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A customer service level indicates a company's ability to deliver product to the customer on schedule and as promised. In a repetitive environment, it is additionally important to measure shipping and delivery attainment to customer request date, rather than the traditional measurement of manufacturer promised ship date. Many repetitive manufacturers are, in fact, critical links in their customer's assembly line. Precise quantities can also be vital—for example, if a tire manufacturer ships 3 percent too few tires to an automotive assembler, the assembly line runs out of tires and stops. 1 Ship customer ordered quantity +/- 10 percent; ship when we can, with frequent stock-outs, back orders, substitutions, and/or cancellations. 2 Ship +/- 5 percent, and ship close to manufacturer's promise date. Most orders are shipped at the end of the month so that monthly shipment goals can be met. 3 Ship +/- 5 percent to manufacturers promise date. Shipments are made on a level weekly basis rather than end of month. 4 75 percent or more of shipments are made based on customer request dates. Back order rates are less than 3 percent. 5 98+ percent on-time shipments to customer requested ship dates, precise quantity. EDUCATION For people to be both successful and effective in changing from old habits to new ways of operating, an ongoing, extensive education and training program is absolutely essential. We understand "education" to mean conceptual level (What is repetitive? How does it differ from discrete?), and "training" to mean detailed operational level (What do I do with this kanban card?) 0 No formal education or training programs. 1 A few key employees attend one APICS seminar offsite and are expected to pass their knowledge throughout the organization by osmosis. 2 Minimal formal education onsite—a "onetime good deal," one-day, onsite program to teach everybody what to do and how to do it. No ongoing education or training. 3 Sporadic ongoing education and some training—management understands that education and training must be ongoing, but they still view it as an expense to be minimized. Attendance is requested but not required. 4 Scheduled ongoing education and training—education and training are scheduled frequently. Management views them as essential for success. Attendance is required. 5 People at all levels embrace education and training as a lifelong commitment. The company provides onsite education and training, both during work hours and after hours, on a wide range of topics, both professional and personal. This emphasis helps the company attract and retain the best and brightest people. EMERGENCIES Even when emergencies are successfully overcome, there are two real costs: (1) the time, effort, and expense of responding to the emergency and (2) the cost of failure when heroic measures are not effective. Well-run repetitive companies pride themselves on the absence of emergencies. An emergency usually reflects the probable failure to ship the customer's order on time. It can stem from breakdowns or problems in quality, capacity, materials, logistics, communications, or forecasts. 1 1 or more
emergencies/day GROSS MARGINS An excellent repetitive manufacturer should have substantially higher operating margins than a discrete-oriented manufacturer in the same industry. While margins vary, sometimes widely, from industry to industry, we suggest the following benchmarks for gross margins. Gross margin is computed by subtracting all materials and manufacturing costs, direct and indirect, from sales revenues. 1 <25% INVENTORIES: TURNS, POINT OF USE STORAGE, SLOW MOVING/OBSOLETE In a repetitive environment inventories move quickly. An inventory "turn" is considered the rate at which material flows through a manufacturing environment. For example, three turns per year mean that there is an average of four months' inventory on hand or in storage. Excess inventory allows problems to hide within the system. As inventory turns increase, problems, can be identified and corrected, thus reducing waste and total cost. World-class manufacturers use the term "spins" rather than "turns" because their inventories turn so rapidly. ITT Automotive in Glencoe, Ontario, Canada, achieved 50 turns in 1997. 1 0-3 turns, annual physical, slow-moving/obsolete over 15 percent total value, and locked and guarded stockrooms. 2 4-8 turns, annual physical inventory, slow-moving/obsolete inventory 10 percent, locked stockrooms, and no point of use storage. 3 9-19 turns, annual physical inventory, slow-moving inventory less than 5 percent, cycle counting for at least 50 percent of parts, some point of use storage. 4 20-49 turns, cycle counting in place, no physical inventory, slow moving/obsolete inventory less than 5 percent, point of use storage and delivery for 50 percent or more items. 5 50 turns, no physical inventory necessary, virtually no slow-moving/obsolete inventory, 75+ percent point of use storage (no central stores except overflow bulky parts). To Be Continued STAY CONNECTED To stay current on Lean Management Basics and Best Practices, subscribe to our weekly MBBP Bulletin... and we'll send you our PowerPoint presentation "How to Survive in an Entirely New Economy." All at no cost of course. Your personal information will never be disclosed to any third party. privacy policy
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