Case Example: Supply Industry Benchmarking: Aerospace Sub-Contract Machining

1
supply chainge management ltd. 2008

Case Example:

Supply Industry Benchmarking

Aerospace Sub-contract Machining

2
Benchmarks Before Benchmark
Sales/Employee ~ 32,000 45,000
Operators/Total Employees 64% 80%

Labour Reduction following benchmarking: 10%
4 weeks elapsed time
~ 5% reduction in total cost

Supply Industry Benchmarking Case Example Part 1:
Aerospace sub-contract machining: pareto cost (45% of sales) = labour
22
Number of Suppliers in Range Number of Suppliers in Range
Sales/Employee is a fair Primary
Efficiency Metric for aerospace
industry sub-contract machining
Small Turned Small Turned
Large Turned Large Turned
Small Prismatic Small Prismatic
20 30 40 50 60 20 30 40 50 60 70 80 70 80
Sales/Employee ( Sales/Employee ( ,000s) for Low Volume Segments of the UK Sub ,000s) for Low Volume Segments of the UK Sub- -Contract Machining Industry Contract Machining Industry
Source: Industry Analysis Survey of 200 Suppliers
Large Prismatic Large Prismatic
+ +
25
` ` very different Secondary very different Secondary
Efficiency Metrics Efficiency Metrics
Source: Industry Analysis Survey of 200 Suppliers - Consultancy Assignment Aerospace Industry: Team Questionnaires and Infocheck Reports.
+ +
= Operators x 100%
Total Number of Employees
Co. A Co. A
Co. B Co. B
3
22
20 30 40 50 60 20 30 40 50 60 70 80 70 80
+ +
25
+ +
= Operators x 100%
Co. A Co. A
Co. B Co. B
Aerospace Sub-contract Machining. Case Example Part 2.
Pareto cost = labour (on average 45% of turnover)
20
+ +
Secondary Efficiency Metrics investigate drivers behind Primary
Efficiency Metrics. For example:
Primary Efficiency Metric = Sales x 100%
Employee
Secondary Efficiency Metric = Operators x 100%
Presuming organisation design/leanness drives down labour costs
23
Two suppliers of large
prismatic aerospace machinings
Company Company
A A
Company Company
B B
+ +
26
Comparing Org. Designs/Leanness Comparing Org. Designs/Leanness
Source: Team Analysis
MD MD 1 1 1 1
Ops Dir. Ops Dir. 1 1 1 1
Sales Dir. Sales Dir. 1 1 1 1
Contracts Mgr. Contracts Mgr. 0 0 1 1
QA Mgr QA Mgr 0 0 1 1
Chief Inspector Chief Inspector 0 0 1 1
Dep. Chief Inspector Dep. Chief Inspector 0 0 1 1
Inspection Inspection 3 3 8 8
NDT NDT 0 0 1 1
Despatch & GI Despatch & GI 0 0 1 1
Accountant Accountant 1 1 1 1
Office Office 3 3 5 5
Procurement Procurement 0 0 1 1
Ind Ind. Eng. . Eng. 1 1 1 1
Snr Snr. Programmer . Programmer 1 1 1 1
Programmers Programmers 2 2 5 5
Planners Planners 0 0 2 2
Company Company
B B
Planning Clerk Planning Clerk 0 0 1 1
Production Controllers Production Controllers 1 1 1 1
Chasers Chasers 0 0 3 3
Other Other 1 1 0 0
Bonus Clerks Bonus Clerks 0 0 2 2
Senior Foremen Senior Foremen 0 0 6 6
Chargehands Chargehands 0 0 3 3
Production Workers 69 67 Production Workers 69 67
Labourers Labourers 0 0 2 2
Maintenance Maintenance 0 0 4 4
Apprentices Apprentices 0 0 6 6
Cleaning Staff Cleaning Staff 0 0 2 2
Canteen Canteen 0 0 2 2
Special Tooling Special Tooling 0 0 7 7
Small Machines Small Machines 0 0 7 7
TOTAL TOTAL 86 147 86 147
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The impact on their businesses ? The impact on their businesses ?
Source: Industry Analysis Survey of 200 Suppliers - Consultancy Assignment Aerospace Industry: Team Questionnaires and Infocheck Reports. * before Tax # Previous years figures
Sales Sales 7.3m 7.3m
Employees Employees 97 97
Sales/Employee: Sales/Employee: 75k 75k
Labour Costs/Employee: Labour Costs/Employee: 20k 20k
Largest Cost (Labour)/Sales Largest Cost (Labour)/Sales 30% 30%
Operators/Total Employees: Operators/Total Employees: 80% 80%
Profit Margin Profit Margin 14% 14%
ROCE ROCE 66% 66%
4.6m 4.6m
170 170
27k 27k
14k 14k
60% 60%
50% 50%
- -9% 9%
- -
+ +
28
Industry Industry
Average Average
Company Company A A
2: Organisation Design/Leanness 2: Organisation Design/Leanness
Labour 45%
Company B Company B
30% 60%
+ +
22
20 30 40 50 60 20 30 40 50 60 70 80 70 80
+ +
25
+ +
= Operators x 100%
Co. A Co. A
Co. B Co. B
4
Benchmarking Metrics

