1. 1 © The Delos Partnership 2004 Detailed Performance Measures How to define the core measures

2. 2 © The Delos Partnership 2004 The Seven Core Measures Demand Forecast Accuracy Customer Service – the “Perfect Order” Schedule Achievement – production and suppliers Right First Time – Quality in production and suppliers New Product Introduction Velocity – all activities, all functions Lead Time reduction – sales, production and suppliers

3. 3 © The Delos Partnership 2004 Define the Measures Each measure needs –Definition –Purpose –Horizon –Source of Information –Reports –Accountability For Measure For Reporting –Objectives/Targets/Milestones –What to do with the measure

4. 4 © The Delos Partnership 2004 Forecast Accuracy  Definition  Purpose  Horizon  Source of Information  Percent of items within a tolerance  Assess the degree of flexibility required by the supply side and to improve the process  Cumulative lead time (= purchasing plus manufacturing LT)  Forecasting module  Sales module

5. 5 © The Delos Partnership 2004 Store the Forecasts Information stored from forecasting system March 99 - Forecast Prepared by : A Jones Family A Family B Family C Feb - 99 - Forecast Jan 99 - Forecast Dec 98 - Forecast Nov 98 - Forecast Oct 98 - Forecast Sept 98 - Forecast Aug 98 - Forecast Jul 98 - Forecast

6. 6 © The Delos Partnership 2004 Record the Actual Actual Demand – September 2000 Family A 143562 75 143678125 143587140 143597 20 143276310 TOTAL670 Demand = orders received required for dispatch in month

7. 7 © The Delos Partnership 2004 Measure Demand - Not Sale  Demand = ‘Customer Orders required’ which needs capture of Customer Request date at point of order entry Jan10,000 Feb15,000 Mar20,000 Apr 2,305Stockout May25,000

8. 8 © The Delos Partnership 2004 What Should Be Measured? Product Family Product Mix Forecast Individual Item Forecasts Overall Forecasting Process

9. 9 © The Delos Partnership 2004 Forecast Accuracy Report – by Tolerance Forecast Accuracy = 3/7 = 42 %

10. 10 © The Delos Partnership 2004 Forecast Accuracy Report – by Error GroupProductForecastActualError% Error Product Group A Product 123100120+2020 Product 456200150-5025 Product 789300330+3010 Total600 017 % Product Group B Product 345200300+10050 Product 567500300-20040 Product 890600700+10017 Product 678200400+200100 Total1500170020040 %

11. 11 © The Delos Partnership 2004 Forecast Accuracy Above Target

12. 12 © The Delos Partnership 2004 Measure the bias in Forecasts Bias is the biggest cause of either inventory or shortages Bias also causes mistrust

13. 13 © The Delos Partnership 2004 Impact of Forecasting OVERFORECASTING IS AS BAD AS UNDERFORECASTING Increase resources to meet higher demand More Stocks More Labour More Materials More Plant No Sales Cost of Goods increases OVERFORECASTING GROSS MARGIN GROSS MARGIN Resources insufficient to meet demand Stocks Low Labour Unavailable Short of Capacity Short of Materials Lost Sales Cost of Goods increases UNDERFORECASTING GROSS MARGIN GROSS MARGIN

14. 14 © The Delos Partnership 2004 Measure the Bias of the Forecast Actual should be normally distributed around the forecast Statistics on Safety stock don’t work if not..

15. 15 © The Delos Partnership 2004 Forecast Quality and Bias Graph Forecasts to display Bias Bias

16. 16 © The Delos Partnership 2004 Review Changes in Forecast Over Time – Waterfall Chart JulAugSepOctNovDecJanFebMar Jul100 110 120 Aug90110 130 120 Sep105110115 120 Oct115120 115 Nov130125 120 Dec120125 130 Jan115105 130 Feb90105130 Mar110130 = Actual

17. 17 © The Delos Partnership 2004 Review forecast accuracy over time Does forecast accuracy improve/ get worse as it gets closer to a month? Forecast Accuracy Over Time

18. 18 © The Delos Partnership 2004 Accountability  Sales  Marketing  Demand Manager  Logistics  Manufacturing  Finance Who is accountable for the Forecast ?

