BUSINESS INTELLIGENCE
KPIs OF SCM IN MANUFA MANUFACTURING CTURING INDUSTRIES INDUS TRIES
SUBMITTED BY LAVANYA DEEPIKA TIGGA
215109036
ARUNAN V P
215109037
SARAVANAN
S
215109070
SUBMITTED ON 15TH APRIL 2010
1
INDEX
No
TITLE
Page No
1
INTRODUCTION
3
2
MANUFACTURING INDUSTRY
7
3
SUPPLY CHAIN MANAGEMENT
9
4
KPI FOR SCM
11
5
SSTP, TRICHY
15
6
IDENTIFIED KPIs
16
7
CONCLUSION
18
8
REFERENCES
19
2
INTRODUCTION KEY PERFORMANCE INDICATOR
Key Performance Indicators (KPIs) help organizations understand how well they are performing in relation to their strategic goals and objectives. In the broadest sense, a KPI provides the most important performance information that enables organizations or their stakeholders to understand whether the organization is on track or not. Why do we measure performance?
The reason why we measure performance in organizations is often reduced to simple homilies, such as µyou can¶t manage anything unless you measure it¶ or µwhat gets measured gets done¶. The tree main reasons for measuring performance are (see also Figure 1):
y
To lean and improve
y
To report externally and demonstrate compliance
y
To control and monitor people
3
Of these three the first is the most important, the second is something organizations just have to
do and the third one can cause major problems. Measuring to learn and improve performance Measuring for learning and improvement is the most natural form of using KPIs and something
we do every day in our daily lives. The aim is to equip our employees with the information they need to make better informed decisions that lead to improvements. In this context, KPIs are used internally as the evidence to inform management decisions, to challenge strategic assumptions and for continuous learning and improvement. Measuring to report externall y and demonstrate compliance
Another reason for collecting KPIs is to inform external stakeholders and to comply with external reporting regulations and information requests. When measuring for external reporting and compliance purposes, any reports and associated indicators can either be produced on a compulsory basis such as annual financial statements, accounts, or performance reports for regulators; or can be on a voluntary basis such as environmental impact reports, for example.
Measuring to control and monitor people
KPIs can also be used in a top-down command-and-control fashion to guide and control people¶s behaviors and actions. Here, measures are used to set goals or rules, to objectively access the achievement of these goals, and to provide feedback on any unwanted variance between achievements and goals. Here, the aim of measurement is to eliminate variance and improve conformity. In this context, measures are often tightly linked to reward and recognition structures. Research has shown that this approach is dangerous and often leads to a culture in which people focus on delivering the measures but not the performance (i.e. hitting the target but missing the point).
4
5
The problems wit h KPIs
In practice, the term KPI is overused and often describes any form of measurement data and performance metrics used to measure business performance. Instead of clearly identifying the information needs and then carefully designing the most appropriate indicators to assess performance, we often observe what we have termed the µICE¶ approach:
y
Identify everything that is easy to measure and count
y
Collect and report the data on everything that is easy to measure and count
y
End up scratching your head thinking ³What the heck are we going to do with all this performance data stuff?
Using KPIs correctly Best practice organizations a. Clearly understand what indicators are required for learning and improvement and focus on those, b. They separate out the external reporting indicators if they are not relevant internally to avoid confusion and data overload, and c. They try to avoid using indicators for controlling people.
6
MANUFACTURING INDUSTRY - PROFILE Manufacturing is the use of machines, tools and labor to make things for use or sale. The term
may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale. Such finished goods may be used for manufacturing other, more complex products, such as household appliances or automobiles, or sold to wholesalers, who in turn sell them to retailers, who then sell them to end users - the "consumers". Manufacturing takes turns under all types of economic systems. In a free market economy,
manufacturing is usually directed toward the mass production of products for sale to consumers at a profit. In a collectivist economy, manufacturing is more frequently directed by the state to supply a centrally planned economy. In free market economies, manufacturing occurs under some degree of government regulation. Modern manufacturing includes all intermediate processes required for the production and
integration of a product's components. Some industries, such as semiconductor and steel manufacturers use the term fabrication instead.
