Now, we are international competitive environment. To survive, company must clarify its vision from different perspectives and create future value by analyzing the metrics and actions to make our goals come true.
Base on case study, company selected some current KPIs in 2013 to evaluate. According to the original Balanced Scorecard designed by Kaplan and Norton: KPIs are classified per four perspectives: the Customer Perspective; the Internal Process Perspective; the Learning and Growth Perspective; and the Financial Perspective.
Page 41 4.3.1 Finance:
There are many indicators in Finance for us to analyze and evaluate. However, we’d like to focus on:
Return on Investment (ROI).
Sale volume.
Days of Inventory stock
Stock Provision
Return on Investment (ROI): indicator is commonly approaches for evaluating the financial consequences of our business investments. It is a central financial metric for asset purchase decisions.
Base on it, we can have approval and funding decisions for projects and programs:
marketing, recruiting, training…
To increase ROI, we’ll need to pull in our sale volume from 3M in 2013 to 3.2M in 2014:
Figure 4-01: Sale volume 2013 vs target
Besides, we need to control more strictly our days of inventory stocks because stocks is our visible assets. It will largely be determined by our business model and business finances. An efficient stock control allows us to have the right stock amount in the right place and at the right time. It ensures our capital is not tied up unnecessarily.
Days of Inventory stock: describes the extra merchandise or supplies our business keeps on hand to meet the demands of customers. An excessive amount of inventory will hurt our cash flow by using up money that could be used for other cash outflows.
Page 42 4.3.2 Customer:
We will concentrate on five main KPIs:
On time Delivery (OTD)
Order confirmation Lead Time
Return Rate
Company still has not set up yet a system with updated information on time to support material planner who calculating demand for materials. He/she still uses spreadsheet then some time BOM are not updated and make wrong materials/ planned qty.
Peak season from Sep to Apr capacity is lower than demand. Customers push for delivery tightly. Production is usually late delivery during this period. It will create high pressure for production planning. Planning materials will be affected too.
Right now, we have 05 main customers with the volume as followings:
Table 4-05: Customers and percentage order per volume in 2013
No Customer % volume Shipped shaft qty in 2013
1 Ping 45% 1,732,603
2 Callaway 32% 747,200
3 Aldila stock 14% 314,400
4 Adams 5% 187,205
5 Cobra 4% 18,400
Total 100% 2,999,808
Our shipped shaft q’ty in 2013 was 2,999,808 pcs with customer share as below:
Page 43 Figure 4-02: Customer vs shipped shaft qty in 2013
In 2013, our deliveries number was 709 and late delivery was 151. Average achieved rate was 79%.
Figure 4-03: OTD status 2013 vs target
In this scorecard, we pay attention for OTD as our most importance because OTD is one of the four elements of customer satisfaction. It is a standard for us to work with our customers. It shows our ways to work in professional and dynamic.
If we are responsible for products delivery, there is a room for our operations improvement. What can we do? There is a new method emerging to ensure on-time delivery for our customers.
Page 44 Production and material planning affected by unstable of sale orders receiving from customers (seasonal). Aldila and suppliers don’t link together by VMI/Forecast to have a better planning for suppliers to prepare their production planning. Besides, accuracy of forecast via actual orders is still very low.
Our OTD indicators are still very low. Unstable and incorrect forecasts will affect directly to our planning activities. It is also affect indirectly to our suppliers. Let’s review our forecast report and % variance of FC in 2011/2012/2013:
Item Year
2011 2012 2013
Firm order 1,136,491 2,099,866 2,999,808 Forecast 1,394,179 1,511,903 2,129,864
FC Accuracy (%) 123% 72% 71%
FC Target 90% 90% 90%
Figure 4-04: Forecast accuracy in 2011 ~ 2013
As we can see in our Forecast Accuracy (%), it’s still very low. Currently, it is our main challenge. Forecast error can be a direct cause of stockouts, inventory growth and costly changes in the mast schedule. Forecast inaccuracy is expensive and the confusion and frustration resulting from it is extensive.
CS role is not strong enough to understand customer demand and don’t have good connection to link customer demand with internal planning arrangement. Once again production planning will be affected by rush orders. Therefore, materials also get difficulties with tightened schedule to place material from suppliers.
Page 45 Person in charge to load sale orders into MRP system doesn’t work closely and understand with planning team in Viet Nam. It creates a conflict to keep OTD and unreal expectations.
It is hard to define a priority for orders which will be late because of capacity /materials/
quality issues.
We really need forecast accuracy in order to permit an appropriate and effective response.
The importance of a accurate forecast to manufacturing performance calls for understanding of the factors which affect forecast accuracy. We’ll need to focus on the forecast developers rather than the users of the forecasts to improve it. We’ll investigate the effects of institutional factors on forecast error such as who should be involved in forecast preparation? How important is forecast error measurement for future accuracy?
What should the primary purpose of the forecast be?
Forecasts are best developed for sales planning and then distributed to other functions for them to use.
