How to become truly demand driven based on accurate customer orders rather than inaccurate forecasts

How to Become Truly

Demand Driven

Using Accurate Customer Orders …

…rather then Inaccurate Forecasts

Ken Titmuss, CFPIM, CSCP, SCOR-P, CPF, PLS, CDDP, CS&OP, CSCA, CDDL

Agenda

• The SA Demand Driven Journey

• Trouble with Traditional Planning

• Flow as the 1st Law Manufacturing/SCM

• Demand Driven Adaptive System (DDAS)

• Demand Driven S&OP (DDS&OP)

• Demand Driven Operating Model (DDOM)

• Demand Driven Certification Programs

• Conclusions

SA’s Demand Driven Journey

• 5 years ago DDMRP Introduced to APICS

• 2 years ago Carol Ptak comes to SAPICS

• Carol runs first CDDP course

• 1 year ago Chad Smith comes to SAPICS

• 5 months ago Carol runs first CDDL in SA

• Now DDAS introduced to SAPICS

4

First Law of Manufacturing / SCM

All benefits will be directly related to the speed of FLOW of materials and information.

Materials

Information

Caveat:

Both Materials and Information must be RELEVANT

George W. Plossl

5

The Demand Driven

Adaptive System Pyramid

FLOW

Position, Protect & Pull

Cash

Flow

Sales

Orders

Lower

Inventory

High

Service

Fundamental Principal

New Operating Model

New Operational

Considerations

Bottom Line Benefits

Without Tradeoffs

Fewer Expedites

Buffer

Status

ROI

6

Today’s Reality – The Bullwhip Effect

Bull-Whip Effect: “An extreme change in the supply position upstream in a supply chain generated by a small change in demand downstream in the supply chain. Inventory can quickly move from being backordered to being excess. This is caused by the serial nature of communicating orders up the chain with the inherent transportation delays of moving product down the chain.” (APICS Dictionary, 12th Edition)

The more parts – the worse the effect!

OEM Foundry Component Sub-

Assembler

Distortions to relevant information

Distortions to relevant materials

7

DISTORTIONS TO RELEVANT INFORMATION

DISTORTIONS TO RELEVANT MATERIALS

Weekly buckets are used

BOMs are flattened

Material is not ready at needed time

MRP treats everything as dependent

Adjustments must occur as actual demand becomes known

MRP is loaded with forecasts

Signals with known error are used

Latent signals are used

Oversimplified signals are used

Changing and conflicting signals

Nervousness

MRP Plans (timing and quantity requirements) are built using all dependencies

Delays accumulate

WHY?

WHY? WHY?

WHY? WHY?

WHY?

WHY?

WHY?

WHY?

WHY?

Cumulative Manufacturing and Procurement Times are much longer

than customer tolerance times

WHY?

WHY?

WHY?

Supply continuity variability transference occurs between nodes in

dependent networks

WHY?

8

The Demand Driven Operating Model Formula

∆Flow → ∆Cash Velocity → ∆ Net Profit

Investment ( ) → ∆ROI

Plossl’s First Law of Manufacturing and the Demand Driven Model

Flow is the rate at which a system converts material to product

required by a customer.

Cash velocity is the rate of net cash generation; sales dollars minus

truly variable costs (aka contribution margin) minus period operating

expense.

Net profit/investment the equation for ROI

What are we Missing?

9

The Demand Driven Adaptive System Formula

∆Flow → ∆Cash Velocity → ∆ Net Profit

Investment ( ) → ∆ROI

Plossl’s First Law of Manufacturing and the Demand Driven Model Core Conflict Area

∆Visibility → ∆Variability →

Flow is the rate at which a system converts material to product

required by a customer.

Cash velocity is the rate of net cash generation; sales revenue minus

truly variable costs (aka contribution margin) minus period operating

expense.

Net profit/investment the equation for ROI

Visibility is defined as relevant information for

decision making.

Variability is defined as the summation of the

differences between our plan and what happens. Visibility

10

New Demand Supply Financial

Product

Where have most companies focused planning?

11

What area has the most change?

