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The S&OP/Lean Connection Making Lean work with demand variability

AME TOTONTO 2008 From Good to Great. The S&OP/Lean Connection Making Lean work with demand variability. October 20-24, 2008 Toronto, Canada. Bob Stahl Bill Kerber. Who are We?. Bob Stahl Bill Kerber. Problem Solving (Continuous Improvement & Learning). People & Partners

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The S&OP/Lean Connection Making Lean work with demand variability

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  1. AMETOTONTO2008 From Good toGreat The S&OP/Lean ConnectionMaking Lean work with demand variability October 20-24, 2008 Toronto, Canada Bob StahlBill Kerber

  2. Who are We? Bob Stahl Bill Kerber

  3. Problem Solving (Continuous Improvement & Learning) People & Partners (Respect, Challenge, & Growth) Process (Eliminate Waste) Philosophy (Long-Term Thinking) The “4P Model” of the Toyota Way “The Toyota Production System [TPS] is the basis for much of the ‘lean production’ movement that has dominated manufacturing trends for the last 10 years or so.” Jeffrey Liker The Toyota Way Our Focus

  4. Plant Suppliers Dealers Toyota Flow Model There is nothing illegal, immoral, or fattening with this approach, but many (most) companies can’t afford, or simply can’t follow, this approach to creating “linearity” with very large finished goods inventory. For Toyota, as we all know, it has worked very very well! Push Linearity “. . . many businesses in America are rushing to a build-to-order model of production. They want to make just what the customers want when they want it -- the ultimate lean solution. Unfortunately, customers are not predictable and actual orders vary significantly from week to week and month to month.” Jeffrey Liker The Toyota Way Toyota Assembly Customers Demand Pull Schedule (to dealer orders/ forecast) FG Inv. Buffer Variable Demand

  5. LEI’s Interpretation LEI’s Seven Characteristics of a Lean Value Stream: • Takt • Finished goods strategy • Flow • Pull where can’t flow • Scheduling at one point • Pitch • EPEI James P. Womack Danie T. Jones

  6. An Inconvenient Truth . . .(with apologies to Al Gore) “In general, when you try to apply the Toyota Production System [TPS], the first thing you have to do is to even out or level the production. Leveling the production schedule may require some front-loading of shipments [push to dealers] or postponing [delaying] of shipments and you may have to ask some customers [dealers] to wait for a short period of time. Once the production level is more or less the same or constant for a month, you will be able to apply pull systems and balance the assembly line. But if production levels – the output – vary from day to day, there is no sense in trying to apply those other [pull] systems, because you simply cannot establish standardized work under such circumstances.” Fugio Cho Toyota President

  7. Big Fat Question(s) . . . What if it impossible or unaffordable to have FG Inventory as a buffer? How do you do Lean, if not exactly the Toyota Way? That’s why we’re here!

  8. Agenda . . . • Introduction • The many tools for improving effectiveness • Lean focus versus S&OP focus • How does the Toyota Production System work? • What are the problems? • Market Forecast versus Production Leveling • FG Inventory as the only buffer • What are the solutions? • Solve the Family Feud • Buffer without Finished Goods Inventory • Backlog buffer (Lead Time) • Component Inventory - Postponement • Flexible resources • Questions and Answers.

  9. The New World of Manufacturing Best in Class • High Quality • Low Cost (Low Inventory) • Customer Service • Quick Response • Reliability • Wide Variety Getting to AND . . . Diminishing OR

  10. Reduce Waste & Time Enhance Coordination The Many Tools for Improving Effectiveness Increase Reliability Total Quality, Six Sigma, Poka-Yoke, ISO + others X X X Sales & Operations Planning, ERP, Kanban, VMI, + others Lean Mfg., Just-In-Time, Quick Changeover (SMED), Flow + others

  11. Total Quality, Six Sigma, Poka-Yoke, ISO + others Sales & Operations Planning, ERP, Kanban, VMI, + others Lean Mfg., Just-In-Time, Quick Changeover (SMED), Flow + others X X X The Many Tools for Improving Effectiveness Increase Reliability X Reduce Waste & Time Enhance Coordination

  12. The Many Tools for Improving Effectiveness Total Quality, Six Sigma, Poka-Yoke, ISO + others Increase Reliability Sales & Operations Planning, ERP, Kanban, VMI, + others X Lean Mfg., Just-In-Time, Quick Changeover (SMED), Flow + others Reduce Waste & Time Enhance Coordination Blur the boundaries

  13. Lean & Executive S&OP Do Different (Necessary) Things Lean Manufacturing • Lean is a basic approach to manufacturing that emphasizes/focuses on flow. • It also has a focus on eliminating waste from processes • Strong on execution • Short future horizon • Drives improvements to the operating environment • Flow works best with stable and linear demand Executive S&OP • Tools for forward decision-making • Strong on planning • Long future horizon • Balances demand and supply across the supply chain • Executive Forum for establishing relevant strategy, policy, and risk • Can be used in many different environments In a broad sense, they both get at culture! They work best when they work together!

