4-10 Introduction to Logistics Engineering

Cycle Time

Planning
Distribution/
Filling Quality
Reverse
Cost Sourcing
Logistics
Defect-free
Full
Revenue
Stream
Transportation
Information
Partnering
Integrity
Profitability

Capacity
On-Time
Utilization
Financial
Productivity

Resource

FIGURE 4.2 Performance metrics framework.

In the more typical case of high-mix, low-volume production, some WIP inventory, including compo-
nent stocks, may be required. However, it is preferred to minimize the WIP by using the principles of JIT
to the extent possible. An engineered storage area (ESA) supports point-of-use pull logic for material low
in the high-mix, low-volume shop. he two-bin system is perhaps the most simple and visible method of
deploying component stocks into the workcenter ESA. he stock for a component is split into two storage
bins. In the simplest form of two-bin system the quantities are equal. When the irst bin is emptied, a
replenishment order is initiated. If the stock level is reviewed continuously, then the second bin must
contain a suicient amount of material to meet production needs during the replenishment lead time. If
the stock is reviewed periodically, then the second bin should contain suicient stock to meet demand
during lead time plus the periodic review interval. If there is variability in the supply or demand pro-
cesses, then safety stock may be required, which increases the standard quantity in both bins.

TABLE 4.5 Description of Performance Metric Subgroups

Group Subgroup Description
Financial Cost Focus on cost elements
Proitability Consideration of both cost and revenue elements
Revenue Focus on revenue elements
Quality Defect-free Encompasses all elements of a perfect order outside of on-time and
information integrity
Information integrity Measurement of information accuracy in the system
On-time Meeting partner/customer on-time commitments
Partnering Teaming of logistics players, including employees, in order to
accomplish value-driven goals
Cycle Time Distribution/illing Focuses on distribution and illing time
Full stream Spans the entire supply chain
Planning Elapsed time related to planning and design
Reverse logistics Measurement of elapsed time related to returns
Sourcing Focuses on sourcing elapsed time
Transportation Measurement of transit time
Resource Capacity Related to the output capability of a system
Productivity Comparison of actual output to the actual input of resources
Utilization Comparison of actual time used to the available time
Logistics Metrics
TABLE 4.6 Financial Metrics Subgroup
Metric
Annual cost of
maintenance by operator
Cost per operation
Cost per piece
Cost per transaction
Cost per unit of
throughput
Cost variance
Economic value added
Gross proit margin
Increase in proile adjusted
revenues per CWT*
Inventory carrying
Cost
Inventory on hand
Inventory shrinkage
Logistics operating
expenses
Material handling rate
Net proit margin
Operating expenses before
interest and taxes
Operating ratio
Payables outstanding past
credit term
Receivable days
outstanding
Return on assets
Return on investment
Revenue growth percentage
4-11
Data Units SPC
Total amount of money spent on $/operator-year Pareto chart
maintenance in a iscal year
(Total cost)/(total number of $ per activity x-bar and R charts or moving
operations) centerline EWMA and MR if
the data are seasonal
(Total cost)/(total number of pieces) $ per piece x-bar and R charts or moving
centerline EWMA and MR if
the data are seasonal
Cost of a transaction $ per x-bar and R charts or moving
transactions centerline EWMA and MR if
the data are seasonal
Cost of a speciic facility $ per unit of x-bar and R charts or moving
throughput for centerline EWMA and MR if
a facility the data are seasonal
Cost variance is the ratio between Percentage Moving centerline EWMA
actual costs and standard costs. and MR charts (assuming
his ratio most likely varies with the data are seasonal)
particular seasons
(Net operating proit ater taxes) $ x-bar and R charts
(capital charges)
[(Sales) (cost of good sold)]/(sales) Percentage Individual and MR charts
[Positive trend in proile (segment of the $ per CWT u chart with variable sample
market or a particular customer) size
adjusted revenues)]/[CWT]
Costs related to warehousing, taxes, Percentage Individual and MR charts
obsolescence and insurance (total cost
of warehousing, taxes, obsolescence,
insurance)/(total cost)
Total cost of inventory on hand Percentage Individual and MR charts
Total money lost from scrap, $ Pareto chart
deterioration, pilferage, etc.
Inventory carrying cost + $ Pareto chart
transportation + shipper expenses +
distribution + administrative
(Material handling expense)/(material Percentage Individual and MR charts
handling asset value)
(Net proit ater taxes)/(sales) Percentage Individual and MR charts or
Trend charts
Cost of goods sold $ per unit time x-bar and R charts
(Cost of goods sold + selling costs + Percentage SPC: Individual and MR
general and administration cost)/ charts or Trend charts
(sales)
(Accounts payable past credit term)/ Percentage P chart, variable sample size
(# accounts)
(Accounts receivable)/(sales per day). Percentage x-bar and R charts
Refers to the average collection period
(Net proits ater taxes)/(total assets) Percentage Individual and MR charts or
Trend charts
(Income)/(investment capital) Percentage Individual and MR charts
(Revenue at the end of a period) Percentage Individual and MR charts
(Revenue at the end of previous
period). Change in revenue
over time
continued
4-12 Introduction to Logistics Engineering

