Service rate – on time in full – is THE most important performance measure for a supply chain – it measures our ability to deliver on time.
OK, but what does “deliver on time” mean?
Does this mean:
-Deliver on the date requested by the customer?
-Deliver within a predefined timeframe?
-Deliver on the date you promised?
Let’s explore these alternatives.
Deliver on the date requested by the customer
The customer is king, isn’t he? The customer expresses his need: please deliver 10,000 A products and 5,000 B products within 48 hours, and 220,000 C products on Monday of the following week.
So we’re going to measure our ability to deliver according to these demands.
This measure is virtuous since we respect the reference of the customer’s demand.
However, this requested date may be completely out of touch with your ability to serve. In this case, a service rate measurement based strictly on a requested date is likely to be counterproductive, as it will be seen by your teams as unrealistic, and therefore not legitimate.
Deliver within a predefined timeframe
To avoid “open bar” dates, it’s a good idea to define rules of engagement.
This requires a clearer definition of the default commitment. What items are available from stock, what items are assembled to order, what items are manufactured from start to finish to order, etc.?
What are the maximum quantities for each of these categories? For example, if you have products known to be available from stock, with average sales of 1,000 per week, are you willing to deliver a quantity of 100,000 – for which your customer has not provided a forecast – from stock, with immediate delivery? Probably not…
When we help our customers design their Demand Driven operating model, these are the questions to be asked, which will help define the positioning of decoupling points, the sizing of replenishment loops, etc. This is supported by Intuiflow’s Materials Planning features.
Defining an operating model and rules of engagement helps to establish a healthier basis for the customer/supplier relationship, and thus enables a more detailed dialogue: “The request you’re making is not in line with our rules of engagement and our capabilities. I’ll do my utmost, but if I deliver 1,000 next week, 5,000 the week after, and 10,000 the week after that, will that enable you to work?
This approach makes it possible to measure service rates on the basis of rules of engagement. On our assortment defined as stocked, did we deliver 100% of eligible orders within 24 hours? Or only 92%? How can we improve?
Deliver to the promised date
If you’re in a make-to-order business, with capacity constraints, generic rules of engagement are unlikely to be enough to establish the basis for collaboration with your customers, as well as for internal execution.
If, for example, your principle is to deliver one type of product in three weeks, but given your current workload, you can only deliver in five weeks’ time, you’re faced with a dilemma.
There’s no point pretending to your customer that “we’ll deliver in three weeks” and measuring your teams’ performance on their ability to meet this deadline. You’ll disappoint everyone.
You therefore need to establish a realistic promised date, compatible with your capacity constraints and protected from unforeseen but likely events.
On the basis of this promised date, you’ll be able to measure the execution of and compliance with this commitment.
For this to happen you need to properly identify your constraints, schedule your activities, and monitor execution – this is core to Intuiflow’s scheduling & execution.
In a nutshell:
-No, the customer is not an absolute monarch, and you can’t blindly accept a requested date!
-You need to clarify, both internally and for your customers, your rules of engagement – which means designing your supply chain model accordingly, with defined lead times, decoupling points, and volumes within which this model is valid. This is the heart of designing a demand-driven operating model. You need to measure performance against requested dates that comply with the rules of engagement. You also need to work on improving the agility of your model, because if the customer can’t ask for just anything, he can also go elsewhere…
-Depending on your capacity or supply constraints, establish promised dates – communicate them to your customers, and measure their compliance. The customer may not be satisfied with your promise of a date, but he’ll be less dissatisfied if you let him know and keep your promise.