New Demand Supply Financial

Product

12

Demand Driven Adaptive System

• A Demand Driven Adaptive System is a management …

• … and operational system designed for …

• … complex and volatile manufacturers and supply chains.

All material and content © copyright 2015 Demand Driven Institute. All rights reserved.

13


• A Demand Driven Adaptive System uses a …

• … constant system of feedback that …

• … connects the business strategy to the settings and …

• … the performance of a Demand Driven Operating Model …

• … through a Demand Driven Sales and Operations Planning Process (DDS&OP).


14


• A Demand Driven Adaptive System focuses on …

• … the protection and promotion of the flow …

• … of relevant information and materials …

• … in both the strategic (annual, quarterly and monthly) …

• … and tactical (hourly, daily and weekly) relevant ranges …

• … of decision making in order to optimize return on equity performance as change occurs.


15

Strategic Planning (market intelligence,

business objectives,

strategic decisions)

Business Plan (financial expectations)

Demand Driven Adaptive System Schema

Demand Driven

Operating Model (DDMRP, DDDRP,

Demand Driven

Scheduling & Execution)

Actual orders

Plan Parameters Strategic Direction

Model and part parameters

Demand Driven Variance Analysis

Demand Driven Model Projections

Strategic Options & Recommendations

DDS&OP Strategic Relevant Range

(Annually, Quarterly, Monthly)

Strategic Business Management Tactical Relevant Range (Hourly, Daily, Weekly)

Tactical Flow Management

Model Parameter Management

Control, Measure, Adapt & Project

16






Demand Driven


Demand Driven


Actual orders


• Working Capital Projections • Lead Time Projections • Capacity Projections • Volume Opportunity Identification



• Model Stability • Model Reliability • Model Velocity/Speed


• Identify and prioritize lost ROI opportunities • Spend minimization to capture the market

opportunity • Maximize system return according to relevant

model factors (volume and rate)


• Buffer Profiles (stock, time, capacity) • Profile Assignment • Part Planning Properties • Part & Resource Scheduling Properties • Resource Assignment

Strategic Business Management Tactical Flow Management Tactical Relevant Range (Hourly, Daily, Weekly)

Strategic Relevant Range (Annually, Quarterly, Monthly) DDS&OP

17 All material and content © copyright 2015 Demand Driven Institute. All rights reserved.

Dick Ling

Andy Coldrick

18

Left to Right Traditional S&OP

Senior

Management

Business

Review

6

New Product Planning

1

Demand

Planning

2

Supply

Planning

3

Integrated

Reconciliation

of Business

Plans

5

Financial

Planning

4

19

2. Integrated

Reconciliation

Right to Left Ling Coldrick Model

Senior

Management

Business

Review

1

3. Managing the portfolio

and New Activities

4. Managing

Demand

5. Managing

Supply

4

20

Demand Driven S&OP

• DDS&OP is a bi-directional integration point …

• … in a Demand Driven Adaptive System …

• … between the strategic (annual, quarterly and monthly) and …..

• … tactical (hourly, daily and weekly) relevant ranges of decision making.


21

Demand Driven S&OP

• DDS&OP sets key parameters of a Demand Driven Operating Model …

• … based on business strategy, market intelligence and key business objectives (strategic information and requirements).

• DDS&OP also projects the model performance based on the strategic information and requirements and various model settings.


22

Demand Driven S&OP

• Additionally, DDS&OP uses variance analysis based on past model performance (reliability, stability and velocity) …

• … to adapt the key parameters of a Demand Driven Operating Model and/or …

• … recommend strategic alterations to the model and

• … project their respective impact on the business.


23

PORTFOLIO

MODEL AND PART

PARAMETERS

DEMAND

NEW ACTIVITIES

Demand Driven S&OP Schema

CAPABILITIES

Plan Parameters

PERFORMANCE TARGETS

• Buffer Profiles (stock, time, capacity)

• Profile Assignment • Part Planning Properties • Part & Resource Scheduling

Properties • Resource Assignment

Co

ntr

ol,

Mea

sure

, Ad

apt

& P

roje

ct

Mo

del

Par

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anag

emen

t

Demand Driven Operating Model



24

Which Portfolio Model?

