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Bob Stahl & Bill Kerber www.tfwallace.com The S&OP/Lean Connection Making Lean work with demand variability Bob Stahl Bill Kerber October 20-24, 2008 Toronto,

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Presentation on theme: "Bob Stahl & Bill Kerber www.tfwallace.com The S&OP/Lean Connection Making Lean work with demand variability Bob Stahl Bill Kerber October 20-24, 2008 Toronto,"— Presentation transcript:

1 Bob Stahl & Bill Kerber The S&OP/Lean Connection Making Lean work with demand variability Bob Stahl Bill Kerber October 20-24, 2008 Toronto, Canada AME TOTONTO 2008 From Good to Great AME TOTONTO 2008 From Good to Great

2 Bob Stahl & Bill Kerber Who are We? Bob Stahl Bill Kerber

3 Bob Stahl & Bill Kerber The 4P Model of the Toyota Way Problem Solving (Continuous Improvement & Learning) People & Partners (Respect, Challenge, & Growth) Process (Eliminate Waste) Philosophy (Long-Term Thinking) Our Focus 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

4 Bob Stahl & Bill Kerber 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... 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 Schedule (to dealer orders/ forecast) Schedule (to dealer orders/ forecast) Push Linearity Toyota Flow Model Toyota Assembly Customers Dealers Demand Pull FG Inv. Buffer FG Inv. Buffer Variable Demand Variable Demand Suppliers Plant There is nothing illegal, immoral, or fattening with this approach, but many (most) companies cant afford, or simply cant follow, this approach to creating linearity with very large finished goods inventory. For Toyota, as we all know, it has worked very very well!

5 Bob Stahl & Bill Kerber LEIs Interpretation LEIs Seven Characteristics of a Lean Value Stream: 1.Takt 2.Finished goods strategy 3.Flow 4.Pull where cant flow 5.Scheduling at one point 6.Pitch 7.EPEI James P. Womack Danie T. Jones

6 Bob Stahl & Bill Kerber 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.

7 Bob Stahl & Bill Kerber 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

8 Bob Stahl & Bill Kerber 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? Thats why were here!

9 Bob Stahl & Bill Kerber Agenda... 1)Introduction The many tools for improving effectiveness Lean focus versus S&OP focus 2)How does the Toyota Production System work? 3)What are the problems? Market Forecast versus Production Leveling FG Inventory as the only buffer 4)What are the solutions? Solve the Family Feud Buffer without Finished Goods Inventory Backlog buffer (Lead Time) Component Inventory - Postponement Flexible resources 5)Questions and Answers.

10 Bob Stahl & Bill Kerber The New World of Manufacturing The New World of Manufacturing High Quality Low Cost (Low Inventory) Customer Service Quick Response Reliability Wide Variety Best in Class Getting to AND... Diminishing OR

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

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

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

14 Bob Stahl & Bill Kerber 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!

15 Bob Stahl & Bill Kerber Agenda... 1)Introduction The many tools for improving effectiveness Lean focus versus S&OP focus 2)How does the Toyota Production System work? 3)What are the problems? Market Forecast versus Production Leveling FG Inventory as the only buffer 4)What are the solutions? Solve the Family Feud Buffer without Finished Goods Inventory Backlog buffer (Lead Time) Component Inventory - Postponement Flexible resources 5)Questions and Answers.

16 Bob Stahl & Bill Kerber 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.

17 Bob Stahl & Bill Kerber Toyota Strategy Part A

18 Bob Stahl & Bill Kerber Toyota Strategy Part B

19 Bob Stahl & Bill Kerber Why This Works? Toyotas high quality and market acceptance allows limited variety With a limited number of end items: –Schedule by end item –Dont configure (finish) to order Alignment of markets and resources

20 Bob Stahl & Bill Kerber Product Environment 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. Levels # of Parts

21 Bob Stahl & Bill Kerber Product Environment Scheduling is done here Replenish Finished Goods Customer Lead Time

22 Bob Stahl & Bill Kerber Linearity Toyota Flow Model Toyota Assembly Customers Dealers Demand Pull Schedule (to dealer orders/ forecast) Schedule (to dealer orders/ forecast) FG Inv. Buffer FG Inv. Buffer Variable Demand Variable Demand Suppliers Plant Push

23 Bob Stahl & Bill Kerber Demand-Supply Alignment (A second issue) Markets Large Trucks Small Trucks Large Cars Small Cars Line #1 Large Trucks Line #1 Large Trucks Production Line #2 Small Trucks Line #2 Small Trucks Line #3 Large Cars Line #3 Large Cars Line #4 Small Cars Line #4 Small Cars

24 Bob Stahl & Bill Kerber 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

25 Bob Stahl & Bill Kerber Takt time... Demand rate? or Production Rate?

26 Bob Stahl & Bill Kerber Agenda... 1)Introduction The many tools for improving effectiveness Lean focus versus S&OP focus 2)How does the Toyota Production System work? 3)What are the problems? Market Forecasting versus Production Leveling FG Inventory as the only buffer 4)What are the solutions? Solve the Family Feud Buffer without Finished Goods Inventory Backlog buffer (Lead Time) Component Inventory - Postponement Flexible resources 5)Questions and Answers.

