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The S&OP/Lean Connection Making Lean work with demand variability
AMETOTONTO2008 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
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Who are We? Bob Stahl Bill Kerber
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The “4P Model” of the Toyota Way
Problem Solving (Continuous Improvement & Learning) People & Partners (Respect, Challenge, & Growth) Process (Eliminate Waste) Philosophy (Long-Term Thinking) “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
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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! Linearity Push “. . . 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 Suppliers Plant Dealers Toyota Assembly Customers Demand Pull Schedule (to dealer orders/ forecast) FG Inv. Buffer Variable Demand
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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
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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 Product 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.”
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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
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How do you do Lean, if not exactly the Toyota Way?
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!
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Agenda . . . Introduction How does the Toyota Production System work?
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.
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Getting to AND . . . Diminishing OR
The New World of Manufacturing Best in Class High Quality Low Cost (Low Inventory) Customer Service Quick Response Reliability Wide Variety The mission of a commercial enterprise???? Can not longer compete on ONE thing! Getting to AND Diminishing OR Demand Driven vs Supply Driven How to make Mfg a ‘competitive weapon’? Let’s start with a perspective toward the ‘tools’ Getting to AND Diminishing OR
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The Many Tools for Improving Effectiveness
Increase Reliability Total Quality, Six Sigma, Poka-Yoke, ISO + others Reduce Waste & Time Enhance Coordination X X MANY TOOLS, PROCESSES HOW DO THEY FIT TOGETHER DISCLAIMER – EXCLUDE YOUR PET PROCESS OVERLAP NECESSARY BUT NOT SUFFICIENT X Sales & Operations Planning, ERP, Kanban, VMI, + others Lean Mfg., Just-In-Time, Quick Changeover (SMED), Flow + others
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The Many Tools for Improving Effectiveness
Total Quality, Six Sigma, Poka-Yoke, ISO + others Lean Mfg., Just-In-Time, Quick Changeover (SMED), Flow + others Sales & Operations Planning, ERP, Kanban, VMI, Increase Reliability X X MANY TOOLS, PROCESSES HOW DO THEY FIT TOGETHER DISCLAIMER – EXCLUDE YOUR PET PROCESS OVERLAP NECESSARY BUT NOT SUFFICIENT Reduce Waste & Time Enhance Coordination
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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 MANY TOOLS, PROCESSES HOW DO THEY FIT TOGETHER DISCLAIMER – EXCLUDE YOUR PET PROCESS OVERLAP NECESSARY BUT NOT SUFFICIENT Blur the boundaries
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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! Mention elevator speech
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Agenda . . . Introduction How does the Toyota Production System work?
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.
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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.
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Toyota Strategy Part A
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Toyota Strategy Part B
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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
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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.
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Product Environment Scheduling is done here Customer Lead Time
Replenish Finished Goods
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Toyota Flow Model Linearity Push Suppliers Plant Dealers
Toyota Assembly Customers Demand Pull Schedule (to dealer orders/ forecast) FG Inv. Buffer Variable Demand
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Demand-Supply Alignment (A second issue)
Line #1 Large Trucks Production Line #2 Small Trucks Line #3 Large Cars Line #4 Small Cars Markets Large Trucks Small Trucks Large Cars Small Cars
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Takt Time . . . . . . Takt can be used to set the pace of production.
“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
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Takt time . . . Demand rate? or Production Rate?
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Agenda . . . Introduction How does the Toyota Production System work?
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.
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Most Detail Aggregate Only
A primer on S&OP . . . 24 Months Time Most Detail Aggregate Only Exac Config. . .Precise Mat’l. . .# People. . .Capital Equip . . .Factory Space Detailed Forecasting & Master Scheduling Exec. S&OP / Rough Cut Super MS PTF MS Lost in the woods- Detail Engage Top Management? Added Little Value outside the Planning Time Fence Learning to See -- Mike Rother John Shook Womack/Jones Plant Scheduling/Pull Marketing Sales Volume Mix
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The Four Fundamentals of S&OP . . .
