understanding & managing future risk€¦ · understanding & managing future risk michael...

UNDERSTANDING & MANAGING FUTURE RISK

Michael Hoeksema, Supply Manager Knape & Vogt Manufacturing

2

The Problem

Lack of Data

Overabundance of Data

Multiple Locations

Lack of Effective Analysis

3

Agenda

• Situational Background

• Broken Windows?

• Supply Base

• Part Data

• Quotes

• Wrap It Up

KV Background

Knape and Vogt Manufacturing

• Founded in 1898

• $300M+ Revenue

• 1200 employees, 3 manufacturing sites

• Global supply base of 500+ suppliers

• Products: – Drawer Slides

– Storage and Organization

– Kitchen and Bath

– Ergonomics Equipment

– Hardware

• Business segments: Retail, Distribution, OEM

• Held by Private Equity Firm Wind Point Partners

• Growth through acquisitions

• Operates in a diverse group of product categories

• Various product categories work with overlapping commodity groups

• Growth through acquisitions created a broad supply base

• Extensive data is available but scattered through multiple reports

KV Background

Data Management

• MSU Supply Chain Management Certificate

• Create a resource to better understand and manage KV’s Supply Base

– Single location for critical data

– Ease of use

– Consistency of evaluation

– Understanding of Total Cost of Ownership in decisions

• Launch with plastics commodity

Project Background

• Three Primary Purposes

– Understanding the supply base of a commodity

– Tools for part evaluation

– Standard template for evaluating supplier quotations

• Matrix consist of three connected spreadsheets

– Part Data Spreadsheet

– Order History Spreadsheet

– Commodity Review Spreadsheet

• Designed to be easily updated and expanded

Commodity Matrix

Broken Window Theory

• Criminological theory that states visible signs of crime encourages further crime

• Popularized in the 1990s by New York City police commissioner William Bratton and Mayor Rudy Giuliani

• To help combat major crime on city subway Transit Police cracked down on minor crimes

• Gladwell applied theory to organizational culture where minor habits snowball into major issues

• Small elements of a supply change left unattended that lead to major issues

What are the minor changes done with excellence that lead to major improvements

• Overview of commodity suppliers

• Understanding total spend

• Identifying Risk in Supply Chain

Evaluating Supply Base

• Total Spend by: – previous month

– rolling 12 months

– previous fiscal year

• Total Unit Count by: – previous month

– rolling 12 months

• Charts for visual representation of spend

Vendor # Supplier CO Prev R12

12967 China Supplier #1 CN ########## 35.1% ########## 44.1% ########## 40.5% ########## 77.1% ########## 70.2% 0.04$ 0.05$

11392 US Supplier #1 US ########## 30.9% ########## 24.6% ########## 22.8% ########## 1.0% ########## 0.7% 2.72$ 2.75$

10843 US Supplier #2 US ########## 7.1% ########## 9.3% ########## 9.4% ########## 0.1% ########## 0.1% 11.42$ 9.32$

16673 Canadian Supplier #1 CA ########## 7.6% ########## 4.9% ########## 5.2% ########## 5.5% ########## 4.2% 0.12$ 0.09$

11408 US Supplier #3 US ########## 7.3% ########## 8.2% ########## 12.3% ########## 14.5% ########## 21.0% 0.04$ 0.03$


11017 US Supplier #4 US ########## 3.3% ########## 2.1% ########## 2.4% ########## 0.5% ########## 3.0% 0.63$ 0.05$



Prev. Month Units R12 Units

Ave Unit

Prev. Month Spend R12 Spend Prev FY Spend

Evaluating Supply Base - Commodity Overview

• Spend relatively balanced

• Unit count skewed heavily

• China supplier provides 70% of total units

• Identified significant risk if any issues arise with Chinese supplier

• Beginning stages of diversifying production of our internationally sourced plastic components

