Maintenance Parts Management Excellence Course · Materials Management Model Procurement and Parts...

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Maintenance Parts Management Excellence CourseKey Performance Metrics for Maintenance Parts Management (102)

Don M. BarryPrincipal ConsultantAsset Acumen [email protected]

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Important

This document is not to be released to any third party without the prior consent of Asset Acumen Consulting. It contains copywrite information, the disclosure of which would likely cause material financial harm to Asset Acumen Consulting, prejudice its competitive position and interfere with its ongoing or future contractual or other negotiations. The document also contains personal information as defined in the Privacy Act(Canada).

© 2019 Asset Acumen Consulting

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• Day 1

• Leadership and Control

• Maintenance Parts Management Pyramid of Excellence Overview

• An approach to creating a Maintenance Parts Management Strategic Plan

• KPIs for Maintenance Parts Management

• The importance of Maintenance Parts in ‘effective’ Maintenance Execution

• Day 2• Inventory Policy Management Dynamics

• Inventory Planning

• Asset Life‐cycle Integration

• Inventory Optimization

• Procure and Repair

• Day 3

• Implementing Maintenance Parts Management

• Technology and Maintenance Parts Management

• Impact of Change Management in Asset Management Initiatives

• Spares Provisioning & Inventory Optimization

• Key Inventory Issues

• Types of production Inventory

Presentation Agenda

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• Day 4

• Managing Risk and Cost in Parts Management (with case studies)

• Risk and Cost Management

• Setting the Reorder Point

• Setting the Reorder Quantity

• Reliability‐Based Spare Parts Management

• Determining Excess Inventory

• Developing Store Room Layouts, Improvement Projects, Re‐organization,

• Storeroom Measures and KPIs

• Maintenance Parts Purchasing Insights

• Day 5• Going Deeper in Asset Life‐cycle Initial Spare Parts Tactics Setting

and Monitoring Goals

• Partnering with Others

• Benchmarking performance

• Managing repairable spares

• Managing capital spares

• Putting the 5‐Day Maintenance Parts Excellence Course into Practice

• Next Steps

Training Mapping Models and Icons

• Models will be shown throughout the training.• To assist in understanding the flow and relationships

• Reminder Icons are to help you understand the intent of the presented materials

• Examples

• Hints

• Exercises

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Example

‘Hint’

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Materials Management Model

Procurement and Parts Repair


LogisticsLogistics

Inventory Planning / PolicyInventory Planning / Policy

KPIsKPIs

Simple model for Materials Management Optimization

5Adapted from Asset Management Excellence”, by John D Campbell & Andrew K S Jardine, Joel McGlynn

Agenda

• Key Performance Metrics for Maintenance Parts Management• An approach to tailoring KPIs for multiple business dimension levels

• Examples of maintenance parts operational, and inventory effectiveness KPIs

• Developing a balance scorecard for a maintenance parts operation

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The Traditional Value of Asset Management

Maintenance

Plant Assets Plant Value

Parts

Procurement

Accounts Payable

CustomerSupplier

Traditional Value/Focus

of Asset Management

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Asset Install Based

Forecast Parts

Source & Procure

Deploy Part

Service Asset

Return / Dispose

Recognize Demand

Install and Maintain AssetDesign

& Develop Product

Plan Product

Buy

Make

Assemble

ProductDeploy

Deliver Product

Pre Delivery

Finished goods process optimization focused Mass production, JIT

High IT investment ERP, SCM

Post Delivery

Service optimization focused Low volume, dispersed, random events

Right part, right place, right time

Typically Low IT investment in systems that improve productivity

Manufacturing Process Maintenance Process

The Supply Chain process flow and attributes are significantly different for Services vs. Manufacturing.

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An asset lifecycle management focus in Inventory Management

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Asset Creation – EPC, Suppliers, O&M

Asset Management – O&M

‐10 – 20 years ‐

Data Handover Data Handover

Field Service Owners / Design Engineers

Inventory Planner

Maintenance and Operations

Procurement

Finance

Asset Ownership Change?

Example – Option 1

Vendor /Supplier

CentralWarehouse

LocalStock Room

Used PartsDisposition

Used PartsRepairAsset

Scrap

Vendor /Supplier

Surplus Sales

Vendor /Supplier

CentralWarehouse

LocalStock Room

Used PartsDisposition

Used PartsRepairAsset

Scrap

Vendor /Supplier

Surplus Sales

Inventory Optimization

Who does the Parts Group serve?

• Business Function and Operations

• Maintenance Process technicians

• Parts Repair staff

• Maintenance inventory staff

• Procurement

• Design Engineers

• Accounting / Finance

• Audit

• Green / Safety / Environment

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What are they expecting in terms of output from the Parts System?

• Business Function and Operations

• Maintenance Process technicians

• Parts Repair staff

• Maintenance inventory staff

• Procurement

• Design Engineers

• Accounting / Finance

• Audit

• Green / Safety / Environment

Organization’sBusiness

Reputation


Reputation

Inventory $Inventory $Service LevelsService Levels

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Inventory Service Levels vs. Inventory Costs vs. Inventory Value

Accountant’s View

• Inventory Turnover

• (Annual Usage / Average Inventory Value) or

• Asset Value Support

• (Average Inventory Value / Total Asset Value ) or

• Net Materials Management Process Costs vs Asset Value

• (Net Materials Management Process Costs/ Total Asset Value /) or

• Inventory Provisions

• Other

Inventory Manager’s View

• Parts Availability

• Parts Acquisition Time

• Systems Availability

• Distribution Quality

• Parts Quality

• Parts Costs

• Logistics Costs

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Example of a Leading Practice

• Parts Fulfillment Cycle Time as measured by the Planner

• Parts Availability as measured by the system

• Support System Availability

• Data base integrity as measured by the system

• Report timeliness

• Order system availability

• Parts Quality

• New Defective pieces disbursed vs pieces defective

• Distribution Quality

• Lines distributed vs errors tech feedback

• Lines distributed vs timeliness commitment tech feedback

• Parts Cost

• Procurement SLAs as measured by the system

• Distribution costs as measured by the system

• Parts Unit costs yr/yr as measured by the system

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Inventory ManagementExpert Systems

Distribution Management

Key Performance IndicatorsDeliveryInventory ManagementUnit Sourcing Costs

Unscheduled Demand

Scheduled Demand

Suppliers

• Manufacture• Reutilize• Product Tear Down

Logistics Value Influence

Common Areas to Consider• Content Management• Substitutions• Category Management • Vendor Managed Inventory• Supplier SLAs• Supplier Warranty Redemption• Re-utilization Strategies

• Demand Management• Service specific forecasting

algorithms• Part Criticality• Inventory Effectiveness• (Multiple replenishment) Inventory

Policies• Automated replenishment plans• Inventory Surplus Management

• Emergency cycle times• Kitting• Vehicle / Remote

Inventory• Delivery strategies• Reverse Logistics• Exception

management• Multi-echelon

deployment

• Parts Availability• Parts Acquisition Time• Systems Availability• Distribution Quality• Parts Quality• Parts Costs• Inventory Turnover• Inventory Reserves

Many elements of the Maintenance Parts Value Chain need to be well managed to meet business asset demands.