How Much? Rates The Big Picture Families Strategy/Policy/Risk Monthly / Mos Executive Resp. Volume Demand Supply Which Ones? Timing/Sequence The Details Products/SKU’s/Orders Tactics/Execution Weekly/Daily 1-3 Mos Middle Mgt. Resp. “Plan the Volume; Schedule the Mix” Mix
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Suicide Quadrant . . . 3 Building to Customer Demand 1 Suicide
PTF 3 Building to Customer Demand 1 Suicide Quadrant 2 Aggregate Only Quadrant Exec. S&OP Detail Horizon
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Sales & Operations Planning
Executive S&OP Volume Demand Planning Supply Planning Demand Supply Mix Master Scheduling Pull Methods
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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
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What is Executive S&OP? Sales & Operations Planning
is a Executive Decision-Making Process to Balance Demand & Supply (at the volume level) is The forum for setting Relevant Strategy & Policy and Integrates Financial & Operating Plans (update/validate the Annual Business Plan) Top Management’s Handle on the Business
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Mix Ratio Assumptions & Resource Req. Plan
The Family Feud . . . Mix Ratio Assumptions & Resource Req. Plan Versus Full Granularity Sales & Marketing (Demand) Markets Segments Channels Customers Resource Department Equipment Supplier Operations (Supply) // 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.
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Management Directives
Forecasting Inputs Process -- Output Forecasts that are: Current Customers New Customers Competition Economic Outlook Market Trends New Products Pricing Strategy Promotions Bid Activity Management Directives Intra-Company Demand History (Data) Other 1. Reasoned 2. Reasonable 3. Reviewed Frequently 4. Represent Total Demand Process
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Management Directives
Forecasting Inputs Process -- Output Forecasts that are: Current Customers New Customers Competition Economic Outlook Market Trends New Products Pricing Strategy Promotions Bid Activity Management Directives Intra-Company Demand History (Data) Other 1. Reasoned 2. Reasonable 3. Reviewed Frequently 4. Represent Total Demand Process Emphasize that this focus only comes from market families.
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Volume Mix Executive S&OP Focus Market Centric Customer Centric
Marketing: 1-18 Mos Executive S&OP Market Centric Shipments POS Mfg. Company Customers Markets Customer Centric Sales: 1-3 Mos Master Scheduling Demand Pull Mix
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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.
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Conclusion . . . Executive S&OP families should be market determined
Lean families should be manufacturing (process) determined They are different because they serve different purposes
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Family Feud . . . When are they the same?
World Wide Widget Company Consumer Market Housing Market Industrial Market Small Widgets Medium Widgets Large Widgets Supply Demand Typically NOT!
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Non-Aligned to Markets
World Wide Widget Company Consumer Market Housing Market Industrial Market Small Widgets Medium Widgets Large Widgets Demand Supply How, then, do you do Lean; Takt time, etc?
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Executive S&OP Process
Step #5 Executive Meeting Decisions & Game Plan Heavy Lifting 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 End of Month Sales Actuals, Statistical Forecasts & Production Actuals
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Exercise #1 Determine the families for Executive S&OP from the data provided.
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Product/Process Matrix
Can’t do it --- No “market” data provided
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Market Drivers (Leading Indicators)
Birth Rate Consumer confidence index Housing starts NASCAR TV ratings Price of gasoline
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Correlation Data A correlation study revealed the following results (1.0 = high correlation): Wagons Sleds Vehicles Housing Starts Birth Rate New Unemp. Claims Personal Income NASCAR Viewers
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S&OP Families . . . What are the S&OP Families? Wagons Sleds Vehicles
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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.
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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’
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Product Process Matrix
Bumper Brackets Seat Rail Instrument Panel Brace RH Steering Bracket LH Steering Electronic Test Fixtures Ass ’ y Manual Paint Flash Remove Robot Weld Spot Products Process Steps and Equipment X
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Product/Process Matrix
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Batch Manufacturing Finished Goods Packaging Sand Notch Stock Room
Paint Room Plate Packaging Injection Mold Bill, This does not show a stop in the Paint Room, but the Lean flow does??? Die Cast Deburr Trim Final Assembly 51
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Exercise #2 Determine the Lean product families based on the data given
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Product/Process Matrix
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Product/Process Matrix
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Lean Process Flow A B C Finished Goods Stockroom Packaging Die Cast
Deburr Paint Plate A Injection Mold Finished Goods Final Assembly Stockroom B Trim Packaging Lathe Sand Paint C Notch 55
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Lean Families . . . What are the Lean (Value Stream) Families?
Plastic Toys Wooden Toys Die Cast Toys
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Agenda . . . Introduction How does the Toyota Production System work?
