1 © the delos partnership 2004 detailed performance measures how to define the core measures

1 © The Delos Partnership 2004

Detailed Performance MeasuresDetailed Performance Measures

How to define the core measures


The Seven Core MeasuresThe 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


Define the MeasuresDefine 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


Forecast AccuracyForecast 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


Store the ForecastsStore the Forecasts

Information stored from forecasting system

March 99 - Forecast Prepared by : A Jones

Family A

Family B

Family C

Feb - 99 - ForecastJan 99 - Forecast

Dec 98 - ForecastNov 98 - Forecast

Oct 98 - ForecastSept 98 - Forecast

Aug 98 - ForecastJul 98 - Forecast


Record the ActualRecord the Actual

Actual Demand – September 2000

Family A 143562 75 143678 125 143587 140 143597 20 143276 310

TOTAL 670

Demand = orders received required for dispatch in month


Measure Demand - Not Measure Demand - Not SaleSale

Demand = ‘Customer Orders required’ which needs capture of Customer Request date at point of order entry

Jan 10,000Feb 15,000Mar 20,000Apr 2,305

Stockout May 25,000


What Should Be What Should Be Measured?Measured?

Product Family

Product Mix Forecast

Individual Item Forecasts

Overall Forecasting Process


Product Desc. Forecast Actual Diff % Tol %

Hit/ Miss

12345 Product A 1000 1100 10 10 H

12347 Product B 1200 1260 5 10 H

12349 Product C 100 150 50 10 M

12350 Product D 300 200 - 67 10 M

12360 Product E 2000 1000 - 50 10 M

12379 Product F 4000 4400 10 10 H

12390 Product G 200 150 -25 10 M

Total Family

8800 8260 -6 5 M

Forecast Accuracy Report – by Forecast Accuracy Report – by ToleranceTolerance

Forecast Accuracy = 3/7 = 42 %Forecast Accuracy = 3/7 = 42 %


Forecast Accuracy Report – by Forecast Accuracy Report – by ErrorError

Group Product Forecast Actual Error % Error

Product Group A

Product 123 100 120 +20 20

Product 456 200 150 -50 25

Product 789 300 330 +30 10

Total 600 600 0 17 %

Product Group B

Product 345 200 300 +100 50

Product 567 500 300 -200 40

Product 890 600 700 +100 17

Product 678 200 400 +200 100

Total 1500 1700 200 40 %


Forecast AccuracyForecast Accuracy

Forecast Accuracy by Family

0%

10%

20%

30%

40%

50%

60%

Family A Family B Family C Family D Family E Family F

Family

% accuracyTarget

Above Target


Measure the bias in Measure the bias in ForecastsForecasts

Bias is the biggest cause of either inventory or shortages

Bias also causes mistrust

Forecast Accuracy

90

100

110

120

130

140

150

160

J F M A M J

Month

Unit

s

Fcast

Actual


Impact of ForecastingImpact of Forecasting

OVERFORECASTING IS AS BAD AS UNDERFORECASTING

Increase resources to meet higher demand

More StocksMore Labour

More MaterialsMore PlantNo Sales

Cost of Goodsincreases

OVERFORECASTING

GROSSMARGIN

GROSSMARGIN

Resources insufficient tomeet demand

Stocks LowLabour UnavailableShort of CapacityShort of Materials

Lost SalesCost of Goods

increases

UNDERFORECASTING

GROSSMARGIN

GROSSMARGIN


Measure the Bias of the Measure the Bias of the ForecastForecast

Forecast Accuracy

90

100

110

120

130

140

150

160

J F M A M J J

Months

unit

s FcastActual

Actual should be normally distributed around the forecast

Statistics on Safety stock don’t work if not..


Forecast Quality and BiasForecast Quality and Bias

0

5

10

15

20

25

30

35

40

% of Items

Normal

Graph Forecasts to display Bias

Bias


Review Changes in Forecast Over Time –Review Changes in Forecast Over Time –Waterfall ChartWaterfall Chart

Jul Aug Sep Oct Nov Dec Jan Feb Mar

Jul 100 100 100 110 110 120 120 120 120

Aug 90 110 110 110 110 130 130 130 120

Sep 105 110 115 115 115 115 115 120

Oct 115 120 120 115 115 115 115

Nov 130 125 125 125 120 120

Dec 120 125 125 125 130

Jan 115 105 105 130

Feb 90 105 130

Mar 110 130

= Actual


Review forecast accuracy over time

Does forecast accuracy improve/ get worse as it gets closer to a month?