14Adapted from IBM Parts Management Case Study – Don Barry

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Why measure?

• Reduced Planning Costs – automates service parts planning process, service planners can proactively plan rather that reactively expedite parts.

• Reduced Expediting Cost – By optimizing field stock, there is less need to rush parts to customer sites, thereby reducing expediting costs.

• Minimized Technician Visits – With the right part in hand, technicians can fix the problem on the first call and eliminate the costs of broken tickets and repeat calls.

• Reduced Inventory ‐ The right stocking plan can reduce inventory levels by as much as 60%, resulting in less procurement expense, lower repair costs, reduced inventory carrying costs, and improved cash flow.

• Reduced Obsolescence –efficient management of the entire product life cycle reduces inventory obsolescence and write‐offs.

• Part Repair Avoidance – with complete visibility of the service parts network, the correct field stock plan can be maintained which includes parts available from the repair loop which typically leads to a reduction in part repair.

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SC Functions Process Description for discussion with aTelecomProposal Scope To Be

Decided

Procurement Procurement operations

Strategic Sourcing

Accounts PayableIn Scope

SC Collaboration End-to-end supply chain visibility and event management In Scope

Logistics

Logistic strategy

Inbound / outbound transportation

Warehouse operations

Reverse logistics

In Scope

SC Planning

Supply / demand planning

Sales & operating plan

Allocation and order to promise

Scheduling

In Scope

Product Lifecycle Management

Product Lifecycle Management (PLM) is focused on the management of product information and product development processes across the end-to-end product lifecycle (e.g. from concept development through retirement and disposal).

In-Scope

Asset Management

Assess ability to design, build, procure, operate, maintain, modify and dispose an enterprises’ assets such as the buildings, real estate, facilities, fleet and plant equipment, IT equipment and networks over the assets’ life cycle, as well as the inventory and human resources associated with maintaining those assets.

In-Scope

Spare Parts, maintenance and Field Services

• Call Center and remote support • Service part management and planning • Service delivery and technical support

In-Scope

SC Financing• Supply Chain Financing uses a technology platform to link Buyers, their Suppliers and IGF. Supply chain

events trigger payables financing flows across the platform. In-Scope

SC Technology

Implementation of SC applications and data exchange

Enterprise Application (ERP) Enterprise Asset Management (EAM), Planning, Visibility, Collaboration, Procurement, enterprise bus, SC Portal, etc...

Integrated into overall infrastructure scope (managed services)

Security Services

In scope

Potential Scope Discussion in Parts Management

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Example

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What do you watch most closely?

•Inventory Value•Inventory Turns•Effective Inventory stocking strategies•Effective Automated replenishment•Parts Availability•Fulfillment Cycle Time•Inventory Accuracy •Inventory Variances•System Availability•Parts Quality•Dock to Stock Cycle time•Distribution Quality•Parts Unit Cost•Rotable Repairs Capture•Out of Box Failures•% Vendor Managed Inventory•Warranty recovery

•Well Executed Work Orders•Parts Availability•Parts Acquisition Time•Systems Availability•Distribution Quality•Parts Quality•Parts Costs•Inventory Turnover•Inventory Reserves•Low Inventory Squirreling•Right part/qty to the right place within the committed time•Low loss/scrap rates

•Inventory•SLA‘s•Labour•Management Overhead•Systems Overhead•Facilities Overhead•Delivery medium•Vendor support•Training

ProcessProcess OutputOutputInputInput

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How do I view the high level success of a parts operation?

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As an example, the Inventory Management Process is summarized as shown. • Definition: Inventory Management is the ongoing process of planning, and setting of spare parts placement policy to balance customer needs with business needs including communicating,

coordinating, scheduling, monitoring, and controlling changes to the service delivery environment.

• Mission: To facilitate successful implementation of an Inventory policy by maximizing the service levels and minimizing the risk to material handling costs and inventory provisions.

• Scope: Create inventory policy strategies to support serviced products within Canada.

•Asset Type/Makeup•Failure Data/History•Date first supported•Technical Assessment•Business Assessment•Procurement & Implementation•Report and Control

•Asset Type/Makeup•Failure Data/History•Date first supported•Technical Assessment•Business Assessment•Procurement & Implementation•Report and Control

•Availability Expectations•Cost of Services•Quality of Parts•Quality of Distribution•Technical Support•Order Process•Technicians•Cost of Product Ownership•Management

•Service Level Commitments•SLA targets•Measurements•Financial Incentives•Parts Repair Sourcing•Management•Service Representatives•Customer Representatives•Activity History Data

EXTERNAL INFLUENCE

PROCESS SUPPORT

SUPPLIER

INTERFA

CES

CUSTO

MER

INTER

FACES

Corporate Culture

Policies/Standards

Financial/Service Objectives

Business Strategy

Process Systems, Decision Assist Processes, Vendor Logistics Support

6543210

•Documents of Understanding•Service Level Objectives•Customer Satisfaction•Process Measurements•Process Improvements•Process Effectiveness

What if: Challenged to maintain service levels and reduce inventory

Slide: 19

Example

Measuring Inventory Effectiveness

Spare parts businesses differ in terms of:

• the service lifecycle of the products/systems to be maintained

• the criticality of the products/systems to be maintained

• the downtime tolerance

• the geographical location of the products/systems to be maintained

• the qualification of the workforce required for maintenance

• the possibility of repair

• the location of repair

• the requirement for reverse logistics

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Measuring Inventory Effectiveness

• Inventory Turnover

• Monthly Maintenance disbursements /Average Monthly Inventory

Inventory = $10M

•Initial Spare Parts•Replenishment•Work Order Specific Parts•New Parts Returns•Commissioned Surplus Inventory?

