2005 All content Prabir Jana. All rights reserved.
This publication, nor any part of it, may be copied, reproduced, stored in a retrieval system, or be transmitted in any form by any means electronic, mechanical, photocopying, recording or otherwise without prior permission of Prabir Jana.
This document is the product of extensive research work (as a part of PhD thesis by Prabir Jana and Post Graduate Technology students of NIFT batch 2003-2005). The efficiency measurement method prescribed here may not be used by any individual or organization for any commercial gain other than self-use. The efficiency measurement methods explained in this report are currently being tested by various apparel manufacturing organizations. Any individual wish to use the document for academic research or any organization wish to measure the efficiency of own organization, may please contact the author for free use. The efficiency measurement method prescribed in this document is believed to be correct but cant be guaranteed. The author does not accept responsibility for loss arising from decisions based on the document.
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Introduction
What cant be measured cant be improved. Even though Supply Chain Management is the most talked about topic today, currently no tool is available to measure any manufacturing organizations supply chain efficiency. Unlike productivity and or quality measurement, where the parameter can be measured objectively and expressed in unit or ratio, supply chain measurement is currently more of a qualitative statement. The project will use a 20 KPI (key performance Indicators) supply chain efficiency measurement index adapted from SCOR (Supply Chain Operation Reference) model, developed especially for the apparel manufacturing organizations by the author and PG students of 2003-05 as a part of PhD research work by Prabir Jana. Your organization will be one of the organizations for supply chain efficiency measurement pilot study using the concept.
Measuring efficiency of a supply chain
Supply chain efficiency is measured in terms of efficiency shown by the chain with respect to key functional parameters spanning four different operation domains namely source, plan, make and deliver. There are about five primary key performance indicators (KPI) in each operation domain to measure. Each KPI may consists of one or more secondary KPI. Each KPI is expressed in percentage and derived in such a way that higher the KPI value, better the efficiency of supply chain. Once all 20 KPI are measured, weighted average of all KPI would indicate the overall supply chain efficiency of the organization. Weight of each KPI will vary from company to company, In absence of clear priority of parameters and thus weightage a company can calculate overall efficiency giving same weight to each of the 20 KPI. While a 100 percent supply chain efficiency index would mean perfect organization, there is a possibility of any organization having KPI value more than 100 percent.
While calculating KPI you will require various documents, records, challans to collect required information. While good data house keeping will make the efficiency measurement an enjoyable exercise, absence of data may be a frustrating and not enable you to measure few KPI. The data collection is tedious but will be value for the effort.
This measurement process is currently at very nascent stage of testing for its usefulness and accuracy and relevancy. Your invaluable suggestion will be most welcome.
This document does not elaborate the basic definition and principle of Supply Chain and working in apparel manufacturing industry. The author assumes readers are already well aware of basics the subject.
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The twenty Key Performance Indicators in four operation domains are
Source
1) Inward Material Quality 2) Quantity and Timely Delivery 3) Procurement Unit Cost 4) Material Inventory Level 5) Vendor Development Capability
Plan
1) Adherence to Production Target 2) Sample Conversion Rate 3) Material Utilization 4) Cost Adherence 5) Planned T&A v/s Actual T&A
Make
1) Capacity Utilization 2) Production Cost Efficiency 3) Quality Capability 4) Change Over Time 5) Operator Training Effectiveness
Deliver
1) On Time Shipment 2) Order Fulfillment 3) Claims and Discounts 4) Quality at Delivery 5) Transit time
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Source
Under this domain in the supply chain we shall consider the sourcing of raw material and consumables for manufacturing of the garment i.e. fabric, trims and accessories and packing material. All the parameters will be considered under three different heads: fabric, trims and accessories and packaging material.
