Global commerce has changed the dynamics of supply chain management in recent times. Global procurement although has its advantages of low cost sourcing, but increases the overall risk and cost of the supply chain with increased lead times and inventory. Large companies have already initiated programs to get visibility of the extended supply chain to squeeze out additional cost. If the goal is trying to utilize the natural resources effectively, we should all look at material from “extraction” to “recycled”.
In the demand driven world with ever shortening of product life cycle, it has become challenging for the procurement organization to ensure the right material is always available in the right quantity and quality. Procurement organizations can no longer afford long material lead-times which leads to increased inventory and susceptible to forecast accuracy. Supplier performances are continuously being measured and suppliers who cannot deliver consistently on time and quality are quickly replaced. To reduce the overall cost of the supply network, companies have embraced lean and six-sigma process improvement techniques to eliminate redundancies and wasteful practices.
The key challenges for the procurement organization are 1) preventing shortages of material when required, 2) maintaining high quality standards, 3) reducing inventory investments, 4) reducing supply side lead times and 5) Embarking on a continuous process improvement practice.
The top three things that have been identified by companies to step into a procurement improvement program are visibility, improved business processes and inventory management. Visibilities to supplier performance, inventory, quality & inspections, lead times, on-time delivery, contract compliance are extremely important. Maintenance of supplier related content and keeping it updated, though an added task, is imperative to improve the overall business processes. Visibility and real time inventory update by location helps to make prudent decisions on purchasing and purchasing process latency. Business processes are hard to change but a key source for non-value added tasks. Companies need to identify steps in their business processes are that are redundant and adding lead time to the procurement process. Reducing the need for entering purchase order information can be an example of business process change. A practice of generating a purchase order based on material consumption can save a lot of time and effort. Inventory management practices have to be in place to reduce the overall cost. Classifications of procured items into groups of high runners, low runners, high risk and low risk have to be identified to determine the level inventory that has to be maintained without the risk of shortages and efficient operational performance.
Companies who have excelled in Lean procurement practices have moved from a “push” to a “pull” environment with increased visibility and building a collaborative environment with their suppliers. There is less reliance on ad-hoc phone calls but have the system generate orders based on material movement. The material depletion at the consumer are used as a medium to send signal for the supplier to replenish material. Companies have also improved on the past practices of replenish order quantity where a large batch of material is ordered each time when the material goes below a critical level. Frequent smaller batches of orders can not only provide a signal to suppliers but help the supply chain to reduce the level of inventory. The other strategy for companies is to develop a responsive supply chain. The demand should be propagated not only within the enterprise but across the network. Proper processes should be in place to propagate the demand variability across the network so that inventory levels are sized correctly to reduce the disruption in operations. A responsive supply chain will help reduce the lead times and help proactively manage shortages. Companies should also eliminate all waste in the procurement process. Buyers spend a significant amount of time entering purchase orders, tracking order status, maintaining private excel sheets which consume time from actually doing effective work. Creation of a procurement hub which is transparent across the network and integrated with the individual supplier systems are some of the steps taken by high performing companies.
Showing posts with label Lean. Show all posts
Showing posts with label Lean. Show all posts
Monday, September 8, 2008
Monday, April 7, 2008
Stability of Supply Chains
Recently I had some interesting discussions with executives from numerous companies who are at different stages of moving forward in their Lean journey. The business drivers for most of these clients are how to reduce cost and the manufacturing lead times.
After meeting with several clients and doing a bit of research it seems that if there is one metric that companies should focus on is the lead time reduction. Lead time is the core metric that influences the health of the operations. People familiar with “Little’s Law” would quickly grasp that there is a direct correlation between Lead time and WIP in the system. As the WIP is steadily increased in the system the Lead time does not change. This indicates that some level of WIP is good for the supply chain, and the operations can keep running with the same level of operational performance. But at the inflexion point, any increase in WIP will adversely affect the Lead time. What it indicates that some level of WIP is definitely good but in excess it is the cause of the increase in the cost of operation. Excess WIP, requires more handling cost, loss of material, increased material movement, more quality problems due to handling and an overall increase in the complex decision making for scheduling.
Where is your operation with respect to the inflexion point? A typical company never reaches the efficiency as dictated by Little’s Law. It is a theoretical limit and gives perspective for companies to compare their operations to the theoretical limit. The typical reasons for a company to deviate from the limits are a) Increase in product mix, b) batching requirement are each operation, c) volatility of the supply and demand, d) setups and e) not producing parts/components based on customer requirement.