25

Capacity Load Impact

Working Capital Impact

Space Impact

Projected

ADU


Certified Demand Driven Planner (CDDP) is a trademark of the ISCEA


PORTFOLIO

MODEL AND PART

PARAMETERS

DEMAND

NEW ACTIVITIES

CAPABILITIES

Plan Parameters

PERFORMANCE TARGETS

Projected

Capabilities

Projecting Demand Driven Operating Model Performance

26

Example

• This company makes four products.

• They have forecasted ADU at the SKU level 6 months from now.



Part # Current ADU

Projected ADU (6 mos)

Lead Time Desired Order Cycle

MOQ Variability

XYZ 100 150 5 (low – 75%) 3 500 Medium (50%)

ZYX 50 75 7 (medium – 50%) 3 250 Medium (50%)

ABG 25 10 5 (low – 75%) 3 250 Low (25%)

GJK 20 200 5 (low – 75%) 3 250 High (70%)



XYZ (now) XYZ (projected)

Green 500 563

Yellow 500 750

Red 563 845

Average OH 813 1126.5

0

500

1000

1500

2000

2500

Projected Change to XYZ

Red Yellow Green Average OH

ZYX (now) ZYX (projected)

Green 250 263

Yellow 350 525

Red 263 395


0200400600800

100012001400

Projected Change to ZYX


ABG (now) ABG (projected)

Green 250 250

Yellow 125 50

Red 118 48

Average OH 243 173

0100200300400500600

Projected Change to ABG


GJK (now) GJK (projected)

Green 250 750

Yellow 100 1000

Red 128 1275

Average OH 253 1650

0500

100015002000250030003500

Projected Change to GJK


28

Working Capital Converting targeted on-hand inventory to capital required.

Part # Dollars per units

Current Target Inventory Level

Targeted working capital in inventory

Projected Target Inventory Level

Projected working capital in inventory

XYZ $100 813 $81,300 1127 $112,700

ZYX $90 388 $34,920 527 $47,430

ABG $80 243 $19,440 173 $13,840

GJK $50 253 $12,650 1650 $82,500

Total $148,310 Total $256,470



$0

$20 000

$40 000

$60 000

$80 000

$100 000

$120 000

XYZ ZYX ABG GJK

Average OH Inventory Dollars

Current OH Target Projected OH Target

29

Projecting Capacity Load Establish an average daily load on a critical resource (ADUs x capacity units/SKU) Critical Resource: Lathes Lathes available = 5 Minutes available per lathe per day = 1200 (6,000 total per day)

Part # Minutes/unit on lathe

Current ADU

Current Average Daily Load

Projected ADU

Projected Average Daily Load

XYZ 30 100 3000 minutes 150 4500 minutes

ZYX 25 50 1250 minutes 75 1875 minutes

ABG 20 25 500 minutes 10 200 minutes

GJK 10 20 200 minutes 200 2000 minutes

Total 4950 minutes Total 8575 minutes



0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Current Load Projected Load

XYZ ZYX ABG GJK

30

Critical Success Factors

1. Leadership

2. Education

3. Map the DDS&OP process

4. Learn by doing

5. “Roughly right”

6. Select marketing families

7. Identify new activities

8. Financial integration

9. Collaboration

10.Make better decisions

11.Critique the process

12.Strategy driven

13.Business planning

14.Advisor/Coach

15.Software support

31

DDS&OP compare/contrast

• DDS&OP – Aligns strategy to capability

– Employs a dynamic demand driven operating model

– Has a bi-directional effect on strategy

– Direction is coming from roughly right through relevant ranges

• Compared to other S&OP models – APICS – supply focused rather than demand focused

– Ollie Wight – common plan rather than flexible capability

– Gartner – trade-offs rather than flexible capability

– Sales and Ops planning institute – one way linkage to operation. Disaggregate strategy to operations only.


32






Demand Driven


Demand Driven


Actual orders












33


• A Demand Driven Operating Model is a …

• … supply order generation, …

• … operational scheduling and …

• … execution model.