  14. Agenda . . . • Introduction • The many tools for improving effectiveness • Lean focus versus S&OP focus • How does the Toyota Production System work? • What are the problems? • Market Forecast versus Production Leveling • FG Inventory as the only buffer • What are the solutions? • Solve the Family Feud • Buffer without Finished Goods Inventory • Backlog buffer (Lead Time) • Component Inventory - Postponement • Flexible resources • Questions and Answers.

  15. Production Strategies • Level -Most often associated with Make to Stock. To achieve a level production, a buffer against variable demand must be used. • Chase -Most often Make to order. Also could be called variable capacity. • Hybrid -A combination.

  16. Toyota StrategyPart A

  17. Toyota StrategyPart B

  18. Why This Works? • Toyota’s high quality and market acceptance allows limited variety • With a limited number of end items: • Schedule by end item • Don’t configure (finish) to order • Alignment of markets and resources

  19. Product Environment Levels # of Parts In this ‘shape’ a few end items are made from many parts, materials, and components. An example would be an equipment manufacturer such as automobiles, lawn mowers, capital equipment, etc. This shape lends itself to making to stock.

  20. Scheduling is done here Customer Lead Time Replenish Finished Goods Product Environment

  21. Plant Suppliers Dealers Toyota Flow Model Push Linearity Toyota Assembly Customers Demand Pull Schedule (to dealer orders/ forecast) FG Inv. Buffer Variable Demand

  22. Production Markets Line #1 Large Trucks Large Trucks Line #2 Small Trucks Small Trucks Line #3 Large Cars Large Cars Line #4 Small Cars Small Cars Demand-Supply Alignment(A second issue)

  23. Takt Time . . . “Takt is a German word for rhythm or meter. Takt is the rate of customer demand -- the rate at which the customer is buying product. . . . Takt can be used to set the pace of production. Continuous flow and takt time are most easily applied in repetitive manufacturing . . .” Jeffrey Liker The Toyota Way

  24. Takt time . . . Demand rate? or Production Rate?

  25. Agenda . . . • Introduction • The many tools for improving effectiveness • Lean focus versus S&OP focus • How does the Toyota Production System work? • What are the problems? • Market Forecasting versus Production Leveling • FG Inventory as the only buffer • What are the solutions? • Solve the Family Feud • Buffer without Finished Goods Inventory • Backlog buffer (Lead Time) • Component Inventory - Postponement • Flexible resources • Questions and Answers.

  26. Detailed Forecasting & Master Scheduling Super MS 24 Months Time Exec. S&OP / Rough Cut Plant Scheduling/Pull PTF MS Mix Sales Volume Marketing A primer on S&OP . . . Most Detail Aggregate Only Exac Config. . .Precise Mat’l. . .# People. . .Capital Equip . . .Factory Space • Lost in the woods- Detail • Engage Top Management? • Added Little Valueoutside the Planning Time Fence

  27. Volume Supply Demand The Four Fundamentals of S&OP . . . • How Much? • Rates • The Big Picture • Families • Strategy/Policy/Risk • Monthly / 18 - 36 Mos • Executive Resp. • Which Ones? • Timing/Sequence • The Details • Products/SKU’s/Orders • Tactics/Execution • Weekly/Daily 1-3 Mos • Middle Mgt. Resp. Mix “Plan the Volume; Schedule the Mix”

  28. Exec. S&OP 2 Aggregate Only Quadrant Suicide Quadrant . . . PTF 3 Building to Customer Demand 1 Suicide Quadrant Detail Horizon

  29. Master Scheduling Pull Methods Sales & Operations Planning Executive S&OP Volume DemandPlanning Supply Planning Demand Supply Mix

  30. Master Schedule definition . . . “The tool that balances demand and supply at the product level, as opposed to Executive S&OP which balances demand and supply at the aggregated Family level. It is the source of customer order promising, via its Available-to-Promise capability, and contains the anticipated build schedule for the plant(s) in the form of the Master Production Schedule.” Sales & Opertations Planning-The How To Handbook, 3rd Edition Wallace & Stahl, 2008

  31. What is Executive S&OP? Sales & Operations Planning is aExecutive Decision-Making Process toBalance Demand & Supply (at the volume level) isThe forum for setting Relevant Strategy & Policy and Integrates Financial & Operating Plans (update/validate the Annual Business Plan) Top Management’s Handle on the Business

  32. Markets Segments Channels Customers Mix Ratio Assumptions & Resource Req. Plan Versus Full Granularity // Sales & Marketing (Demand) Resource Department Equipment Supplier Operations (Supply) The Family Feud . . . Definition - Executive S&OP Families A grouping of end items whose similarity allow the markets to be best anticipated, and enables resources to be planned.