19. 19 © The Delos Partnership 2004 Performance Targets Objective Target Milestone What would your target be ?

20. 20 © The Delos Partnership 2004 What to Do With the Measure Improve sales planning Improve links to customers Implement DRP/EDI Look at product range Alter design of products Stock at lower level in BOM Review safety stocking strategy Review capacity strategy

21. 21 © The Delos Partnership 2004 Root Cause Analysis Inaccurate Forecast Inaccurate Forecast People Processes Pessimism/Optimism Lack of Time Lack of Trust Systems Data Lack of Sales Plan NPD Process Lack of Forecasting System Customer EDI System Inaccurate Actual Demand Data Wrong Code

22. 22 © The Delos Partnership 2004 Customer Service –The Perfect Order Define a standard for each –Quality:as agreed or otherwise defined –Time:on the agreed day (and specific time) –Quantity:the exact quantity within agreed tolerances –Place:to specified location –Form:in agreed physical form including packaging –Paperwork: with all agreed paperwork required by customer Manufacturing records Batch record Dispatch and delivery notes Sales invoice with correct pricing and terms

23. 23 © The Delos Partnership 2004 Customer Service  Definition  Purpose  Horizon  Source of Information  Each element of the Perfect Order  Flexibility required to meet customer needs  MTS - none  MTO - product lead time  Sales order entry

24. 24 © The Delos Partnership 2004 Source of Data At point of order entry record –Customer promise date –Customer required date Store away first promise date and first request date

25. 25 © The Delos Partnership 2004 Source of Data At point of delivery record actual delivery date and time

26. 26 © The Delos Partnership 2004 Customer Service Report - Against Request Date Customer Service = 2/6 = 33 %

27. 27 © The Delos Partnership 2004 Customer Service Report – Against Promise Date Customer Service = 6/6 =100 %

28. 28 © The Delos Partnership 2004 Commentary  Customer service suffered from shortages of raw materials  Transport company’s performance being reviewed Customer Service Report Customer Service

29. 29 © The Delos Partnership 2004 Root Cause Analysis Imperfect Orders Imperfect Orders People Processes Unrealistic Promises Lack of Training Systems Data Order Entry Pricing No Customer Required Date Availability Inaccurate Order Due Dates Wrong Product Codes Delivery Lack of Training Functionality

30. 30 © The Delos Partnership 2004 WHY ? Warehouse operations problem Rush orders Limited stock Planning problem Receipt backlog Rush orders Poor performance Replenishment problem Shortage of raw materials Over- utilization of capacity Some items were delivered late Supplier problem Transport problems Production problem Root Cause Analysis Perfect Customer Order Delivery to Customer

31. 31 © The Delos Partnership 2004 Root Cause Analysis - Trace Imperfect Orders Imperfect Orders N = 23 Price Wrong Entry Not Updated Delivery Early delivery Customer Change Schedule Late delivery Stock not available Transport company Quality Not to spec Damaged on receipt Not wanted Quantity Less than order More than order N = 2 N = 7 N = 3 N = 12 N = 2 N = 7 N = 4 17 % N = 2 N = 1 N = 2

32. 32 © The Delos Partnership 2004 Accountability Sales Logistics Distribution Manufacturing

33. 33 © The Delos Partnership 2004 Performance Targets Objective Target Milestone What would your target be ?

34. 34 © The Delos Partnership 2004 What to Do With the Measure Review promising process Review service agreements Review supply chain Look at inventory policy Review customer profile/desires Review distribution chain Review transportation policy Review manufacturing strategy Talk through with the customer

35. 35 © The Delos Partnership 2004 Schedule Achievement Schedule = Agreed sequence of activity Across business/value chain Others are dependent on schedule completion Measurement = # Activities completed on time x 100% # Activities scheduled for period Not just production Schedules Purchasing Product Launch Maintenance Cash Collection

36. 36 © The Delos Partnership 2004 Schedule Achievement - Production  Definition  Purpose  Horizon  Source of Information  Number of works orders completed to required date into stock or next operation  Improve manufacturing process  Product Lead Time  Shop Floor control module