34


• It utilizes actual demand in combination with …

• … strategic decoupling and control points and …

• … stock, time and capacity buffers in order …

• … to create a predictable and agile system …

• … that promotes and protects the flow of relevant …

• … information and materials within …

• … the tactical relevant operational range (hourly, daily and weekly).


35


• A Demand Driven Operating Model’s key parameters are …

• … set through the Demand Driven Sales and Operations Planning process …

• … to meet the stated business and market objectives …

• … while minimizing working capital and …

• … expedite related expenses.


36

The Demand Driven Operating Model

MODEL AND PART

PARAMETERS

Demand Driven MRP

Demand Driven Capacity Scheduling

Demand Driven Execution

Actual Demand

37


MODEL AND PART

PARAMETERS

Demand Driven MRP



Supply Orders (PO, MO, STO)

with Net Flow Priority

• Part Buffer Profiles (time and capacity)

• Part Profile Assignment • Part & Resource

Scheduling Properties • Resource Assignment

Work Order Releases


• Model Stability • Model Reliability • Model Velocity/Speed

Sales Orders

• Part Buffer Profiles (stock) • Part Profile Assignment • Part Planning Properties

Promise Dates

38

PORTFOLIO

MODEL AND PART

PARAMETERS

DEMAND

NEW ACTIVITIES


CAPABILITIES

Plan Parameters

PERFORMANCE TARGETS

Co

ntr

ol,

Mea

sure

, Ad

apt

& P

roje

ct

Mo

del

Par

amet

er M

anag

emen

t




39

DDS&OP output to the Demand Driven Operating Model = “Master Settings”


Certified Demand Driven Leader (CDDL) is a trademark of the ISCEA

MODEL AND PART

PARAMETERS

Demand Driven MRP



Supply Orders (PO, MO, STO)

with Net Flow Priority

• Part Buffer Profiles (time and capacity)

• Part Profile Assignment • Part & Resource Scheduling

Properties • Resource Assignment

Work Order Releases

Sales Orders

• Part Buffer Profiles (stock) • Part Profile Assignment • Part Planning Properties

Promise Dates

40

DDMRP “Master Settings” Schema

External Orders

for Components

(Sales Orders)

Planned

Adjustment

Factors

Part Demand Data

Inventory

Record File

DDMRP (Supply Order

Generation and

Execution Alerts)

Product

Structure file

Demand Driven

Execution

Buffer Profiles



Part ADU

Model and Part Parameter

Management (Part of

Demand Driven S&OP)

Part Profile

Assignment

Demand Driven

Capacity

Scheduling

41

Explaining Each Component



Buffer Profiles

Planned

Adjustment

Factors

Part ADU

Part Profile

Assignment

The groupings and settings for replenished parts (part

type, variability and lead time)

The adjustment factors to be applied to ADU to parts or

groups of parts

The average rate of use for each replenished part (past,

forward or blended)

The assignment of each replenished part to particular

buffer profile

42

Demand Driven Scheduling “Master Settings” Schema

Manufacturing

Orders with request

dates (from DDMRP)

Resource

Assignment

Resource

Management

Demand

Driven

Scheduling

Time Buffer

Profiles



Model and Part Parameter

Management (Part of

Demand Driven S&OP)

Time Buffer

Profile

Assignment

Part Management

Resource

Properties Part

Properties

43

Explaining Each Component



Time Buffer

Profiles

Resource

Assignment

Resource Management

Resource

Properties

The time buffer groupings and settings for scheduled parts

The assignment of a resource to a resource type (control

point, resource, buffered resource)

Applicable scheduling properties for each resource

(calendar, shifts, operators, etc.)