In this highly variable environment, what can companies do to run effectively? Notice – I mention effective and not efficient. Companies can run their operations efficiently by producing material at the resource capacity. This does not mean that the products they are producing are based on customer needs. The end customer can be the next operation, distribution centers, channel customers or end customers. Running effective operations indicate good business practice and produce the right mix of material that can run their operations efficiently as well as meet the customer demand.
The main crux of the manufacturing effectiveness is the 3rd principle of Lean as defined by “James Womach” in his book “Lean Thinking,” which is making the material flow through the system. These concepts are not new, we see this in real life with fluids dynamics. The only way to reduce the residence time of the fluid is to make it flow, thus reducing the stagnation points as defined as “Sinks”. The same thought process can be applied in Manufacturing – we want to avoid “Sink” or material stagnation points. I am not preaching that the sinks should not be there, it is necessary to have these sinks to manage product portfolio, variability in supply and demand, or the manufacturing scheduling constraints e.g. calendar mismatch, rate of production, required mix of production etc. It is however a good process to determine the size of these “sinks” and manage them so that we do not loose control.
This gets us to a new point – how do you compensate or measure the operations managers to run “effective” operations. Do you measure them based on the deviation from the predicted “sinks” or inventory buffer target or do you measure them on resource utilization?
After meeting with several clients and doing a bit of research it seems that if there is one metric that companies should focus on is the lead time reduction. Lead time is the core metric that influences the health of the operations. People familiar with “Little’s Law” would quickly grasp that there is a direct correlation between Lead time and WIP in the system. As the WIP is steadily increased in the system the Lead time does not change. This indicates that some level of WIP is good for the supply chain, and the operations can keep running with the same level of operational performance. But at the inflexion point, any increase in WIP will adversely affect the Lead time. What it indicates that some level of WIP is definitely good but in excess it is the cause of the increase in the cost of operation. Excess WIP, requires more handling cost, loss of material, increased material movement, more quality problems due to handling and an overall increase in the complex decision making for scheduling.
Where is your operation with respect to the inflexion point? A typical company never reaches the efficiency as dictated by Little’s Law. It is a theoretical limit and gives perspective for companies to compare their operations to the theoretical limit. The typical reasons for a company to deviate from the limits are a) Increase in product mix, b) batching requirement are each operation, c) volatility of the supply and demand, d) setups and e) not producing parts/components based on customer requirement.
In this highly variable environment, what can companies do to run effectively? Notice – I mention effective and not efficient. Companies can run their operations efficiently by producing material at the resource capacity. This does not mean that the products they are producing are based on customer needs. The end customer can be the next operation, distribution centers, channel customers or end customers. Running effective operations indicate good business practice and produce the right mix of material that can run their operations efficiently as well as meet the customer demand.
The main crux of the manufacturing effectiveness is the 3rd principle of Lean as defined by “James Womach” in his book “Lean Thinking,” which is making the material flow through the system. These concepts are not new, we see this in real life with fluids dynamics. The only way to reduce the residence time of the fluid is to make it flow, thus reducing the stagnation points as defined as “Sinks”. The same thought process can be applied in Manufacturing – we want to avoid “Sink” or material stagnation points. I am not preaching that the sinks should not be there, it is necessary to have these sinks to manage product portfolio, variability in supply and demand, or the manufacturing scheduling constraints e.g. calendar mismatch, rate of production, required mix of production etc. It is however a good process to determine the size of these “sinks” and manage them so that we do not loose control.
This gets us to a new point – how do you compensate or measure the operations managers to run “effective” operations. Do you measure them based on the deviation from the predicted “sinks” or inventory buffer target or do you measure them on resource utilization?
Monday, October 15, 2007
Running Operations Lean
The story exemplified in Ely Goldratt in his famous book “The Goal” about a team of “Scouts” on a camping trip was an excellent example exhibiting the role of a bottleneck and its impact on the overall progress of the team. The slowest member in the chain controls the pace of the progress and the key focus of TOC (Theory of Constraint) is to manage and improve the slowest member or the bottleneck. TOC helps manufacturing companies to identify the bottleneck and focus resources to elevate the constraint. Lean experts look at the same example a different way. Lean fundamentals explore and understand the supply chain. Lean would have taken the same team of “Scouts” and determined the rate of each member – analyzed the “takt” time and balanced the carrying load for each member of the team so that the entire team moves at a uniform pace. Lean approach to manufacturing is ensuring that the processes are balanced and run per the “takt” time as determined for the customer demand.