Return vs sale volume:
Besides, return rate is our second concern in customer section as it shows our defective products. Make our customer unsatisfied. Take time for exchange a new one.
To develop our business, we must minimize this point. Especially, we will try to reduce return rate of Callaway customer. Why? Because it is our second important customer after Ping with very high volume in 2013 (1,732,603pcs) and return rate 0.03%.
Some of other customers also have problems with return rate. However, we will make priority for Callaway first because their volumes are not much high.
No Customer % volume Shipped shaft qty in 2013
Returned
Rate Note
shaft qty
1 Ping 45% 1,732,603 598 0.03% Need to focus on quality issue 2 Callaway 32% 747,200 168 0.02% Need to focus on quality issue 3 Aldila stock 14% 314,400 60 0.02%
4 Adams 5% 187,205 27 0.01% Need to focus on quality issue
5 Cobra 4% 18,400 4 0.02%
Total 100% 2,999,808 357 0.01%
Page 46 Figure 4-05: Return rate vs sale volume in 2013
4.3.3 Internal process:
Currently company have measure 4 main KPI for internal perspective:
Yield
Scrap Rate
Production lead time
Machine down-time rate
Yield improvement and scrap rate control:
Yield and production scrap rate is top the list of KPIs. Aldila already recognized about this importance and we performed and using Six Sigma techniques and tools for process improvement.
Six Sigma helps to identify and remove the causes of defects and minimizing variation production lines. Company set improving teams to follow some tasks like reduce production or order lead time, reduce scrap & defect rate, increase yield, reduce cost and inventories, … result of these are increase customer satisfaction and profits.
Methodology used in each project is DMAIC. It has five phases:
Define select and choose related factors of project.
Measure collect relevant data.
Page 47
Analyze base on collected data to investigate and verify cause-and-effect relationships. Determine what the relationships are, and attempt to ensure that all factors have been considered. Seek out root cause of the defect under investigation.
Improve or optimize the current process based upon data analysis using techniques such as design of experiments (DOE), mistake proofing, and standard work to create a new, future state process. Set up pilot runs to establish process capability.
Control the future state process to ensure that any deviations from the target are corrected before they result in defects. Implement control system such as statistical process control, production boards, visual workplaces, and continuously monitor the process.
Figure 4-06: Yield in 2013 vs target
Minimizing scrap rate reducing, it will helps improve counting of good products. At the same time, company can save a lot of capacity, material and manpower by rework bad shafts. Beside that works in inspector area also less and reducing risk defective product send to customer.
Below are current scrap rate of Aldila in 2012 and 2013:
Monthly scrap rate in 2013 is 1.84%. It means when we produce 344k shafts/month, we scrapped 6.3k shafts. It had been highlighted to our improvement team how to achieve our target in 2013: 1.50%.
Page 48 Figure 4-07: Monthly scrap rate report in 2013 vs target
Productivity:
Productivity is a measurement efficiency of production. It is production’s capability include labor force and machine to produce a product in a measurable time. It is a crucial factor in production performance. Productivity growth also helps businesses to be more profitable.
In a manufacturing company, there are many indicators to measure productivity. However, company needs to standardize and measure them.
Production lead-time:
Most of manufacturing companies look for ways to reduce their investment in inventory.
When sales are trending downward, inventory levels are slow to follow. As products mature and new products are introduced, inventories become unbalanced until the sales cycles have been adjusted to the new items. A cash crunch will also result in companies taking a harder look at the amount of inventory that they consider acceptable for their business. Inventory reduction initiatives typically focus on improving forecasts, cutting safety stock, pushing inventory back to suppliers, etc. None of these tactics are easy to execute and many times the improvement is temporary.
Page 49 Reducing cumulative lead times will result in less inventory without increasing the risk of impacting customer service or affecting other business relationships with suppliers and customers. Cumulative lead time can be defined as the total elapsed time it takes a company to fill a new order from date of entry to delivery of the order to a customer's site.
It includes your suppliers' lead times as well as the internal lead times necessary to get a customer order processed, produced, shipped, and delivered.
Down time:
Current now, Aldila set up procedure control production down time on each process. There are 2 main areas on this factor:
Machine efficiency measured by KPI machine down time.
Man power efficiency/utilization has been reflected by KPI shaft per man in each department.
Figure 4-08: Production line efficiency
Base on main production process from Cutting/Rolling/Grinding/Painting/Printing, we collected and analyzed all non-confirming report in 2012 and divided by group causing of downtime.
Table 4-05 showed down-time result has been happened in 03 departments: Cutting/
Rolling/ Printing by two main causes: lacking skills of operators and maintenance technicians.
Page 50 Table 4-05: Top 5 down time and causes in 2013
N
o Cause Cutti
ng
Rolli ng
Grind ing
Painti ng
Printi ng
Tot al
Rate/C ause
1 Spare part is not available 62 19 11 14 43 149 21%
2 Maintenance technician lacking of skill 34 43 32 12 149 270 39%
3 Lacking of periodical maintenance 6 5 1 2 54 68 10%
4
Instruction not available for technician
follow and fix machine 30 19 4 5 9 67 10%
5
Improper set up machine and got defect on
production shafts 27 89 7 9 15 147 21%
Total 159 175 55 42 270 701 100%
Rate/Process 23% 25% 8% 6% 39%
100
%
Figure 4-09: Production process flow chart
Page 51 There are numerous productivity measures. The best productivity measurement is integration with capacity and lead time. It is the actual time versus the standard time to perform a task.
