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Chris Gray

In the last five years, new system implementations have increased at an unprecedented rate. Faced with increasing competitive pressure, the specter of the "millenium bug", and promises of enterprise-wide visibility, huge numbers of companies have replaced their systems and software. In the area of value/supply chain management, the money invested in many large corporations has ranged between thirty and two hundred million dollars. And the business press reports several failedimplementation projects in excess of $100,000,000.00!

No wonder so many CEOs want to know:

What did we get for our money?
How effective is the new system?
Are there specific problems that need to be corrected?
What is our performance against other companies and against objective standards? .

You may have implemented a world class, best practice process. But is it producing world class results? Too often, people have the tools and documented processes but have not focused on achievement. As in so many things, having the tools and using them effectively are two different things.

Take a Lesson

Executives responsible for value/supply chain, materials, and manufacturing management should take a lesson from other fields. In the field of medicine, for example, doctors have very simple methods for determining the health of their patients – take the temperature, monitor the heart rate and blood pressure, monitor respiration, etc. – called the "Vital Signs". And when doctors undertake a course of treatment – whether it's antibiotics, surgery, prosthetics, or "take two aspirin and see me in the morning" - the assessment of that treatment starts with the same Vital Signs. When the Vital Signs indicate a problem, the doctor orders more tests and diagnostic measurements.

Results-oriented professionals can monitor the health of a value/supply chain, and how well they are managing it, just as doctors monitor the health of their patients: by monitoring a few "Value Chain Vital Signs". And when the Vital Signs indicate problems and issues, diagnostic measurements can be used to trace back to root causes.

Reasons to chart Vital Signs include:

  • Establishing objective baselines and measurements against them, rather than relying on informal guesses or feelings
  • Determining where the opportunities lie
  • Highlighting areas working properly so people can be appropriately recognized
  • Highlighting weak areas and prioritizing problems
  • Monitoring improvement initiatives

 

What's the Scope of the Vital Signs?

Value/Supply Chain Vital Sign measurements normally cover four different areas:

  1. Coordination of value/supply chain activities. Are the sourcing, manufacturing, interplant and distribution activities operating in "lockstep"? Can everyone everywhere in the value/supply chain reliably answer the question "what do we need next and when"? Is schedule conformance high? These are the measurements that will tell you the most about the effectiveness of your new ERP or Value/Supply Chain Management systems.
  2. Supply chain reliability. Is the process reliable and capable? Has variability and volatility been removed from the process? Are the individual elements (equipment, transport, process yields) reliable? These measurements monitor process capability and quality of your value/supply chain.
  3. Simplicity of the value/supply chain. Are the systems, the physical organization and distances associated with the lines of supply, the manufacturing and transfer lot sizes, the equipment set ups, etc., as streamlined and simple as possible? Many times, people don’t get desired or even predictable performance because the processes and systems are too complex. These measurements focus on the physical characteristics of your value/supply chain.
  4. Overall velocity of the value/supply chain, and the productivity of the key resources. Do the value/supply chain processes support fast and nimble response, or is it like turning the Titanic? Is the productivity of inventory, transportation, and equipment increasing or decreasing? These vital signs monitor the flexibility of your value/supply chain and how fast you can respond to change.

This article covers only the Vital Signs associated with the coordination of value/supply chain activities (#1 above). These are an excellent starting point for developing a complete monitoring system, and represent the measurements that most clearly address questions you may have about the effectiveness of your systems and software. If you fall into the category of companies who have replaced their value/supply chain and resource management systems in anticipation of the year 2000, this is absolutely the best place to start.

Future articles will cover the other Vital Sign categories.

Basic Resource Coordination Vital Signs

Figure 1 lists Vital Signs covering processes like customer order promising, performance to schedule, data quality, etc. These Vital Signs were developed based on the experience of implementing and operating effective resource management and value/supply chain systems. (Acronyms describing these systems include MRP II - Manufacturing Resource Planning, DRP - Distribution Resource Planning, ERP - Enterprise Resource Planning, and VCM - Value/Supply Chain Management)

Vital Signs in Figure 1 monitor:

Customer Service (On time in full)
Sales Planning and Forecast Accuracy
Volume Performance to Plan (Production Plan Performance)
Distribution and Interplant Performance to Schedule
Master Production Schedule Performance to Schedule
Manufacturing Performance to Schedule
Supplier Performance to Schedule
Data Integrity in Key Areas

Structuring a Program

Here's how to get started tracking the Vital Signs:

  1. Verify that your measurements are appropriate. Generally speaking, you’ll have to fine tune each of the measurement methods. Depending on how you operate and the data available for measurement purposes, you may measure one way now and then later change to a different measurement. For example, if you operate to a schedule, you might choose to measure "Customer Service" based on delivery performance against the customer's requested date. If you operate to a visual "pull" signal from your customer, you may measure the fill rate against the KANBAN signal. Or the state of your systems may be such that you can't measure actual deliveries against requested dates. For some time you may have to measure deliveries against promised dates (or even shipments against promised dates) - later adding the delivery to request type measurement. In this case you would typically end up with measurements both against the requested date and against the promised date.  As a general rule of thumb, you should have a measurement in each Vital Signs area (except for situations where the "value/supply chain" includes only a single plant and no distribution - in which case there would be no "Distribution and Interplant Performance" measurement). Even if you don't have the optimal or ultimate measurement, try to measure something to get started.
  2. Determine the scope of the value/supply chain to be measured. "Customer Delivery Performance" for a single plant is a measurement of delivery performance to the immediate customers. In a multi-site situation, Customer Delivery Performance measures delivery performance to the "ultimate customer" and the site-to-site delivery performance is measured by Distribution and Interplant Metrics.
  3. Determine minimums and objectives. Minimums are the industry standards. Objectives are the internal goals of your company, normally higher than the minimums. For example, 95% on time delivery against the MPS represents the bare minimum for claiming good MPS performance – even though the objective in your company is probably 100%.
  4. Establish reasonable tolerances. Tolerances recognize acceptable ranges in performance (e.g., plus or minus 1 day on delivery) or limitations in your ability to measure because of equipment issues, system capabilities, or human ability (e.g., plus or minus 3% on inventory count). Tolerances can be established using rules of thumb to start, with more precise tolerances later.

 

Don't Stop Now - Use Diagnostics for Root Cause Identification

John Civerolo, one of my partners in Partners for Excellence, is always saying "Push hard for root cause analysis. Verify that the underlying problems are truly understood and being attacked. Too often, the focus is on symptoms, not root causes."

Traditional graphical problem solving displays: Pareto Analysis, cause and effect diagrams, run charts, pie charts, histograms, scatter diagrams, etc. can help people in the organization trace a problem back to its root cause.

This kind of root cause analysis can be supported by setting up more detailed diagnostic metrics in advance of a problem. Diagnostic measurements might include things like shipping performance (percentage of orders shipped on time), master schedule stability (the percentage of the master schedule that is changing inside critical time fences), or purchase releases with the full lead time.

Measurements (both the Vital Signs and the detailed diagnostics) can be structured into a hierarchy that can be used to trace high level performance problems back to their real causes. For example, problems in customer service (on time to requested delivery date) at the executive tier of the hierarchy (top level) might be traced to problems in shipping (missed shipment), problems in production (missed deliveries against the MPS), or even inventory record accuracy problems at the operational management tier (next level down).  Or the problem might be traced to a problem even further down the hierarchy at the execution tier! 

Without diagnostics that are linked to the Vital Signs, you have a way to see that there is a problem, but no way to know what is causing it.  

Click on the "performance pyramid" for an example of a hierarchy of Vital Signs. This doesn’t represent a complete hierarchy of root cause indicators but would be a good example for how you could define diagnostic metrics and the hierarchy that allows you to trace problems back to their source. If you would like to see more diagnostic measurements than can be shown in this limited space, check this additional link.

Performance Pyramid

Once you can trace performance problems back to their root causes, make sure that there is there a corrective action plan to eliminate them. Many times the difference between systems that are competitive weapons and those that are "more for show than go" is how effectively they are used for corrective action.

SUMMARY

By implementing these concepts across all the key elements of the value/supply chain, you get:

  • A comprehensive and quantitative performance measurement system
  • The ability to trace performance problems back to root causes, and
  • A framework for additional company performance measurements.

So when the CEO asks "What did we get for our money?", you can be specific, quantitative, and confident of your answers. You can eliminate the debate over how effective the new system is, and get on with fixing the unresolved issues. And you'll have the data to know objectively how well you are performing against other companies!

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If you have specific questions about this article or want to discuss it with the author, call Chris Gray at 1 603 778-9211.

 

The Partners for Excellence specialize in helping companies set up comprehensive measurement programs and improving overall resource management performance.  Contact us at 1 603 528-0840 or email This email address is being protected from spambots. You need JavaScript enabled to view it..