•Work Orders Disbursement / Kits•Surplus Sales

•Scrap

Disbursements considered in Turnover calculation

•Replenishment to other Stock Rooms in the company

Slide: 21

Detailed analysis of Inventory by Asset / Asset Type can help you understand where your focus should be

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A B C D E F G

Inventory by Supported Asset Type

Inventory

0123456

B C F D A E G

Inv Turnover by Supported Asset Type

Inv Turnover

Similarly Service Level by Asset / Asset Type could be monitored

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Example

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Sophisticated operations will justify inventory against the value it is supporting an Asset or Asset Type

Asset Type

Inventory ($M)

Turnover

Usage ($M)

Rev / Risk Weighting

Inventory Value Ratio

A 14 1.2 16.8 150 10.7B 6 5.5 33 150 25.0C 4 2.8 11.2 40 10.0D 3 1.3 3.9 35 11.7E 1 1.1 1.1 20 20.0F 0.5 2.8 1.4 6 12.0G 0.2 1 0.2 1.5 7.5

Total 28.7 2.4 67.6 402.5 14.00

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B E F D A C G

Inventory Value by Supported Asset Type

Value Ratio Revenue or Risk Weighting vs. Inventory

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Example

How do I measure the effectiveness of this operation?

Vendor /Supplier

CentralWarehouseCentral

WarehouseLocal

Stock RoomLocal

Stock RoomUsed PartsDispositionUsed PartsDisposition

Used PartsRepair

Used PartsRepair

Asset

Scrap

Vendor /Supplier

Surplus Sales

Inventory OptimizationInventory Optimization

Financial Analysis DesignDetailDesign

Construct CommissionOperate &Maintain

EnhanceDe‐

Commission or Post EOL

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A model to represent the true costs associated with inventory supporting current asset revenues.

Logistics Value Tree

• Logistics Costs:

• Provisions

• Warehouse & Inventory Management

• Systems Management

• Parts Usage

• Parts Credits

• Sales Profit

Inventory $55.1 M

Turnover 1.8 X

Cost of Provisions $ 8.7M

Warehouse & Inventory Mgmt. $25.0M

Systems Mgmt. $ 3.7M

Total Costs $37.4M

Parts Usage Costs (includes parts sales) $99.0M

Reutilization Credits ($20.1M)

Parts Sales Profit

(assumes 50% uplift on sales) ($1.7M)

Net Logistics Costs (all US$) $ 114.6M

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Example

Generic Maintenance Parts Flow Model (High Level KPIs)

Used Returns Repair

Warehouse OrderCapture, % by Trades

Parts CostSLA‘s

Right Part, Qty, Place, Committed Time,

Inventory Accuracy, Inventory Variances

Procurement Time% Filled

Parts CostSystem Availability

Part Quality

Procurement

Capture,YieldsOBF, 2nd ReturnsAvg Cost/Repair

Credit Value

CraftCraft

Inventory Management

Stock Policy / Strategy- % Filled- Turnover

Initial Spare Parts- Turnover / Asset Type

- ISP List Quality

Surplus Management-Turnover

-Recovery Rate

Inventory Planning-Forecast vs. Actual


Example

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How would a Original Equipment Manufacturer view parts sales?G e n e r ic m o d e l o f a fte r -s a le s lo g is t ic s s e rv ic e s d e liv e ry

B u s in e s s p ro f it /

c o m p e tit iv e e d g e

C u s to m e r

s a t is fa c tio n

P r ic e

(C o s t to s e rv e )

Q u a lity

s e rv ic e

L o c a l A v a ila b il ity

D e liv e ry t im e

C o m p e tit iv e u n it c o s t

L o g is t ic s c o s ts

P a rts q u a lity

D is tr ib u t io n q u a lity

R e tu rn a s s e t tra c k in g

P e o p le In v e n to ry D is tr ib u to r F ixe d C o n tra c t R ig h t R ig h t R ig h t t im e

M a rk e tin go v e rh e a d s c o n tro l S k ills / to o ls p a rts

In d ire c t D ire c t

S e rv ic eq u a lity

N o . o fs p e c ia lis ts

S y s te m /a u to m a tio n

S iz e o fc u s t. b a s e

S k il lm ix

S e rv ic e sm ix

S e rv ic e ss c o p e

S e rv ic e sc o m p le x ity

P ro d u c tc o m m o n a lity

P ro d u c tre lia b il i ty

L e a dt im e

P ro d u c tm ix

P ro d u c ta g e

F a ilu rep re d ic ta b ility

C u s to m e r typ e

Q u a l. o fd e liv e ry

In v e n to ryle v e ls

In v e n to rylo c a t io n

R e s p o n s etim e

R e tu rn stra c k in g

In v e n to rylo c a tio n

R e s p o n s et im e

F a c ili tyre q u ire m e n ts

S y s te m s C u s to m e rb a s e

C o n tra c td u ra t io n

s iz e

Te c h n ic a l T ra in in g S ta ffre te n t io ns u p p o r t

R e m o te E xp e rts u p p o rt s y s te m s

O rd e r C u s to m e r C o m m u n ic a tio n(e x t/ In t .)a c c u ra c y lo c a t io n

'O n e S to p S h o p '

M a n a g in g C u s to m e rE xp e c ta tio n s

W id e ra n g eo f s e rv ic e s

F le x ib lec o n tra c ts

C u s t. c a reP ro g ra m s

A c c o u n tm a n a g e r

V is ib ili ty A v a ila b ility Q u a lity

S y s te m sE x te rn a ls u p p ly

In te rn a lre p a ir

In v e n to ry In v e n to ry D is tr ib u t io nn e tw o rkle v e ls lo c a tio n s

" H o w d o I d e liv e r a q u a li ty s e r v ic e ? "

S o u rc e : D . M . B a rry , IB M C a n a d a

" W h a t d r iv e s m y c o s ts (a n d th e r e fo re m y a b i li ty to c o m p e te

o n p r ic e a n d m e e t p ro f i t m a rg in ta rg e ts? )"