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.
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Solving the Family Feud
Exec. S&OP Lean Plastic Toys Wooden Toys Die Cast Toys Supply Wagons Sleds Vehicles Demand Typically NOT!
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Non-Aligned to Markets
Exec. S&OP Lean Wagons Plastic Toys Supply Demand Sleds Wooden Toys Vehicles Die Cast Toys Better than Job Shop! Rough Cut on “Pacemaker” only!
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Job Shop . . . Aligned Non-Aligned A B C 3 2 1 D E F 6 5 4 7 8 Market
Families Production Resources
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Market Forecasts to Lean Production
Exec. S&OP Lean Wagons Plastic Toys 70% 30% 100% Sleds Wooden Toys 60% Vehicles Die Cast Toys 40%
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Managing Assumptions . . . (Control Charts)
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Demand Forecasts
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Wooden Demand Rate
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Rough-Cut Capacity Planning
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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.
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Primer on Takt Time . . . Sets the “Beat” in the form of pitch for production. Determines how many people work in assembly jobs. Provides “the bar” for operator balance charts for line balancing. For all of these, takt would be better represented by the production rate from S&OP.
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Demand versus Production Rate?
Current Lean definition has Takt time as effective working time divided by demand rate In most circumstances, we would be better off making it effective working time divided by Production rate (from S&OP plan)
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People vs. Takt Time B A C B A Balanced Line Balanced Line 6 5 min 5
4 5 min 3 5 min 2 5 min 1 5 min In Time = 480 min Units = 16 Takt = 30 min Operators = 2 B A 7 5 min 8 5 min 9 5 min 10 5 min 11 5 min 12 5 min Out Lead time = 60 min Balanced Line 6 5 min 5 5 min 4 5 min 3 5 min 2 5 min 1 5 min In Time = 480 min Units = 24 Takt = 20 min Operators = 3 C B A 7 5 min 8 5 min 9 5 min 10 5 min 11 5 min 12 5 min Out Lead time = 60 min 69
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Operator Balance Chart
Values in Bars = Cycle Time; Takt Time = 1.78 Minutes Example of Unbalanced Line 2.5 Takt Time 0.5 1.5 1.75 1.25 More Improevment Takt Time 1.78 1.78 1.78 1.78 0.21 Better Improvement Takt Time 1.78 1.78 1.78 1.78 Operator 1 Operator 2 Operator 3 Operator 4 Operator 5 70
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Agenda . . . Introduction How does the Toyota Production System work?
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.
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(to forecast/customer order)
Make-to-Order Flow Demand Pull Suppliers Plant Standard Parts Assembly Order Backlog Backlog Buffer Customers Variable Demand Unique Parts Plant Schedule (to forecast/customer order)
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Market Demands In this ‘shape’ many end items are made out of a few sub assemblies or intermediates that are made out of many unique raw materials and parts. An example of this would be a pharmaceutical manufacturer with many package types from standard product (aspirin), personal computers, packaged chemicals This shape lends itself to a postponement strategy.
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How Lean fits in : Postponement
Customer Lead Time Assemble to order Scheduling Here Pull or Schedule Components based on usage
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Finish-to-Order Flow (Postponement)
Demand Pull Planning BOM’s Plant Suppliers Standard Parts Assembly Customers Order Backlog Schedule (to forecast) Schedule (to Order) Backlog Buffer Variable Demand
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Agenda . . . Introduction How does the Toyota Production System work?
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.
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BOM Shape In this ‘shape’ many end items are made from a few raw materials. An example would be an injection molding company This shape suggests a make to order strategy.
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You must make the lead time fit market requirements!
How Lean fits in Speed Make to Order Customer Lead Time Schedule here You must make the lead time fit market requirements!
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Chase Strategy Production Demand Inventory (Backlog)
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This requires: alternatively Cross training of everyone
A way to know when to switch jobs during the workday (controlling flow) Adding or subtracting labor by using Temporary employees Overtime Subcontractors alternatively Staff for peak periods and work on improvements when slow
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S&OP and Lean work best when they work together!
Conclusion S&OP and Lean work best when they work together!
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Agenda . . . Introduction How does the Toyota Production System work?
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.
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Thanks for Listening Bob Stahl Bill Kerber RStahlSr@aol.com
Bill Kerber
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