Making The Most of What We’ve Got
Transcript of Making The Most of What We’ve Got
Making The Most of What We’ve Got / 1
Making The Most of What We’ve Got Making The Most of What We’ve Got
Delivering Supply Chain ImprovementDelivering Supply Chain Improvement
The Institute of Operations Management
&
MLG Management Consultants
November 2010
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Fundamental ChoiceFundamental Choice
� If our ERP system is not delivering what we expect:
� Get a new system
� Make better use of the one we already have
� Exploring the second option:
� Avoid high-cost / high-risk purchase & implementation
� Achieve benefits more quickly?
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AgendaAgenda
� Introductions
� ERP success rates
� ERP good practice / best practice
� Performance measurement / KPIs
� Reasons for success / failure
� The problems to be fixed
� Putting things right
� Applying the lessons of Lean
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What is ERP?What is ERP?
� Enterprise Resource Planning
� An integrated business system
� A manufacturing planning and control system
� A supply chain system
� A comprehensive, all-embracing business application
� e.g. Human resources, customer relationship management
Costing
Business Strategy, Corporate Objectives, Mission Statement, Culture ….
BusinessPlanning
Sales & OperationsPlanning
Master ProductionScheduling
Material RequirementsPlanning
Capacity RequirementsPlanning
Rough CutCapacity Planning
ResourcePlanning
PurchasingManagement
PurchaseLedger
Shop FloorControl, WIP
ManufacturingAccounting
SalesLedger
Input - OutputControl
GeneralLedger
PurchasingPlan
ManufacturingPlan
CapacityPlan
Demand ManagementForecasts
Customer OrdersSpares Orders
Warehouse OrdersInterplant OrdersOther Demand
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2
3
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5
6
7
I T E M M A S T E R , E T C .
I
N
V
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T
O
R
Y
FiniteScheduling
EngineeringChangeControlComputerAidedDesign
HumanResources
PayrollSystems
ComputerAided
Manufacture
AutomatedStorage &RetrievalSystems
AutomatedGuidedVehicles
Planning
Execution
DRP
CUSTOMERS
SUPPLIERS
CashFlow
ActivityBasedCosting
EDIInternet
Optimisers
Real-timeTurboMRP
CustomerRelationshipManagement
FieldService
PlantMaintenance
Transport
Technical support : GUI, Database,Reporting Tools, Language, 4GL, ...
ExecutiveInformationSystems
AdvancedPlanning &Scheduling
QualitySystems
NewProduct
Introduction
PDM,EDM
Intra-Company, Multi-Plant
ToolManagementSystems
AssetRegister
SupplierRelationshipManagement
Enterprise Resource Planning, ERPEnterprise Resource Planning, ERP
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ERP Success?ERP Success?
� Used to quote 90% failure rate
� Has this improved?
� 70-80% of ERP implementations
� Are late, and/or
� Over budget and/or
� Under perform against key metrics
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Best in Class PerformanceBest in Class Performance
� 22% reduction in levels of inventory
� 97% inventory accuracy
� 96% manufacturing schedule compliance
� 98% on-time and complete shipments
� An average of 3.4 days to close a month
Source: ERP in Manufacturing 2010, Aberdeen Group
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Benefits Achieved From ERP SuccessBenefits Achieved From ERP Success
� “Whopping profit, increased profit
� Reduction in costs
� Effective handling of orders
� Speedy delivery
� Greater sales
� Less owed to creditors
� Improved quality of work
� Less time taken for work, improved productivity
� Improved accountability, administration and control
� Inventory management”
Source: A survey of responses to internet search on ‘ERP success’, November 2010
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AgendaAgenda
� Introductions
� ERP success rates
� ERP good practice / best practice
� Performance measurement / KPIs
� Reasons for success / failure
� The problems to be fixed
� Putting things right
� Applying the lessons of Lean
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ERP Good Practice, Best PracticeERP Good Practice, Best Practice
� Commitment to excellence
� ERP complements other tools
� All plans are realistic
� Hierarchical
� Resolve conflict early
� Best balance of achieving business objectives and customer satisfaction
� Accountable demand and supply planning processes
� Ability to perform ‘what if?’ simulations
� Commitment to data accuracy and continuous improvement
� Measure performance, close the loop
� Ongoing personal development
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Planning Demand and SupplyPlanning Demand and Supply
5432Year 1 = budget
Demand Planning
& Demand
Management
Forecasting- finished products- spares
Order servicing- finished products- spares
Warehouse ordersInterplant ordersOther demand
- prototype build- anticipation- hedge
Strategic and
Business
Planning
Executive Sales &
Operations
Planning
Master
Production
Scheduling
Resource
Planning
Rough Cut
Capacity
Planning
Material
Requirements
Planning
Capacity
Requirements
Planning
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Planned Cost