N o v /1 9 9 4

In te rn a ls u p p ly

S u p p ly c h a inn e tw o rk

C u s t. o rd e ra c c u ra c y

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Example

Innocence to Excellence Scale

Mat

uri

ty

Optimization Effects

INNOCENCE•What parts?•Sporadic pockets of daily usage stock and capital project ‘leftovers’•Un-cataloged bone-yard

AWARENESS•Parts records on manual/ ad hoc card system•Stock levels set once and rarely changed•Restocking usually occurs when stock at zero

UNDERSTANDING•Automated stand-alone MMS/WMS•Some ABC analysis•Stock levels set independent of maintenance input, using hard coded lead times and safety stock levels

COMPETENCE•MMS integrated with CMMS/EAM•Automated pick slips, material reservations, kitting and delivery for jobs

EXCELLENCE•Scientific stock level setting with Maintenance input•Automated reorder•Purchasing focused on strategic sourcing and integrated supply chain relationships•Vendor managed inventories

IdentificationRationalization

ClassificationStratification

Demand – SupplyOptimization

Stock Management

without Control

Integrated Stock Management

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An Organization’s Maintenance Parts Mission ‐ Example


Reputation


Reputation

Inventory $Inventory $Service LevelsService Levels

Your logistics need is our commitment!

Mission:• Clearly understand all our

client’s logistical needs• Effectively and expediently

redesign/upgrade our processes, tools and facilities

• Fully meet and comply to all our client’s logistics necessities

Drive for completing this mission by 20XX

Leading Design Principles:• Driving to continue to

support the Organization’s corporate mission

• Continue to support day to day logistics execution

• Policy design leveraging stakeholder participation

• Policy will drive process• Top Organization’s Executive

support will be evident as a priority

Small Power and Water Utility Case Study – Don Barry29

Example

Service Parts ‘Best in Class’ Benchmark KPIs

• Average ‘First Time’ service parts fill rate at local Distribution Center* >90%

• Serviceable asset uptime* >93%

• Average of over‐all profits derived from post sales support* >45%

• Inventory Turnover rate > 3

• Process‐wide Systems Availability >99%

• Warehouse Inventory integrity >99%

• Distribution Accuracy >99.8%

• Part Quality >99.9%

• Warranty Recovery >80%

• Dollar Value Refurbished vs New Parts Procured >50%

• Parts on automated replenishment cycle management >98%

*Aberdeen Group: October 200630

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Creating 'Market Driven Quality' involves team motivation and updating all team skills to include process re‐engineering.

Assess Key Satisfiers

Team ApproachInterview Process CustomersDocument ProcessAssess Process Health

Analyze Process

Benchmark ProcessRoot Cause IssuesDevelop SolutionsGet Buy-in

Implement Solution

Pilot SolutionRoll-outDocument ProcessVerify Satisfier

Process Assessment

Process Analysis

Process Improvement

Continuous Improvement

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High Level BPR Approach

Critical Success Factors

Think Customer Learn from the best-of-breed X-functional teamwork Individual participation Process focus Continuously strive to improve

Supplier CustomerP

MeasurementSystem

Requirements

Inputs

Requirements

Outputs

Feedback

Process

Feedback Feedback

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Proposal Process Map

PARTICIPANTS

Field Craft

Parts Counter

Parts Order System

Parts Picker / Shipper

Parts Inventory

Courier

Replenishment Process

ExpressParts Need

Receives Part

Receives Request

SpecifyCostandETA

Receives Request

Confirms parts order and prints

Picks, Packs and ships part

Adjusts Qty on Hand

Picks up part and delivers

Process Flow

The service delivered at each Moment of Truth is the result of one or more internal processes.

Line of Visibility

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Reorders part when hits ROQ

Build KPIs for Multiple Management Level

Strategy

Operational(Primary Processes)

Functional

Asset Performance

Subjective Metrics

Objective Metrics

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KPIs for Multiple Asset Business Dimension Levels

Strategy

Operational

(Primary Processes)

Functional

Asset Performance

Subjective Metrics

Objective Metrics

Business Integrity Focus• Corporate alignment to Annual Report• Society / Sustainment Responsibilities• Good governance

Capital & Asset Integrity Focus• ROI / Cost effectiveness• Asset Life‐cycle management, OEE• Environment, Health, Safety, Compliance• Operational alignment

Process Integrity Focus• Operational support, Maintenance execution• Supporting functions (Parts, procurement, vendor)• ESH Elements, Resource scheduling

The strategies company applies to achieve Return

on Asset, business growth, gain market success

and improve competitiveness throughout value

stream.

The management of BAU (business as usual) business operations / processes throughout the value stream

Supporting processes that manage functions and support Operational requirements that contribute to the organization’s desired performance and value, which include financial, ESH, operations, and strategy.

Business Dimension

The management of specific asset in its’ operation context and ability to forecast tolerable risk and functional failures

Asset Performance Management Focus• Availability, OEE Elements• Risk and Reliability, Fault Forecasting and Mitigation

KPI Matrix

Driver Strategy / Integrity Operational / Primary Process

Functional / Sub ‐Process

Process/Quality

AssetProductivity

Cost Control

Business Dimension

Drivers

How do we identify KPIs for each of these Drivers and Business Dimensions?

The strategies company

applies to achieve Return on

Asset, business growth, gain

market success and improve

competitiveness throughout

value stream.

The management of BAU

(business as usual) business

operations / processes

throughout the value stream.

Execution and support Operational Supporting processes that manage functions requirements that contribute to the organization’s desired performance and value, which include financial, ESH, operations, and strategy.

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Maintenance Parts Management Pain Points!

Driver Strategy / Integrity Operational / Primary Process


Process/Quality

AssetProductivity

Cost Control

Business Dimension

Drivers

Student Exercise: How do we identify KPIs for each of these Drivers and Business Dimensions?

The strategies company

applies to achieve Return on

Asset, business growth, gain

market success and improve


value stream.





Execution and support Operational Supporting processes that manage functions requirements that contribute to the organization’s desired performance and value, which include financial, ESH, operations, and strategy.

