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COPQ for Late Shipments

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  • #48392

    Marine Jim
    Participant

    Hey everyone,
    I’m working towards my six sigma certificatio and am trying to establish a COPQ for a project that deals with improving on-time shipments.  Any ideas regarding the types of $$ tangibles I could quantify to show improvement as our shipments begin shipping more frequnetly on-time?
    Thanks for the help!
    Jim

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    #162945

    Navy
    Participant

    Consider using an exit rate – as your exit rate increases with the faster speed, you will have created increased value that you and the financial representative should agree on. Also – look for the savings in the products not being where they need to be when needed (which you solved with your process improvements). look for savings in not having to store inventory, as well as increased productivity of labor resources that are doing more output in less time.

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    #162948

    Dr. Scott
    Participant

    Marine Jim,
    Do you work for a private organization or the government? In either case, you should ask your customer (the one waiting for the parts) what the value is to them.
    If you work for the government then the $$ does not matter. They want to spend, and will make certain they spend, every dollar afforded to them by congress. But that does not mean there is not value. For example, fixing a LMW piece of equipment more quickly for the Navy can be very valuable, though not in terms of dollars.
    If you work for a corporation, then their is an obvious $$ impact, but you still have to ask the customer or sales what that is. Or ask the process leader downstream from you.
    Finally, the Champion of your project should have already answered the question for you.
    Hope this helps,
    Dr. Scott
     

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    #162968

    Marine Jim
    Participant

    Perfect – thanks!
    Jim

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    #162978

    GDS
    Participant

    Are you working overtime (OT) now trying to meet the shipping goals? Will yout OT go down with process improvements that increase your on-time goal?  How much time is spent on expiditing orders because your struggling with ontime?

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    #162980

    Marine Jim
    Participant

    Perfect – thanks!
    Jim

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    #163819

    Deanb
    Participant

    Jim,Sometimes doing a financial measure is not practical, and this may be one of those times.The fact that something is late to either internal or external customers risks trust and their process dependence on agreements made, and that ought to be enough to make this important to you. Therefore, I suggest you use a non-financial metric such as “days late/shipment” and work towards zero days late.Good luck.

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    #163821

    FB400
    Participant

    In our business we have a contractual penalty for late shipments to some customers. You may too.

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    #163822

    LAG16764
    Participant

    Don’t forget late delivery charges. If your customer is expecting JIT of your goods and have tight window for product delivery in the project schedule, late delivery penalties and expedited freight charges may be incurred. These are often tracked outside of normal manufactuiring COPQ, if collected at all.  Also, if you have high volume repetitive sales to that particular customer, significant shifts in repeat sales may indicate lost future sales.  This is a borderline tangible cost as several other sales and market factors may cause a shift in sales volumes.  You would need to factor in other trends to identify true lost customer impact to the bottom line.. 

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    #163823

    LAG16764
    Participant

    If your customer has control of release of shipment, you may want to track available to ship against promise or scheduled ship date instead of actual ship date to promise date.  

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    #163828

    fevila
    Participant

    You have also to consider the effect on cash flow. If you ship late, you will collect late, which will have a financial cost, specially if your company is short on cash and accessing financial markets. Your controller should be able to help you figure out the impact

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    #163834

    Corey Pachniak
    Participant

    An additional factors to consider:
    The cost of expediting shipments to the customer. 
    The cost of losing a customer to a competitor due to late shipments.
    Overtime required to meet demand.
    As a side note, if you haven’t already, develop a VSM to help identify waste (http://www.lean.org). Waste can easily be measured and often can provide significant $$ savings.

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    #163835

    Marine Jim
    Participant

    Hey guys,
     
    Thanks for all the help on this.  I check into the overtime and was able to quantify how much OT has been used to “rush” shipments out the door.  I also checked the cost to expedite shipments and found that we haven’t expedited shipments (from a freight standpoint) to try to meet ship dates.
    I’m looking into quantifying the cost of receiving later payments (thanks fevila!!).
    Just out of curiousity, how do you think I can quantify lost customers due to late shipments?  I was thinking I could check stops/changes in order frequency over the past few years.
     
    Thanks for the help guys!
    Jim

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    #163836

    Deanb
    Participant

    Jim,I am concerned you are focusing on the “little q” and not the “Big Q.”The problem with taking a purely quantitative financial approach here is someone could use the data to justify being late-which would be wrong thinking. Being late and breaking promises passes a loss function along, and eventually creates a loss function for your organization. Just knowing this should be reason enough to make it a core quality value and just commit to excellence here. By the time you count the true costs, and not just the tip of the iceberg, far too much damage might be done.How would you like your own suppliers to think relative to this? Everyone in business relationships need to assure reliability as a core competency. This means making promises you can keep, keeping them, and getting better at keeping them, all the time. The true COPQ here exists as a risk mode, not as a hard and predictable number. Hence, any number you come up with will be insufficient and incapable of supporting good decisions. Again, I would transform this question into a non financial one and revert to establishing this issue as a core quality value.Good luck.

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    #163837

    Marine Jim
    Participant

    Thanks Dean – I really like that approach!  I think I may keep some of the financial stuff I’ve already gathered but then emphasize that there is a much greater non-financial cost here.
    I like the point of how we’d look at it from our suppliers – I’ll definetely mention that as well.
    Thanks for the help!
    Jim

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    #163838

    AlexanderSO
    Participant

    Hi.
    When you improve the on time shipments you are impacting several fronts.
    The benefits inside your company could be less space requiered for inventory (due to an increased exit rate, you can quantify this using the typical formula used to define EOQ models, also the free space now could be used for additional money generating activities), increase in the revenue (due to a reduced number of orders partialy shipped or not shipped at all that the customers usually cancel or close them, for which you can´t collect the total initial amount of money only the amount representing the real shippment), if you align your productive system to on time deliveries you will star to have productivity improvements opportunities that may lead to additional sales.
    Viewing from the outside on time shippments puts your company in a stronger position in the market, due to your improved reliability the customers will put your company at the first buying options (you need to validate this with your sales force to see if the market you are attending is sensitive about delivering time) and this on the long run will give your company a major market share and will create loyalty among your customers. 

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    #163951

    MKer
    Participant

    I’m just reading all these great responses – lots to think about. It happens that one of my qualifying projects for my BB certification  was Late Deliveries. i.e.mis-shipments. The process of defining mis-shipments ( as compared to late shipments) was confusing and first had to be determined.
    For COPQ we also used: Custome Sat, freight costs for expedited deliveries and canceled orders. I really didn’t understand how to determine an actual $ amount on the”savings”, until the Plant Manager told me to use his data (which I didn’t have access to ) of daily shipments from the Warehouse to compare to pre-improvement daily shipments. In the end we determine an approx $200k savings.

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    #163962

    Deanb
    Participant

    Jim,Keeping the financial data you have is a good decision. You will undoubtedly show financial gains, however the gains may not be large on paper or immediate, hence basing sustainability on this can be tricky. Often companies simply do not understand their processes well enough to make sound delivery promises. Just as often they find their processes are not capable of meeting reasonable promises. You may find you have vendors over promising as well, which may affect how materials are purchased and inventoried in the future.Sometimes just doing things faster-at the same cost, is a big gain. Since solving this problem will require the joint application of core values and facts, this project will probably take you in many interesting and fruitful directions, and could change the way your company does business. Getting management buy-in to the core value is key. Good luck.

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