Executing, Managing, ControllingExecuting, Managing, Controlling
Manufacturing
Plan
Capacity
Plan
Purchasing
Plan
Shop Floor Control
Work in Progress
Input Output
Control
Purchasing
Management
Purchase
Ledger
Manufacturing
AccountingSales Ledger
General
Ledger
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Management by ExceptionManagement by Exception
� Action messages
� Expedite, delay, cancel, surplus stock
� Overloaded, underloaded resources
� Cost variances
� Late supply, shortages, arrears
� Appropriate management of safety stock
� Variation in lead times
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Data ManagementData Management
� One integrated system
� Data accuracy
� Demand, the Master Production Schedule
� Inventory
� Open orders
� Planning parameters
� Order policies, lead times, safety stocks, shrinkage
� Routings
� Bills of material
� Data ownership
� Point of use
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AgendaAgenda
� Introductions
� ERP success rates
� ERP good practice / best practice
� Performance measurement / KPIs
� Reasons for success / failure
� The problems to be fixed
� Putting things right
� Applying the lessons of Lean
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Performance Measurement, KPIsPerformance Measurement, KPIs
� Strategic goals
� Growth, survival, vision, culture, competition, portfolio …
� Operational goals
� Customer service, assets, efficiency, lead times …
� Satisfying customer needs
� Value, consistency, reliability, sustainability …
� Competitive knowledge
� Audit
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Contrast With HealthcareContrast With Healthcare
� Focus on reducing levels of heart disease
� Measurements based on the incidence within the population are valuable
� They report on whether Health Service practices and general lifestyle choices are working – or not
� Measuring number of heart attacks year-to-date is not the way to improve the health of the individual
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Caring for the IndividualCaring for the Individual
� Measurements at the individual level include:
� Blood pressure
� Cholesterol level
� Body Mass Index
� If any of these is outside acceptable levels the individual is at risk
� The measurement acts as a warning of problems
� Also a pointer to the appropriate corrective action
� This is the role of a KPI
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Supply Chain MeasurementsSupply Chain Measurements
� All improvement activities must be driven by measurements (KPIs)
� In the world of Supply Chain, KPIs abound
� Customer service – on-time delivery
� Typically ‘on-time in full’ (OTIF)
� Lead time to market
� Production on-time / manufacturing arrears
� Inventory levels / stock turn ratio
� All essential knowledge, but not pointers towards the improved future
� ‘Lagging’, rather than ‘leading’ KPIs
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KPIs for Making The MostKPIs for Making The Most
� Recurring theme for this session
� KPIs must warn of failings in the plan
� Highlight potential late deliveries, missed invoice forecast, stock increases rather than history
� KPIs must point towards corrective action
� Remember the lesson of visual signals
� We can measure and analyse everything
� We can fill notice boards all over the business
� If we measure and report too much we will achieve nothing
� Sometimes we measure two things that both tell us the same thing
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AgendaAgenda
� Introductions
� ERP success rates
� ERP good practice / best practice
� Performance measurement / KPIs
� Reasons for success / failure
� The problems to be fixed
� Putting things right
� Applying the lessons of Lean
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� A lack of senior management commitment
� A failure to focus upon people
� Poor quality, inaccurate data, incorrectly structured
� Inadequate software
� Absence of a Sales and Operations Planning process
� Lack, or departure, of the sponsor
� Insufficient expert advice / consultancy help
� Treating it as an IT project, rather than a Business Improvement Project
� A lack of a full time project manager; should be user, not IT, for best results
� Too many software changes – changes not justified by real business need
� Insufficient generic education� Management team / Steering committee
� . . . and product training� Project, task teams
� Key Users
� 80 to 100 % of the workforce
� Train the trainer
� Insufficient time taken on planning
� Taking too long, and losing impetus
� Not running a Conference Room Pilot to check that the system achieves the new ways of working
� It not becoming THE company system
� The steering committee not accepting the responsibility
� Lack of strength in the project and task teams
� Setting unrealistic targets
� The lack of a solid, well balanced financial justification
� The lack of a clear, identifiable, measurable business objective for the project
� The failure to establish clear performance measures, and doing it early enough
� Not closing the loop
� Resistance to change
� Failing to focus ... too many projects ... flavour of the month
Why do ERP Implementations Fail?Why do ERP Implementations Fail?