Lean principles will enable the team to move at a uniform pace with minimum amount of inventory (distance) between the members. Lean takes a holistic approach to design the effective supply chain (line balance) and recognizes the nuances in the supply chain constraints to create a uniform flow across every unit in the chain. TOC on the other hand is a more focused approach to address the bottleneck. TOC is a good solution for factories which have less control or foresight into the demand product mix and are continually re-planning to determine the optimal way to schedule the demand to meet delivery performance. Usually this model, the variability in production causes reliability issues for the people, process, machine and materials in order to satisfy the four requirements of an efficient and effective supply chain is cost, quality, safety and delivery performance.
A good analogy of a Lean and TOC practice is the human body. Every person has a different metabolism of absorbing the calorie intake. In a Lean model, the person has knowledge of its metabolism and creates a corresponding diet plan. The diet plan, if maintained, will ensure that the body remains lean. The diet becomes a habit and all corresponding activities of ensuring the right diet is available and regular health checkup are planned easily. A regular exercise schedule is laid out which ensures that the body stays in shape. The exercise schedule is based on the variability in the calories intake. If the variability is high then a regular strenuous exercise is laid out – which buffers that body against the variability. Variability in the diet is taken into account while planning the exercise routine. TOC model is useful when there is a lack of regimental schedule and the body has to react to the changes in the diet. The emphasis is not on the calorie intake but on the process of burning the calories. If on a certain day the calorie intake is high, the body meter indicates that the exercise schedule has to be strenuous. If TOC determines that exercise is the bottleneck, it will plan for extra time on the stair-master, to burn the extra calories. Lean and TOC both address the metabolism and try to keep the body lean. Lean dictates that the body metabolism has to be understood and set up all the activities, including diet and exercise plan, to meet the body’s metabolism requirement, while TOC will quickly address the variability by addressing the bottleneck and focus on making it more efficient. Both the processes require continual evaluations to reset the regiment. Although it may look better on paper that one could only focus on the bottleneck rather than take a holistic approach, it causes uncertainty and irregularity in the schedule which can become cost prohibitive in the long run.
The human body is an embodiment of perfect manufacturing environment. It is a learning system which processes massive amounts of data, provides visibility, makes decisions and reacts to variability.
Love to hear if you agree or disagree.
Lean principles will enable the team to move at a uniform pace with minimum amount of inventory (distance) between the members. Lean takes a holistic approach to design the effective supply chain (line balance) and recognizes the nuances in the supply chain constraints to create a uniform flow across every unit in the chain. TOC on the other hand is a more focused approach to address the bottleneck. TOC is a good solution for factories which have less control or foresight into the demand product mix and are continually re-planning to determine the optimal way to schedule the demand to meet delivery performance. Usually this model, the variability in production causes reliability issues for the people, process, machine and materials in order to satisfy the four requirements of an efficient and effective supply chain is cost, quality, safety and delivery performance.
A good analogy of a Lean and TOC practice is the human body. Every person has a different metabolism of absorbing the calorie intake. In a Lean model, the person has knowledge of its metabolism and creates a corresponding diet plan. The diet plan, if maintained, will ensure that the body remains lean. The diet becomes a habit and all corresponding activities of ensuring the right diet is available and regular health checkup are planned easily. A regular exercise schedule is laid out which ensures that the body stays in shape. The exercise schedule is based on the variability in the calories intake. If the variability is high then a regular strenuous exercise is laid out – which buffers that body against the variability. Variability in the diet is taken into account while planning the exercise routine. TOC model is useful when there is a lack of regimental schedule and the body has to react to the changes in the diet. The emphasis is not on the calorie intake but on the process of burning the calories. If on a certain day the calorie intake is high, the body meter indicates that the exercise schedule has to be strenuous. If TOC determines that exercise is the bottleneck, it will plan for extra time on the stair-master, to burn the extra calories. Lean and TOC both address the metabolism and try to keep the body lean. Lean dictates that the body metabolism has to be understood and set up all the activities, including diet and exercise plan, to meet the body’s metabolism requirement, while TOC will quickly address the variability by addressing the bottleneck and focus on making it more efficient. Both the processes require continual evaluations to reset the regiment. Although it may look better on paper that one could only focus on the bottleneck rather than take a holistic approach, it causes uncertainty and irregularity in the schedule which can become cost prohibitive in the long run.
The human body is an embodiment of perfect manufacturing environment. It is a learning system which processes massive amounts of data, provides visibility, makes decisions and reacts to variability.
Love to hear if you agree or disagree.
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