Why does your company exist? This isn’t a metaphysical question, like “why are we here,” it’s purely practical. We hope the answer you thought of was, “to keep our customers happy,” because if not, the rest of what we have to say today might not make as much sense. Customers are the reason manufacturers make things. If there were no customers, you would have no reason to make products, and therefore you’d have nothing to ship, right? As a production planner, you’re likely already relying on S&OP workflows and software solutions as a key piece of your strategy to keep your customers happy. Especially in today’s world of next-day shipping, S&OP remains necessary to keep up with these demands and delivery expectations.
Having a strong S&OP strategy in place is what ensures your forecasts, raw materials availability, and production capacity all match up, and the factory floor can meet the deadlines put in place. But simply putting a strategy in place isn’t enough, you have to know you’re implementing it effectively and meeting the growing needs of your entire value chain at the same time. Key to that is knowing which metrics to watch, where to set your KPIs, and how to measure your available data to improve performance and keep those all-important customers coming back. Here are our picks for five key metrics to keep an eye on to ensure your S&OP is on track.
Percentage On-time Delivery to Customer
OTD is a primary metric used to determine the overall efficiency of your supply chain. Its usefulness in S&OP is in helping track customer experience in order to maintain SLAs related to delivery windows. On a basic level, OTD is expressed as a ratio of units delivered on time to total deliveries made over the same time period. The OTD window is usually given as days before-days after the expected delivery date. A common window would be 5 days before through zero days after, or -5+0. Since there is room for interpretation (for example: what does “delivery date” refer to? How about “ship date?”), it’s crucial to have the specifics used at your company in writing. This goes for internal planning use, as well as in publicly available SLAs for your customers.
Production Plan Adherence
Measuring how well production is able to meet the planned output as determined by the S&OP team is key to maintaining tight delivery windows. This metric is expressed as a percentage, calculated as (planned production - actual production)/planned production. It’s useful in determining if machinery is performing up to standards, or if one facility is falling behind another in terms of output. Production plan adherence can also be used to create a baseline by which you can measure future line output to ensure a facility can sustain the necessary numbers to meet growing customer demands. One further place this percentage is useful is in determining root causes of slowdowns in production. Knowing the PPA for each line helps you identify where a discrepancy may be arising and work with the production team to find and eliminate the cause.
Often weighted disproportionately to its value, this metric can vary quite widely. It’s this amount of variety that leads to misunderstandings as to the metric’s overall value. The confusion is mostly down to a lack of clarity of just what is being measured. When used correctly, however, with a well-defined set of standards, it is quite a good gauge of overall planning success. The first step is to understand your specific situation and how heavily to weigh this metric. For example, if you deal with fresh food, accuracy is critical to avoiding waste and the costs associated with it. On the other hand, if you deal in machine parts (indefinite shelf-life), then other aspects of planning have higher importance, thus lowering the stakes associated with forecast accuracy. Step two is knowing which precise metric you’re measuring, as there are many additional numbers that fall under the heading of “forecast accuracy,” including but by no means limited to:
- Forecast Error (percentage)
- Mean Absolute Percent Error (MAPE)
- Mean Average Deviation (MAD)
Order Cycle Time
There are two primary numbers this metric might refer to: the time between a customer placing an order and when the order is received in full; or the time between two consecutive orders or deliveries to a given customer. Either way, order cycle time gives an accurate pulse check on your production, inventory, supply chain, and shipping—by giving you a clear indication of the health of your end-to-end supply chain based on the amount of downtime being accrued. This metric is the single best snapshot of your entire order fulfillment process available. This is partially due to the fact that it encompasses so many customer-facing touchpoints, all of which can give deep insights into operations and production:
- PO creation
- Materials received
- Production commences
- Production completes
- Order shipped
Capacity Plan vs Actual (Capacity Utilization)
Expressed as a percentage of total production capacity, this metric tells you how close to full capacity a plant is operating at. For example, if plant A can produce 1,000 widgets a day, and is currently turning out 850/day, that facility is operating at 85% capacity. This is important to take into account when developing production plans; if your plan calls for 12,000 units per day and total capacity for all facilities is only 10,000, this plan will be unattainable. It can work in reverse as well, telling you how much additional bandwidth a plant has and therefore how much more output can be planned.
S&OP is an old-line methodology that has been thoroughly updated to work in today’s data-driven, technology-focused manufacturing world. And when you add technology to productions systems, you get a mountain of data to comb through, looking for ways to improve further. Knowing which of the myriad metrics to measure is key to making the most of your S&OP plan and gaining the highest ROI on your efforts. Start with these five discussed today, and soon you’ll be able to build your own company-specific set of KPIs that will tell you all you need to know to keep the supply chain moving smoothly and product being delivered to your customers, on time, every time.