MLG ExperienceMLG Experience
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Why do ERP Implementations Fail?Why do ERP Implementations Fail?
� A misconception of business expectations
� A lack of top-level leadership on the project
� Business processes not correctly redefined
� Impact of organisational change
� Vendor not managed effectively
� Over-promised, then under-delivered
� Weak project management, over-customised
� Integration of diverse applications harder than expected
Source: Is Your ERP Implementation in Trouble? CIO Update, 2010
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ERP Implementation Success FactorsERP Implementation Success Factors
� Focus on business strategy and objectives
� Ensure there is commitment from the top
� Manage change effectively
� Take time to plan the project adequately
� Re-tool employees with relevant education and training
� Start cleansing data as early as possible
� Own your deployment
� Ensure you have suitable software
Source: A survey of responses to internet search on ‘ERP success’ November 2010
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ConclusionsConclusions
� Common feeling / expression / theory / statistics that most ERP implementations fail
� Inadequate business benefits, late, over budget …
� There are best in class approaches
� There is a clear difference between success and failure
� Most companies do not make the most of what they’ve got
� Do we have any solutions?
� Over to my colleague, Ian Henderson
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AgendaAgenda
� Introductions
� ERP success rates
� ERP good practice / best practice
� Performance measurement / KPIs
� Reasons for success / failure
� The problems to be fixed
� Putting things right
� Applying the lessons of Lean
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Change for the BetterChange for the Better
� No apologies for repetition – measure!
� And use measurements to highlight areas for change, driving improvement actions
� Assess each aspect of Supply Chain process
� Strengths
� Weaknesses
� Opportunities
� Threats – perhaps
� Objective is better performance now
� Can’t ignore potential changes in external circumstances
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Missing ElementsMissing Elements
Look for additional modules to implement?
Maybe
But what is the problem with performance?
Might it be poor use of the parts of the system that are already in use?
We must start with business processes
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Supply Chain PerformanceSupply Chain Performance
� Key measurement = validity of plan
� Consider this as an assessment of your Master Production Schedule or load analysis at a constrained work centre
Capacity
Load
TimeToday
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Validity of PlansValidity of Plans
� Plans don’t have arrears
� Unless we have a TARDIS
� Would we ’phone home to say that we were leaving work at 6pm and expected to be home at 5:50?
� So why manage a business any differently?
� Plans don’t have mismatches between load and capacity, demand and supply
� “I can only make 500 but my plan is for 1200”
� We change one or the other, or both until we have a plan
� A plan is what we intend to do
� Not what we would like to do had the world been different
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Driving With an Invalid PlanDriving With an Invalid Plan
� Planning systems suck materials in to meet the plan
� Infeasible plan = excess inventory
� Plans based on infeasible load provide a wide choice for all areas of the operation
� People throughout the business can pick and choose their own version of the plan
� How often will all the different versions coincide?
� How do we generate billings / cash flow forecasts?
� Certainly not from the information that is driving production and procurement plans
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What Do We Measure for Plan Validity?What Do We Measure for Plan Validity?
� Level of arrears?
� True, this is lagging rather than leading
� But if it starts to grow from minimal levels bells should ring
� In the early stages of decay root causes should be visible
� Forward load by period?
� An indicator of overloads?
� Number of occurrences of planned shipments more than 10% above the average?
� Not really meaningful – can anything measure at this level?