Part Management

Time Buffer

Profile

Assignment

Part

Properties

Applicable scheduling properties for each part (routings

and run rates)

Applicable scheduling properties for each part (routings

and run rates)

44

PORTFOLIO

MODEL AND PART

PARAMETERS

DEMAND

NEW ACTIVITIES


CAPABILITIES

Plan Parameters

PERFORMANCE TARGETS

Co

ntr

ol,

Mea

sure

, Ad

apt

& P

roje

ct

Mo

del

Par

amet

er M

anag

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t




45

Focusing on Outliers



Dark Red Dark Red

0

Optimal Range

Warning

Y R

Warning

Y R

Too Little Too Much

Optimal

Warning (High)

Warning (Low)

Extreme High

Extreme Low

Too Much

Too Little

46

Capacity Load Impact

Working Capital Impact

Space Impact

Projected

ADU


PORTFOLIO

MODEL AND PART

PARAMETERS

DEMAND

NEW ACTIVITIES

CAPABILITIES

Plan Parameters

PERFORMANCE TARGETS

Projected

Capabilities

Projecting Demand Driven Operating Model Performance





XYZ (now) XYZ (projected)

Green 500 563

Yellow 500 750

Red 563 845


0

500

1000

1500

2000

2500

Projected Change to XYZ


ZYX (now) ZYX (projected)

Green 250 263

Yellow 350 525

Red 263 395


0200400600800

100012001400

Projected Change to ZYX


ABG (now) ABG (projected)

Green 250 250

Yellow 125 50

Red 118 48

Average OH 243 173

0100200300400500600

Projected Change to ABG


GJK (now) GJK (projected)

Green 250 750

Yellow 100 1000

Red 128 1275

Average OH 253 1650

0500

100015002000250030003500

Projected Change to GJK


48






Demand Driven


Demand Driven


Actual orders












49

CDDL and CDDL Positions in the DDOM Schema

MODEL AND PART

PARAMETERS

Demand Driven MRP



Sales Orders

50

Certified Demand Driven Planner (CDDP)


51

Certified Demand Driven Planner (CDDP)

• The purpose of the CDDP Program is to …

• … educate operations and supply chain personnel …

• … on the methods and applications of …

• … Demand Driven Material Requirements Planning (DDMRP).


52

CDDP Agenda

• Module 1: MRP in the Modern World – the materials challenge in the 21st Century

• Module 2: Demand Driven Material Requirements Planning Introduction

• Module 3: Strategic Inventory Positioning

• Module 4: Distribution Network Positioning

• Module 5: Buffer Profile and Level Determination


53

CDDP Agenda

• Module 6: Dynamic Buffers

• Module 7: Demand Driven Planning – Stocked Parts

• Module 8: Highly Visible and Collaborative Execution

• Module 9: DDMRP and Master Scheduling

• Module 10: DDMRP Performance Reporting and Analytics


54

Certified Demand Driven Leader (CDDL)


55

Certified Demand Driven Leader (CDDL)

• The Certified Demand Driven Leader (CDDL) Program equips …

• … senior and mid-level operations and supply chain managers …

• … with the ability to design, implement and sustain …

• … a Demand Driven supply chain.

• The program spans Planning, Operations, Distribution and Finance.


56

CDDL Agenda

• Module 1: The Need for Change

• Module 2: An Overview of Designing and Operating for Flow

• Module 3: Demand Driven Material Requirements Planning

• Module 4: Demand Driven Scheduling and Shop Floor Execution


57

CDDL Agenda

• Module 5: Tactical Smart Metrics for Operations

• Module 6: Demand Driven Sales and Operations Planning

• Module 7: Demand Driven Strategic Control, Measurement and Adaptation


Conclusion

• No doubt that DDMRP and DDAS are

bringing huge benefits to many

companies, in many different industries,

globally.

• Destined to quickly replace 50 year old

techniques as companies ‘see-the-light’.

Conclusion

• Make sure you are not last to adopt this

methodology, just to keep up with your

competitors.

• Start your Demand Driven journey now,

attend a CDDP / CDDL course.

Warning ……. “Make sure your Competitor

doesn’t get hold of this before you do!”

We are here to help you win the

battle, find out more ……. • Contact us at PSQ:-

• Ken Titmuss

• 083-700-4354

• [email protected]

• Or, visit our Demand Driven Tech stand, join in the DDMRP simulation with a chance to win the flat screen TV at our Tech Talk at 14H45 Tuesday afternoon – Hawk Room

mailto:[email protected]

How to become truly demand driven based on accurate customer orders rather than inaccurate forecasts

Business

Transcript of How to become truly demand driven based on accurate customer orders rather than inaccurate forecasts