Delivery Precision Improvement at Volvo India
Pvt. Ltd
Peenya Industrial Area, Bangalore
Keywords:Delivery Precision (DP), Goods Receipt (GR), Inventory Turnover
(ITO), Process Mapping, Electronic Data Interchange (Edi)
Abstract
There was a lot of material supply issue to run the line production at Peenya facility of Volvo
CE. After checking Supplier Delivery Precision we came to know that it was just 4.66% only for
January 2012. It was noticed that the problem was not only with the suppliers, it was also within
the company. The delay in supplies due to problems at suppliers’ end was around 42% while
the balance was due to Back Order Existence, Delay in Goods Receipt, Delivery Planned on
Holidays, Old Orders Existence in System, Missing Shipping Notification etc. Thus, the internal
issues were contributing 47% in delay of supplies. It was thus decided to take a call on this
issue and do a project to improve the Delivery Precision at Volvo CE.
Introduction
In the beginning of 2012 there was a lot of material supply issue to run the line
production at Peenya facility of Volvo CE. After checking Supplier Delivery
Precision we came to know that it was just 4.66% only for January 2012. Delivery
Precision (DP) was also measured for February and March, 2012 which was
found to be at 7.64% and 11.97% respectively. This was quite alarming and
thus the Volvo CE, Peenya decided to improve the Deliver Precision (DP) from
the present number and fixed the target as 70% with time frame till December,
2012. Interestingly, with the help of the project undertaken, it finished with DP
at 85.27%.
Delivery Precision (DP) is defined as the ‘Measurement of Arrival of Material
at Volvo on the Specific Time and in Required Quantity’. It is measured on
incoterms, namely DDU & EX- Works.
At the time of making the purchase agreement, it is decided as to who will
take care of transportation. In this case it was agreed upon that the Vendor will
supply the parts to Volvo free of cost on door delivery basis. In other words cost
of transportation was to be included in the cost of parts supplied.
It was decided that the Volvo would collect the material from the Vendor exwork by using its own Logistics and expenses would be paid by the company.
Price of the part was to be free from Logistics charges.
In order to monitor the DP, the Improvement Project was brought under
Operation Development Program, called OD Wave 1. It was also noticed that
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Volvo India Pvt. Ltd
if DP is improved, we can improve Inventory Turnover (ITO) and enable good
cash flow.
The project was planned and a team from cross functions comprising
Mr. B. Indushekar, the Vice President – Operations as the Champion of the
Project, Mr. S.V. Somshekar as the Team Leader and M/s. H.N. Ganesh, A.N.
Muthappa, M.S. Shankar and Mohan as Members of the Project Team was
formed for its execution, to work on DP Improvement Project.
Calculations
The Goods Receipt Dates to be matched with Statistical Delivery
Dates
The FIFO (First In First Out) logic also assumes that First Web Edi
(Electronic Data Interchange) done should match with First GR
The Goods Receipt Dates were matched vs. the Statistical Delivery
Dates in our PO/Scheduling Lines according to a FIFO Principle.
The FIFO logic also assumes that the first item shipped by the
supplier is the first to arrive at GR point.
Tolerance of -1 (Minus One Day) was given in deliver but no tolerance was
given for quantity of material supplied against the quantity ordered.
The Rule to measure DP was Delivery on Same Day or One Day Prior
and in the Right Quantities as ordered.
The impact of the project on Inventory was overwhelming. The Inventory
turns were at recorded as 5.3 when the projected was started in March, 2012
and finally it finished at a healthy 8.4 turns in December, 2012.
The Project Team during the Brainstorming session observed the
following:
It was observed that there was a delay in material arrival at Volvo between
1 to 5 days against the set DP criteria of -1/0 days.
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127
Actual DP Trend Mapped Against the Target in April 2012
BNG DP Trend April 2012
35
30
Criterion
DP
-1/0 Days
10.8%
-1/ +1 Days
25
20
15
23.0%
-1/ +2 Days
29.7%
-1/ +3 Days
35.0%
-1/ +4 Days
42.2%
-1/ +5 Days
40.7%
10
5
0
2012-01
2012-02
2012-03
Actual
2012-04
Target
2012-05
2012-06
Volvo Construction Equipment
Operations – Bangalore Plant
19 November 14
Process Mapping was done.