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‘‘Engine Room’ of ERP SystemsEngine Room’ of ERP Systems
� Material Requirements Planning
� Explodes Master Production Schedule through bills of material to calculate requirements at each level
� ‘Stock projection’ determines when current supply plan requires amendment
� New orders
� Existing orders needing to be re-scheduled earlier, or later, or cancelled
� How do we measure the health of MRP?
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KPIs for MRPKPIs for MRP
� Volume of output?
� Action messages (re-schedule and cancel)
� New orders to be completed in less than lead time
� What do these messages mean?
� What happens when the volumes are excessive?
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Misuse of MRPMisuse of MRP
Planners come to
work in state of dread
Volume of
messages too high to handle
IgnoreOperate in entirely
clerical modeChoice
Create / maintain plan as per MRP
recommendations
Create new orders from MRP, ignore
action messages
Supply plan at significant risk of
infeasibility
Some infeasibility, some won’t meet
higher-level plan
Result
Result
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AgendaAgenda
� Introductions
� ERP success rates
� ERP good practice / best practice
� Performance measurement / KPIs
� Reasons for success / failure
� The problems to be fixed
� Putting things right
� Applying the lessons of Lean
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Putting Things RightPutting Things Right
� Improvement initiatives – basic rules:
� Manageable level of change
� Three rocks half-way to the top of the hill?
� One rock at the top?
� Prioritise
� We have only one future – we can only define it once
� Separate ERP and Lean futures? Absolutely not!
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Basics of Improvement ActionBasics of Improvement Action
� Review / redefine processes
� Basics of best practice
� Simple
� Management by exception
� ‘One-stop shopping’
� Parallel rather sequential tasks
� Examine problem areas
� Find issues of flawed planning information
� Root cause analysis
� Short-term fix and process correction for long-term solution
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Master PlanMaster Plan
Absence of valid plan
Reworkplan
Maintain
valid plan
Develop &
Implement New Process
Sales &
OperationsPlanning
Master
ProductionScheduling
Remember key rule – management of
master plans is the management of change
Load
TimeToday
?
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ExamplesExamples of Causes of Poor Plansof Causes of Poor Plans
� Inaccurate data
� Stock, works orders, purchase orders, lead times
� Overstated manufacturing lead times will not be evident as incorrect – self-fulfilling prophecies (creating excess levels of work in progress)
� Inappropriate policies
� Safety stocks and order sizing (batching) rules
� Yes, we do need safety stock
� Safety = buffer for potential problems
� Until the potential problems are eliminated . . .
� Batching may cause ‘lumpy’ plans
� Theoretical nonsense of Economic Order Quantities can cause more cost than it saves
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OptionsOptions
1. Explore all the data in the system looking for anomalies / examples of bad planning
or
2. Start with MRP output and investigate messages
� e.g. Why is the system recommending that this order be pulled forward to next week?
� Get to root cause, establish a valid plan in the system for this item
� If the root cause will be applicable to other items, fix these at the same time
� If the root cause is a failing process, consider an exercise to address this process (i.e. prevent recurrence)
Option 2 seems eminently more sensible
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Example Example –– ReRe--schedule Messageschedule Message
Parameterproblem
Reset
parameter
This itemnow fixed
Stock adjustment
Messagegone?
Yes
Can we meetnew date?
Yes
No Set the planfor the item
No
Parent leadtime increased
Parent itempulled forward
Set the plansfor the item’s
parents
Or any of a number of similar potential causes of this message
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General Guide to ProblemGeneral Guide to Problem--SolvingSolving
� Better to start with the master plan (work downward)
� Working with components / materials is valuable but subsequent changes to the master plan may pass down more instability
� However, if a planner for component manufacturing is available, then use his / her skills
� Monitor reasons for problems
� Consider parallel initiatives (having identified an issue, we must seek to prevent further occurrences)
� e.g. Stock accuracy – cycle counting
� e.g. Mechanisms for New Part Introduction
� Remember earlier caveat about manageable work
� Drive benefits in one aspect, free resources for others
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Vision Vision –– MRP Messages Under ControlMRP Messages Under Control
� “I have a dream”
� Planners come into work, look at the volume of messages, nod in satisfaction, make tea or coffee and set down to work with the plan . . .
� . . . leaving at night with everything once more in step
� Tomorrow’s volume of messages will be manageable
� How much can have happened between MRP runs?
