Metrics for Action in Demand-Driven Manufacturing Sales and Customer Relationships
The method of Demand-Driven Manufacturing drives production based on actual customer demand either through customer orders or inventory consumption. As such, Demand-Driven Manufacturers have a laser focus on satisfying the needs of their customers. The metrics identified here are measured at the global (plant) level and are associated with being responsive to customer demand.
Business Value to Demand-Driven Manufacturers:
Manufacturers increase customer satisfaction and capacity while gaining competitive value.
Global Measurement
A manufacturer’s On Time Delivery rate reflects the ability of their processes and supply chain to achieve agreed upon client delivery dates. OTD is calculated by:
OTD Rate
= Total number of orders shipped on time in the period
/ Total number of orders due in the period
Action:
A low OTD could be indicative of any number of issues, including bottlenecks in the supply chain and/or inefficient processes. Many times this is due to a lack of synchronization (particularly with the sales team; resulting in over-committing to customers) and not releasing work into the system at a pace that the constraint resource can effectively process. Review subordinate Operating and Supplier metrics to find issues that may be impacting your OTD rate.
Starting on-time, and when you can fully execute the order, is the only way to deliver all orders on-time.
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Global Measurement
The Fill Rate reflects the manufacturer’s ability to have the item in stock when requested by a customer.
Fill Rate
= Number of order lines available
/ Number of order lines requested by customer
Action:
Take a look at your finished goods inventory management practices and consider moving towards a consumption-based replenishment model with less reliance of forecasts.
An eKanban system that automatically replenishes inventory based on real-time demand signals (actual consumption) is an effective, affordable option. (The white paper, Gaining Control: Exploring Push v. Pull Manufacturing discusses various types of Kanban systems.)
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Global Measurement
The Perfect Order Percent metric represents the number of orders (with all line items) shipped on time and without incident. The Perfect Order Percent Index is achieved by multiplying the following percentage rates:
Perfect Order Percent Index
= (OTD) (Orders shipped complete) (Orders shipped damage-free) (Orders shipped with accurate documentation)
Action:
For more insight into the Perfect Order Percent Index, compare scores between different classifications, such as by product, by customer, etc. This analysis may reveal where certain types of orders are negatively impacting the overall Perfect Order Percent Index and therefore areas for improvement.
Also consider practical ways that can help any member of the organization contribute to the Perfect Order Percent Index. One facility, intent on achieving perfect order status, created a screen simulation that included visual representations of all the components of an order. Workers were required to match actual components to the screen simulation before packaging them. In this environment, the variable that needed improvement was the “orders shipped complete” part of the equation.
Identify the variable(s) that is causing issues and team with the workers in that area to map out a solution. Refine, test and repeat until you land on a Perfect Order Percent Index that you can sustain.
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Global Measurement
Sales Lead Time represents the amount of time between order inception and customer delivery. The purpose of this metric is to uncover any constraints pre- and post-production of an order so they can be addressed and managed. Sales Lead Time expands upon the Cycle Time metric (in the Operations category) to include the time and activities prior to releasing the order into manufacturing as well as post production shipping and delivery. Sales Lead Time is calculated by:
Sales Lead Time
= Date of customer delivery – Date of customer order receipt
Action:
The ability to shorten lead time drives customer satisfaction and can be a competitive differentiator. Long lead times can indicate unmanaged resource or supply constraints. To shorten the Sales Lead Time, start by dissecting the different components of the overall timeline:
Order Creation > Order Release > Order Start > Order Completion > Order Shipped > Order Delivered
You may find constraints across the organization, at various stages of the timeline. For example, a constraint in the sales area may be the ability to gather all the necessary information from the customer to complete the order. And engineering may have setup constraints while scheduling may have time constraints impacting the release of the order into production. Identify all constraints and chart a path for continuous improvement.
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