7
The manufacturing industry in India, has all the qualities which enhance economic development, increase the productivity of the manufacturing industry and face competition from the global markets. The Manufacturing industry in India is believed to have the potential of improving the economic condition of India. Indian manufacturing industry: Research findings India has a working population of 75%. Out of this, only 600 million have acquired education till middle school. Due to this reason, the manufacturing industry in India, which is labor intensive, can provide the requisite number of employment units in the country. Studies have indicated that the productivity of the manufacturing industry in India is approximately 1/5th of the productivity in the manufacturing industry of United States of America. It is about ½ as compared to the productivity levels in South Korea as well as Taiwan. Labor productivity has escalated only to a small extent in case of India in comparison to United States of America, on the contrary, labor productivity has increased manifold in countries like T aiwan and Korea. Manufacturing industry in India and exports:
Exports of manufactured goods in India accounted for 75% in comparison to exports of manufactured goods all over the world. Owing to the performance manifested by the export sector in India, the scenario indicates that there is less competition in the manufacturing segment. Absence of competition is also established by the fact that in spite of reducing the tariff in the early and mid 90s, India continued to be one of the protected economies of the world. Contribution of India's export towards international market grew from 05% to 0.7% during 1990 to 2000. During the same period, Malaysia, China, Thailand and South Korea, registered almost double increase in exports.
8
SUPPLY CHAIN MANAGEMENT Supply chain management (SCM) is a process used by companies to ensure that their supply chain is efficient and cost-effective. A supply chain is the collection of steps that a company takes to transform raw components into the final pro duct.
Typically, supply chain management is comprised of five stages:
Plan
Develop
Make
Deliver
Return.
1. The first stage in supply chain management is known as PLAN. A plan or strategy must be developed to address how a given good or service will meet the needs of the customers. A significant portion of the strategy should focus on planning a profitable supply chain. 2. DEVELOP is the next stage in supply chain management. It involves building a strong relationship with suppliers of the raw materials needed in making the product the
9
company delivers. This phase involves not only identifying reliable suppliers but also planning methods for shipping, delivery, and payment. 3. At the third stage, MAKE, the product is manufactured, tested, packaged, and scheduled for delivery. 4. Then, at the logistics phase, customer orders are received and delivery of the goods is planned. This fourth stage o f supply chain management stage is aptly named DELIVER . 5. The final stage of supply chain management is called RETURN. As the name suggests, during this stage, customers may return defective products. The company will also address customer questions in this stage. Another model for understanding supply chain management groups all management activities into three categories:
Strategic
Tactical
O perational.
Strategic activities include building relationships with suppliers and customers, and integrating information technology (IT) within the supply chain. Studying competitors and making decisions regarding production and delivery would fall under the tactical category. The operational category includes the daily management of the supply chain, including the making of production schedules. Companies use forecast-distribution models in order to have the appropriate inventory, or safety stock, necessary to meet fluctuations in customer demand. Forecast-distribution helps companies maintain more efficient, and therefore more effective, supply chain management. This greater variation in demand that can be seen in the supply chain as one moves away from the end customer is known as the whiplash or bullwhip effect. A possible solution to this effect is Kanban, a demand-driven supply chain. The participants in the supply chain would react to actual customer orders, not forecasts of them.
10
KPIs FOR SCM Key Performance Indicators define a set of values used to measure against. These raw sets of values fed to systems to summarize information against are called indicators. Indicators identifiable as possible candidates for KPIs can be summarized into the following sub-categories:
Quantitative indicators which can be presented as a number.
Practical indicators that interface with existing company processes.
Directional indicators specifying whether an organization is getting better or not.
Actionable indicators are sufficiently in an org anization's control to effect change.
Financial indicators used in performance measurement and when looking at an operating index
Some important KPIs for Supply Chain Management in a manufacturing industry 1.
