Do you ever get thoughts or ideas stuck in your head that you can’t seem to shake? Well, this happens to me all the time and is part of the reason that I started this Newsletter. I seem to always have concepts or issues constantly rumbling around in my noggin. The KPIs listed in my last newsletter (and shown below) are an example of one of these gremlins in my head.
These KPIs that I am writing about are not a simple list of haunts from the past (although I have used them all in the past), they are important, and I think about them quite a bit and how they should be intertwined like a spiderweb. They need to work together, feed off each other if you want them to stick. Far too often I’ve seen, and experienced measures go too far to ‘control’ processes and information. Almost robotic to the point that all creativity and innovation is stifled and stamped out. That is not where I like to be. I want ideas and innovation!
So here is a bit more on my thoughts and intentions for the KPIs that I have written about and will write about in future publications. The five KPIs listed above that I use when working with clients help me to get an understanding of performance across the MRO supply chain without getting paralysed by analysis (that’s what metrics are for) but let me first quickly give you my perspective on what I’m measuring. In the image below, I often talk about the Three Pillars of the MRO Supply Chain and the KPIs I am writing about cover these three pillars which are surrounded and supported by master data.
Now getting back to my gremlins and the spiderweb, in my last newsletter I wrote about Demand Quality % and Catalogued Material Spend % because they quickly give me a high-level understanding of the quality of information flowing into the MRO Supply Chain. The points below attempt to explain how they work together.
Spiderweb of Connections
The “fab five” KPIs both support and/or hold back each other from the goal of Supply Chain Effectiveness. Here are some impacts of the ‘intertwining’...
- Poor Demand Signal results in either work that cannot be completed due to missing materials or the warehouse is stocked to the gills
- Good Demand Signal results in reduced working capital because you only need to stock for breakdowns NOT planned work
- Poor Demand Signal results in a higher percentage of free text purchasing, which is manually purchased, unnegotiated spend, which also reduces your stock turns
- Poor Stock Turns is usually the result of a large volume of SLOBEX stock that never gets reviewed and removed (ideally consumed)
- Good Stock Turns is supported by a high percentage of Catalogued Spend and high PO Automation
- Poor Stock Accuracy will usually result in squirrel stores and lower stock turns, low PO automation, and grumpy maintenance staff
- Good Stock Accuracy = Trust in the Warehouse(!), reduced risk to operations, and less free text spend.
- Poor Purchasing Automation increases material lead times which increases stock levels and increased transactional cost
- Good Purchasing Automation supports a lower Demand Signal quality, reduced material cost, and higher quality master data
- Poor Catalogued Material spend reduces stock turns, reduces PO automation, and provides much less visibility of materials once they arrive on site.
You get my point by now, they work together. Doing well in one only helps the others. I will now move on to the third of five KPIs, Stock Turns %.
Stock Turns %
Stock Turns is KPI often used within the Inventory Management community. It’s easily measured and broken down all the way to the material level. I have converted the normal result of the KPI into a percentage for two reasons (1) so that it’s easier to understand performance and (2) so that I can use the percentage in the final roll up into the overall KPI, Supply Chain Effectiveness %. Formula and example provided below.
Stock Turns is a great KPI because the numbers that make up the top number can be sliced and diced in several ways, but most people will usually and correctly target the SLOB (slow and potentially obsolete) materials. A simple ABC analyse can be performed to split the materials into three groups:
- Fast (turns >0.85)
- Intermediate (turns >0.45 <0.85)
- SLOB (<0.45)
Please note that the numbers presented here are for example only. I always work hard to get Stock Turns of at least 1.0 or greater).
SLOB (SLow and OBsolete) materials should be formally reviewed for need and quality annually to ensure that you do not hold onto materials that are not required. Every business will have some SLOB materials.
I would recommend that a formal review process is developed and maintained for each potentially obsolete material. If these materials are required to be maintained in stock, they should be listed in at least on BOM and have known suppliers maintained in your ERP system.
That’s it for today, but PLEASE reply with your thoughts!
Cheers,
Tim McLain
