PQCDSM KPI Definitions. Part 3

Cost

Production (Make) Cost  per unit volume (tonne or ‘000 units)

This measure allows monitoring of production cost development in order to generate improvement plans, set targets, and deliver manufacturing savings. Allows to trend and benchmark performance across plants and global sites.

Production Cost / Unit of Volume= Production Cost / Volume produced (tonnes or Units)

Which Considers:

1. The appropriate volume unit should be based on the category definitions (tonnes or thousand units).
2. For practical purposes, Production costs will follow SCOA Definitions.
3. Production costs include all costs required to make an agreed category unit, e.g. one tonne of packed powders only.
4. Volume should consider only the agreed category unit e.g. Packed powder and not powder transferred as an intermediate or packed soap and not noodles sold to 3^rd party.
5. This should be measured and collected in local currency.

Example:

Q1 Performance ($)	Site 1	Site 2	Site 3	Global
Production Cost (‘000$)	3,904	4,320	3,389	11,613
Labour costs (exc. R&M Labour)	2032	2876	1524	6432
Utility costs	452	362	403	1217
R&M costs	501	305	451	1257
Depreciation costs	639	750	789	2178
‘Other’ production costs	280	27	222	529
Volume Output (Tonne)	11,232	13,677	8,600	33,509
Production Cost / tonne ($)	348	316	394	347
Exchange Rate	11.05	1.5	100

Production Cost per tonne Global = (11,613,000/33,509) = 347 $/tonne

Labour (Make) Cost per unit volume (tonne or ‘000 units)

Is a measure of the impact that Labour costs have on the overall production cost

Labour Cost per unit volume =  Total Labour (Make) Cost / Total volume (tonnes or ‘000 units)

Which considers:

1. All the following costs that are allocated to Make should be included. It should not include those costs associated with Plan, Source, and Deliver:
   • The salary cost of direct production labor.
   • Factory management salaries excluding Technical Director.
   • Costs of salaries for Quality Control/personnel.
   • Engineering management salaries, allocated to this manufacturing plant in particular, including chief engineer and their staff, drawing office (other than that charged to projects and development), engineering planning.
   • Cost of fixed direct labor and supervision, excluding labor involved in Repair & Maintenance activities and Material Warehousing.
   • Line operators who undertake R & M activities as part of TPM should be included within the labor cost.
   • Cost of the fixed and direct labor involved in the transfer of raw and pack materials to point of use and the transfer of finished goods from the packing hall to the next intermediate location.
2. Volume should consider only the agreed category unit e.g. Packed powder and not powder transferred as an intermediate or packed soap and not noodles sold to 3^rd party.
3. Should also include the cost of temporary and contract FTE in the total Labour cost.

Utilities (Make) Cost per unit volume (tonne or ‘000 units)

Is a measure of the impact that Utility costs have on the overall production cost.

Utilities Cost per unit volume = Total Utilities (Make) Cost / Total volume (tonnes or ‘000 units)

Which considers:

1. Volume should consider only the agreed category unit e.g. Packed powder and not powder transferred as an intermediate or packed soap and not noodles sold to 3^rd party.
2. Variable and fixed cost elements of utilities for the processing and packing sections such as fuel, steam, compressed air. Depreciation of the utilities assets (e.g. boiler) should be included.
3. If coal is converted to steam on-site the total utilities cost should include the cost of the coal and the element of steam generation cost allocated to the particular category unit.

Repairs & Maintenance (Make) cost per unit volume (tonne or ‘000 units)

Is a measure of the impact that Repairs and Maintenance (R & M) costs have on the overall production cost

R & M Cost per unit volume = Total R & M (Make) Costs / Total volume (tonnes or ‘000 units)

R & M Costs = Costs associated with Labour, materials and purchased services

Which considers:

1. Engineering services providing repairs and maintenance for the processing and packing plant and equipment. This should include engineering salaries, wages of direct maintenance staff, materials, and purchased services
2. Operator / Staff labor associated with autonomous maintenance-related R & M activities should be excluded from this cost.
3. The cost to repair and maintain equipment used directly within the Make process excludes the costs to repair buildings and structures
4. Volume should consider only the agreed category unit e.g. Packed powder and not powder transferred as an intermediate or packed soap and not noodles sold to 3^rd party.

