Many Organizations focus on a metric to monitor On Time Delivery. Which of course is probably very important, but is it really a good metric? I have one supplier who consistently quotes a 4 week lead-time, no exceptions. Yes, they meet their quoted delivery time and I am sure internally the team is proud of their 100% On-Time Delivery compliance. But as a customer many times I cannot wait for those 4 weeks and end up going to another source.
So this week we had someone question Late Orders and On-Time compliance. It was an innocent inquiry and shocking folks responded by telling him how the metric was being calculated rather than focus on how to improve On-Time Delivery Compliance.
Ultimately this KPI is bigger and with all of the other pins in place a huge opportunity for the company to pivot quickly to improve Delivery performance, which led me to script a Rant. I am sharing the intro and the rant in hopes it may help you and your organization.
It started with this ...
The current setup is that orders are automatically marked late by SAP if they are due to ship in 2 days from today. I do not agree with this classification as it takes attention away from orders that are truly late.
I wanted the number of orders that were supposed to ship before today or by the end of today ... but didn't.
The responses to this statement were how the number was calculated, rationalized and justified. Unfortunately, the main purpose of the inquiry was missed, which I believe is how to improve On-Time Delivery compliance?
Easy? Perhaps not !! here is my response ....
John,
You have poked a topic that most likely should have a discussion with a broader reach of folks. Although I appreciate your concern as a KPI it should also be acting as a contingent trigger for action. Let us refresh many of the activities leading us to where we are today …
BBB Report
We started the BBB (Billings, Booking & Backlog) Report as a daily flash indicator on the status of our business. In essence we wanted to see the BBB in balance. Our Demonstrated Output consistently hovers around 32 units daily from the cell. If we divide our Demonstrated Output into the backlog, this in essence tells us how many days of work we have in the building (target is 5 days excluding International). If our Bookings exceeds our Billings we ae not only adding Backlog but also increasing our Leadtime, so we may/should be adding capacity (overtime, additional shifts, manpower) conversely if Billings exceeds Bookings we need to either start shaking the bushes for orders or start to consider to reduce capacity (manpower, reduce the number of people in the cell).
When I have been in charge of operations I watch this report like a hawk, of course I am also typically concerned when looking at the backlog how much is workable. I never want the backlog to exceed our published lead-times.
For example at the car assembly plant our shift ends at 3PM and second shift starts at 4:30PM, throughout the facility we have “Run Boards” posted including in all of our meeting areas. All team members know that if at 2PM we have not met our daily build plan (we typically build 30 vehicles per hour) the shift is extended by 1 hour until 4PM. We still need that 30 minutes to clear our parking lot and allow 2nd shift the enter, also this visual indicator communicates to 2nd shift there is a good chance their shift may also be extended by 1 hour.
At a furniture company we guarantee a 10 day from order placement to in home delivery. Inside that 10 day guarantee is a 7 day logistics window. As a consequence our build schedule is fueled by our Load Schedule (truck loading).
Suggested Actions
Get back to the BBB roots and include the daily bookings and billings to the report. ( I have asked several times, with no result)
Establish “contingent triggers and perhaps and escalation protocol (Rubber Factory) to insure on-time compliance. I have encouraged Operations to do this but our reaction time I believe is too long.
On Time Delivery Date Targets
We need to define “On Time” from a company perspective and is it the correct definition.
Currently I believe “On Time” is that we meet the targeted ship date. This ship date I believe is defined by Customer Service at time of Order Entry. I may need clarity but we use a standard 5 working day lead-time or the Customer Request date (if inside the 5 day I believe they request commitment from Operations). So this becomes the organization’s target on the barn … but is it the correct target? Considering you want to measure against it.
Some questions to address …
Do we want to measure “On Time” against our ship dates?
Do we want to measure “On Time” to both Customer Request Date (Voice of the Market) and our Ship Date ( Raz defined)
Do we want to measure On Time based on customer delivery? (this would require tracking our courier shipments and trucking, but does give focus to our entire delivery Value Stream)
If an Order is placed either On Hold (waiting information) or Credit Hold should a new Delivery Date be assigned? In the case of Credit Hold the end customer does not care, they just want their chair but it does eat into Operations Production Leadtime or even gobble it all up.
Suggestion
Let us put a definition on what we mean by “On Time”, including International Orders
When should target delivery dates be changed? (credit, on holds etc.?) and if the date changes should we also measure against original Promise date?
John, although your query about the metric is very important, I believe it is more important to define what we want to measure and already discuss and implement a corrective action. Just like using SPC when looking at Backlog what is the Upper and Lower Control Limits acceptable before corrective action should be instigated. If properly managed you will also get rid of the end of the month production push.
I think this is an excellent topic for discussion and clarity since it helps the Organization to define our Customer Commitment when it comes to delivery. It also allows you and David to create the Customer Service parameters you wish to be followed and the potential consequences.
It also becomes something that can be easily managed. If Customer Service sees that our backlog is exceeding our Upper Control Limit (UCL) then they can add days to quoted Leadtime until the contingent trigger invokes the desired effect and we return to normal. Also every person in the organization should know the UCL and automatically know what needs to be done, similar to the car assembly plant where at 2PM all knew they were working 1 hour of OT, we did not go asking, begging, if a Team Member could not work they would discuss with their Team Lead and floater would be put in place.
Thoughts?
How does your organization's measure of On-Time compare or can you share some additional ideas?
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