Process mapping
Start
Receipt of
Buy list from
PPC by MM
Team
Release of Schedule
to Suppliers
(Schedule Lines &
PO)
Receipt of Schedule
by Suppliers through
Web EDI or by
E-mail
Invoice &
Web EDI
Challan
Planning & Production
at Suppliers,
Inspection & Packing
Required delivery
date in PO/Sl &
Quantity
Dispatch to
Volvo
(Transport)
Material Receipt &
GR at Volvo
Actual Delivery Date
(GRN or ASN)
End
Volvo Construction Equipment
Operations – Bangalore Plant
19 November 14
The On time supplies were found to be just 11%. It was noticed that the
problem was not only with the suppliers, it was also within the company. The
delay in supplies due to problems at suppliers’ end was around 42% while the
balance was due to Back Order Existence, Delay in Goods Receipt, Delivery
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Volvo India Pvt. Ltd
Planned on Holidays, Old Orders Existence in System, Missing Shipping
Notification etc. Thus, the internal issues were contributing 47% in delay of
supplies.
Analysis of Issues
Define
Measure
Improve
Control
Delay/ Issue with Suppliers &
difference in Quantities
1%
7%
11%
Analyze
Bank Order Existence
42%
11%
Missing Shipping Notifications
On time
12%
16%
Delay in GR at Volvo
Planned Delivery dates in Holidays
2011 Orders
47% Internal Issues at Volvo
42% Issues due to Suppliers
Volvo Construction Equipment
Operations – Bangalore Plant
19 November 14
A. On time supplies were just 11%.
B. Back Orders were there in System (16%): System was showing
pending purchase orders with back dates. It was discussed with Material
Team and all the back orders were short closed. If any part was required,
new date/schedule was given. Vendors were kept in the loop.
C. Schedule/Delivery Dates were being given on Holiday (7%): Dates
were rescheduled to organize delivery on working days. It was decided to
inform all concerned to take care of schedule date at the time of releasing
the Purchase Order (PO).
D. Delay was noticed in Goods Receipt (GR) at Volvo (11%): It was
decided to inform the stores to prepare Goods Receipt on the same day
of receipt of material. All Material executive were requested to support the
stores in this regard.
E. Missing Shipping Notifications (12%): For domestic suppliers, it
was decided to bring all EX-Works suppliers under Web Edi. For Import
suppliers, we planned to create notification in system before making GR.
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129
F. Old Orders (1%): All orders were closed and the concerned suppliers
were informed accordingly.
G. Delay in Supplies (42%): Each month the Vendors meet on regular basis
were organized at the factory. In the meeting all suppliers were informed
about the DP calculation methodology and they were requested to support
Volvo in this regard. They were also informed about the DP rule. In order
to encourage them, the “Supplier of the Month” award was introduced.
After taking these steps/corrective actions, we calculated as to what would
be the DP at the yearend following the steps/corrective actions taken to improve
the DP. We were confident that we would reach 65%.
DP Improvement Target
Define
70 –
60 –
Measure
Analyze
Improve
Control
Tactical issues
Actions would result
in ~40% DP
Improvement
65%
50 –
40 –
30 –
Strategic issues
Actions would
result in ~15%
DP Improvement
20 –
10 –
0–
2012- 2012- 2012- 2012- 2012- 2012- 2012- 2012- 2012- 2012- 2012- 201202
03
04
05
06
07
08
09
10
11
12
01
Volvo Construction Equipment
Operations – Bangalore Plant
19 November 14
So we set our target of Delivery Precision (DP) at 70% and took
the flowing initiatives to reach the set target of 70%.
1. Preparation of GR on the same day of Receipt of Material.
2. Ensure Change in Delivery Date with Change in Internal Production
Plan.
3. Daily Monitoring of DP with effect from June, 2012.
4. Giving Monthly Information to Top Suppliers (Max. Number of Lines)
on their DP
Performance & Corrective Actions at Monthly Suppliers’ Meet.