[1] Inward Material Quality:
This parameter shall evaluate the adherence of quality standards of material received from vendors to that specified i.e. deviation from the quality levels agreed between the supplier and the company. Also the material quantity accepted may be equal to the ordered quantity or less. If a lesser quantity is supplied then the penalty will be applied in the vendor lead times. But if the material received is of required quantity but of inferior quality then good quality material is accepted after screening. Also if there is some discrepancy in the quantity stated and actual it will be penalized as case three in this KPI.
There can be three cases: 1) Quality of material supplied is as per desired standards and 100% material is accepted. KPI is 100 2) Quality of material supplied is not as per desired standards and 100% material is rejected. KPI is 0 3) Quality of material supplied is not as per desired standards and material is accepted fully or partially. KPI is calculated as under On a scale of 100 points, the points can be allocated as below: Case 1 : 100 points Case 2 : 0 points Case 3 : 99-75% accepted -70 points : 74-50% accepted -50 points : 49-25% accepted -30 points Less than 25% accepted -10 point
Quality parameters shall be considered as a whole for a product and not individual parameters like fastness, weaving defect etc. However if the company has no quality policy for sourcing, this KPI shall not be applicable.
[2] Quantity and Timely Delivery:
This parameter shall evaluate whether the quantity ordered is delivered on time or not for all the materials mentioned earlier. The time to be considered will be a percentage of the lead time of the raw material. However in case of late delivery the penalty shall be according to the % lead time delay and quantity supplied as per matrix below. A percentage of the lead time is being taken as different materials have lead times varying from one to sixty days. Only the quantity and time are considered as quality has been covered in earlier parameter. Copyright Prabir Jana 5 Supply Chain Efficiency Measurement
The KPI for the order thus is (90/4) =22.5 Higher the KPI better the efficiency.
[3] Procurement Unit Cost
This parameter shall evaluate the cost incurred to procure the material i.e. the various costs such as correspondence (e-mail, fax, courier, telephone etc.), conveyance (transportation cost of personnel involved in procurement), officials salary, electricity bills etc. This can be measured as a ratio between the procurement costs per material to the cost of the material. The transportation costs of material will also be included in the material costs and the material costs would thus be costs of material at site. Also costs incurred in testing of raw material will be added in material cost. (Total procurement cost / total cost of material procured) x 100 = procurement unit cost. KPI is expressed as 100 procurement unit cost. Higher the KPI better the procurement efficiency. Data is collected over minimum 6 representative months and averaged. It may be noted that procurement cost incurred in the month of March may arrive at warehouse during April, so data collected for more number of months will give correct measure of this KPI.
For example suppose total procurement cost of fabric during Jan-Feb-March is Rs. 50000 and during that period total fabric received in warehouse is Rs. 25 lakhs. So the Copyright Prabir Jana 6 Supply Chain Efficiency Measurement
procurement unit cost will be 0.02 percentage. Lower the figure better the supply chain performance. So this KPI will be expressed as 100-0.02 = 98
[4] Material Inventory Level
This parameter shall evaluate the stocked inventory level of the company. Higher inventory level increases the capital investment and also acquires more physical space. Lower inventory level indicates better sourcing efficiency. The inventory level can be measured as a ratio of daily requirements in volume terms upon average daily inventory stock expressed in percentage. Issued stock per day = (Monthly Closing stock- Monthly Opening Stock + Total Received Stock)/ working days Stock Held per day = Average daily Opening Stock of the month
This KPI is calculated as Inventory Level Stock Ratio i.e. (Issued Stock per day) / (Stock Held per day) expressed as percentage. Higher the KPI better the performance.
Data is collected over minimum 6 representative months and averaged.
[5] Vendor Development Capability
This parameter will determine the Sourcing Departments potential and capability to assist vendor during the product development or in Order processing. Three types of the parameters which need to be checked during the product development are Technological Assistance, Financial Assistance and Timeliness of information and the Extent of information shared for each of the above parameters we need to rate the companies accordingly.
Rating for this KPI will be on a subjective basis. The extent of fulfillment of the above three parameters will be judged and rated as below. Point allocation is also as below. Very Good 100 points Good 070 points Average 050 points Below Average 030 points No Development 000 points
All parameters will be rated differently and an average of the points obtained for the three will give points to be allocated to the KPI.
