Asset utilization

Capacity utilization = time based utilization x asset utilization x volume utilization... 

A practical example for capacity utilization of a production train in a MP plant over a 12-month period is shown in Figure 5.6. For the sake of simplicity, only time-based and asset utilization, but not the product concentration, are considered. As shown in the graph, the plant runs flat-out for the first 10 months. Because an order has been canceled, there is no production at all during November and December. At first glance, this would result in a capacity utilization of n or 83% for the full year. However, the reality is quite different, and the actual record of plant performance during the year under review is as follows ... 

A builds a GMP multipurpose plant. Dedicated exclusively to manufacturing PFCs for W A provides assets, utilities, and workforce... 

At the heart of creating a revenue advantage is the need for chemical companies to complement their asset-forward view (i.e., maximizing asset utilization) with a market-back view (i.e., maximizing margins based on what customers are willing to pay) of customers current, latent, and unmet needs. This requires the development of much more sophistication and understanding of the marketplace and... 

Finally, SCM has a direct impact on production and logistics assets utilization and on the entire inventory level, which represents on average around ten to 20 percent of sales. An improved supply chain performance, such as a potential ten to 20 percent increase in production asset utilization and/or a ten to 15 percent reduction in inventory levels, enables companies to postpone or even cancel planned capital expenditure. 

Turnover ratios measure the efficiency with which an organization uses its assets. They are also referred to as efficiency ratios or asset utilization ratios. The two most commonly used turnover ratios are inventory turnover and receivables turnover. 

E. Asset utilization is lower for batch plants, as the plant almost inevitably is idle part of the time. 

Asset utilization and control The design of systems and procedures to balance and manage the number of trucks, trailers, containers, aircraft, scanners, communication devices, and materials-handfing systems required to fadlitate the transportation processes is one more area requiring the attention of the industrial engineer. 

Efficient distribution implies good asset utilization. The primary assets in this problem are vehicles and drivers. Minimization of the number of drivers and of the total cost of the routes are frequently used objectives. Efficiency needs to be achieved while level of service is maintained that is, service is provided to all customers in such a way as to satisfy aU time-window constraints. This problem has a very short-term planning horizon. Since customer stops may differ from day to day and all the stops are known only a few hours before the actual pickup-and-delivery operation, the problem needs to be solved a few hours before implementation. 

Percent asset utilization A good metric that evaluates how well the overall capacity of an asset is being used in the operation. It should be supplemented by measurement of overall equipment effectiveness (OEE). 

The proliferation of products and services will increase demand error, raise inventory levels, and decrease asset utilization. 

A singular focus on asset utilization will increase inventory and decrease customer service. 

An increase in customer service will increase cost, decrease asset utilization, and increase inventory levels. 

Companies also find, as they mature, that it is difficult to get the complement of metrics necessary to view the supply chain as a system. There are six metrics in supply chain management that are tightly woven with intrinsic trade-offs. These metrics are asset utilization, days of inventory (or inventory turns), forecast accuracy, customer service (on-time delivery of orders shipped complete), cost of goods, and revenue growth. 

So, who does supply chain best There are many attempts in the market to crown a supply chain leader and while there are many methodologies attempting to define who does supply chain the best, they are inadequate. One methodology throws all companies into a spreadsheet and compares them on growth, inventory, and asset utilization and asks peers to rate the companies. This methodology has a number of problems. Supply chain excellence cannot be determined this simplistically. Instead, it needs to be evaluated in a stepwise holistic manner based on three criteria ... 

Year-over-year performance. This is a year-over-year comparison of how a company performed against its peer group on the supply chain financial measurements of growth, revenue/ employee, asset utilization, days of inventory, and cost of sales as a percent of revenue. To determine supply chain excellence, companies need to compare year-over-year performance of a similar company to its peer group for at least three to five years. 

Changes in geoeconomic policy made expansion possible. Global brands were a new reality. While the first generation of supply chain professionals focused on the first brick of the supply chain—asset utilization—the second generation led the charge for the second brick of... 

Stage 1 The supply chain drives the efficient response. In this stage, the supply chain focuses on efficiency or asset utilization. The forecasting process is nascent. Companies model demand using basic forecasting technologies based on shipments and order data as inputs. The goal is to forecast future shipments. The data model represents what a manufacturer should make or a retailer should buy. 

As shown in Figure 4.6, the evolution of manufacturing had three distinct phases. In the beginning, it was local. Products were manufactured close to market. Factories were the nexus of the supply chain. Companies organized to improve quality and maximize asset utilization. 

These are also the easiest supply chains to outsource to a third party. However, not all industries have viewed this opportunity the same. For high-tech leaders that defined the best use of their manufacturing capacity to be focused on the launch of new products (with less of a focus on internal asset utilization), they quickly outsourced products in this quadrant to third-party manufacturers. For consumer products leaders with a myopic focus on internal asset utilization, they keep the production of products in quadrant II for internal production, and outsource products in quadrants I and IV. As a result, consumer products companies reduce manufacturing costs but increase total costs of the supply chain. 

Leadership was the key element for success. A traditional chemical company is risk adverse. The new business was launched in 2002 and customers were given a choice. Buyers within customers that were looking for standard products with standard lead times at the lowest costs were able to now buy products from Xiameter. This new business model allowed Dow Corning to increase asset utilization. The use of strict business rules helped to manage the conflicts between the two business models. Payback was less than three months. 

As inventory levels climbed during the first part of 2009, tension grew in supply chain discussions, and horizontal processes (discussed in Chapter 5) grew in importance. This was the most problematic— even desperate—for some companies that defined high-asset utilization as supply chain excellence. Those companies that rewarded high-asset utilization took five times longer to sense the downturn and align their supply chains. 

The results are substantial. Companies reaching stage 2 of supply chain maturity in sales and operations planning are able to drive an average improvement of 2 percent increase in growth and a 3 to 7 percent improvement in asset utilization. Other benefits include reductions in inventory and improvements in new product launch success. S OP allows companies to make the right trade-offs in metrics based on the supply chain strategy. 

The last step of the framework is to develop a supply chain strategy that will allow the company to identify the steps required to become a demand driven supply chain. This development should be performed aligned with the company strategic business planning process, as supply chain is a key enabler of business improvement and can help the company achieve top level business goals like revenue growth, increase asset utilization and profitability, improve customer service, just to name a few examples. 

Execution is occurring on critical asset utilization standard operating procedures including setup reduction efforts. Start up, and Shut down, EEC (Basic Equipment Care), Lubrication, etc., for all lines and an extensive amount of support equipment. 

Basic or no storage rack stmctures in place to maximize warehouse density (cases per square meter). Density is not prioritized to increase asset utilization. Warehouse layout is not formally reviewed on a regular basis to increase warehouse productivity and reduce safety risks. 

Cash Flow requirements Fixed Asset utilization Days of Inventory (DOI)... 

Nano-chain Mostly operations- or product-centric Typical of high-cost capital goods such as aircraft and automobiles Driven by asset utilization... 

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