5. Close All Pending Orders when Material Not Required due to ECN.
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Volvo India Pvt. Ltd
The result of all this was encouraging; the First Month DP was
improved to:
DP for June 2012
Define
Measure
Analyze
Improve
Control
70 –
60 –
51.68%
50 –
40 –
30 –
20 –
10 –
0–
201201
201202
201203
201204
201205
201206
201207
201208
201209
201210
201211
201212
Volvo Construction Equipment
Operations – Bangalore Plant
19 November 14
First Month DP was 51.68%
Delivery Precision Improvement
131
The Third Month DP was found to be:
Third Month DP was 66.98%
DP for August 2012
Define
Measure
Analyze
Improve
Control
80 –
66.98%
70 –
60 –
50 –
40 –
30 –
20 –
10 –
0–
2012- 201201
02
201203
201204
201205
201206
201207
201208
201209
201210
201211
201212
Paver parts back order deletion. Discussion with Rishi & Apex given us good result
Volvo Construction Equipment
Operations – Bangalore Plant
19 November 14
In the 4th month we noticed that there was a dip in DP to 63.8%. The team
again brainstormed and observed that the ‘Supplier of the Month’ award which
was being given was not enough. So we decided to introduce the ‘Suppliers
Best Professional Award’.
With these initiatives and the support of all, we were able to reach the
Delivery Precision (DP) at 85.27% by the end of December, 2012 and the YTD
was found to be 44.4%.
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Volvo India Pvt. Ltd
DP trend between 2010 to 2014
Supplier DP Yearwise Trend
Define
Measure
100 –
89.6
90 –
80 –
Analyze
Improve
Control
93
75
Percentage
70 –
60 –
50 –
44.4
40 –
30
30 –
20 –
6.64
10 –
0–
2010
6.67
2011
2012
Plan
2013
2014
Actual
Volvo Construction Equipment
Operations – Bangalore Plant
19 November 14
The Major Benefits which the company got were as follows:
1. Product Delivery Precision improved from 40 % to 80%.
2. Production Line Material Availability improved from 55% to 90%.
3. Supplier Delivery Precision improved from 5% to 85%.
4. Inventory Turns improved from 5.3 to 8.4 turns.
5. Safety/Buffer Stock Inventory of 120 MINR is reduced.
6. Space vacated due to reduction in inventory.
7. Stopped sending hard copy of PO which resulted in Reduction in Paper
8. Consumption.
Use of Software/Technology
• Our SAP is now linked to a portal called Web Edi. (Electronic Data
Interchange). When we release scheduling lines in system, a mail will be
flashed to Vendor system whose name is registered with Volvo.
• Central Data Warehouse (CDW): The SAP is also linked to the software
linked to CDW which calculates & gives us the DP details on daily basis
after considering the tolerance period of minus one day.
Delivery Precision Improvement
133
It improved the Customer Service
• Machine Delivery Precision improved from 40 to 87% in 2012.
• Internally, our Material availability for production at the Line side improved
from 55-90%.
The efficiency of operations was also improved:
• We were holding buffer/safety stock to take care of line stoppage if there
was a delay in supply of parts by the Vendor. When deliveries improved, we
have reduced the safety/buffer stock. This resulted in inventory reduction
of around 12 crores.
• Volvo has convinced all suppliers to Reduce Lead Time from 45 to 30
days.
We continued this project from where we left in 2012 and taken it into the
next year, 2013 and fixed target as 90%. DP was one of the KPI of Bangalore
operations for Business plan 2013 & 2014.
Highlights of 2013
• More people were roped in and new leaders have taken up this project.
• Supplier DP December end was 86.70%.
• 10 Suppliers were brought under Web Edi.
• Previous month DP details were sent to all suppliers after Vendors’ Meet
each month.
• Inventory Turnover was at 9.5.
Highlights of 2014
In the year 2014, i.e. by the October end, the DP was 93.49 against the target
of 93%. Six more suppliers were brought under the Web Edi. ITO was found
to be 11.5%.
We are still continuing this project and taken it further to the following years by
raising the target of DP every year.
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Volvo India Pvt. Ltd