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Plan
The planning function is one of the most important factors in coordination of various pre production, production, post production, activities. Planning drives the supply chain. It orchestrates the flow of materials and resources, getting them to the right location, at the right time, in the right sequence. Effective planning balances demand and supply, internal and external objectives, all in a constantly changing environment. Mastering supply chain planning, can provide a major competitive advantage.
[6] Adherence to Production Target
Many times the planned targets are not met due to non availability of raw-material (as raw- material did not arrive on time) or due to decision pending (like fit-approval delays, material quality approval delays). This parameter measures actual production achievement in comparison to planned one. Production achievement is measured in terms of timely completion and fulfillment of target. This KPI measures daily deviation of target production for three departments, namely cutting, sewing and finishing and points are allocated. Cutting schedule is compared with actual cut completion dates and expressed as percentage. Similarly planned sewing and finishing dates for different styles are compared with actual. Data is collected over minimum 3 representative months and averaged.
On a scale of 100 points, the points can be allocated as below: 99-75% production (cut, sew or finish) completed -75 points 74-50% production (cut, sew or finish) completed - 50 points 49-25% production (cut, sew or finish) completed - 30 points less than 25% production (cut, sew or finish) completed - 10 point
Suppose sewing figure of one month for a company is like below
KPI (Sewing target adherence) is (118000) x 100/1400 = 84.28%
Often manufacturer prioritise different customers based on certain parameters, it is understood that to favour one customer the vendor has to compromise with other customer. Due to such circumstances while any customer wants to measure true SC efficiency of any manufacturer the average data over a period of time should be taken into account and not only data pertaining to specific customers orders. Copyright Prabir Jana 8 Supply Chain Efficiency Measurement
[7] Sample conversion rate.
It is ratio of no. of styles where production order is received upon no. of styles sample development was done expressed in percentage. Data is collected over minimum 4 representative seasons and averaged.
[8] Material Utilisation
Material is required at right time, right quantity and at right price. Material requirement planning is done by merchandising or planning department and raise bill of material. After the material is arrived and consumed its utilization record need to be compiled to determine accuracy of planning (the quantity parameter). Where material had arrived of right quantity at right time, its actual utilization percentage is calculated over a period of 3 months. 100% utilization gets the highest rating and so on. You can cover as many raw material as possible but as fabric is the prime cost factor, fabric utilization percentage only will be calculated under this parameter. KPI is calculated as actual fabric utilized (for an order) upon total fabric received (for that order) expressed in percentage.
[9] Cost Adherence
An order is traditionally costed on two aspects product and process cost. Costing is done assuming lot of parameters, like material consumption, labour cost, overhead cost etc. and apportioning value against each parameter. Due to unforeseen and unavoidable circumstances actual cost incurred on a order may vary from the planned one. This KPI is the ratio of planned cost upon actual cost incurred expressed in percentage. Data is collected over minimum 3 representatives months and averaged.
[10] Planned T & A Vs actual T & A
Once an order is received, T&A calendar is prepared to meet the scheduled delivery date and also ensure all activities have a start/completion date. Deviation from the planned date happen due to either inefficiency/incompetency of other departments (e.g. sourcing delay, low productivity in making etc.) or inaccurate planning. Preproduction is crucial activity which includes approval related time spent. Iteration time is generally not planned. This KPI has 4 measurement parameters, namely total iteration time, total approval time and total preproduction time and delivery lead time. From the date order received till the date merchandise being shipped out of the factory (or merchandise being shipped/aired out of the country) is commonly referred as delivery lead time. Delivery lead time is the ratio of first (initial) planned lead time upon actual lead time expressed in percentage. Follow appendix for data compilation.
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Make
Manufacturing or commonly known as production activities. This domain consists of three major departments namely, cutting, sewing and finishing and many sub departments. While the data pertaining to sewing department is easily available data for other departments are difficult to come by.