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Example: KPI Matrix

Strategy Operational Primary process

Functional / Sub Processes

Quality Customer Satisfaction

Productivity • Asset Availability• Quality output• Throughput• Production value

Cost • Repair costs• Parts costs• Labour costs• Production losses

SHE • Accident rate• Environmental

compliance

Business Dimension

Drivers

Management Focus

KPI

Management Focus

KPI

Management Focus

KPI

Management Focus

KPI

Management Focus

KPI

Management Focus

KPI

Management Focus

KPI

Management Focus

KPI

Management Focus

KPI

Management Focus

KPI

Management Focus

KPI

Management Focus

KPI38

Example

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Common balanced “dimensions”

Customer

Measures

The balanced approach strives to obtain a balance among these four

important aspects of the business:

The customer / your results / your processes / your people

Other combinations are also used but often include these four.

Operational MeasuresOperational Measures

People / LearningMeasures

People / LearningMeasures

FinancialMeasuresFinancialMeasures

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KPI Development ProcessStep

Majo

r Activities

Define Value Driver

Step 1

Define Pain Points

Step 2

Define the PIs

Step3

Business Dimension

Value Driver

Business vs Driver Matrix

ManagementFocus

Define Pain Point

QualifyPain Point

Build PI Algorithms and Data Sources

Define Performance

Index

Mapping As‐is PI

Pains Points vs Desired Outcomes

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Slide: 41

Business process Re‐engineering process steps

Identify & Define Analyze

1. Brainstorm for problems

2. Clarify / Restate3. Agree on selection

criteria4. Rank choices5. Record choices on

list6. Narrow list to

actionable size7. Applt criteria to

narrowed list8. Agree on one

problem to work on today

9. Define current state10. Agree on problem

statement11. Define future state

1. Brainstorm Cause and Effect

2. Qualify and narrow potential causes

3. Rank top choices4. Record top choices5. Apply criteria to those

causes6. Use data and

consensus to confirm most significant causes

1. Describe qualiitative features for conditions desired after removal of the cause

2. Define goals that will serve as targets to confirm root cause has been removed

3. Describe measurement plan

1. Brainstorm possible solutions

2. Narrow list3. Make tenative

selection4. Test or verify the

solution5. Eveluate solution

against desired future state

6. Get Management approval to implement

7. Develop implementation plan

8. Draft a measure plan (What, How, When, Frequency, Where, Who)

Set Targets Solve and Implement

1. Implement measurement plan and compare to baseline

2. Communicate results feedback from process suppliers and customers

3. Decide on next phase

Measure and Track

Process Steps

Tools

•Brainstorming•Nominal Group•Checklists•Histograms•Parteo Diagrams

BrainstormingNominal GroupCause and EffectForce Field AnaysisChecklistsHistogramsParteo Diagrams

BrainstormingNominal GroupForce Field Anaysis

BrainstormingNominal GroupCause and EffectForce Field AnaysisChecklists, GraphsHistogramsParteo Diagrams

Checklists, GraphsHistogramsParteo DiagramsRun ChartsControl ChartsStatistics

•What is the problem? •What is the cause? •What do we want to achieve?

•How do we reach our objective?

•How do we know we improved?

Business process Re‐engineering process steps

1. Brainstorm for problems

2. Clarify / Restate3. Agree on selection

criteria4. Rank choices5. Record choices on

list6. Narrow list to

actionable size7. Applt criteria to

narrowed list8. Agree on one

problem to work on today

9. Define current state10. Agree on problem

statement11. Define future state

1. Brainstorm Cause and Effect

2. Qualify and narrow potential causes

3. Rank top choices4. Record top choices5. Apply criteria to those

causes6. Use data and

consensus to confirm most significant causes

1. Describe qualiitative features for conditions desired after removal of the cause

2. Define goals that will serve as targets to confirm root cause has been removed

3. Describe measurement plan

1. Brainstorm possible solutions

2. Narrow list3. Make tenative

selection4. Test or verify the

solution5. Eveluate solution

against desired future state

6. Get Management approval to implement

7. Develop implementation plan

8. Draft a measure plan (What, How, When, Frequency, Where, Who)

1. Implement measurement plan and compare to baseline

2. Communicate results feedback from process suppliers and customers

3. Decide on next phase

Process Steps

Key Outputs

•Clear problem statement•Desired future state

Significant root cause and effect definition

Measureable GoalsRequirements StatementBroad measurement plan

Proposed solutionAction planDetailed measurement plan

Tracking DataProgress ReportImpact AnalysesStandardized Process

•What is the problem? •What is the cause? •What do we want to achieve?

•How do we reach our objective?

•How do we know we improved?

Identify & Define Analyze Set Targets Solve and Implement

Measure and Track

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Root Cause Failure Analysis

• Sometimes called the “5 whys”

• Ask “why” five times and each time you get closer to the cause of the event

• It can use fewer or more than 5 questions (5 is just an average)

• E.g.: Escalator stops

• Why? Breaker tripped

• Why? Drive motor overloaded

• Why? Passenger’s coat caught in grate at top of escalator

• Why? Clearance between steps and grate exceeded 2 mm

• Why? Maintenance procedures don’t specify the maximum acceptable clearance!

• A ROOT cause is one over which you can exercise control, not necessarily the precise root of the problem

• E.g.: In the Escalator problem we could go further:

• Why? Original procedures for maintenance were taken from the manual for a different type of escalator

• Why? Last minute change of vendor when escalator purchased and no one told the folks writing the procedures

• Why? Lack of project management controls

• So, what looks like a failure of someone writing maintenance procedures actually is the failure of a project management system (likely the responsibility of another department entirely!)

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Maintenance Parts KPIs should support Maintenance Management KPIs

Work Order Root Cause Analysis• For First Time Fix

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Example

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Example of a Parts Quality initiative

• Seal of Quality• Used for new good parts returned from the field

• Part possibly used for diagnostic purposes

• Surplus / contingency part as a component of the Work Order parts list or kit

• Tech seals the package for all good parts returned to stocked.