Secondary Metrics investigate drivers behind Primary Metrics.
For example:
Primary Metric = Sales* x 100%
Employee

Secondary Metric = Operators x 100%

Presuming organisation design/leanness drives down labour costs
* In most industries Added Value/Employee would be a better primary metric than Sales/Employee because the sales
per employee is substantially affected by the degree of vertical integration / outsourcing between businesses being
compared; whereas added value per employee isnt. However in the case of aerospace sub-contract machining
suppliers, since the materials are free issued by the customer it makes little difference.
5
Number of Suppliers in Range
Small Turned
Large Turned
Small Prismatic
20 30 40 50 60 70 80
Sales/Employee (,000s) for Low Volume Segments of the UK Sub-Contract Machining Industry

Large Prismatic
6
Case Example: two suppliers of large
prismatic aerospace machinings
Company
A
Company
B
7
With very different Primary Metrics
Small Turned
Large Turned
Small Prismatic
20 30 40 50 60 70 80
Sales/Employee (,000s) for Low Volume Segments of the UK Sub-Contract Machining Industry
Source: Industry Analysis Survey of 200 Suppliers - Consultancy Assignment Aerospace Industry
B
Large Prismatic A
8
`very different Secondary Metrics

= Operators x 100%

Co. A
Co. B
9
Comparing Org. Designs/Leanness
Source: Team Analysis
MD 1 1
Ops Dir. 1 1
Sales Dir. 1 1
Contracts Mgr. 0 1
QA Mgr 0 1
Chief Inspector 0 1
Dep. Chief Inspector 0 1
Inspection 3 8
NDT 0 1
Despatch & GI 0 1
Accountant 1 1
Office 3 5
Procurement 0 1
Ind. Eng. 1 1
Snr. Programmer 1 1
Programmers 2 5
Planners 0 2
Planning Clerk 0 1
Production Controllers 1 1
Chasers 0 3
Other 1 0
Bonus Clerks 0 2
Senior Foremen 0 6
Chargehands 0 3
Production Workers 69 67
Labourers 0 2
Maintenance 0 4
Apprentices 0 6
Cleaning Staff 0 2
Canteen 0 2
Special Tooling 0 7
Small Machines 0 7
TOTAL 86 147
Co. B Co. A
Co. B Co. A
10
Industry
Average
Company A

Organisation Design/Leanness

Labour 45%
Company B

30%
60%
i.e. Largest Cost (Labour)/Sales
11
The impact on their businesses ?

Source: Industry Analysis Survey of 200 Suppliers - Consultancy Assignment Aerospace Industry: Team Questionnaires and Infocheck Reports. * before Tax # Previous years figures
Sales 7.3m
Employees 97
Sales/Employee: 75k
Labour Costs/Employee: 20k
Largest Cost (Labour)/Sales 30%
Operators/Total Employees: 80%
Profit Margin 14%
ROCE 66%

4.6m
170
27k
14k
60%
50%
-9%
-

Case Example: Supply Industry Benchmarking: Aerospace Sub-Contract Machining

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supply chainge management ltd. 2008

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