Delivered In-Full, On-Time
Measures the percentage of orders delivered to the customer, which are both complete and on
time. 2. Software used to support suppl y chain Measures the number of software products used within the supply chain management process, in
order to support it. Supply chain management software (SCMS) is an example of software tools and modules used for supply chain transactions, managing supplier relationships or other business processes associated with this. 3. Freight cost per unit s hipped Measures the average freight cost incurred for every unit shipped during the repo rting period.
4. Average inventory value Measures the average value of the inventory during a month, calculated by dividing the total sum
of the inventory during a period with the number of months. Measures the average value of the
11
inventory during a month, calculated by dividing the total sum of the inventory during a period with the number of months. 5.
Upside supply chain flexibilit y
Measures the time it takes a supply chain to respond to an unplanned percentage of increase in
demand without service or cost penalty. 6. Cycle Time
Cycle time is the total time from the beginning to the end of your process, as defined by you and your customer. Cycle time includes process time, during which a unit is acted upon to bring it closer to an output, and delay time, during which a unit of work is spent waiting to take the next action. Cycle Time Ratio = StandardCycleTime / Rea lCycleTime 7. Utilization
Extent or level to which the productive capacity of a plant is being used in generation of goods and services. Expressed usually as a percentage, it is computed by dividing the total capacity with the portion being utilized. 8. Rejection rate
In manufacturing, the rejection rate is the percentage of processed parts that are rejected, for a fixed period of time or lot of pieces. RR = (Rejectedpieces/ProcessedPieces) x100 9. Fill Rate
Calculates the service level between 2 parties. It is usually a measure of shipping performance expressed as a percentage of the total order. Line Count Fill Rate: 12
The amount of order lines shipped on the initial shipment versus the amount of lines ordered. This measure may or may not take into consideration the requested delivery date
SKU Fill Rate:
The number of SKU's (Stock Keeping Units) ordered and shipped is taken into consideration. Above, we consider each Order Line to have an equal Case Fill Rate:
The amount of cases shipped on the initial shipment versus the amount o f cases ordered. 10.
DPMO - Defects Per Million Opportunities
DPMO is a Six Sigma calculation used to indicate the amount of defects in a process per one million opportunities. DPMO = (Total Number of Defects / Total Number of O pportunities for a Defect)*1,000,000 Some defects can pass through a quality inspection and have little impact on the end product. Other defects can result in re-work or scrap.
DPMO is sometimes used instead of Defect per Unit to allow for comparison between processes with different levels of co mplexity. Six Sigma uses statistical analysis to measure a company¶s per formance by identifying defects in
a manufacturing process. The goal of Six Sigma is to reduce process output variation to + or three standard deviations. This results in no more than 3.4 defects per million opportunities. 11.
Backorder
It is an unfilled customer order. A backorder is demand (immediate or past due) against an item whose current stock level is insufficient to satisfy demand.
13
Some companies count items that are not confirmed (not allocated) and past the Requested Delivery Date (or Requested Ship Date). Other companies may also count those items with stock confirmed, but past due. Backorders may be expressed in "pieces", "SKU's" or in "value". Backorder calculations are often tracked at a variety of levels. Example: Customer, Division, Total Company Aged Backorder
Reports on backorders in past-due time buckets based on the Requested Delivery Date/Requested Ship Date. 12.
Reverse Logistics
It is "the process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal. More precisely, reverse logistics is the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal. Remanufacturing and refurbishing activities also may be included in the definition of reverse logistics. The reverse logistics process includes the management and the sale of surplus as well as returned equipment and machines from the hardware leasing business. Normally, logistics deal with events that bring the product towards the customer. In the case of reverse, the resource goes at least one step back in the supply chain. For instance, goods move from the customer to the distributor or to the manufacturer 13.