  33. Current Customers New Customers Competition Economic Outlook Market Trends New Products Pricing Strategy Promotions Bid Activity Management Directives Intra-Company Demand History (Data) Other Forecasting Inputs -- Process -- Output Forecasts that are: 1.Reasoned 2.Reasonable 3.Reviewed Frequently 4.Represent Total Demand Process

  34. Current Customers New Customers Competition Economic Outlook Market Trends New Products Pricing Strategy Promotions Bid Activity Management Directives Intra-Company Demand History (Data) Other Forecasting Inputs -- Process -- Output Forecasts that are: 1.Reasoned 2.Reasonable 3.Reviewed Frequently 4.Represent Total Demand Process

  35. Marketing: 1-18 Mos Executive S&OP Sales: 1-3 Mos Master Scheduling Demand Pull Executive S&OP Focus Volume Market Centric Shipments POS Mfg. Company Customers Markets Customer Centric Mix

  36. The Family Feud . . . • S&OP Families -- In Executive S&OP, Families are aggregate groups of products that are similar in the way that customers and/or markets view their use. Executive S&OP Families are used to develop a reasoned and reasonable forecast based on market trends, grounded in intrinsic and extrinsic leading indicators. • Lean Families -- In Lean Manufacturing, the term Families is used to mean the grouping of products that are manufactured by the same resources. This is often called a ‘value stream.’ The idea is to create a ‘synchronous flow’ in manufacturing that allows products to be produced at a uniform and linear market driven rate – known as Takt Time.

  37. Conclusion . . . • Executive S&OP families should be market determined • Lean families should be manufacturing (process) determined • They are different because they serve different purposes

  38. Consumer Market Small Widgets Housing Market Medium Widgets Industrial Market Large Widgets Family Feud . . .When are they the same? World Wide Widget Company Supply Demand Typically NOT!

  39. Small Widgets Consumer Market Medium Widgets Housing Market Large Widgets Industrial Market Non-Aligned to Markets World Wide Widget Company Demand Supply How, then, do you do Lean; Takt time, etc?

  40. Step #5 Executive Meeting Heavy Lifting Decisions & Game Plan Step #4 Pre-S&OP Meeting Conflict Resolution, Recommendations & Agenda for Exec. Mtg. Step #3 Supply Planning Capacity constraints 2nd-pass spreadsheets Step #2 Demand Planning Management Forecast 1st-pass spreadsheets Step #1 Data Gathering Sales Actuals, Statistical Forecasts & Production Actuals End of Month Executive S&OP Process

  41. Exercise #1 • Determine the families for Executive S&OP from the data provided.

  42. Product/Process Matrix Can’t do it --- No “market” data provided

  43. Market Drivers(Leading Indicators) • Birth Rate • Consumer confidence index • Housing starts • NASCAR TV ratings • Price of gasoline

  44. Correlation Data A correlation study revealed the following results (1.0 = high correlation): WagonsSledsVehicles • Housing Starts 0.5 0.4 0.2 • Birth Rate 0.80.75 0.4 • New Unemp. Claims -0.4 -0.6 -0.4 • Personal Income 0.5 0.4 0.6 • NASCAR Viewers -0.2 -0.3 0.7

  45. S&OP Families . . . What are the S&OP Families? • Wagons • Sleds • Vehicles

  46. Families . . . • S&OP Families -- In Executive S&OP, Families are aggregate groups of products that are similar in the way that customers and/or markets view their use. Executive S&OP Families are used to develop a reasoned and reasonable forecast based on market trends, grounded in intrinsic and extrinsic leading indicators. • Lean Families -- In Lean Manufacturing, the term Families is used to mean the grouping of products that are manufactured by the same resources. This is often called a ‘value stream.’ The idea is to create a ‘synchronous flow’ in manufacturing that allows products to be produced at a uniform and linear market driven rate – known as Takt Time.

  47. Determining Lean product families Create a Product Family Matrix: • Separate processes based on capability (ex. “The machines are the same, but Part ‘A’ can only be produced on this one.”) • Look at the ‘Downstream’ processing steps • Approximately 80% of the similar processing steps • Custom products look ‘Upstream’ at the fabrication steps • Fill in Product Family Matrix with ‘X’

  48. Product Process Matrix Process Steps and Equipment Spot Spot Robot Robot Flash Flash Paint Paint Manual Manual Fixtures Fixtures Electronic Electronic Weld Weld Weld Weld Remove Remove Ass Ass ’ ’ y y Ass Ass ’ ’ y y Test Test LH Steering LH Steering X X X X Bracket Bracket RH Steering RH Steering X X X X Bracket Bracket Instrument Instrument X X X Products Panel Brace Panel Brace Seat Seat X X Rail Rail Bumper Bumper X X X Brackets Brackets

  49. Product/Process Matrix

  50. Batch Manufacturing Sand Notch  Stock Room   A  C B Finished Goods   Paint Room Plate  Packaging Injection Mold     Die Cast     Deburr Trim Final Assembly

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