• Returned if the tech would be willing to use the same part again

• Receives full financial credit for the part

• Credit to work order

• Would not use Seal if:• New Defective part

• Used part

Name Dept #

Seal of Quality

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Example

Example Opportunity in Analysis

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Spare Parts

Management

Procurement

Operations

Major Supply Chain

Functions

When Compared with Savings at Vendor and a SimilarService Provider the Potential for Savings at X are Significant

Supply Chain

Collaboration

Accounts

Payable

StrategicSourcing

SourceToPay

3%-8%TotalSpend

PartsAndRepairMgmt

Maintenance &

Warranty MgtRepair

Management

PotentialAdd’lSavingsCompnts

X% ofOPEXX% SavingVia Finance

Product Mgt

Financing

Asset Mgt

Managed

Spend

Cost of CapitalReduction

Single SourceInventory

Warehouse &Logistics Mgmt

InventoryOptimizedAndMgmt

Labor

Utilization

OPEX

Write offs

Inventory/ Warehouse Capex/ Opex

Fleet

SC IT

Euro's in Millions Savings Savings Savings

Source to Pay (% of Managed Spend) 1.00% 3.00% 5.00%

18 54 90

Spare Parts, Repairs, Maintenance 0.50% 0.75% 1.00%

9.1 13.65 18.2

Inventory Optimization and Mgt 5.00% 7.5% 10%

22.5 33.75 45

*Product Life Cycle Mgmt (Serv/Lab) 10% 15% 20%

(PLCM costs are based on 3% Rev) 19.5 29.25 39

Financing 6-8% of Finance Cost 10.00% 15.00% 20.00%

Labor Utilization %TBD %TBD %TBD

Total Potential Savings 69.1m 130.65m 192.2m

We made calculated Back of the EnvelopeAssumptions to come up with potential SavingsYour Managed Spend ~1.82b EuroYour Inventory Managed ~450m Euro

Potential Savings Range47

Example

Consider a Business Model where Savings are Accelerated and Investment and Risk are Reduced:

Vendor delivers improved business results measured against business outcomes- Flexible deal structures and financial constructs (risk and gain sharing)

Minimize the expense and expedite savings - No Capex- Project self funding

Reduce risk and shed assets- Shared accountability for the operation of business processes, people and technology - Increase flexibility - Moving from a fixed cost structure to a variable cost structure- Incentives for continuous improvement gain share- Contractual savings and committed service levels

Business Costs

Investment ($)

Investment Neutralized Immediate Savings

Business Transformation Outsourcing

Traditional Process ImprovementBaseline

Today

Year 2 Year 4 Year 6 Year 8 Time

On-going savings gap

Savings can be recognized in current fiscal year if decision to move forward is made early enough in the year

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Supply Chain: OSS:BSS:

The Telco Component Model below provides a structured approach to allow a Telecom to focus on areas of improvement

MarketingProduct Mgmt

SalesCustomer Mgmt & Care

Billings & Collection

Service Assurance

Network Planning & Deployment

Network Operations & Maintenance

RetailLogistics

F&AP2P (Direct, & Indirect)

Develop New Markets & Products

Acquire & Manage Customers

Develop & Provide Network Services

Manage EnterpriseO

pe

rate

&

Exe

cute

Dire

ct &

Co

ntr

ol

Pla

nn

ing

&

An

aly

sis

Market & Brand Strategy

Product Planning

Brand Mgmt

Marketing, Comms & Promotion

Market/ Customer Research & Analysis

Execute & Manage Campaigns

Product/ Service Devpmt & Retirement

Sales Channel Strategy

Sales Channel Mgmt

Sales

Customer Strategy & Care Mgmt

CRM Support & Readiness

Customer Contact Operations

Billings & Collection Mgmt

Billing Strategy

Network Planning

Device & SupplierOrderMgmt

Service Activation

Resource Provisioning

Demand Planning

Supply Planning

F&A Strategy e-RFX

NetworkInventory Mgt

Spare Parts& Field Force Mgmt

Supplier Performance Mgmt & Reporting

Maintenance Mgmt

Service Performance Mgmt

Inventory Mgmt (Mobiles)

Ware’hse Mgmt

Logistics & Transport Services

Accounts Payable

Financial & GL Reporting

Catalogue Mgmt

PO/ SOWMgmt

AssetMgmt

Real Estate Mgmt

Contract Mgmt

Supply Planning

Warehouse & Logistics Mgmt

Service Mgmt & Readiness

Customer SLA/QoS Mgmt

Problem Reporting & Mgmt

Service Problem Mgt

Asset MgmtBrand Mgmt

Sales Channel Strategy

Sales Channel Mgmt

Sales

Customer Strategy & Care Mgmt

CRM Support & Readiness

Customer Contact Operations

Billings & Collection Mgmt

Billing Strategy

Network Planning

Service Activation Service

Performance Mgmt

Service Mgmt & Readiness

Customer SLA/QoS Mgmt

Problem Reporting & Mgmt

Service Problem Mgt

Demand Planning

Supply Planning

Supply Planning

Inventory Mgmt (Mobiles & Accesory

Ware’hse Mgmt

Logistics & Transport Services

e-RFX

Supplier Performance Mgmt & Reporting

Accounts Payable

Catalogue Mgmt

PO/ SOWMgmt

Contract Mgmt

Device & SupplierOrderMgmt

Resource Provisioning

NetworkInventory Mgt

Spare Parts& Field Force Mgmt

Maintenance Mgmt

AssetMgmt

Warehouse & Logistics Mgmt

Asset Mgmt

Product/ Service Devpmt & Retirement

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Example

Indicative benefits from a focus on the maintenance process and supporting inventory

Source: IBM Whitepaper on Maintenance Parts Management

15‐35% Reduced Inventory Expense• Optimal Stocking lists

and levels• Improved procurement• Reduced obsolescence

10‐25% Reduced Expediting Costs• Fewer freight costs• Fewer Losses

20‐30% Reduced Repair Costs• Reduced delays• More recoverable

warranty

15% Increased Craft Productivity• Productive Utilization• Defect resolution

Improved Service Levels to 80‐99%• Better Scheduling• Service Level

Performance• Client Loyalty

5‐30% Increased Planner Productivity• Automated tasks and alerts• Better performance against plan• Improved Proactive maintenance

performance• Reduced Break/fix

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Parts Logistics Exercise

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KPI Guidance

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KPIs – Key to evaluating process performance and priortising what actions need attention.

o Can also signal when and where– provides a ‘Score Board’ for how the organization is performing.