Forecast Accuracy Over Forecast Accuracy Over TimeTime

Accuracy Over Time

0

5

10

15

20

25

Months Before

% A

ccura

cy

Accuracy


AccountabilityAccountability

Sales

Marketing

Demand Manager

Logistics

Manufacturing

Finance

Who is accountable for the Forecast ?


Performance TargetsPerformance Targets

Objective

Target

Milestone

What would your target be ?

Forecast Accuracy

0

20

40

60

80

100

120

-9 -8 -7 -6 -5 -4 -3 -2 -1

Months

% of Items


What to Do With the What to Do With the MeasureMeasure

Improve sales planning Improve links to customersImplement DRP/EDILook at product rangeAlter design of productsStock at lower level in BOMReview safety stocking strategyReview capacity strategy


Root Cause AnalysisRoot Cause Analysis

Inaccurate Forecast

Inaccurate Forecast

PeopleProcesses

Pessimism/Optimism

Lack of Time

Lack of Trust

Systems Data

Lack of Sales Plan

NPD Process

Lack of Forecasting System

Customer EDI SystemInaccurate Actual Demand Data

Wrong Code


Customer Service –The Perfect OrderCustomer 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


Customer ServiceCustomer Service

Definition

Purpose

Horizon


Each element of the Perfect Order

Flexibility required to meet customer needs

MTS - none

MTO - product lead time

Sales order entry


Source of DataSource of Data

At point of order entry record

– Customer promise date

– Customer required date

Store away first promise date and first request date



At point of delivery record actual delivery date and time


Order Required Date

Actual Date

Required Quantity

Actual Quantity

Hit/ Miss

1435 22/2/99 23/2/99 1050 1050 Miss

1560 23/2/99 23/2/99 2000 2000 Hit

1573 24/2/99 23/2/99 300 300 Miss

1745 25/2/99 25/2/99 450 500 Miss

1800 26/2/99 26/2/99 700 650 Miss

1820 26/2/99 26/2/99 1000 1000 Hit

Customer Service Report - Against Customer Service Report - Against Request DateRequest Date

Customer Service = 2/6 = 33 %


Order Promise Date

Actual Date

Promised Quantity

Actual Quantity

Hit/ Miss

1435 23/2/99 23/2/99 1050 1050 Hit 1560 23/2/99 23/2/99 2000 2000 Hit 1573 24/2/99 23/2/99 300 300 Hit 1745 25/2/99 25/2/99 450 450 Hit 1800 26/2/99 26/2/99 650 650 Hit 1820 26/2/99 26/2/99 1000 1000 Hit

Customer Service Report – Against Customer Service Report – Against

Promise DatePromise Date

Customer Service = 6/6 =100 %


Commentary Customer service

suffered from shortages of raw materials

Transport company’s performance being reviewed

Customer Service ReportCustomer Service Report

0

10

20

30

40

50

60

70

80

90

100

Jun

Aug

OctDe

cFe

b

% o

n tim

e

Service Target

Customer Service



Imperfect Orders

Imperfect Orders

PeopleProcesses

Unrealistic Promises

Lack ofTraining

Systems Data

Order Entry

Pricing

No Customer RequiredDate

AvailabilityInaccurate Order Due Dates

Wrong Product Codes

DeliveryLack ofTraining

Functionality


WHY ?WHY ?