TABLE 4.6 Financial Metrics Subgroup (continued)

Metric Data Units SPC
Transportation cost per (Total transportation costs)/(total $ per unit u chart, variable sample size
unit (piece, CWT, mile) number of units)
Trend Growth or shrinking market share. Percentage Individual and MR charts
Change in market share over time

* CWT = $ per 100 pounds of weight.

Bar code labeling and radio frequency communications promote the eiciency of an ESA. Each bin loca-
tion is labeled with a barcode. When bin 1 is emptied, the user scans the barcode to trigger a replenishment
cycle. As the replenishment is put away, the location barcode is again scanned to close out the cycle.
A printed wiring board (PWB) assembly operation in manufacturing of telecommunications switching
equipment served as a case study for point-of-use pull material low through an ESA. Figure 4.3 depicts
the layout and low.
he general framework in Figure 4.2 is utilized to design performance metrics speciic to the
point-of-use pull system in the PWB assembly shop. his custom system is compatible with available
information systems at the company and can be used to move the organization to an environment that
views logistics performance with respect to natural process variation. he facility is positioned to iden-
tify areas of excellence in current performance as well as opportunities for improvement.

TABLE 4.7 Quality Metrics Subgroup

Metric Data Units SPC
Data entry accuracy (# Errors)/(# transactions) Percentage p-Chart with variable
sample size
Document accuracy (# of orders with accurate Percentage p-Chart with variable
documentation)/(total # orders) nonconforming sample size
Forecast accuracy Mean absolute deviation or mean square Percentage x-bar and R charts
error. his metric refers to the diference
(error) between forecasted and actual
Inventory accuracy (Parts in stock)/(parts supposed to be in Percentage p-Charts with variable
stock). Refers to the total number of sample size
parts reported by the system of being in
stock versus the actual number of parts
present in stock
Record accuracy (Number of erroneous records)/(total Percentage p-Chart with variable
number of records) nonconforming sample size
Tracking accuracy (Entities in known status)/(total entities). Percentage p-Chart with variable
his metric measures the accuracy of sample size
tracking job orders e.g., by lot control.
On-time delivery (On-time deliveries)/(total deliveries) Percentage p-Chart with variable
nonconforming sample size
On-time entry into the (Orders with timely system entry)/(total Percentage p-Chart with variable
system orders) nonconforming sample size
On-time loading (On-time loaded orders)/(total orders) Percentage p-Chart with variable
nonconforming sample size
On-time marshalling (Orders ready on time)/(total orders) Percentage p-Chart with variable
nonconforming sample size
On-time pick up (On-time pick-ups)/(total pick ups) Percentage p-Chart with variable
nonconforming sample size
On-time put away (Orders with timely put away)/(total Percentage p-Chart with variable
orders) nonconforming sample size
Logistics Metrics 4-13

