Wednesday, August 06, 2008

MSMW Case Study: Performance Measurement Systems

MSMW Case Study: Performance Measurement Systems

Measurement of Delivery Performance and Customer Service

Vendor Delivery Performance: MSMW may seek to maximize point of sales volumes by ensuring stock of inventory is well positioned particularly to match two purchase modes. The first would be loyal customers with routine large volume purchases of either 500 mL or 1.5 L sizes either in multiples or cases. The second would be impulse purchasers who may later become brand loyal customers buying on the spur of the moment. So check-out proximity in smaller stores would be competitive while larger shops would have more space for larger purchases. Measurements of retail sales receipts may be analyzed as similar to Walmart with automatic order parameters and immediate sales results for locations and retail outlets.

Production Schedule Adherence: As the current production schedule supports volume for high season cycles already with regular overstock production this is essential as any volume shortages will impact sales not only at present but at future dates. This company is already working at virtually 100% capacity for domestic customers so additional shifts to support export trade will be essential. Any losses of production due to equipment problems will cost real money as there is no safety net or currently extra production time. Will require extra production schedules for export markets.

Order and Schedule Changes:
These will have an effect on export sales requiring more volume in the necessary identified sizes suitable for the target export market. For example, innovations in the water industry currently include single use disposable water containers for 18.5 L dispensers to avoid bisphenol A and other toxic plastic resin chemicals which are affecting purchasing behaviour and perceptions of PET bottle safety globally. Premium priced water products in Canada include which is first introducing waxed cardboard tetra-pak single use containers to differentiate product and distance it from toxic plastic issues. Impact will be immediate with initial stocking in a foreign market taking a significant amount of production time and delay in reorder stocking could be costly. This will require production and product design monitoring.

Customer Services Level: Depending on the export market multiple languages and EDI systems may be required to handle vendor, distributor and delivery agent inquiries not to mention individual customer suggestions, questions or complaints. Outsourcing some of these services may be an option. Interviews with customers may be cost prohibitive. Asking them to fulfill surveys at point of contact may be an option.

Lost Sales Analysis: In the case of production delays, low vendor delivery performance, order or schedule problems, or poor customer service issues sales volumes in current domestic market will drop and if this is indicative of being effected by export production all of a sudden the export market will be threatened. No domestic company well positioned is likely to sacrifice local sales for global ones. Production managers must ensure a water-tight approach to increasing production to avoid losing local customers due to disparity in inventory which could occur if export product launch is not well timed.

Management of Process Time

Manufacturing Cycle Time: MSMW could investigate current innovative new production plants, tools and techniques to regulate cycle time and ensure an advantage is met in terms of cycle-times.

Delivery Lead Time to Production Lead Time Ratio: A real concern for entering an export market for the first time. It will require a lot of thought and advance stock-piling of inventory to meet possible explosive sales demands. Monitored on production basis.

Setup Times: The current physical plant is geared for day shifts and extending to a night shift while possible may put added stress and strain on current factory equipment requiring additional routine maintenance checks, repairs and possible replacement of costly machines and parts. Monitored on shift-basis.

Material Availability:
The high cost of oils and resins based products for plastics production might encourage MSMW to consider new product container modes such as single use disposable 18.5 L bottles and tetra-pak waxed cardboard to reduce possible materials shortages and/or increasing costs. Monitored on invoiced materials costs.

Distance of Material Movement during Production: MSMW may possibly export large volumes and have units of production completed in a factory in a low-wage or production costs country en-route to export destination or in the export market itself. Depending on market-based analysis or aggregates costs comparison of production at home and in target production or export market. Already in domestic market Canada has high costs based on distances of transporting supply materials. Delivery documentation monitoring.

Machine up Time: MSMW will probably require 100% machine-up time which might require an entire identical processing plant capacity available on stand-by should there be any downtime due to repairs, parts, or maintenance schedules which will only increase with increased machine up time. Repairs schedule monitoring.

Customer Service Time: Basically the faster service delivered to customer the better. This is why outsourcing agencies would be useful as they may operate globally and regionally on a 24 hours basis. A good example is given through Nokia’s customer service experience. A nigh-desk representative with full access to Nokia’s local warehouse in Finland complained to management that she could easily process night customer requests for products or deliveries requests there at the warehouse but was not permitted to act on any requests in fact leaving them for day staff losing response times as much as 12 hours on processing customer requests. Management rewarded her with improvement awards and instated her request. Similar service issues could arise at MSMW. Monitoring rates and resolutions times.

Measurement of Production Flexibility

Number of different parts in the bills of materials:
This will only increase in diversity due to export market requirements or modifications in packaging and labeling requirements and export packing specifications.
Percentage represented by standard, common, and unique parts within the bills of materials: Again this percentage is likely to increase especially if any new packaging or marketing volumes formats are taken on. Monitor with intent of minimizing number of different parts.

