supply chain key performance indicators
TRANSCRIPT
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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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Exercise 02-02
.
Comment on the final results.
On which parts number would you work to increase the turnover ratio?
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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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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
.
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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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The Logistics Meeting Reporting System (1)
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
The Logistics Meeting Reporting System (3)
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The Logistics Meeting Reporting System (3)
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 .