Warehouseoperationsproblem

Rush orders

Limited stock

Planningproblem

Receiptbacklog

Rush orders

Poorperformance

Replenishmentproblem

Shortageof raw

materialsOver-

utilizationof

capacity

Some itemswere

deliveredlate

Supplierproblem

Transportproblems

Productionproblem

Root Cause AnalysisPerfect Customer OrderDelivery to Customer


Root Cause Analysis - Root Cause Analysis - TraceTrace

ImperfectOrders

ImperfectOrders N = 23N = 23

PricePrice

WrongEntry

NotUpdated

DeliveryDelivery

Early delivery

CustomerChange

Schedule

Late delivery

Stock notavailable

Transportcompany

QualityQuality

Not to spec

Damaged on receipt

Not wanted

QuantityQuantity

Less thanorder

More thanorder

N = 2N = 2 N = 2N = 2

N = 7N = 7 N = 3N = 3

N = 12N = 12N = 2N = 2 N = 7N = 7

N = 4N = 4

17 %17 %

N = 2N = 2

N = 1N = 1

N = 1N = 1

N = 1N = 1

N = 2N = 2



Sales

Logistics

Distribution

Manufacturing


Customer Service

0

20

40

60

80

100

120

-4 -3 -2 -1 0 1 2 3 4

Months

% of Items


Objective

Target

Milestone



What to Do With the What to Do With the MeasureMeasure

Review promising processReview service agreementsReview supply chainLook at inventory policyReview customer profile/desiresReview distribution chainReview transportation policyReview manufacturing strategyTalk through with the customer


Schedule AchievementSchedule 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


Schedule Achievement - Schedule Achievement - ProductionProduction

Definition

Purpose

Horizon


Number of works orders completed to required date into stock or next operation

Improve manufacturing process

Product Lead Time

Shop Floor control module



At point of order release record

– Operation Due Dates– Works Order Due

Date

Store away first due date



At point of completion of operation and works orders record actual date


Schedule Achievement Schedule Achievement ReportReport

Works Order

Required Date

Actual Date

Required Quantity

Actual Quantity

Hit/ Miss

1470 22/2/99 23/2/99 1050 1050 Miss

1590 23/2/99 23/2/99 2000 2000 Hit

1580 24/2/99 23/2/99 300 300 Miss

1803 25/2/99 25/2/99 450 500 Miss

1908 26/2/99 26/2/99 700 700 Hit

1854 26/2/99 26/2/99 1000 1000 Hit

Schedule Achievement = 3/6 = 50 %


Schedule Achievement Schedule Achievement ReportReportCommentarySchedule achievement suffered from unplanned absenteeism

The Zanara machine needs repairing

Schedule Achievemnt

0

20

40

60

80

100

120

% o

n t

ime

Actual

Target



Sales

Logistics

Distribution

Manufacturing



Works OrdersNot on time

Works OrdersNot on time

PeopleProcesses

Lack of Skill

Lack ofTraining

Equipment Material

Order Closing

Order Release

Slow running

AvailabilityNon availability

Not to spec

Advice of Delay Absenteeism

BreakdownFailed in use



Works OrdersNot completed on time

Works OrdersNot completed on time N = 27N = 27

PeoplePeople

Lack of Skill

Absenteeism

ProcessesProcesses MaterialMaterial

Not available

Not to spec

Failed in use

EquipmentEquipment

Breakdown

AvailabilityN = 2N = 2

N = 5N = 5N = 5N = 5 N = 8N = 8

N = 2N = 2

16 %16 %

N = 5N = 5

N = 1N = 1

N = 2N = 2

N = 5N = 5

N = 9N = 9

Lack of Training

N = 2N = 2

N = 1N = 1

Order closing

Order release

Advice of delay

N = 2N = 2

N = 2N = 2

N = 1N = 1

Run rate

N = 2N = 2



0

10

20

30

40

50

60

70

80

90

100

J F M A M J J A S

Schedule Achievement

% of Orders

Objective

Target

Milestone



Supplier PerformanceSupplier Performance

Definition

Purpose

Horizon


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`



At point of order release or Time Fence record

– Due Date

Store away first due date


Vendor ScheduleVendor Schedule

P Product 26/2 5/3 12/3 19/3 26/3 30/4 28/5 25/6 30/7

143567 200 200 200 200 200 800 800 800 800

176590 1000 1000 2000 4000

167823 100 100 100 300 300

165475 50 50 200

Supplier : R Jones plc Vendor Scheduler : Andrea Roberts

Order Reference numbers : 14538 143567 200 4/214674 167823 100 2/214783 165475 50 3/2

Firm Time Fence



At point of receipt of order record actual receipt date/time


Supplier Performance Supplier Performance ReportReport

Order ref

Required Date

Actual Date

Required Quantity

Actual Quantity

Hit/ Miss

1001 23/2/99 23/2/99 1050 1050 Hit

1103 23/2/99 23/2/99 2000 2000 Hit

1204 24/2/99 23/2/99 300 300 Miss

1302 25/2/99 25/2/99 450 500 Miss

1306 26/2/99 26/2/99 700 700 Hit

1506 26/2/99 26/2/99 1000 1000 Hit

Supplier Achievement = 4/6 = 67 %


Supplier Achievement Supplier Achievement ReportReportCommentarySupplier achievement