37. 37 © The Delos Partnership 2004 Source of Data At point of order release record –Operation Due Dates –Works Order Due Date Store away first due date

38. 38 © The Delos Partnership 2004 Source of Data At point of completion of operation and works orders record actual date

39. 39 © The Delos Partnership 2004 Schedule Achievement Report Schedule Achievement = 3/6 = 50 %

40. 40 © The Delos Partnership 2004 Schedule Achievement Report Commentary Schedule achievement suffered from unplanned absenteeism The Zanara machine needs repairing

41. 41 © The Delos Partnership 2004 Accountability Sales Logistics Distribution Manufacturing

42. 42 © The Delos Partnership 2004 Root Cause Analysis Works Orders Not on time Works Orders Not on time People Processes Lack of Skill Lack of Training Equipment Material Order Closing Order Release Slow running Availability Non availability Not to spec Advice of Delay Absenteeism Breakdown Failed in use

43. 43 © The Delos Partnership 2004 Root Cause Analysis - Trace Works Orders Not completed on time Works Orders Not completed on time N = 27 People Lack of Skill Absenteeism Processes Material Not available Not to spec Failed in use Equipment Breakdown Availability N = 2 N = 5 N = 8 N = 2 16 % N = 5 N = 1 N = 2 N = 5 N = 9 Lack of Training N = 2 N = 1 Order closing Order release Advice of delay N = 2 N = 1 Run rate N = 2

44. 44 © The Delos Partnership 2004 Performance Targets  Objective  Target  Milestone What would your target be ?

45. 45 © The Delos Partnership 2004 Supplier Performance  Definition  Purpose  Horizon  Source of Information  Number of deliveries received into stock on or before due date/time  Improve supplier delivery process  Purchasing Lead Time or Time Fence  Vendor Schedule or Purchase Order`

46. 46 © The Delos Partnership 2004 Source of Data At point of order release or Time Fence record –Due Date Store away first due date

47. 47 © The Delos Partnership 2004 Vendor Schedule Supplier : R Jones plc Vendor Scheduler : Andrea Roberts Order Reference numbers : 145381435672004/2 146741678231002/2 14783165475 503/2 Firm Time Fence

48. 48 © The Delos Partnership 2004 Source of Data At point of receipt of order record actual receipt date/time

49. 49 © The Delos Partnership 2004 Supplier Performance Report Supplier Achievement = 4/6 = 67 %

50. 50 © The Delos Partnership 2004 Supplier Achievement Report Commentary Supplier achievement suffered from alternative supplier having quality problems The new product caused untold problems

51. 51 © The Delos Partnership 2004 Root Cause Analysis Purchase Orders not on time Purchase Orders not on time People Processes Unreliable promises Lack of Training Equipment Material Order Placement Vendor Schedule Availability Non availability Not to spec Time Fence Breakdown Failed in use Lack of Training

52. 52 © The Delos Partnership 2004 Poor Communication on Schedules WHY? Engineering Change Orders Supplier Problems Rush Orders Configuration Issues Regulatory Issues Innovation Issues Planning Problem Forecasting Problem Quality Issues Non Conformity to Standards Disconnected Systems Poor Registration of Receipts Poor / Redundant Data Entry Disconnected Systems Non Conformance Obsolete Supplier Item Root Cause Analysis Schedule Achievement Purchased Materials Some items were delivered late

53. 53 © The Delos Partnership 2004 Root Cause Analysis - Trace Works Orders Not completed on time Works Orders Not completed on time N = 27 People Lack of Skill Absenteeism Processes Material Not available Not to spec Failed in use Equipment Breakdown Availability N = 2 N = 5 N = 8 N = 2 16 % N = 5 N = 1 N = 2 N = 5 N = 9 Lack of Training N = 2 N = 1 Order closing Order release Advice of delay N = 2 N = 1 Run rate N = 2

54. 54 © The Delos Partnership 2004 Accountability Sales Logistics Distribution Manufacturing Buyers Vendor Schedulers

55. 55 © The Delos Partnership 2004 Performance Targets  Objective  Target  Milestone What would your target be ?

