

SCHEDULEPERFORMANCE

PURCHASEORDER

RELEASE

PURCHASEDOLLAR

RECEIPTS

DOLLARRECEIPTSVS. PLAN

SCHEDULERELEASE VS.

QUANTITYBUY ORDER

DELIVERY DATEVS. DUE DATE

SUPPLYPARTNERS/LOGISTICS

Purchasing



RESPONSIBILITY

SCHEDULEPERFORMANCE

OUTPUTPERFORMANCE

PRODUCTIVITYPERFORMANCE

PRODUCTIVITYVS. PLAN

ACTUAL OUTPUTVS. PLANNED

OUTPUT

COMPLETIONDATE

VS. DUE DATE

HIGHVELOCITY

MANU-FACTURING

Manufacturing


Items DeliveredItems Due

Purchasing SchedulePerformance

= X 100

Operations CompleteTotal Operations Due

Manufacturing SchedulePerformance

= X 100

17

Schedule PerformanceThe objective of Schedule Performance is to build theproduct on time, ship the product on time, and deliver theproduct to the customer when it was promised orrequested. It is the What, How Much, and When?" inunits delivered to meet the Demand Plan. SinceSchedule Performance in delivery is dependent on theentire company working together, the responsibility forthis measure rests with the president or general manager.

The key measurement is Delivery Performance. Itmeasures whether the product was shipped to the

customer on the date promised or requested. Delivery Performance is the number of orders/line items shippedon time as a percent of the total number of orders/line items shipped. "On time" implies that item quality hasbeen confirmed, directly or indirectly.

“Class A” Schedule Performance promises and delivers the product on time within a 5% tolerance limit for a95% Schedule Performance Level.



RESPONSIBILITY

BUILDPERFORMANCE

SHIPPERFORMANCE

DELIVERYPERFORMANCE

DELIVERYVS.

PROMISE

ACTUAL SHIPVS. PLAN

ACTUAL BUILDVS. PLANDELIVERY

PERFORMANCE

GeneralManager


Orders/Items Shipped On TimeTotal Orders/Items Shipped

DeliveryPerformance

= X 100

18

Performance Measurement is an important part of the managementprocess. Setting objectives and tolerance limits defines acceptableperformance levels. Performance Measurement is a necessary stepin achieving these performance levels. It provides measurements,accountability, and a method of tracking results. Formalmeasurements and accountability help management pinpointproblems and responsibilities. It removes the fables, stories, fingerpointing, one-liners and old alibis. Management then has the abilityto examine cause and effect relationships more closely. They canmonitor performance and measure results. PerformanceMeasurements helps to mature both the management process andthe management team.

If a company is to develop this maturity in the managementprocess, achieve these results and become “Class A,” a team effortis necessary. Required is a management team that is committed tomanaging the resources of the business in a new way with:

A new communication systemCLOSED LOOP ERP

A new method of managementTHE CLOSED LOOP MANAGEMENT PROCESS

A new set of accountabilitiesPERFORMANCE MEASUREMENT

A new set of valuesINDIVIDUAL RESPONSIBILITY FOR

CONTINUOUS IMPROVEMENT

A new quality of lifeINDIVIDUAL SELF-ESTEEM

A new level of performance“CLASS A”

Our challenge to you is this — Begin measuring your companyperformance today! Join the growing list of “Class A” companiesand enjoy the benefits that come from this first step in the Journeyto Manufacturing Excellence.

The challenge continues to grow. Every day without improvementis a day where the competition gets one step closer. “Class A” ERPis not a destination, but only a point in the journey through whicheveryone must pass on the way to becoming a truly World ClassCompany.

IV. Conclusion

enterprise resource planning performance measurementsbuker.com/files/uploads/2010/01/erp.pdf · erp...

Documents