Inventory turnover
A ratio showing how many times a company's inventory is sold and replaced over a period. Inventory turnover = Cost of goods sold/average inventory Average inventory = (Beginning inventory + ending inventory)/2 14
SSTP, TRICHY INFERENCES FROM THE VISIT TO SSTP
SSTP is one of the major suppliers for BHEL. Bharat Heavy Electricals Limited (BHEL), established in 1953, is one of leading power generation equipment manufacturers in the world. BHEL has 14 manufacturing units, 13 Regional O peration Divisions and more than hundred "service-at-sites" facilities spread all over India. BHEL offers comprehensive service to its customers
in
Conventional
and
Non-Conventional
Energy,
Industry,
Transportation,
Telecommunication and Oil sectors. BHEL has also bagged export orders from 40 countries around the world. BHEL ± Trichy: The High Pressure Boiler Plant of the Bharat Heavy Electricals Limited was
setup in 1963 for the manufacture of High Pressure Boilers. The plant achieved its full annual capacity to design manufacture and supply high pressure boiler equipment up to 4000 MW in 1984 with boiler unit ratings up to 500 MW. BHEL has over the years seen formidable growth in capacity, capability, turnover and profitability. Product diversification has resulted in the development of new products enabling BHEL to absorb modern technologies. Such innovations result in continuous updating of manufacturing facilities to serve the customers in a more comprehensive way and for improving quality and productivity. Along with Seamless Steel Tube Plant (SSTP) (adjacent to the HPBP) are a Boiler Auxiliaries Plant (BAP) at Ranipet (in the state of Tamil Nadu), a Piping Centre (PC) at Chennai in Tamil Nadu and an Industrial Valve Plant (IVP) at Goindwal (in the Northern state of Punjab). HPBP and SSTP are spread over 2908 acres of land at Trichy and BAP over 1256 acres at Ranipet. HPBP and SSTP have a covered shop area of 2,50,000 square meters and BAP Ranipet has 47,000 square meters of covered shop area.
15
Competitors y
MSL
y
Kalyani Steels
y
ISMT
SSTP ± IDENTIFIED KPIs
BHEL is the major customer for SSTP (~90%), rest is supplied to small players and some are exported.
Cycle time - Almost 1 month (30 to 45 days). If the necessity arises then they do it in 15
days. The cycle time also depends on the order made by BHEL. Currently SSTP has orders for the next few years in adva nce. Hence this has made the future planning easier.
Software used to support suppl y chain ± SSTP has entered automation in some areas.
They have a separate department for modernization, which is taking care of the technological advancements. SAP is used by the company for certain processes. Further automation plans are in progress. Thus this helps in faster processing and transactions.
Vendor Fixing - A team of experts are sent to the suppliers companies to do a thorough
inspection and they come and submit a report whether it¶s good to sign a contract with them. They give major importance to quality of product and delivery time. They give a trial order to these vendors and note their performance on these criteria¶s and rate them. They see various criteria¶s like o
Quality of product
o
Manufacturing capacity and capability
o
Financially sound
o
Delivery time
16
Delivery time - The customer and the supplier fix the delivery time based on the
customer requirements. Sometimes the tube is not available so at that time the supplier fixes the delivery time.
DPMO ± SSTP has a edge over its competitors through quality. Much importance is
given for quality. Defects per million are reduced considerably over a period of time. They have achieved 2-3 sigma level. Various quality improvement programs are conducted regularly to ensure quality. Employees are trained effectively to ensure the same.
These are the few KPIs identified for SSTP after understanding the various processes of the company. The company is planning for an expansion in the next 3 years, which will approximately double its production capacity. Hot mill modernization is also a part of its future plans.
17
CONCLUSION From the analysis of Supply Chain Management in manufacturing industries we found these indicators play a crucial role in measuring t he performance of Supply Chain Management
Cycle time Software used to support suppl y chain Vendor Fixing Delivery time DPMO
Thus we suggest these indicators to be used to measure the performance as far as the Supply Chain Management of Manufacturing Industry is concerned.
18
REFERENCES
http://www.ap-institute.com/Key%20Performance%20Indicators.html
http://www.economywatch.com/world-industries/manufacturing/india.html
http://en.wikipedia.org/
http://www.smartkpis.com/
http://www.wisegeek.com/what-is-supply-chain-management.htm
http://www.iimm.org
http://www.supplychainmetric.com
http://www.bheltry-spares.com
Mr. Jayaprakash , AGM, Production (SSTP ± Trichy)
Mr. Martin Tigga, SDGM, Management Services (SSTP - Trichy)
19