Guidance–Do not create too many KPIs

o (4‐6 is typically optimal at any level)– KPI should suit each stage of the business being measured– KPI should drive business behaviour

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Example of Generic KPI List for Inventory Management (Power Utility)

Inventory Financials / Reserves

#Weeks of stock

% Actual vs planned inventory value

# Weeks of surplus

# Inventory per business unit

# Inventory per equipment type

% Provision variance

$ Financial impact of inventory integrity adjustments$ Inventory levels

Inventory Process Distribution QualityEmployee Programs / Satisfaction

Parts Availability

Parts Quality

% Processes optimized

% Processes mapped

% Projects progressing as planned

% Projects with governance elements up to date

# Innovation ideas captured

% Innovation ideas implemented

# Complaints related to the cost of parts

# Complaints related to the quality of parts

# Internal customer experience score for completed service requests

# Concerns with service from internal customers/stakeholders

# Compliments for good customer experience

% Accurate lines picked (time, quality and quantity)

# Inventory integrity adjustments

% Budget variance for warehousing department

% Employee engagement at Organization

# Sick leave frequency

% Sick leave

# Incident rate

# Near misses

# Hours of training per employee

% Employees that received x days of training per year

% Employees with performance conversations up to date

% Employees with performance plans in place

% Employee performance plans with minimum level (i.e. 70%) achieved

% Employee competencies covered at desired level

% Relevant internal staff that attended awareness sessions

% Ideal team size roles filled

% Approved team size roles filled

% Corrective maintenance rescheduled due to partsunavailability in the warehouse

% Preventive maintenance rescheduled due to partsunavailability in the warehouse

% Lines filled from orders and requisitions

% Out of stock misses

% Non‐stock misses

% RSPs with no ownership

% Equipment types with inventory at desired level

% Business units with inventory at desired level

% Orders and requisitions with pieces defective

# Pieces reported as defective

Parts Costs

% Parts repairable

Parts Systems Support / Availability

% Unplanned orders and requisitions that didn't followelectronic processing

% Parts in Maximo with data captured at desired level

Other

# HFO Consumption (Bbls/day)

# FOF Overall mT/MWh

% Renewable Energy Partition

# CO2 emissions (mT/day)

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Example

KPI Development ProcessStep

Majo

r Activities

Define Value Driver

Step 1

Define Pain Points

Step 2

Define the PIs

Step3

Business DimensionBusiness Dimension

Value DriverValue Driver

Business vs Driver MatrixBusiness vs Driver Matrix

ManagementFocus

ManagementFocus

Define Pain PointDefine

Pain PointQualify

Pain PointQualify

Pain Point



Define Performance

Index

Define Performance

Index

Mapping As‐is PIMapping As‐is PI



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Case Scenario : Maintenance Parts Organization

Service Parts

TechsDealers/3rd PartiesCustomers

Re‐Utilization

Proc'mt Time: x.x hrsAvailability: %

Inventory: $ xx.x MTurnover: x.x

Opportunity:%Coverage: % OBF Quality:%Warranty Redemption %

Used Parts Returns

Global WH

Inventory: $ xxx MTurnover: x.x

Asset RecoveryServices

Pull Replenishment

EmergencyOrders

Prime Spares and Replenishment

Used / SurplusDisposal

CanadaUS

Define Value Driver

Step 1

Define Pain Points

Step 2

Define the PIs

Step3


Example

Case Scenario : Typical Material Flow through a large Parts Network

Central Warehouse

Asset / Customer

Depots

Trade / Craft

Repairer

Supplier

Define Value Driver

Step 1

Define Pain Points

Step 2

Define the PIs

Step3


Example

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Case Scenario : Materials Management Model


PhysicalMaterials

Management

Inventory Management / Policy

KPIs

Simple model for Materials Management Optimization

Define Value Driver

Step 1

Define Pain Points

Step 2

Define the PIs

Step3

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Proposal Process Map

PARTICIPANTS

Customer

Order Taker

Order Picker

Shipper

Courier

ExpressNeed

Receives Order

Confirms Order /

Availability

Prints and Picks Order

Receives Picked Order

Process Flow

The service delivered at each Moment of Truth is the result of one or more internal processes.

SystemConfirms Order /

Availability

Coordinatewith Courier

Coordinatewith Courier

ETA Provided

Delivers Order

Line of Visibility

Define Value Driver

Step 1

Define Pain Points

Step 2

Define the PIs

Step3

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Example

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Suggested ‘Case Study’ Parts Flow KPIs (2nd level)

Used Returns Repair

Warehouse OrderCapture, % by Trades

Parts CostSLA‘s

Right Part, Qty, Place, Committed Time,

Inventory Accuracy, Inventory Variances

Procurement Time% Filled

Parts CostSystem Availability

Part Quality

Procurement

Capture,YieldsOBF, 2nd ReturnsAvg Cost/Repair

Credit Value

CraftCraft

Inventory Management

Stock Policy / Strategy- % Filled- Turnover

Initial Spare Parts- Turnover / Asset Type

- ISP List Quality

Surplus Management-Turnover

-Recovery Rate

Inventory Planning-Forecast vs. Actual


Define Value Driver

Step 1

Define Pain Points

Step 2

Define the PIs

Step3

Example

Inventory ValueTurnoverProc'mt TimeAvailability

Inventory Strategy

AssetStrategy

DemandProcurementStrategy

Overall Inventory PolicyStrategic Considerations


Simple models for Materials Management Optimization


Logistics

Inventory Planning / Policy

KPIs

•Parts Availability•Parts Acquisition Time•Systems Availability•Distribution Quality•Parts Quality•Parts Costs•Inventory Turnover•Inventory Reserves

Overall Parts Flow Management KPIs

Define Value Driver

Step 1

Define Pain Points

Step 2

Define the PIs

Step3

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Inventory ManagementExpert Systems

Distribution Management

Key Performance IndicatorsDeliveryInventory ManagementUnit Sourcing Costs

Unscheduled Demand

Scheduled Demand

Suppliers

• Manufacture• Reutilize• Product Tear Down

Logistics Value Influence

Common Areas to Consider• Content Management• Substitutions• Category Management • Vendor Managed Inventory• Supplier SLAs• Supplier Warranty Redemption• Re-utilization Strategies

• Demand Management• Service specific forecasting

algorithms• Part Criticality• Inventory Effectiveness• (Multiple replenishment) Inventory

Policies• Automated replenishment plans• Inventory Surplus Management

• Emergency cycle times• Kitting• Vehicle / Remote

Inventory• Delivery strategies• Reverse Logistics• Exception

management• Multi-echelon

deployment

• Parts Availability• Parts Acquisition Time• Systems Availability• Distribution Quality• Parts Quality• Parts Costs• Inventory Turnover• Inventory Reserves

KPIs can be used as a leading indicator of an organizations value: Example ‐Maintenance Parts Value Chain


Define Value Driver

Step 1

Define Pain Points

Step 2

Define the PIs

Step3

Case Study: Maintenance Parts Organization

What should be the functional purpose of this business?