suffered from alternative supplier having quality problems

The new product caused untold problems

Supplier Achievemnt

0

20

40

60

80

100

120

% o

n t

ime

Actual

Target



Purchase Orders not on time

Purchase Orders not on time

PeopleProcesses

Unreliable promises

Lack ofTraining

Equipment Material

Order Placement

Vendor Schedule

AvailabilityNon availability

Not to spec

Time Fence

BreakdownFailed in use

Lack ofTraining


Poor Communication

on Schedules

WHY?Engineering

Change Orders

Supplier Problems

Rush Orders

Configuration Issues

Regulatory Issues

InnovationIssues

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 AnalysisSchedule AchievementPurchased Materials

Some itemswere

deliveredlate



Works OrdersNot completed on time

Works OrdersNot completed on time N = 27N = 27

PeoplePeople

Lack of Skill

Absenteeism

ProcessesProcesses MaterialMaterial

Not available

Not to spec

Failed in use

EquipmentEquipment

Breakdown

AvailabilityN = 2N = 2

N = 5N = 5N = 5N = 5 N = 8N = 8

N = 2N = 2

16 %16 %

N = 5N = 5

N = 1N = 1

N = 2N = 2

N = 5N = 5

N = 9N = 9

Lack of Training

N = 2N = 2

N = 1N = 1

Order closing

Order release

Advice of delay

N = 2N = 2

N = 2N = 2

N = 1N = 1

Run rate

N = 2N = 2



Sales

Logistics

Distribution

Manufacturing

Buyers

Vendor Schedulers



0

10

20

30

40

50

60

70

80

90

100

Jan Mar May Jul Sep

Supplier Achievement

% of Orders

Objective

Target

Milestone



Right First TimeRight 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


Right First Time - Production QualityRight First Time - Production Quality

Definition

Purpose

Horizon


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



At point of order release record

– Product Specification– Upper and lower

tolerances



At point of completion of operation and works orders record actual number of works orders completed Right First Time


Right First Time ReportRight First Time Report

Works Order

Hit/ Miss

Commentary

1470 Miss

1590 Hit

1580 Hit

1803 Hit

1908 Hit

1854 Hit

Right First Time Achievement = 5/6 =85 %


Right First Time ReportRight First Time Report

Commentary

Right First Time suffered from new component supplier

Product specs not updated

Right First Time

0

20

40

60

80

100

120

Rig

ht F

irst

Tim

e

Actual

Target


WHYWHY ?

Administration

Production

PlanningErrors

Material Problems

Record KeepingProduction

Errors

Supplierproblem

Root Cause AnalysisRight First Time Production Quality

Failed Specification

IncorrectSpecification

ProcessErrors

SpecificationErrors

Delays Errors

BOMErrors

RoutingErrors

Order Not Completed

To Specification



Sales

Logistics

Distribution

Manufacturing



0

10

20

30

40

50

60

70

80

90

100

J F M A M J J A S

Right First Time

% of Items

Objective

Target

Milestone



New Product Development PerformanceNew 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



At point of Baselining of Project Plan store Product Due Date

Record Milestone dates


Source of Data - NPDSource of Data - NPD

Gannt chart from Microsoft Project



At point of completion of project record actual dates


NPD Performance ReportNPD Performance Report

Project reference

Planned Date

Actual Date

Hit/ Miss

Comment

A1001 23/2/99 02/3/99 Miss

A1096 23/2/99 15/3/99 Miss

B2304 24/2/99 17/2/99 Hit

B2403 25/2/99 18/2/99 Hit

D1237 26/2/99 27/2/99 Miss

D1453 26/2/99 20/2/99 Hit


NPD Achievement ReportNPD Achievement Report

CommentaryNew Materials failed test

The new product failed to get approval first time

NPD Achievement

0

20

40

60

80

100

120

J F M A M J J A S

% o

n t

ime

Actual

Target


Concept designproblem

Legal and regulatory

Configuration delays

Planningproblem

Component issues

New technology or component

PoorResponsiveness

BOM Designproblems

Supplierproblem

Manufacturabilityproblem

Processincompatibility Tolerance

incompatibilities

Functional designproblem

New technology

Root Cause AnalysisNew ProductIntroduction

New Product Milestone

Not Achieved

WHYWHY ?



