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Continuous Improvement Metrics Start with Supplier Performance

  
  
  

Lean quality concepts constantly reference continuous improvement.  After a kaizen event and several months pass, there is often fatigue because the notion of continuously looking for better practices (en route to best-practices) is exhausting.

Keeping an eye on critical Key Performance Indicators (KPIs), provides tools to assess the performance of the supply chain. Supplier performance data is collected by ship date, receipt date, by over-shipments (and under-shipments), as well as quality.  These data directly impact inventory savings, on-hand inventory and reflect favorably in a Total Spend Report.

A. O. Smith is one of the world’s leading manufacturers of residential and commercial water heating equipment, offering a comprehensive product line featuring the best-known brands in North America and China. A. O. Smith is also one of the largest manufacturers of electric motors for residential and commercial applications in North America.  As part of the company’skanban loop lean journey they needed to achieve a reduction of inventory and get visibility to supply base as well as realign resources and eliminate stock outs.

Ultriva implemented the supplier Kanban module by establishing a loop from their warehouse back to suppliers. After than initial phase, five major lines were implemented that started pulling directly from the suppliers instead of through the warehouse.  The continuous improvement continued when A.O. Smith added the consignment parts in to pull replenishment as well. Currently they are active with 2300 parts across 92 suppliers.

Mobile scanners are used to perform scan transactions on the floor. On consumption at the line side or warehouse Kanban signal is triggered as the material handler scans the card. Similarly a receipt transaction is generated through a scan when the material arrives at the receiving dock. Ultriva is fully integrated with their ERP system for transactions such as P.O Release, P.O. Receipt, and Inventory movements to avoid duplicate entries.

 

Beyond KPIs -> Actionable Reports

While reports and KPIs are very valuable data resources on the path toward continuous improvement, actionable reports are needed which allow a company to improve performance with specific target areas.

Lead time validation reports provide actionable lean corrective actions.  In most instances the supplier’s lead time are set based on certain criteria and is rarely changed. Ultriva provides a report that measures the actual lead time and actual transit time over a time frame and compare the same with the defined lead time on a part by part basis. The gap between the actuals and defined will allow the supply chain personnel to take corrective actions resulting in both inventory savings and elimination of part shortages.

One of the challenges in materials management is computing the safety stock to size the inventory. Safety stock is the variability of consumption and the supplier’s performance. Ultriva measures these in real time and provides a clear pointer to changes necessary for sizing the inventory. It senses the change in demand (past or proposed), calculates the demand variance, computes the safety stock and recommends the changes to increase or reduce inventory in the pipeline. This type of demand or consumption changes based on resizing defines a continuous process improvement.

Ultimately the ability to accurately predict various scenarios defines the rigor need for ongoing improvement.  All the stakeholder require actionable including planners, buyers, shop floor users, and suppliers for potential part shortages, late or short shipments, expiration of blanket purchase orders, inspection delays and traceability.  The fluidity of these circumstances is a living kaizen event.

Comments

I have to disagree. Continuous improvement metrics have to start in-house. If you do not have your own house in order, how can you possibly measure someone else to a moving target?
Posted @ Saturday, August 03, 2013 8:22 PM by Mark Bensley
It always start with internal, but unfortunately most companies stop there. The belief that the changes they make without engaging their external partners will lead to substantial improvement, is a myth. The purpose of this article is to emphasize that aspect of that. Over the 15 years I have been involved in supply chain, for many companies, improvement means all these internal activities - improve forecasts, push suppliers to hold stock (VMI, SOMI), improve production processes, etc. The idea here is to establish a close loop supply chain process which can measure all activities. As we all know what is measured, can be improved.  
 
Narayan Laksham 
Posted @ Monday, August 05, 2013 1:40 PM by Cindy Leonard
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