Put a target on your logistic equipment utilization - A simple method to calculate

It is important to have a target on your logistics activities. KPI (key performance indicator) management is the basic method to have a target-oriented Supply Chain. 

Anytime we collect a data and perform an analysis, it would be better to follow up below sequence

1. Define your performance standard
2. Validate your measurement methodology
3. Design your performance objective
4. Try to find where the variation comes from
5. Track potential root causes
6. Find your variable relationship
7. Update your operational tolerances
8. Implement a process control method

 The word "Analysis" comes from Ancient Greek meaning "break-up". Analysis is the process of breaking a complex topic or substance into smaller parts in order to gain a better understanding of it. The technique has been applied in the study of mathematics and logic since before Aristotle (384–322 B.C.), though analysis as a formal concept is a relatively recent development

After a long intro, let us discuss how we can calculate our cubic utilization target with a basic calculation. It will be valid with either from one supplier flow or milk-run methodology. Density of one material or total weighted-average of a number of parts coming from one supplier will not change the calculation. (Please see the article about density)

Suppose we have supplier "A" having parts below;

	L (cm)	W (cm)	H (cm)	SU Weigth (kg)	# parts in SU	Yearly Usage
Part 1	100	120	50	300	16	12.500
Part 2	120	80	100	150	3	2.500
Part 3	120	40	40	50	2500	30.000

here are some equipment you can use in logistics flow.

	Length(cm)	Width (cm)	Heigth (cm)	Payload Capacity (kg )
Normal Trailer	1.350	245	270	20.000
Mega Trailer	1.350	245	300	20.000
20 ft Container	590	235	239	24.000
40 ft Container	1.203	235	239	24.000
45 ft Container	1.360	242	269	25.000

It will be easy to calculate how many parts can fulfill each equipment in terms of dimensions and also allowable loading weight capacity. 

For example; let us calculate how many SU (shipping unit) can be loaded to Mega-trailer.- suppose there is no stackability constraint.

	# SU in trailer	Total loaded weight (kg)	Cubic meters (m3)	% weight utilization	% m3 utilization
Part 1	66	19.800	40	99%	40%
Part 2	99	14.850	95	74%	96%
Part 3	330	16.500	63	83%	64%

Part 1 and Part 3 is fulfill the trailer with weight limit and Part 2 fulfill the trailer with cubic meters and dimensions. Orders for this supplier may fluctuate day-by-day or week-by-week. It won't be useful and applicable to put a target for each part. We need to aggregate all parts' performance into one. Yearly usage forecast will be helpful to calculate aggregate level of utilization of upper limit. We can calculate either in terms of weight or cubic meters. 

% weight utilization % m3 utilization Yearly m3 Yearly kg Upper Limit kg Upper Limit m3 Part 1 99% 40% 469 234.375 90% 75% Part 2 74% 96% 800 125.000 Part 3 83% 64% 3 600

For this supplier the expected upper limit of weight utilization can be calculated using weighted-average of % weight utilization of each part and yearly kg and cubic utilization of % cubic utilization of each part and yearly m3 usage.

What will happen if there are 200 different supplier shipping 10.000 different parts every week?

You can use same methodology as if all of the parts were being shipped from one supplier. If the logistics methodology is different and if you use different equipments in your logistics network, you need to group your suppliers according to used equipments. calculate % utilization in each group Weighted average of equipment group's utilization will give you the upper limit of total material flow of your network.

Now we took  first step for Statistical process control. We have determined upper limit of our material flow equipment utilization. We need to determine lower limit for utilization for our network flow. My proposal is to use 90% of upper limit to determine lower limit. 

For example above supplier upper limit is 90% and lower limit will be 81% in term of weight fulfillment. It is important to track performance metric in time series weekly basis.