Evaluating Supply Base - Results

• Detailed supplier specific data for evaluation

• Division of spend

• Number of parts quoted and ordered

• Total lead time breakdown

• Understanding Total Cost of Ownership

• Impact of Economic Order Quantity

Evaluating Suppliers

Supplier CO R12 Spend R12 Units

% of

Spend

% of

Units

Quoted

Parts

Prev

Month

Ave

Lead

Ave

Post

Total

Lead

Ship %

of

TCO %

of EOQ %

China Supplier #1 CN ########## ########## 44.1% 70.2% 358 64 43.1 27.5 70.6 4.54% 15.4% 39.8%

US Supplier #1 US ########## ########## 24.6% 0.7% 82 23 10.9 1.2 12.0 0.35% 0.7% 23.6%

US Supplier #2 US ########## ########## 9.3% 0.1% 91 17 19.3 0.9 20.3 0.33% 1.0% 27.1%

Canadian Supplier #1 CA ########## ########## 4.9% 4.2% 129 18 25.9 4.6 30.5 0.01% 1.2% 72.8%

US Supplier #3 US ########## ########## 8.2% 21.0% 122 23 5.4 1.2 6.6 0.05% 0.6% 30.9%


US Supplier #4 US ########## ########## 2.1% 3.0% 23 2 23.3 1.9 25.2 0.03% 0.7% 53.5%



Lead time reduction • China based supplier showing extended lead time • 43 days vs. 20 to 25 days • Extended lead time lead to inflated safety stock levels • Opened discussion with suppler • Reduced safety stock inventory 8%


% of

Spend

% of

Units

Quoted

Parts

Prev

Month

Ave

Lead

Ave

Post

Total

Lead

Ship %

of

TCO %

of EOQ %


US Supplier #1 US ########## ########## 24.6% 0.7% 82 23 10.9 1.2 12.0 0.35% 0.7% 23.6%

US Supplier #2 US ########## ########## 9.3% 0.1% 91 17 19.3 0.9 20.3 0.33% 1.0% 27.1%


US Supplier #3 US ########## ########## 8.2% 21.0% 122 23 5.4 1.2 6.6 0.05% 0.6% 30.9%


US Supplier #4 US ########## ########## 2.1% 3.0% 23 2 23.3 1.9 25.2 0.03% 0.7% 53.5%



Evaluating Suppliers - Results

• Total Cost of Ownership – High volume of business moving to China supplier

based on cost – TCO show 15% savings is our break even price

• Economic Order Quantity – Data shows KV ordering at about 40% of EOQ – Results in higher total cost of goods


% of

Spend

% of

Units

Quoted

Parts

Prev

Month

Ave

Lead

Ave

Post

Total

Lead

Ship %

of

TCO %

of EOQ %


US Supplier #1 US ########## ########## 24.6% 0.7% 82 23 10.9 1.2 12.0 0.35% 0.7% 23.6%

US Supplier #2 US ########## ########## 9.3% 0.1% 91 17 19.3 0.9 20.3 0.33% 1.0% 27.1%


US Supplier #3 US ########## ########## 8.2% 21.0% 122 23 5.4 1.2 6.6 0.05% 0.6% 30.9%


US Supplier #4 US ########## ########## 2.1% 3.0% 23 2 23.3 1.9 25.2 0.03% 0.7% 53.5%



Evaluating Suppliers - Results

• Single view of detailed part information

• Address issues found on macro level

• Understand a parts total spend

• Impacts of lead time, safety stock and MOQ

• Total Cost of Ownership

• Economic Order Quantity

• Price Breaks

Evaluating Parts

Order Data Cost Breakdown Part Data

Part # Description Supplier LM Order R12 Order R12 Spend R12 TCO Part Cost TCO TCO % Duty Trans Cost Safety Cost Storage Cost MOQ Cost MOQ Storage Z-Factor Duty Rate MOQ Units Safety Stock Part Weight Unit Vol Carton QNT Lead Time Post Processing

1234 RETAINER China Supplier #1 - 951,000 142,079.40$ 156,209.48$ 0.1494$ 0.1643$ 9.9% 0.0079$ 0.0044$ 0.0010$ 0.0000$ -$ -$ 0.0015$ 5.3% 69333 125,000 0.0360 - 10,000 50 30