� Getting to this point is hard work
� Staying there is easy – or relatively easy
� Count / report numbers of messages – KPIs
� Spreadsheet / graph on the notice board from the start of the exercise
� Monitors MRP performance and master plan validity
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AgendaAgenda
� Introductions
� ERP success rates
� ERP good practice / best practice
� Performance measurement / KPIs
� Reasons for success / failure
� The problems to be fixed
� Putting things right
� Applying the lessons of Lean
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Lean: Review / Redefine ProcessesLean: Review / Redefine Processes
� Remember the choice in fixing the system:
1. Explore all the data in the system looking for anomalies / examples of bad planning
or
2. Start with MRP output and investigate messages
� We face similar options in looking at planning within the scope of the Supply Chain process
1. Map the process and assess / redefine
or
2. Use the results of fixing the planning data to highlight failings and re-define the future
� No right / wrong; option 2 begins to deliver improvement more quickly but option 1 may be better in some situations
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In What Ways Is MRP Lean?In What Ways Is MRP Lean?
(Or in what ways should it be Lean?)
� It is a ‘pull’ system
� Driven by the Master Production Schedule
� Itself established by proposed despatches (sales) and a management decision-making process
� It is simple – a consistent plan throughout with a computer doing the number-crunching
� People freed up to use judgement
� Something a computer will never have
Yet since we first heard of ‘Just in Time’, significant numbers of apparently qualified people have felt the need to declare themselves members of either the JIT / Lean or MRP camp
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How Has This Conflict Arisen?How Has This Conflict Arisen?
� We try to live with systems full of poor data
� The volumes of output previously discussed
� Resulting in work-rounds
� We introduce far too much complexity
� Batch quantities and safety rules that weaken credibility
� If people don’t believe the system then they work outside the system – for some, if not all, decisions
� If information is suspect we don’t have a plan!
� We use the system when simpler mechanisms are available
� Some areas of the operation may be better managed by what we now consider Lean tools
� The aim has to be SIMPLICITY
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Seeking Simplicity (1)Seeking Simplicity (1)
� MRP can plan in-house manufacturing and purchased parts / raw materials
� Do we always want to manage in-house communications via MRP?
� How would we regard a business using MRP to maintain pipeline of raw materials and a kanban mechanism to trigger manufacture of in-house components?
� We would regard this as a business that has decided kanban is a better mechanism for in-house components
� However, kanban may not always be suitable
� ‘Topping up’ to a defined quantity has to be based on past usage rather than future (push rather than pull)
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RealReal--Life ExampleLife Example
Assembly Line 1
Assembly Line 2
Sub Assembly Area
Kitting forFinal Assembly
� MRP was driving assembly lines and sub-assembly benches
� Problem was changes to plan – take a long time to feed through to sub-assembly area
� Other technology – – solved the problem
�� What is the other technology?What is the other technology?
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Simplicity Simplicity –– RealReal--Life Example (2)Life Example (2)
� Make-to-order valve manufacturing:
General Machining
Assembly Test
Base / BonnetMachining
Despatch
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Standard MRP ApproachStandard MRP Approach
� Forecast for all variants of products
� Set Master Production Schedule
� Acknowledge sales orders using ‘Available to Promise’
� Drive all component machining by MRP
� Maintains safety stock / applies batching logic
� Problems
� Variation within product range could mean that ‘type’ of product is available (ATP) when specific options may in fact require additional lead time
� Work content on key work centre (base / bonnet machining) might vary by week
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SimplificationSimplification
� Use forecast to set overall plan
� With some ‘extra’ to allow for variance in size / metallurgy
� Set build plan around base / bonnet machining
� Variation by actual product but average 50 units per week –set ‘drumbeat’ (smoothed production: Heijunka)
� Recognised as the bottleneck for most of the time (despite Dr Goldratt’s teachings – not always)
� ‘Slot’ sales orders in line with plan
� Total for base / bonnet
� Specific for size and option as per forecast (i.e. materials should be available)
� Planner considers all specific variants for each order line before committing
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One Further ProblemOne Further Problem
� Batching minimises set-ups in component machining
� Typically 2-3 weeks’ average use for spindles, 4-6 weeks’ worth for nozzles, etc.