Number of different production processes: Export markets can often represent different production processes. These could be simple substitution processes at fixed points in assembly however they could multiply with multiple export markets. Monitor with intent of minimizing number of different processes.

Position within production processes where the products are differentiated: This will be determined according to management of cost and quality/function of the new processes between design team and production engineering team. Monitor with intent of minimizing number of different processes.

Number of levels in the manufacturing bill of materials:
Along with possible new processes and export market requirements this could increase. Primarily there will be a level of domestic manufacturing bill of materials and a level of export manufacturing bill of materials. If they are rational and share many common products then costs may fall on large volume orders. Monitor bills of materials.

Number of new products launched each year and the time taken to launch them: This will depend on the scope of MSMW’s increases in market segmentation. Currently limited to three products and one local market the segmentation taken to include all Canadian provinces would increase this number by a rate of ten. Introducing premium products and/or innovative new modes of packaging would increase product launches and require more focus on developing products for diverse consumer profiles and markets. Monitor to ensure profits increases based on new products sales.

Cross-training of production personnel: Doing so at the managerial level would be beneficial as then the production teams could be similarly trained to produce multiple products for multiple export markets. This would also assist in morale as workers could change processes routinely to increase cross-functionality. This would also empower workers to fully contribute to a TQM workplace philosophy. Monitor through performance evaluations.

Comparison of production output and production capacity: This would require constant monitoring concerning export growth and maintaining local or global inventory for both domestic and new export markets. Sudden possible increases in demand must be expected in export market based on research quality and forecasts as well as any increases in domestic market due to possible new product launches in new provincial markets. Generally capacity should always exceed output.

Management of Quality Performance

Incoming quality from suppliers: Alternate suppliers must be held ready to engage production virtually at any time as any drop in quality of suppliers will translate into production losses and/or sales losses. A good example comes from defunct Canada Packers in Sheffield Mills Nova Scotia where a new line inspector accidentally stapled nearly an entire shipment of Quality Grade A poultry products. Extra production was needed to compensate for the losses on bird which usually retailed for premium prices as few consumers would accept or expect meat staples in premium products.

Production quality, use of statistical process control charts and direct measures of customer satisfaction: All to be measured for consistent increases in quality linked to customer satisfaction.

Data accuracy within the system, including accuracy of inventory, bill of materials, routing and forecasts: Essential. No room for error.

Effectiveness of preventative maintenance programs: Essential. No room for error.

Cost of quality: Measured not to exceed cost versus profits. Each quality measures implementation cost must match an attendant profit. In addition cost free quality improvements should also be a goal. Crate quality circles in company to implement quality cost reduction measures.

Measurement of Financial Performance

Waste Rate: For example in PEI it was found that night shifts at fish plants were becoming difficult to fill so the management decided to hire an entire shift of migrant labourers from The Ukraine. However they had significant problems retaining their workforce as a result with higher waste rates. Waste must be eliminated according to quality management precepts. Waste represents lost profits for rework, returns, and customer dissatisfaction.

Inventory Turns: An indicator that something is wrong with product positioning, marketing, brand image, quality or competitor actions which are effecting maintenance of matching customer desires and needs with loyalty and continued increase of switching non-loyal or undecided customers into loyal customers.

Value-added analysis:
Any product positioning, marketing, brand image, quality or competitor responses which are matching customer desires and needs with loyalty and continued increase of switching non-loyal or undecided customers into loyal customers will reward the company with value-added profits. The opposite scenario, a nightmare, is a loss of value added or losses. For example, Hansen’s, a premium fruit juices manufacturer in the USA introduced a line of their products in Korea with minimal packaging changes and fruit combinations which are generally unfamiliar to Korean customers. Their products now reside in the discounted bargain bins of every major discount retailer in the nation.

Cost factor productivity measures:
If productivity is not generally increasing due to quality management measures then quality is actually not working and the whole process may be traced back to root sources through fish-bone diagrams. Usually the root causes for productivity problems are often attributed to poor middle managers not practicing communication functions upstream and downstream form management to line production teams.

Overhead Efficiencies: Sudden jumps in fixed and/or variable costs will affect overhead and minimizing these factors through local utilities discounts and corporate tax incentives as well as rewarding manager and workers equitably will help control these costs. Rationalizing certain management positions may or may not be an option which may or may not affect staff morale. My first impression of MSMW was that they have way too many managers.

Chequebook accounting methods: Monitoring quarterly profit and loss, proforma invoices and balance sheet from a managerial accounting basis will be prudent and the more EDI the better in terms of such monitoring and opening into a new export market.

System complexity: KISS KISS. Streamline, simplify and standardize.

In conclusion as may be seen every aspect of performance measurement has some importance to MSMW.

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