Core Business Process - Distribute Products

Description

This process manages the activities that are used to distribute the entity’s finished products to the customers logistic centres.  

Process Objectives

1. Improve on-time delivery of products
2. Improve order fill rate
3. Provide excellent customer service at optimal cost
4. Finished goods assets secured
5. Product quality maintained
6. Reduce order fulfillment cycle

Critical Success Factors (CSF’s)

1. Good understanding of customer delivery requirements (1,2,3,5)
2. Accurate stock recording and rotation (1,2,6)
3. Accurate order picking (2,3,6)
4. Performance-based contracts with transport providers (1,6)
5. Maintain goods in a protected, secure environment (4,5)

Key Performance Indicators (KPI’s) Linked to CSF’s

• On-time delivery rate; order fill rate; order fulfillment cycle time (A,B,C,D)
• Days supply; distribution inventory turnover (A,B,C)
• Order picking accuracy (C)
• Total logistics cost per case (D)
• Number of cases lost or damaged in the warehouse (E)

Inputs

Finished goods in warehouse Customer delivery point data Equipment Utilities

Finished goods stock records Service level targets / priorities Security

Delivery packaging and pallets Transport resources Labour Customer orders

Activities

Outputs

Ordered goods in customer’s warehouse Load utilisation data

Customer invoicing data

Closing stock level in manufacturer’s warehouse Customer service measurements

Systems

Inventory recording system

Order picking system

Pallet recording system

Classes of Transactions

Routine Inventory movements Invoicing

Non-Routine

Accounting Estimates Reserve for obsolete inventory

Risks Which Threaten Objectives

1. Incomplete/inaccurate customer orders (1,2,3,6)
2. Non-competitive distribution services (1,2,3,5,6)
3. Poor stock rotation/management (4,5,6)
4. Unreliable transportation providers (1,2,3,6)
5. Inadequate warehouse facilities (4,5)

Management Responses Linked to Risks

• Monitor on-time performance and accuracy of shipments to customers orders (A,B,D)
• Monitor distribution costs vs budget and service against “best practices” and competition (A,B,D)
• Measure inventory turnover and days supply in warehouse (C,E)
• Use performance-based contracts with carriers (D)

Other Symptoms of Poor Performance

No delivery performance data No transport/order picking schedules

Untidy warehouse High level of back orders

Poor stock records

Performance Improvement Observations

Continuous replenishment programmes Logistics studies

Cross-docking programmes Distribution facility network optimisation

Activity-based costing (cost-to-serve analysis) Cost restructuring models

Core Business Processes - Manufacture Products

Process Name

Description

This process manages the activities that are used to produce the entity’s products.  The planning and materials management aspects are included in this process.

Sub Process Components

Production Planning & Material Management

Process Objectives

1. Efficient use of resources
2. Smooth supply chain flow
3. Minimal stock in supply chain
4. Plans which can meet customer needs
5. Maximisation  of capacity

Critical Success Factors (CSF’s)

     A.   Efficient delivery of raw materials (1,2,3)
     B.  Optimal raw material stocks (1,2,3)
     C.   Accuracy of management data and forecasts (3,4,5)
     D.   Integrated approach to planning (2,3,4,5)

Key Performance Indicators (KPI’s) Linked to CSF’s

• Supplier on-time delivery percentage (A)
• Raw material inventory turns (B)
• Actual sales vs forecasts (C)
• Material usage vs planned (D)

Inputs

Suppliers Lead times Supply requisitions Labour force Promotional plans

Bills of Material (BOM) Opening stock levels Purchase orders Sales forecasts Customer orders

Materials storage Materials planning system Stock-holding policy New product development plans Material availability

Activities

Outputs

Closing stock levels Supplier delivery performance data Material requirements

Materials to meet plan Production schedules Maintenance requirements

Goods received notes Labour requirements

Systems

Purchase order system Bill of Material (BOM) files

Materials planning system Sales forecasting system

Production planning system Materials databases

Classes of Transactions

Routine Receipt of materials

Non-Routine

Accounting Estimates Reserve for obsolete inventory Inventory valuation (commodities businesses that record at market)

Risks Which Threaten Objectives

       A.  Sales forecasting and planning tools not integrated (1,2,3,4,5)
       B.  Poor communication internally and with suppliers (1,2,3,5)
       C.  Inaccurate BOM files (1,3)
       D.  Unresponsive suppliers (1,2,3)

Management Responses Linked to Risks Use of cross-functional production planning process (A) Continuously monitor actual vs plan and communicate changes (A,B) Frequently update/check BOM file accuracy (C) Monitor supplier performance (D

Other Symptoms of Poor Performance

Long lead time High inventory levels

Improper delivery quantities

Key drivers not included in planning

Performance Improvement Observations

Enterprise package solution Activity-based costing

Supply chain integration

Business process re-engineering

Conversion

Process Objectives

1. High quality products
2. Low unit costs
3. Customer responsiveness
4. Minimal inventory in supply chain
5. Production effectiveness

Critical Success Factors (CSF’s)

     A.  Optimum use of manufacturing resources (1,2,4,5)
     B.  Use of quality assurance and preventative maintenance programmes (1,2,3,4)
     C.  Use of good manufacturing practice (1,5)
     D.  Productive workforce (2,5)

Key Performance Indicators (KPI’s) Linked to CSF’s

• Capacity utilisation; changeover time; overall equipment effectiveness rate (A,B,C)
• Scrap rate; percentage of overhead (burden) rates and variances spending on preventative maintenance (B,C)
• Government/industry ratings (C)
• Labor efficiency rates (D)

Inputs

Opening finished goods stocks Consumables Production schedules

Stock-holding policy Plant and equipment Maintenance schedules

Raw / packing materials Labour Utilities (heat, power, etc.)