4567 LEVER China Supplier #1 - 154,200 91,409.76$ 100,363.55$ 0.5928$ 0.6509$ 9.8% 0.0314$ 0.0135$ 0.0036$ 0.0036$ -$ -$ 0.0059$ 5.3% 3000 18,750 0.1100 0.0330 4,320 21 30

7891 STOP China Supplier #1 - 6,426,000 75,184.20$ 117,034.00$ 0.0117$ 0.0182$ 55.7% 0.0006$ 0.0057$ 0.0001$ 0.0000$ -$ -$ 0.0001$ 5.3% 500000 750,000 0.0463 - - 50 30

• Data reviewed by part number • Previous month order quantity • R12 quantity ordered • R12 total spend • R12 total cost of ownership

Evaluating Parts






Order Data

Part # Description Supplier LM Order R12 Order R12 Spend R12 TCO

1234 RETAINER China Supplier #1 - 951,000 142,079.40$ 156,209.48$

4567 LEVER China Supplier #1 - 154,200 91,409.76$ 100,363.55$

7891 STOP China Supplier #1 - 6,426,000 75,184.20$ 117,034.00$

• Duty rate • Minimum Order Quantity • Safety Stock • Part weight/volume • Lead time

Evaluating Parts – Part Data






Part Data

Part # Description Duty Rate MOQ Units Safety Stock Part Weight Unit Vol Carton QNT Lead Time Post Processing

1234 RETAINER 5.3% 69333 125,000 0.0360 - 10,000 50 30

4567 LEVER 5.3% 3000 18,750 0.1100 0.0330 4,320 21 30

7891 STOP 5.3% 500000 750,000 0.0463 - - 50 30

• Part Cost • Total Cost of Ownership Calculation

– Duty Cost – Transportation Costs – Cost of Safety Stock – cost of capital & storage – Cost of MOQ – cost of capital & storage – if MOQ > SS – Z-Factor – assigning value to risk & other non-monetary factors

• Total Cost of Ownership percentage

Evaluating Parts – Total Cost of Ownership

Cost Breakdown

Part # Description Part Cost TCO TCO % Duty Trans Cost Safety Cost Storage Cost MOQ Cost MOQ Storage Z-Factor

1234 RETAINER 0.1494$ 0.1643$ 9.9% 0.0079$ 0.0044$ 0.0010$ 0.0000$ -$ -$ 0.0015$

4567 LEVER 0.5928$ 0.6509$ 9.8% 0.0314$ 0.0135$ 0.0036$ 0.0036$ -$ -$ 0.0059$

7891 STOP 0.0117$ 0.0182$ 55.7% 0.0006$ 0.0057$ 0.0001$ 0.0000$ -$ -$ 0.0001$






• Duty = part cost x duty rate provided • Freight = average rate per pound by supplier by part weight • Safety cost = total cost of SS x 5% (time value of money) / annual usage • Storage Cost = total units of SS x part volume x ave. $ per sq. ft. / annual usage • MOQ cost = MOQ – Safety x part cost x 5% / annual usage • MOQ Storage = MOQ-Safety x part volume x ave. $ per sq. ft. / annual usage • Z-Factor –based on factors including location, quality issues, responsiveness etc.

Evaluating Parts – Total Cost of Ownership

Cost Breakdown

Part # Description Part Cost TCO TCO % Duty Trans Cost Safety Cost Storage Cost MOQ Cost MOQ Storage Z-Factor

1234 RETAINER 0.1494$ 0.1643$ 9.9% 0.0079$ 0.0044$ 0.0010$ 0.0000$ -$ -$ 0.0015$

4567 LEVER 0.5928$ 0.6509$ 9.8% 0.0314$ 0.0135$ 0.0036$ 0.0036$ -$ -$ 0.0059$

7891 STOP 0.0117$ 0.0182$ 55.7% 0.0006$ 0.0057$ 0.0001$ 0.0000$ -$ -$ 0.0001$






Evaluating Parts – MOQ Impact

Saw-Tooth Inventory Diagram

• MOQ = 2,000 units

• Usage = 200 per week

• Average Inventory – 1,147 units

• MOQ – 1,200 units

• Average Inventory – 726 units

• Average inventory reduction of 421 units

• ½ MOQ reduction = reduction in ave. inv.