[11] Capacity utilization
Capacity utilization can be measured by calculating basic minutes utilized upon basic minutes available. In basic minutes utilized we multiply the SAM with quantity for the style produced. Basic minutes available can be calculated by multiplying number of production personnel present (operators + helpers + in line checkers) by the no. of minutes they worked in a shift. The KPI is calculated as minutes utilized upon minutes available, expressed in percentage. Higher the KPI better the capacity utilization.
For example the following data can easily be taken from any garment firms.
Number of machines 105 Number of operators 100 Number of helpers 20 Number of checkers 10 Number of supervisor 3 Duration of work shift 450 minutes Product sewn Men's full sleeve dress shirt SAM of shirt (sewing) 16.50 min Average daily output (per shift) 2000 shirts
Minutes utilized (worked upon) = 16.50 x 2000 = 33000 Minutes available = (100+20+10) x 450 = 58500 Capacity utilization is 56% Operator productivity = volume of output / direct labour input
Similarly capacity utilization for cutting and finishing may be calculated.
[12] Production Cost Efficiency
This is basically cost being incurred to run the production, which includes area cost, machine cost, labour cost & overhead cost. It is expressed as rupees per basic minute. Production cost per minute is basically value invested per minute (VIM). Profit margin of product divided by SAM value of the product gives value realized per minute (VRM). This KPI will be calculated as ratio of value realized per minute upon value invested per minute expressed in percentage. Data should be collected over 6 months and averaged out.
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For example in a month the following styles were manufactured
Total production cost for that month is suppose Rs. 200000. Minutes worked in that month is (25 days x 450 minutes) = 11250 minutes. So, value invested per minute (VIM) is 200000 / 11250 = Rs. 17.77
KPI = 16.89 x 100 / 17.77 = 95.03%
[13] Quality Capability
Quality is the important key performance indicator. It can be determined as by Defect per Hundred unit (DHU) level. DHU level is the defect per hundred unit calculated at the final stage of each department for e.g. In cutting department it can be calculated at the part checking or auditing stage, after the cutting and bundling process. Similarly in sewing department it can be calculated at final checking or audited stage, after the complete sewing of garment from line. In finishing department it can be calculated at final auditing or at final inspection stage. Data collected for 3 months to be collected and averaged. This KPI can be calculated as (1 / DHU) x 100. Higher the KPI better the quality capability of the organization.
For example if the production of sewing department one day is 800, out of which 200 pieces is checked and DHU is 112, then KPI is (1/112) x 100 = 0.89 %
[14] Change Over Time
Change over of the machinery and equipment results loss of productive time. In garment manufacturing during style changeover and otherwise there are different reasons where change over time should be taken into account. Work aid changeover, machine layout changeover, style changeover (stitches per inch, thread colour change etc.) allowances should be calculated and added up. The Change Over Time is calculated as upon cumulative changeover time upon (total productive time in a shift x number of machines) expressed in percentage. Thus KPI will be 100 change over time. Higher the KPI lesser the change over time and better the company performance. Data collected over 3 months should be averaged.
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For example suppose total productive time in a day (shift hours breaks) is 500 minutes, 100 machines in the floor and total cumulative changeover time (all types for all machine is added) is 1000 minutes. KPI is [100 (1000 x 100)/ (500 x 100)] = 98 %
[15] Operator Training Effectiveness
Here we are calculating the performance of training cell or effectiveness of operator training. Operators are trained in training cell to take care of operator turnover in a company. Training cell should train higher number of trainee as practically there is fallout of trainees also. This parameter is measured as ratio of annual/monthly trainee incumbent in production floor to annual/monthly operator turnover expressed in percentage. Higher the KPI more effective is the training cell.