Activities

Outputs

Closing stocks of finished goods Production performance data

New stocks of materials

Work in process

Systems

Production scheduling

Production control

Inventory control

Classes of Transactions

Routine Production of inventory Movement of inventory (transfer pricing)

Non-Routine Bill and hold transactions

Accounting Estimates

Risks Which Threaten Objectives

      A.  Poor material flow and quality (1,2,4,5)
      B.  Production capability does not match production needs (2,3,4,5)
      C.  Badly maintained production equipment (2,4,5)
      D.  Workforce that is not committed to producing high quality goods (1,3)

Management Responses Linked to Risks

• Use of effective preventative maintenance programmes (A,C)
• Use of modular manufacturing systems or contract manufacturing (B)
• Monitor production/maintenance costs (C)
• Employee awareness programs which emphasize quality (A,D)
• Incentive pay base on performance (D)

Other Symptoms of Poor Performance

Sub-optimal capacity utilisation Lost time accidents

Absenteeism rates

Poor labour utilisation

Performance Improvement Observations

Activity-based costing Transfer pricing studies

Business process Improvement Production facilities optimisation

Quality Management programmes

Core Business Processes - Procure Materials

Procure Materials

Description

This process manages the entity’s supplier and the entity’s interaction with its suppliers

Sub Process Components

Supplier Management

Process Objectives

1. Appropriate mix of suppliers
2. Quality assured supply
3. A supply base committed to continuous improvement
4. Enhanced margin through cost reduction

Critical Success Factors (CSF’s)

     A.  Suppliers provide superior delivery performance (1,2)
     B.  Clarity of specification (of materials and performance) (1,2)
     C.  Proactive management of supplier relationships (3,4)

Key Performance Indicators (KPI’s) Linked to CSF’s

• Supplier on-time delivery performance (A)
• Supplier quality performance (B)
• Ratio of materials to suppliers; material unit cost trends (C)

Inputs

Supply base analysis Cost targets Quality assurance standards Manufacturing processes

Material requirements Previous performance data Sourcing strategy

Material specifications New product development Product direction / strategy

Activities

Outputs

Approved suppliers Purchase price performance data

Purchase orders / contracts Delivery of materials / services

Agree on supplier performance measures

Systems

Purchasing system Production forecasting and planning systems

Quality assurance procedures

Material specification procedures

Classes of Transactions

Routine  Accrual of vendor rebates / discounts

Non-Routine Long-term contracts / commitments with suppliers

Accounting Estimates

Risks Which Threaten Objectives

     A.  Poor quality suppliers (2,3)
     B.  Ineffective supplier selection process (1,2,3)
     C.  Lack of focus on value-added purchasing (3,4)
     D.  Long delivery lead time (2)
     E.   Lack of secondary (backup) suppliers (1,2)

Management Responses Linked to Risks

• Supplier assessment and selection procedures (A,B)
• Robust supplier performance measurement system (A,B,E)
• Purchase price analysis systems (C)
• Just-in-time inventory strategy (D)

Other Symptoms of Poor Performance

Unclear direction Lack of employee involvement

Undefined responsibilities Consistent failure to introduce new products/lines

Weak market position Poor financial results

Performance Improvement Observations

Supply base rationalisation Vendor partnering strategy

Procurement process improvement Supply chain integration

Procurement team training / development

Purchase Order Management

Process Objectives

1. Communicate material demands to suppliers
2. Establish procurement; receipt; payment cycle
3. Establish requirements and prices with suppliers

Critical Success Factors (CSF’s)

     A.   Efficient communications links with suppliers and internal customers (1,3)
     B.   Use of just-in-time purchasing (2,3)

Key Performance Indicators (KPI’s) Linked to CSF’s

• Purchase order error rate; percentage of purchase orders transmitted via EDI; percentage of invoices received via EDI (A)
• Suppliers continuous replenishment programme (CRP) performance; raw material CRP performance, raw material turnover ratio (B)

Inputs

Material requirements Supply requisitions Negotiated prices

Material specifications Bills of Material (BOM) Capital authorisation

Supply base Lead times

Activities

Outputs

Purchase orders / supply contracts Inventory information

Purchase price performance data

Payment items

Systems

Purchase order Bills of Material

Manufacturing scheduling

Requisition Accounts payable

Classes of Transactions

Routine Purchase orders  Invoices Cash disbursements

Non-Routine Bill and hold transactions Consignment stock contracts

Accounting Estimates Commodity hedging valuation Vendor return allowance

Risks Which Threaten Objectives

    A.   Inefficient purchase order system workflow (1,2)    B.   Too many people in the process, poor communications    C.   Suppliers invoicing for appropriate price, quantity (1,3)

Management Responses Linked to Risks

• Use of integrated systems (e.g., manufacturing, procurement, accounts payable) (A,B)
• Extensive use of electronic data interchange (EDI) transactions (A,B)
• Monitor purchase order, material receipt, invoice clearance/payment cycle (C)

Other Symptoms of Poor Performance

High level of activity surrounding purchase order processing

Inordinate time between order commitment and purchase order usable by accounts payable

Performance Improvement Observations

EDI application installation Enterprise package solution implementation

Business process re-engineering

Duty draw-back service