Financial Depreciation cost per unit volume (tonne or ‘000 units)

Is a measure of the impact that the level of assets and there age has on the overall production cost

Financial Depreciation = {Sum (Make Equipment depreciation + Building Depreciation)} / {Total Volume (tonnes or ‘000 units)}

            Equipment Depreciation = 7% Total Process and Pack Equipment Gross Book Value

            Building Depreciation = 2.5% Gross Book Value associated with the buildings for Make

Which considers:

1. Financial depreciation is being considered which is based on the Gross Book Value (GBV)
2. Only equipment and buildings directly associated with Make are to be considered e.g. Depreciation associated with the cost of the boiler house would be included in the cost of Utilities.
3. Volume should consider only the agreed category unit e.g. Packed powder and not powder transferred as an intermediate or packed soap and not noodles sold to 3^rd party

Other Production costs per unit volume (tonne or ‘000 units)

This measure enables additional factors important in Production cost to be captured and should generally represent a low percentage of the total cost

Which considers:

1. Property taxes, insurance, repairs to buildings, cost of unused facilities, royalties and service fees payable to 3rd parties for the use of a production process, any materials or services purchased for production.
2. Variable and Fixed cost of sundry items used in the processing and packing sections e.g. solvents, bleaching, etc.
3. Volume should consider only the agreed category unit e.g. Packed powder and not powder transferred as an intermediate or packed soap and not noodles sold to 3^rd party

Savings Performance

Measure savings against the Manufacturing Excellence initiative. Excludes Product Logic and Buying savings

Savings Performance (%) =Actual Mfg. Excellence Savings in the period / Target Mfg. Excellence Savings in the period * 100

Note:  At this point, this measure is a qualitative assessment.

Which considers:

1. As part of the Manufacturing Excellence initiative, all plants will have a savings target that is in line with the Manufacturing Savings committed to delivering Path to Growth. These targets should be cascaded to a plant level.
2. These Savings should not include any activities or projects that are funded by the restructuring.
3. Volume related savings or on-costs should also be excluded

Savings

Measure the actual amount of Manufacturing Excellence savings during the period.

Savings = Actual Manufacturing Excellence Savings

Note:  At this point, this measure is a qualitative assessment.

Which Considers:

1. As part of the Manufacturing Excellence initiative, all plants will have a savings target that is in line with the Manufacturing Savings committed to delivering Path to Growth. These targets should be cascaded to a plant level.
2. These Savings should not include any activities or projects that are funded by the restructuring.
3. Volume related savings or on-costs should also be excluded

Raw Material Inventory

Measures the component of working capital that exists as raw material inventory, thus affecting the gross capital employed for the concern.

Raw Material Inventory = Raw materials on hand expressed in dollars.

Which Considers:

All raw materials on hand, whether obsolete or current.

Packaging Material Inventory

Measures the component of working capital that exists as packaging material inventory, thus affecting the gross capital employed for the concern.

Packaging Material Inventory = Packaging materials on hand expressed in dollars.

Which Considers:

All packaging materials on hand, whether obsolete or current.

Delivery

SKU Complexity

Measure the level of portfolio complexity in a factory.

SKU Complexity = Volume produced /  # of unique SKUs produced

Which Considers

1. A unique SKU includes all standard and promotional items that are manufactured in the period of evaluation.
2. For manufacturing operations that act as regional sourcing units, even the differentiation of two products by labels with different languages should be considered as separate SKUs.
3. The product portfolio to use for this ratio should be the number of SKUs actually manufactured on the site for the given period.
4. Volume should be reported in tonnes or ‘000 units according to the category’s normal reporting criteria.

Example

	Volume Produced	# of different SKUs manufactured	SKU Complexity
Line A	20,000	12	1666
Line B	25,000	7	3571
Total	45,000	15	3000

Note: The number of SKUs in the example assumes that there is an overlap in the SKUs ran in each line. For the total, this duplication should not be considered.

Portfolio Produced Weekly

To measure the degree of flexibility and linkage of the Make Process within the overall supply chain. The purpose of the measure is to track how closely Operating Units’ production scheduling is to market needs. The more frequently that products are produced, the greater is the flexibility to provide a rapid response with minimum stocks.