Effectiveness = actual time/standard time
To use this productivity measure, a plant has to have work standards for all tasks.
4.3.4 Learning and growth:
According to Minister of planning and investment report, Viet Nam is a development country with youth labor force (~85% of population). It is a good change for FDI Company to invest and broaden business with a low cost level.
Figure 4-10: Labor force age survey during 2007 to 2011
However, knowledge and technique of this labor force is very low. Workers are willing to change their jobs whenever they like. This is a headache issue for us due to facing with high turnover in 2013 (18%).
After interviewing, we must train them. They can be familiar and be skillful in this process after 06 months. Then, how to multi-skills for them is our concern? With multi- skill workers, we can move them from this process to another process to support immediately in case shortage workers or reduce bottom necks. Cross-train employees to increase productivity and reduce labor costs.
Page 52 According to multi-skills for direct labor in 2013 performance, we only got 28%. HR and training team must have a plan to increase it. Our target in 2014 is 55%. It is a big challenge for training team.
Table 4-06: Qty and rate of normal - multi skill worker 2013
Target 2013 Qty Rate
Multi skills worker 423 28% 40%
Normal skill worker 564 72% 60%
Total worker 987 100% 100%
There are some advantages of multi-skilled labor:
Flexibility: with multi-skilled employees, company has a flexible workforce.
Provide the employer with the ability to schedule and arrange workers to best suit the needs of the business. Workers are able to fill in for absent employees and work in any area of the business that requires increased manpower at any time, and for any duration.
Decreased labor cost: A business with a multi-skilled labor force can operate with a reduced number of employees necessary to conduct business. Workers who are skilled in only one area of the business may sit idle while waiting for work to become available. A multi-skilled workforce moves with the workload instead of waiting for the work to come to them. This results in fewer idle work hours, which reduces the cost to the business owner.
Efficiency in Planning: Planning and scheduling workers can make changes to the production schedule to meet customer demand without a loss of productivity. For example, when a customer requests a faster delivery, planners can adjust the production schedule to meet the new date without disruption to production because all workers can focus on the new customer demand. In a business with a flexible workforce, planning and scheduling activities can always focus on the needs of the customer and not the capabilities of the staff.
Employee Satisfaction: Multi-skilled workers are not threatened by obsolescence when new technology changes the method of production, as workers used to learning new skills consistently can adapt to changes in production. Employee satisfaction improves morale in a business, which leads to increases in productivity and employee retention rates.
Page 53 Besides, how to train and qualify our leaders/ managers is a big issue. How to keep them after training? It needs to be taken into our long term development.
Figure 4-11: Labor force occupation survey during 2007 to 2011
Ratio of Implemented Training:
After training, managers need to check how it was implemented? Low implemented indicator 32% in 2013 showed that organization didn’t optimize multi-skilled employees and take advantages from this resource. That’s why organization need to maximize it in 2014 is 95%.
Employee turnover:
High turnover indicates that company is losing skillful workers. It affects indirectly to our OTD performance, increase scrap rate. Consequently, low yield performance.
To assure production can run stable, high rate of employee turnover from Jan until Mar every year must be solved.
Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total
Year
2012 23 19 17 10 8 6 4 7 6 10 11 14 135.0
2013 27 19 17 9 10 6 4 7 8 11 12 16 146.0
Page 54
Turnover
Target
2013
Year
2012 19% 12%
2013 21% 12%
Figure 4-12: Employee turnover rate in 2013 - 2014
To reduce turnover:
Hire the right people from the start is the single best way to reduce employee turnover. Interview and vet candidates carefully, not just to ensure they have the right skills but also that they fit well with the company culture, managers and co- workers.
Set the right compensation and benefits are important too. Work with human resources to get current data on industry pay packages, get creative when necessary with benefits, flexible work schedules and bonus structures.
Review compensation and benefits packages at least annually. Pay attention to trends in the marketplace and have HR update. Get creative when necessary with benefits, flexible work schedules and bonus structures.
Pay attention to employees’ personal needs and offer more flexibility where company can. Consider offering telecommuting, compressed schedules or on-site or back-up day care.
Page 55 Training performance for indirect employee
Training is of growing importance to companies seeking to gain an advantage among competitors. It has direct influence on the employee’s performance. However, how to increase the overall actual performance of employee to have a strong link between the training and the employee performance?
Company needs to monitor to ensure all staffs understand company’s strategy and get higher skill/ability. This KPI in 2013 only achieved 27% while company’s target 60%. It’s still very far with company’s goal. Managers need to consider again how their staffs apply the training to their jobs? How to encourage them to use it?