56. 56 © The Delos Partnership 2004 Right First Time Measurement = Defects per sample/batch x100% Sample/Batch Size Quality applies to more than just Products Process execution & information quality Purchase Orders Sales Order Capture Warehouse Picking Accounts payable schedules

57. 57 © The Delos Partnership 2004 Right First Time - Production Quality  Definition  Purpose  Horizon  Source of Information  Number of works orders completed to required specification first time  Improve manufacturing process and material acquisition process  Product Lead Time  Quality checks via in line SPC process

58. 58 © The Delos Partnership 2004 Source of Data At point of order release record –Product Specification –Upper and lower tolerances

59. 59 © The Delos Partnership 2004 Source of Data At point of completion of operation and works orders record actual number of works orders completed Right First Time

60. 60 © The Delos Partnership 2004 Right First Time Report Right First Time Achievement = 5/6 =85 %

61. 61 © The Delos Partnership 2004 Right First Time Report Commentary Right First Time suffered from new component supplier Product specs not updated

62. 62 © The Delos Partnership 2004 WHY WHY ? Administration Production Planning Errors Material Problems Record Keeping Production Errors Supplier problem Root Cause Analysis Right First Time Production Quality Failed Specification Incorrect Specification Process Errors Specification Errors DelaysErrors BOM Errors Routing Errors Order Not Completed To Specification

63. 63 © The Delos Partnership 2004 Accountability Sales Logistics Distribution Manufacturing

64. 64 © The Delos Partnership 2004 Performance Targets  Objective  Target  Milestone What would your target be ?

65. 65 © The Delos Partnership 2004 New Product Development Performance  Definition  Purpose  Horizon  Source of information  Number of new products developed on time  Improve NPD process  New product development time  Activity schedule in planning system or project plans

66. 66 © The Delos Partnership 2004 Source of Data At point of Baselining of Project Plan store Product Due Date Record Milestone dates

67. 67 © The Delos Partnership 2004 Source of Data - NPD Gannt chart from Microsoft Project

68. 68 © The Delos Partnership 2004 Source of Data At point of completion of project record actual dates

69. 69 © The Delos Partnership 2004 NPD Performance Report

70. 70 © The Delos Partnership 2004 NPD Achievement Report Commentary New Materials failed test The new product failed to get approval first time

71. 71 © The Delos Partnership 2004 Concept design problem Legal and regulatory Configuration delays Planning problem Component issues New technology or component Poor Responsiveness BOM Design problems Supplier problem Manufacturability problem Process incompatibility Tolerance incompatibilities Functional design problem New technology Root Cause Analysis New Product Introduction New Product Milestone Not Achieved WHY WHY ?

72. 72 © The Delos Partnership 2004 Accountability Manufacturing Purchasing New Product Development Customer Design Team

73. 73 © The Delos Partnership 2004 Performance Targets  Objective  Target  Milestone What would your target be ?

74. 74 © The Delos Partnership 2004 What to Do With Measure Review root causes for lateness Develop bills of activities Review NPD stage and gate process Develop cross functional product development Learn from past opportunities Set realistic time scales

75. 75 © The Delos Partnership 2004 Continuous Improvement Today’s performance measure is tomorrow’s competitors’ benchmark On time delivery to the week …. On time delivery by the day ….. On time delivery by the hour …...

76. 76 © The Delos Partnership 2004 Process Acceleration

77. 77 © The Delos Partnership 2004 Today’s Values 1900’s 2000’s Time is money... Overhead recovery Price Variance Actual vs. Budget

78. 78 © The Delos Partnership 2004 Change in Focus Materials 1960’s People 1860 Time 2000’s

79. 79 © The Delos Partnership 2004 Continuous Improvement Needs Measures... Process Measure Raise Target IMPROVE

80. 80 © The Delos Partnership 2004 Continuous Improvement Needs Measures... We use two – Velocity Lead Time Reduction

81. 81 © The Delos Partnership 2004 Velocity Removal of all non-value add activity in all processes –Lead-time reduction focuses on value added activities Measurement = Value Add Time per activity x 100% Total elapsed time per activity First results are always –Surprising –Low