ManufacturingPurchasingNew Product DevelopmentCustomerDesign Team



0

10

20

30

40

50

60

70

80

90

100

J F M A M J J A S

NPD Achievement

% of Projects

Objective

Target

Milestone



What to Do With What to Do With MeasureMeasure

Review root causes for latenessDevelop bills of activitiesReview NPD stage and gate processDevelop cross functional product

developmentLearn from past opportunitiesSet realistic time scales


Continuous ImprovementContinuous Improvement

Today’s performance measure istomorrow’s competitors’ benchmark

On time delivery to the week….On time delivery by the day…..On time delivery by the hour…...


Process AccelerationProcess Acceleration


Today’s ValuesToday’s Values

1900’s

2000’s

Time is money ...

Overhead recoveryPrice VarianceActual vs. Budget


Change in FocusChange in Focus

Materials1960’s

People1860

Time2000’s


Continuous Improvement Needs Continuous Improvement Needs Measures ...Measures ...

Process

Measure

Raise Target

IMPROVE


Continuous Improvement Needs Continuous Improvement Needs Measures ...Measures ...

We use two –

• Velocity

• Lead Time Reduction


VelocityVelocity

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


Velocity - ProductionVelocity - Production

Definition

Purpose

Horizon


% 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



From MRP system identify all steps in Cumulative lead time – include safety stock and batch quantities.

Observe manufacture of product through the process


Velocity MeasureVelocity Measure

STORE

STORE

INSPECT

INSPECT

RECEIVE

RECEIVE

PICK

PICK

RUN

RUN

INSPECT

INSPECT

STORE

STORE

RUN

RUN

INSPECT

INSPECT

STORE

STORE

Elapsed Time

VAVA VAVA

Velocity % = sum of Value Added Time [VA]-------------------------------------

Total Elapsed Time


Source of Data - VelocitySource of Data - Velocity

1 Pick Material2 Queue at Work Centre3 Set Up Work Centre4 Run Batch5 Clean Down6 Move to Store

Part Number 12345

Part Number 34857

1 Pick Material2 Queue at Work Centre3 Set Up Work Centre4 Run Batch5 Clean Down6 Move toStore

Time to complete

4 hours4 hours24 hours48 hours24 hours8 hours

4 hours16 hours36 hours96 hours12 hours8 hours

Velocity =

???


Performance Targets – Performance Targets – Value Added %Value Added %

Value Added %

0

10

20

30

40

50

60

70

80

90

100

J F M A M J J A

NVA

Value Add

Objective

Target

Milestone



Quality/Rejects

Administration

Production Time

Planningdelays

Material Shortages

Supplier Relationship

SafetyStock

Queue

ProductionComplexity

Supplierproblem

Set up Times

Root Cause AnalysisVelocityProduction

Supplier Numbers

InventoryAccuracy

Legal/Regulatory

ProcessComplexity

SpecificationComplexity

Internal External

Inbound Outbound

Elapsed Time >

Value Added Time

WHYWHY ?



ManufacturingPurchasingNew Product DevelopmentCustomerDesign Team


Lead Time ReductionLead 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


Lead Time Reduction – Example - Set upLead Time Reduction – Example - Set up Definition

Purpose

Horizon


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


Observe the process

and video if necessary

Identify all activities

Review and reduce where possible

Lead Time Reduction – Example - Set upLead Time Reduction – Example - Set upSource of DataSource of Data


Identify all activities

0

2

4

6

8

10

12

Mth

1

Mth

2

Mth

3

Mth

4

Active

Waiting

Total Elapsed Time

Active Time

Waiting Time

Lead Time Reduction – Example - Set upLead Time Reduction – Example - Set upSource of DataSource of Data



Manufacturing

Purchasing

New Product Development

Customer

Design Team


PerformancePerformance Targets Targets

Objective

Target

Milestone


0

2

4

6

8

10

12

Mth

1

Mth

2

Mth

3

Mth

4

Active

Waiting


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 AnalysisLead Time Reduction

Lead Time Reduction

below target

WHYWHY ?


What to Do With the What to Do With the MeasureMeasureDrive for continuous improvement

Continuously set outrageous goals

Review all processes regularly

1 © the delos partnership 2004 detailed performance measures how to define the core measures

Documents

timereview forecast

timedoes forecast accuracy

actualforecast accuracy

toleranceforecast accuracy

forecast quality

mforecast accuracy report

time quality

agreed paperwork