• Lead time drives safety stock

• SS = Z x σLT x D avg Desired service level x standard deviation LT x avg demand

• Reducing LT will reduce SS, inv. levels

Evaluating Parts – LT & MOQ Impact

• MOQ drives order size

• MQO reduction will reduce ave. inv. levels

• ½ MOQ reduction = reduction in ave. inv.

KV LT & MOQ Evaluation Project resulted in an

average inventory reduction of:

$1,000,000

Part Data

Part # Description Duty Rate MOQ Units Safety Stock Part Weight Unit Vol Carton QNT Lead Time Post Processing

1234 RETAINER 5.3% 69333 125,000 0.0360 - 10,000 50 30

4567 LEVER 5.3% 3000 18,750 0.1100 0.0330 4,320 21 30

7891 STOP 5.3% 500000 750,000 0.0463 - - 50 30

• Economic Order Quantity - quantity used to minimizes the holding and ordering cost

• Part Ranking – determine the number of times to order part based on its sales volume

• Price Break – price improvements by ordering in larger quantities

Rank % of Spend MOQ Target

A 65% 4wk/use

B 20% 8wk/use

C 10% 13wk/use

D 5% 26wk/use

Evaluating Parts – EOQ and Price Break

• Review data by part • Units ordered R12 • Unit usage R12 • Total spend • Number of orders processed


Order Data EOQ/MOQ Data Price Break Data

Part # Description Supplier R12 Order R12 Usage R12 Orders R12 Spend EOQ Ave R12 Order MOQ EOQ Orders EOQ % Part Rank Rank MOQ Last PO Price ROQ Price Savings Break EOQ EOQ Price Savings

1234 RETAINER China Supplier #1 951,000 826,320 13 142,079.40$ 60,600 73,154 69333 16 76.9% A 63,563 0.1494$ 0.1494$ -$ 60,600 0.1494$ -$

4567 LEVER China Supplier #1 154,200 138,242 19 91,409.76$ 12,250 8,116 3000 13 68.4% A 10,634 0.5928$ 0.3900$ 28,035.48$ 14,300 0.3900$ 28,035.48$

7891 STOP China Supplier #1 6,426,000 5,153,177 14 75,184.20$ 562,907 459,000 500000 11 78.6% A 396,398 0.0117$ 0.0110$ 3,607.22$ 519,876 0.0110$ 3,607.22$

Order Data

Part # Description Supplier R12 Order R12 Usage R12 Orders R12 Spend

1234 RETAINER China Supplier #1 951,000 826,320 13 142,079.40$

4567 LEVER China Supplier #1 154,200 138,242 19 91,409.76$

7891 STOP China Supplier #1 6,426,000 5,153,177 14 75,184.20$

• EOQ calculated based on R12 usage • Calculates average R12 order • Displays MOQ • Number of EOQ orders • Potential to request lower MOQ to reduce average

inventory







EOQ/MOQ Data

Part # Description EOQ Ave R12 Order MOQ EOQ Orders EOQ % Part Rank Rank MOQ

1234 RETAINER 60,600 73,154 69333 16 76.9% A 63,563

4567 LEVER 12,250 8,116 3000 13 68.4% A 10,634

7891 STOP 562,907 459,000 500000 11 78.6% A 396,398

• Review last PO price

• Price break for ROQ

• Price break for EOQ

• Show savings

• Potential savings of $28k on single part

Evaluating Parts – EOC and Price Break






Price Break Data

Part # Description Last PO Price ROQ Price Savings Break EOQ EOQ Price Savings

1234 RETAINER 0.1494$ 0.1494$ -$ 60,600 0.1494$ -$

4567 LEVER 0.5928$ 0.3900$ 28,035.48$ 14,300 0.3900$ 28,035.48$

7891 STOP 0.0117$ 0.0110$ 3,607.22$ 519,876 0.0110$ 3,607.22$

• Standardize method for quote evaluation

• Provide a breakdown of supply chain costs

• Monetizes supply chain costs at piece price level

• Shift from piece price evaluation to a Total Cost of Ownership evaluation

Evaluating Quotes

• Data entry of quotes from two suppliers • Purchasing provided information (blue) • Supplier provided information (red) • Gray fields formula driven