What should be the important execution processes (drivers) to meet the goals and objectives?

What should be the measures of success tied to the business / drivers?

What could be the detailed measures that feed, support and augment the main driving KPIs?

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Define Value Driver

Step 1

Define Pain Points

Step 2

Define the PIs

Step3

Adapted from Client Engagement Parts Management Case Study – Don Barry

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Parts Logistics Exercise

• Name some of the Business Dimensions of a Maintenance Parts Business

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• Organize them by Business Level

• Strategic

• Operational

• Functional

• Asset Specific

• Identify some of the Business Drivers

• ……

• ……

• ……

BreakoutDefine Value

Driver

Step 1

Define Pain Points

Step 2

Define the PIs

Step3

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KPI Matrix ‐ Example: Business Dimensions and Drivers

Driver Strategy / Integrity Operational / Asset / Primary Process


Inventory Costs

InventoryService Level

Parts Delivery Service Level

Business Dimension

Driv

ers

The strategies company applies

to achieve Return on Asset,

business growth, gain market

success and improve


value stream.






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KPI Matrix ‐ Example: Inventory Management Pain Points / Desired Outcomes

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Driver Strategy / Integrity Operational / Asset / Primary Process


Inventory Costs Inventory Turn OverInventory Reserves

Inventory mgmt policy vs budgets


Service Level Management • Parts availability• Parts referral

responsiveness


Warehouse inventoryintegrity

Distribution Quality

Business Dimension

Driv

ers

How do we identify KPIs for each of these Drivers and Business Dimensions?




success and improve


value stream.






Define Value Driver

Step 1

Define Pain Points

Step 2

Define the PIs

Step3

Example

Define PIs (KPIs) for each Desired Outcome by Driver and Dimension

PerformanceIndicator Characteristics

Measures Long Term Performance Targets

Near Term Performance Targets:2020

Near Term Performance Targets:2021

Pain Point /Desired Outcome

Breakout

For ‘each’ matrix segment define:

1. The suggested Performace Indicator2. How measured3. Suggested long term targets

Define Value Driver

Step 1

Define Pain Points

Step 2

Define the PIs

Step3

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KPI Matrix ‐ Example: Inventory Management Desired Outcomes

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Driver Strategy Operational /Primary Process


Inventory Costs Inventory Turn OverInventory Reserves

Inventory mgmt policy vs budgets

• Surplus Mgmt• Replenishment• Stock Strategy


Service level Management • Parts availability• Parts referral

responsiveness

Parts availability by:• Location• Asset type


Warehouse inventoryintegrity

Order fulfillment responsiveness and quality

• Quality pick, pack, ship• Dock to Stock

Business Dimension

Driv

ers

How do we create Desired Outcomes for the Functional Dimension?




success and improve


value stream.






Define Value Driver

Step 1

Define Pain Points

Step 2

Define the PIs

Step3

Case Study KPI Matrix

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Driver Strategy Operational / Primary Process


Business Dimension

Driv

ers

How do we take Client Pain Points/Desired Outcomes and create KPIs?




success and improve


value stream.






Define Value Driver

Step 1

Define Pain Points

Step 2

Define the PIs

Step3

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Typical High Level Maintenance / Parts Management Goals

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Maximise Effective PMs

Minimise Breakdowns

Maximise Inventory Effectiveness

Maximise Inventory Integrity

Maintenance

Materials

Optimise Inventory Value

Minimise Inventory Carrying Costs

Maximise Functional Reliability

Maximise Specifications

Finance

Engineering

Maximise Throughput

Minimise Downtime

Maximise ESH

Operations

Example

High Level Warehouse Model

ReceiveReceive

Flow throughFlow through

Put Away

StockroomMaintenance

Put Away

StockroomMaintenance

Urgent Picking

Picking /Staging for Planned Activities

Shipping

Inventory Planning

Warehouse KPIs and QualityWarehouse KPIs and Quality

Surplus, Bulk and Flow throughShipping

Surplus, Bulk and Flow throughShipping

Used Parts MgmtUsed Parts Mgmt

Inventory Integrity

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Organizational considerations

• Organizational considerations• Shift coverage Prime Business Hours – M‐F

• Dock Typically 2 days week

• Receiving 15 – 20 shipments a week

• Stock – Put‐away 250 lines / month – 12 lines day

• Stock Picking and prepared for pick‐up 1500 items / month Perhaps 600 lines / mth, 30 lines / day

• Window service orders 1500 items / month Perhaps 600 lines / mth, 30 lines / day

• Shipping (exports) 1‐2 week

• New Parts Returns 15 lines / mth, 1 line / day

• Used Parts Mgmt 1 – 2 month

• Scrap 2 / year

• Inventory Planning on‐going ‐Planning inventory from policy – managing policy

• Procurement 30 – 40 PRs / week, Avg 3‐4 lines / PR

• Item Master Data Mgmt Lifecycle 20 items/ hour, 200 – 300 / month

• Inventory Cycle Counts Avg 85 counts / day

• KPIs 4 – 8 hours / week

Discussion / Input from the workshop

Example

Inventory and Distribution Org Considerations

ReceivingReceiving PickingPicking Svc WindowSvc Window

ProcurementProcurement Inv & Parts MgrInv & Parts Mgr

Item Master CoordinatorItem Master Coordinator

Inventory PlannerInventory Planner

Discussion / Input from the workshop

Flow ThroughFlow Through

Example

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Questions?

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Maintenance Parts Excellence Model Map

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Asset Life‐cycle Model


Strategy

Operational(Primary Processes)

Functional

Asset Performance

KPI ModelMaintenance Parts Excellence Model

Inventory Policy Model

Maintenance Parts

Excellence

Planning and Execution

Operations

Maintenance

Vendor

ProcurementDesign

Engineering

Finance

IT, Legal, HR

MPE Stakeholders Model

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Maintenance Parts Management Excellence Course · Materials Management Model Procurement and Parts...

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