82. 82 © The Delos Partnership 2004 Velocity - Production  Definition  Purpose  Horizon  Source of Information  % of Time where value is added to a product divided by total elapsed time for producing the product  To eliminate cost, and identify waste  Not applicable  MRP Lead time data and actual observation of activity

83. 83 © The Delos Partnership 2004 Source of Data From MRP system identify all steps in Cumulative lead time – include safety stock and batch quantities. Observe manufacture of product through the process

84. 84 © The Delos Partnership 2004 Velocity Measure STORESTORE STORESTORE INSPECTINSPECT INSPECTINSPECT RECEIVERECEIVE RECEIVERECEIVE PICKPICK PICKPICK RUNRUN RUNRUN INSPECTINSPECT INSPECTINSPECT STORESTORE STORESTORE RUNRUN RUNRUN INSPECTINSPECT INSPECTINSPECT STORESTORE STORESTORE Elapsed Time VA Velocity % = sum of Value Added Time [VA] ------------------------------------- Total Elapsed Time

85. 85 © The Delos Partnership 2004 Source of Data - Velocity 1 Pick Material 2 Queue at Work Centre 3 Set Up Work Centre 4 Run Batch 5 Clean Down 6 Move to Store Part Number 12345 Part Number 34857 1 Pick Material 2 Queue at Work Centre 3 Set Up Work Centre 4 Run Batch 5 Clean Down 6 Move toStore Time to complete 4 hours 24 hours 48 hours 24 hours 8 hours 4 hours 16 hours 36 hours 96 hours 12 hours 8 hours Velocity = ???

86. 86 © The Delos Partnership 2004 Performance Targets – Value Added %  Objective  Target  Milestone What would your target be ?

87. 87 © The Delos Partnership 2004 Quality/ Rejects Administration Production Time Planning delays Material Shortages Supplier Relationship Safety Stock Queue Production Complexity Supplier problem Set up Times Root Cause Analysis Velocity Production Supplier Numbers Inventory Accuracy Legal/ Regulatory Process Complexity Specification Complexity InternalExternal InboundOutbound Elapsed Time > Value Added Time WHY WHY ?

88. 88 © The Delos Partnership 2004 Accountability Manufacturing Purchasing New Product Development Customer Design Team

89. 89 © The Delos Partnership 2004 Lead Time Reduction Focus on overall supply chain lead time and the individual elements Continuous reduction in sales, production, logistics and supplier lead time. –Set annual targets Measurement = Avg. lead Time this period x 100% Avg. lead last period Examples –Time to Quote –Time to Manufacture –Time to Source

90. 90 © The Delos Partnership 2004 Lead Time Reduction – Example - Set up  Definition  Purpose  Horizon  Source of Information  Reduction in time taken to change over from one activity to another - from last good product to first good product  To increase flexibility  Not applicable  Video or observation of activity

91. 91 © The Delos Partnership 2004 Observe the process and video if necessary Identify all activities Review and reduce where possible Lead Time Reduction – Example - Set up Source of Data

92. 92 © The Delos Partnership 2004 Identify all activities 0 2 4 6 8 10 12 Mth 1Mth 2Mth 3Mth 4 Active Waiting Total Elapsed Time Active Time Waiting Time Lead Time Reduction – Example - Set up Source of Data

93. 93 © The Delos Partnership 2004 Accountability Manufacturing Purchasing New Product Development Customer Design Team

94. 94 © The Delos Partnership 2004 Performance Targets  Objective  Target  Milestone What would your target be ? 0 2 4 6 8 10 12 Mth 1Mth 2Mth 3Mth 4 Active Waiting

95. 95 © The Delos Partnership 2004 Configuration Errors Material Shortages Item Obsolescence Poor Planning Inadequate Safety Stock Capacity Constraints Quality Issues Supplier Problems Expedited shipping Supplier Problems Rush Orders from Customers Engineering Changes Rework Late Delivery Wrong Products Quality Root Cause Analysis Lead Time Reduction Lead Time Reduction below target WHY WHY ?

96. 96 © The Delos Partnership 2004 What to Do With the Measure Drive for continuous improvement Continuously set outrageous goals Review all processes regularly