Portfolio Produced Weekly (PPW)% =(# Of unique SKU produced per week X 100) / (# Of unique SKU in Portfolio)

Which Considers:

1. A unique SKU includes all standard and promotional items that are traded in the following quarter to the period of evaluation.
2. SKU’s produced must be counted from the actual production every week.
3. SKU’s Portfolio to be used considers the future three-month horizon.
4. Consolidation by month, quarter, year, and sites should be done as a weighted average by SKU volume.

Example:

April	Week 1	Week 2	Week 3	Next Quarter  Portfolio
# SKU produced	23	37	34	62
PPW %	37	60	55
Volume (‘000 Units)	2500	3300	2870

Portfolio Produced Weekly (April) = {(37%*2500) + (60%*3300) + (55%*2870) * 100} / 8670 = 52%

Output Reliability by SKU

Allows measurement of a site service level to the supply chain

Output Reliability by SKU (%) = {Σ (Plan – ABS (Actual – Plan)) * 100} / (Σ Plan)

Which Considers:

1. The Plan should be frozen in the week previous to the actual production week. No changes requested by planning or by the factory should be accepted as changes to the original frozen plan.
2. The plan comprises a period of 7 days of production (full week).
3. Consolidation by month, quarter, year, and Global should be done as a weighted average by SKU volume.
4. Any product rejected for quality or hygiene incidents should not be recorded as production output in this measure
5. Measurement at the plant should be on an SKU basis.
6. Factories should track the number of plan changes per week to ensure that causes for a poor performance in this measure can be correctly attributed.
7. Output Reliability will only be calculated on the basis of packing lines, not in processing operations.

Example:

Site 1	Week 1
SKU	Actual	Plan	ABS Difference	Plan – ABS
Liquid 400ml	30000	32000	2000	30000
Liquid 200ml	45000	40000	5000	35000
Liquid Milk 200ml	42000	43000	1000	42000
Total	117000	115000		107000
OR(%)				93%

Site 1	Week 2
SKU	Actual	Plan	ABS Difference	Plan – ABS
Liquid 400ml	65000	65000	0	65000
Liquid 200ml	33000	39000	6000	33000
Liquid Milk 200ml	40000	32000	8000	24000
Total	138000	136000		122000
OR(%)				90%

SKU	Site 1	Site 2
Week 1	93	94
Week 2	90	97
Total Volume	255000	266000
OR(%)	91	96

Output Reliability Site 1, Week 1(OR)% = {(32000-2000)+(40000-5000)+(43000-1000) * 100} / 115000= 93%

Output Reliability Site 1, Period (OR)% = {(93*117000)+(90*138000) * 100} / 255000 = 91%

Output Reliability Global, Period (OR)% ={(91*255000) + (96*266000) * 100} / 521000 = 93.5%

Number of SC Planning Schedule Changes

To measure the activity occurring as changes to the “frozen” plant schedule, after the schedule has been “frozen” for the current short-term planning cycle.

A number of SC Planning Schedule Changes = The difference between the individual SKU count planned for in the frozen schedule and the SKUs that ran on the lines.

Which Considers:

1. The Plan (as set by SC Planning, not plant scheduling) should be frozen in the week previous to the actual production week. Any changes requested by planning and jointly agreed should be accepted as changes to the original frozen plan.
2. Any product rejected for quality or hygiene incidents should not be recorded as production output in this measure.
3. Measurement at the plant should be on an SKU basis.
4. The number of plan changes per week.

Number of SC Planning Schedule Changes will only be calculated on the basis of packing lines, not in processing operations.

Example:

	“Frozen” Plan	Actual SKU Run	Change?
Liquid 400 ml	3500	3500	No
Liquid 200 ml	2700	1000	Yes
Liquid Milk 50 ml	1500	1500	No
Liquid 100 ml	6500	6500	No
Liquid 900 ml	2000	0	Yes
Organics 500 ml	0	2000	Yes
Organics 350 ml	0	1000	Yes
Organics 250 ml	4500	4500	No
Total SC Plan Changes			4