� Work-to List for each work centre
� This is SILLY!!!
� Same number of finished products per week
� 50 products at a takt time of about 44 minutes
� Machining work centres with demand for varying quantities of components, and varying dates
� Driven by set-up times (always very spurious)
� ‘Saving’ from economic batching more than offset by interference / complication cost
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Simplified MRPSimplified MRP
� Set all valve assembly / test and all component lead times to one week
� Set all due dates to Friday
� If making 50 valves in week 45, then make 50 sets of components in week 44
� The exact components for the 50 valves
� Removed ‘economic’ batch sizes (and made to order)
� Simple sequencing by team leaders and operators
� Started with disk guides on Monday morning
� Worked from smallest through to largest
� Moved onto spring washers, then screwed caps, . . .
� Sequencing minimised changeover times
� Didn’t need SMED-type activities until volumes grew
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BenefitsBenefits
� Overloads caused by large batches of certain items were no longer an issue
� ‘Drumbeat’ concept applied to all areas of manufacturing
� No more excess inventory caused by large batches
� Everybody now felt more comfortable
� “I know why I am making 13 of these rings this week”
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Simplification Simplification –– Eliminate WasteEliminate Waste
� Various Lean techniques (such as 5S, Quality Circles, SMED) have no impact on the way MRP / ERP is used
� Lean, in the broader sense, means eliminate waste
� Waste in planning systems comes from complexity
� Potential errors
� Delay in response
� Revisit processes looking for:
� Complexity
� Unnecessary steps or handovers
� Perhaps two people to carry out one task
� Delays from activities carried out in series rather than parallel
� e.g. Shop documentation to QA department for certification to beadded – and THEN to stores for commencement of kitting
� Examples of people wading through masses of reports
� The aim is to manage by exception
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SummarySummary
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Making The Most . . . Improvement StepsMaking The Most . . . Improvement Steps
� Re-establish the Master Production Schedule and manage change on an ongoing basis
� Supported by the development of a revised / new formal Sales & Operations Planning process
� Investigate anomalies in MRP output
� Fix data and policies
� Launch corrective action initiatives where appropriate
� Look for examples of over-complexity
� Simplify where possible
In other words, establish appropriate processes using a mixture of corrective action exercises and process review / refinement initiatives
What Does Good Look Like?What Does Good Look Like?
All key data is fully
integrated with other
systems; there is no
duplicated data entry.
Nearly all relevant key
data is within the ERP
system but some is also
maintained outside.
Steps are being taken to
centralise and integrate
key business data.
Data is scattered in
many disjointed
systems; double entry is
common.
Data management
Lessons are learnt daily
from the KPIs and
excellent adherence to
plan is maintained.
Daily activities are
driven by the well-laid
plans; adherence to plan
is good and is
continually improving.
Daily activities are
sometimes driven by
plans but these are often
overridden by ‘urgent’
lists.
Daily activities are
driven by shortage lists
and lots of shouting.
Executing, managing and controlling the plans
The right number of
relevant KPIs drive
ongoing continuous
improvement.
Relevant KPIs are in
place and are regularly
measured and reviewed.
Some KPIs are in place
but they are not
regularly measured or
reviewed.
There are no clear KPIs.Key Performance Indicators (KPIs)
Actions and exceptions
are under control with
daily review and actions
being taken.
Actions and exceptions
are reviewed every day
and effort is focused on
trying to stay in control.
Actions and exceptions
are reviewed every day
but there are too many
for all to be resolved.
There is irregular review
and action, often with
too many messages.
Response to system action messages and other exceptions
Senior management
drives planning via an
established Executive
Sales & Operations
Planning process.
There are realistic
demand and supply
plans, covering long,
medium and short term
horizons.
There is awareness that
demand, supply,
resource and financial
plans are needed and
should be realistic.
There are no clear
planning processes.Planning processes
All ERP users have a
good understanding of
integrated ERP.
Key people have a very
good understanding and
are training others.
Key people understand
how ERP supports
business processes.
Few people understand
the mechanisms and
logic driving ERP.
Understanding of ERP best practice
Operating with ERP ☺ ☺ ☺ ☺ ☺ ☺