For example if annual operator turnover for a company with 480 worker is 50%, then annually 240 workers need to be replaced. Capacity of training cell is 25 trained operators per month. On average out of 25 trainee if only 18 chosen to join production floor per month, then KPI would be 18/20 i.e. 90%
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Deliver
Delivery of goods is the last but most important domain of activities. Delivery is only accomplished when order is of acceptable quality, full quantity is delivered on time up to customers warehouse without drawing any claims and discounts.
[16] On-Time shipment
Shipment at the exporter's end is just the delivery of goods. When the P.O is made for an order, the buyer fixes a favorable date. If these goods are exported by the manufacturer as per scheduled date then it is termed as on - time shipment. While delay in shipment is of great concern and dealt with in this parameter, early shipment is also draws penalty. This KPI is calculated as (volume/value of orders shipped x weightage points) * 100 / (total volume/value of orders). Higher the KPI better the on-time shipment performance.
Example: Consider a company is required to ship 15 orders in July. The break up for these shipments as per delivery status is:
Shipment status No. of orders shipped Volume of orders shipped (in pcs) Value of orders shipped (in USD) Weightage points Early by more than 5 days 0 0 0 80 On-time 10 15700 47100 100 01-07days delay 3 12500 50000 60 08-15 days delay 2 8750 52500 30 More than 15 days delay 0 5670 19845 0
KPI (volume) for above example is 60.59, whereas KPI (value) is 54.79 This parameter is measured on a monthly (yearly) basis. KPI calculation can be done either based on volume or value. Industry view is appreciated on this.
[17] Order Fulfillment
For a company, the quantity to be shipped by the manufacturer (as per the Purchase Order) is the order quantity. If the manufacturer ships the exact quantity, then we call it as an order fulfilled. But, in case any variation, whether positive or negative is termed as excess or a short shipment respectively. Both short or excess quantity calls for penalty. This KPI is calculated as (volume of orders x weightage points) * 100 / (total volume of orders). Higher the KPI better the order fulfillment efficiency.
Lets us take the same example as in the previous parameter, a company is required to ship 15 orders in the month of July.
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Order Fulfillment Weightage Points Volume of orders shipped (in pcs) 100% 100 20450 Excess or shortage by 1-10% 90 16500 Excess or shortage by more than 10% 0 5670
KPI = (volume of orders x weightage points) / (total volume of orders) = 82.82%
[18] Claims and Discounts
A claim or discount can be defined as a penalty put by the buyer on the manufacturer due no-committal shipment. This may be due to quality related problems, late delivery or order fulfillment. The penalty faced by the manufacturer is usually decided on value terms. The cumulative claim/discount amount upon company annual turnover expressed in percentage will give percentage of discounted goods over total shipment. Data collected for one year. This KPI measure percentage of non-discounted goods over total shipment, and is calculated as 100 - percentage of discounted goods over total shipment. Higher the KPI lesser the claims and discounts.
[19] Quality at Delivery
Quality performance is an overall index to measure the capability of a company to churn out goods right first time in the right quantity, at the right time and right quality. Quality at delivery point is checked and sometimes advised for 100% re-screening. Data collected over 3 months and averaged out. This KPI would be calculated as actual number of pieces shipped upon cumulative re-screening quantity expressed as percentage. Higher the KPI better the quality at delivery efficiency.
For example one shipment of 10000 pcs may go for one re-screening of full quantity at manufacturers site and again another re-screen of 2000 pieces at platform, before finally shipping out 9800 pieces. The KPI would be 9800 / (10000 + 2000) x 100 = 81.66%
[20] Transit Time
It is the time taken to export the goods from source country (exporting) i.e. from the time goods are moved out of factory (ex factory) to the warehouse at destination country (importing country). The goods are transported either by air or by sea. Lesser the transit time better the supply chain efficiency. This KPI is calculated as 1/(transit time in days) expressed in percentage. Higher the KPI better the transit time efficiency. For example if the transit time for a sea shipment to Europe is 28 days, then this KPI is 3.57. It should however be noted that while comparing this KPI with other organizations sea-shipment should not be compared against air-shipment.
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