TABLE 4.8 Cycle Time Metrics Subgroup

Metric Data Unit SPC
Cycle sub-time, Cycle sub-time. Cycle time at the Time units x-bar and R charts
distribution/illing distribution/illing segment
Fill rate (Number of lines illed)/(number Percentage p-Chart with variable
of lines requested in order) sample size
Stock-to-non-stock ratio (Material shipped)/(total material Percentage p-Chart with variable
in stock). Percentage of material sample size
shipped by regular stock
Cycle time (full stream) Cycle time. Total or full stream Time units x-bar and R charts
cycle time. Elapsed time between
order entry until cycle
completion is visible in the
computer system
Days in inventory by item (Units in inventory)/(average daily Days x-bar and R charts
usage)
Cycle sub-time, Cycle sub-time. Cycle time at the Time units x-bar and R charts
planning/design planning and design segment
Cycle sub-time, reverse Cycle sub-time. Cycle time for the Time units x-bar and R charts
logistics returns segment
Cycle sub-time, sourcing Cycle sub-time. Cycle time for the Time units x-bar and R charts
sourcing segment
Point of use deliveries (Number of deliveries)/(total Percentage p-Chart with variable
deliveries) nonconforming sample size
units
Supplier direct deliveries (Total number of supplier Percentage p-Chart with variable
deliveries)/(total number of sample size
deliveries)
hroughput rate (WIP)/(cycle time). WIP is the Units/time x-bar, R charts
inventory between start and end
points of a product routing
Cycle sub-time, Cycle sub-time. Cycle time for the Time units x-bar and R charts
transportation transit segment
Expedite ratio (Number of shipments expedited)/ Percentage p-Chart with variable
(total number of shipments) sample size
Of-line shipments (Number of of-line shipments)/ Percentage p-Chart with variable
(total number of shipments). nonconforming sample size
Represents the percentage of of- units
line shipments

FIGURE 4.3 Case study in electronics manufacturing logistics.

4-14 Introduction to Logistics Engineering

TABLE 4.9 Resource Metrics Subgroup

Metric Data Units SPC
Asset turnover ($ Sales)/($ assets) Percentage Individual and MR charts
Asset utilization (Capacity used)/(capacity available) Percentage x-bar and R charts
Cube utilization (Cubic space used)/(cubic space Percentage x-bar and R charts
(load factor) available)
Downtime (Total downtime)/(total available time) Percentage x-bar and R charts
Empty miles (Total empty miles)/(total miles) Percentage u-Chart with variable
sample size
Empty (Total empty trailers/containers)/(total Percentage p-Chart with variable
trailers/containers trailers/containers) sample size
Idleness (Idle time)/(total available time) Percentage x-bar and R charts
Inventory turns (Sales @ cost)/(average inventory @ Percentage Individual and MR charts
cost)
Labor utilization (Total labor used)/(total labor planned Percentage Moving centerline
to use) EWMA
Material burden (Good material)/(total material Percentage x-bar and R charts
consumed)
Network eiciency (Full enroute miles)/(total miles) Percentage u-Chart with variable
sample size
Pack rate (Orders packed)/(employee). Refers to Packages per employee u-Chart with variable
the number of orders packed by a per unit of time sample size
person in a given period of time
(minutes, hours, days, etc.)
Pick rate (Pieces)/(employee), (lines)/ Pieces per employee per u-Chart with variable
(employee), (orders)/(employee). unit of time, lines per sample size
Refers to the number of pieces or employee per unit of time,
orders or lines picked by an employee orders per employee per
in a given period of time period of time
Productivity-on (Miles traveled by truck)/(number of Miles per period of time Individual and MR charts
road days, weeks, etc.). Refers to the
number of miles traveled by a truck in
a period of time (day, week, etc.)
Ratio of inbound (Inbound transactions)/(outbound Percentage p-Chart with variable
to outbound transactions) sample size
Receiving rates (Number of pieces/orders/lines in a Pieces or lines or orders u-Chart with variable
given time)/(# employees). Receiving per time unit per sample size
of pieces or orders or lines per employee
employee in a given period of time
Revenue or proit (Revenue or proit)/(total space in $ per square foot u-Chart with variable
per square foot square feet) sample size
Revenue per (Total revenues)/(total number of $ per associate u-Chart with variable
associate associates) sample size
Shipments per (Number of shipments)/(number of Shipments per associate u-Chart with variable
associate associates) sample size
Shipping rate (Number of pieces/orders/lines in a Pieces or lines or orders u-Chart with variable
given time)/(# employees). Shipping per time unit per sample size
of pieces or order or lines per employee
employee in a given period of time
Trailer turns (Trips)/(period of time). Refers to the Turns per period of time Individual and MR charts
total number of trips by a trailer in a
given period of time (day, week,
month, etc.)
Trailer/tractor (Number of trailers)/(number of Trailers per tractor u-Chart with variable
ratio tractors) sample size