Evaluating Quotes – Data Entry

• TCO = piece price + duty + transportation + safety stock + MOQ + Z-factor + Tooling

• Duty = quoted piece price x duty rate • Transportation Cost = piece weigh x supplier average freight per

pound • Safety & MOQ cost same as used in TCO by part calculations • Z-factor – assigned by supply manager as additional percentage to

piece price • Tooling = Total Tooling Cost / (Annual usage x 2)

Evaluating Quotes – Calculations

Part # Part Cost TCO TCO % Total Cost Duty Trans Cost Safety Cost Storage Cost MOQ Cost MOQ Storage Z-Factor Tooling

1 1.5000$ 1.7275$ 15.2% 172,746$ 0.0795$ 0.0125$ 0.0183$ 0.0022$ -$ -$ 0.0150$ 0.1000$

2 5.0000$ 5.7414$ 14.8% 287,070$ 0.2650$ 0.0625$ 0.0610$ -$ 0.0390$ 0.0139$ 0.0500$ 0.2500$

3 5.4000$ 7.7038$ 42.7% 154,076$ 0.2862$ 0.6250$ 0.0732$ -$ 0.0618$ 0.2036$ 0.0540$ 1.0000$


1 1.7500$ 1.8825$ 7.6% 188,247$ -$ 0.0006$ 0.0062$ 0.0006$ -$ -$ -$ 0.1250$

2 5.5000$ 5.8239$ 5.9% 291,197$ -$ 0.0030$ 0.0158$ 0.0051$ -$ -$ -$ 0.3000$

3 6.0000$ 6.9735$ 16.2% 139,469$ -$ 0.0300$ 0.0173$ 0.0512$ -$ -$ -$ 0.8750$

Supplier A - International

Supplier B - Domestic

• Evaluation by quoted piece price:

– Supplier A = $62,000 annual saving

• Evaluation by TCO:

– Supplier A = $5,000 annual saving

Evaluating Quotes – Results


1 1.5000$ 1.7275$ 15.2% 172,746$ 0.0795$ 0.0125$ 0.0183$ 0.0022$ -$ -$ 0.0150$ 0.1000$

2 5.0000$ 5.7414$ 14.8% 287,070$ 0.2650$ 0.0625$ 0.0610$ -$ 0.0390$ 0.0139$ 0.0500$ 0.2500$

3 5.4000$ 7.7038$ 42.7% 154,076$ 0.2862$ 0.6250$ 0.0732$ -$ 0.0618$ 0.2036$ 0.0540$ 1.0000$

613,892$


1 1.7500$ 1.8825$ 7.6% 188,247$ -$ 0.0006$ 0.0062$ 0.0006$ -$ -$ -$ 0.1250$

2 5.5000$ 5.8239$ 5.9% 291,197$ -$ 0.0030$ 0.0158$ 0.0051$ -$ -$ -$ 0.3000$

3 6.0000$ 6.9735$ 16.2% 139,469$ -$ 0.0300$ 0.0173$ 0.0512$ -$ -$ -$ 0.8750$

618,913$

Supplier A - International

Total Cost

Supplier B - Domestic

Total Cost

• Understand spend to identify risks

• Impact of lead time and MOQ

• Total Cost of Ownership calculation

• Economic Order Quantity

• Price break impact

• Standardize evaluation method

Little things done with excellence make a major impact!

Main Concepts

Wrap Up

Questions?

[email protected]

understanding & managing future risk€¦ · understanding & managing future risk michael...

Documents