Question

CASE 13.1 Wash & Dry, Inc. Wash & Dry (WD) is a small manufacturing company with annual revenues for 2015 reaching $10 million. Located in Bellefonte, PA, WD produces various types of laundry and personal so aps as well as an array of paper products, such as paper towels and na pkins. The unique nature of WDs products have allowed it to grow from a start-up in 2010 with reve. nues of $1 million to where it is today. WDs products are totally sustainable and command a higher price than competitors in the markets they serve. Their products are sold through both mass merchandisers as well as specialty retailers. WD manufactures it products in two plants in Bellefonte: one dedicated to the soap line and one to paper products. From these two plants, finished products are transported to their distribution center located in Harrisburg, PA. From there, mixed shipments of soap and paper are sent to the retailer distribution centers where they are sorted and mixed with other products going to retail stores. As a relatively small company, WD had a very unsophisticated set of key performance indicators (KPIs). At the plant, the KPI was "did we make what we were scheduled to make today" At the DC, the KPI was "did we ship what we were supposed to ship today." Although these two KPIs seemed to work in the past, WDs growth and pressure from its retail customers for better service made it necessary for WD to consider developing a more comprehensive set of KPIs CASE QUESTIONS 1. If you were hired as a consultant to develop these KPIs for WD, how would you assess what KPIs they should be measuring? In general, what areas of service and cost would these KPIs address? Be sure to include both internal and customer KPIs. 2. What KPIs would you recommend for the manufacturing facility? Why? 3. What KPIs should be used at the distribution center? Why? 4. How would you measure the revenue and profit impacts of these new KPIs?

Answer 1

1 Besides having a remarkable growth, KPI's of WD needs improvements so that they can measure their performance more accurately. As a consultant involved in developing KPI's for WD, WD can be advised following to assess what KPI's they should be measuring Self-experience: Using own experience in determining what can be done to improve situations, a consultant can suggest WD on how and with what to proceed. Industry trend: A consultant can compare other firms which are in similar business as WD and suggest WD on how and which KPI to select A consultant can also involve employees' feedback on which KPI will be better option to give better results and can prove helpful. Employees at operational level can better give the insight for selection Areas of cost these KPI will address includes: Insurance cost Infrastructure cost Maintenance and other operations costs Procurement costs 2

WD has two manufacturing plants from where manufactured products are transferred to distribution center. WD's current KPI's are focused on production (rate) and shipment or delivery. WD focused only on these two, which surly cannot be used in case WD expands itself. These questions cannot work as standard KPI as it may ignore several other aspects. KPI for manufacturing facility In this case, WD should use KPI's such as defective production rate and holding cost of inventory. These KPI's should be recommended due to following reasons Defective production rate: This will help in assessing the quality and accuracy percentage of the products being manufactured. With the help of this, WD can assess the quality to ensure that production operations and resources are used efficiently, and wastages are less. This in turn will help in reducing unnecessary or duplicate cost on the production processes. Holding cost of inventory: This should must be known to WD so that if it makes efforts to produce more, it will have to stock more. In case demand is not calculated accurately, WD may have to stock more than required or may get out-of-stock, which should not be the case 3 WD has two manufacturing plants from where manufactured products are transferred to distribution center. From distribution center located at H location, mixed shipments are sent to retailer distribution centers. Thus, in a way after manufacturing it goes like;

Main Retailer distribution dstribution Retail stores center (H) center WD's current KPI's are focused on production (rate) and shipment or delivery. WD focused only on these two, which surly cannot be used in case WD expands itself. These questions cannot work as standard KPI as it may ignore several other aspects KPI for distribution center In this case, WD should use KPI's such rate of return of products and back-order rate These KPI's should be recommended due to following reasons: Rate of return of products: This will help in assessing the amount/percentage of the products being returned. There may be several reasons for this like customization possibility, requirement of any new feature, changing tastes of customers, which WD must know and thus it become important to consider Back-order rate: This may also happen that WD do not have the availability of the products which is demanded at certain point of time. WD should thus ensure that it is not going towards that stage otherwise it may lose its customer base.

4. Measuring revenue and profit impacts of these new KPI's Using these KPI's such as defective production rate, holding cost of inventory, rate of return of products, and back-order rate will help in reducing the several costs such as follows: Accuracy in analyzing the defects in production will help in reducing the cost which otherwise might have been incurred to correct the defects. Monitoring of production levels and measuring of holding cost will help in reducing the chances of investing "high" amount of investment in storing inventory Reduction of other related costs such as maintenance costs, labor costs, material costs. Thus, reduced costs levels which will help in increasing profits directly or indirectly, due to the use of KPI's, can be measured using any financial measuring tools such as, financial ratios. It can also be measured using Net profit, Cost-volume-profit analysis, Cash flow measurement, maintenance costs to Total expenses, etc