27 Bob Stahl & Bill Kerber A primer on S&OP... Plant Scheduling/Pull MS Exec. S&OP / Rough Cut PTF 24 Months Time Most DetailAggregate Only Exac Config...Precise Matl...# People...Capital Equip...Factory Space Volume Mix Detailed Forecasting & Master Scheduling Lost in the woods- Detail Engage Top Management? Added Little Value outside the Planning Time Fence Marketing Sales Super MS

28 Bob Stahl & Bill Kerber The Four Fundamentals of S&OP... Demand Supply Volume Mix How Much? Rates The Big Picture Families Strategy/Policy/Risk Monthly / Mos Executive Resp. Which Ones? Timing/Sequence The Details Products/SKUs/Orders Tactics/Execution Weekly/Daily 1-3 Mos Middle Mgt. Resp. Plan the Volume; Schedule the Mix

29 Bob Stahl & Bill Kerber Suicide Quadrant... PTF Horizon Detail 1 Suicide Quadrant 2 Aggregate Only Quadrant Exec. S&OP 3 Building to Customer Demand

30 Bob Stahl & Bill Kerber Sales & Operations Planning DemandSupply Volume Mix Executive S&OP Demand Planning Supply Planning Master Scheduling Pull Methods

31 Bob Stahl & Bill Kerber 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

32 Bob Stahl & Bill Kerber 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 Managements Handle on the Business

33 Bob Stahl & Bill Kerber The Family Feud... 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. Mix Ratio Assumptions & Resource Req. Plan Versus Full Granularity Sales & Marketing (Demand) Markets Segments Channels Customers Markets Segments Channels Customers

34 Bob Stahl & Bill Kerber ForecastingForecasting 1. Reasoned 2. Reasonable 3. Reviewed Frequently 4. Represent Total Demand 1. Reasoned 2. Reasonable 3. Reviewed Frequently 4. Represent Total Demand 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 Process Inputs -- Process -- Output

35 Bob Stahl & Bill Kerber ForecastingForecasting 1. Reasoned 2. Reasonable 3. Reviewed Frequently 4. Represent Total Demand 1. Reasoned 2. Reasonable 3. Reviewed Frequently 4. Represent Total Demand 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 Process Inputs -- Process -- Output

36 Bob Stahl & Bill Kerber Executive S&OP Focus Mfg. CompanyMarketsCustomers ShipmentsPOS Sales: 1-3 Mos Master Scheduling Demand Pull Marketing: 1-18 Mos Executive S&OP Mix Volume Customer Centric Market Centric

37 Bob Stahl & Bill Kerber 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.

38 Bob Stahl & Bill Kerber Conclusion... Executive S&OP families should be market determined Lean families should be manufacturing (process) determined They are different because they serve different purposes

39 Bob Stahl & Bill Kerber Family Feud... When are they the same? Small Widgets Medium Widgets Large Widgets Consumer Market Housing Market Industrial Market Supply Demand Typically NOT! World Wide Widget Company

40 Bob Stahl & Bill Kerber Non-Aligned to Markets Small Widgets Medium Widgets Large Widgets Consumer Market Housing Market Industrial Market SupplyDemand How, then, do you do Lean; Takt time, etc? World Wide Widget Company

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

42 Bob Stahl & Bill Kerber Exercise #1 Determine the families for Executive S&OP from the data provided.

43 Bob Stahl & Bill Kerber Product/Process Matrix Cant do it --- No market data provided

44 Bob Stahl & Bill Kerber Market Drivers (Leading Indicators) Birth Rate Consumer confidence index Housing starts NASCAR TV ratings Price of gasoline

45 Bob Stahl & Bill Kerber Correlation Data A correlation study revealed the following results (1.0 = high correlation) : WagonsSleds Vehicles Housing Starts Birth Rate New Unemp. Claims Personal Income NASCAR Viewers

46 Bob Stahl & Bill Kerber S&OP Families... What are the S&OP Families? Wagons Sleds Vehicles

47 Bob Stahl & Bill Kerber 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.

48 Bob Stahl & Bill Kerber 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

49 Bob Stahl & Bill Kerber Product Process Matrix

50 Bob Stahl & Bill Kerber Product/Process Matrix

51 Bob Stahl & Bill Kerber Batch Manufacturing Stock Room SandNotch Paint Room DeburrTrimFinal Assembly Packaging Finished Goods Plate Injection Mold Die Cast A B C

52 Bob Stahl & Bill Kerber Exercise #2 Determine the Lean product families based on the data given

53 Bob Stahl & Bill Kerber Product/Process Matrix

54 Bob Stahl & Bill Kerber Product/Process Matrix

55 Bob Stahl & Bill Kerber Lean Process Flow Packaging Finished Goods Stockroom A Die Cast Deburr Plate Paint B Injection Mold Trim Final Assembly C Sand Lathe Notch Paint

56 Bob Stahl & Bill Kerber Lean Families... What are the Lean (Value Stream) Families? Plastic Toys Wooden Toys Die Cast Toys

57 Bob Stahl & Bill Kerber Agenda... 1)Introduction The many tools for improving effectiveness Lean focus versus S&OP focus 2)How does the Toyota Production System work? 3)What are the problems? Market Forecasting versus Production Leveling FG Inventory as the only buffer 4)What are the solutions? Solve the Family Feud Buffer without Finished Goods Inventory Backlog buffer (Lead Time) Component Inventory - Postponement Flexible resources 5)Questions and Answers.

58 Bob Stahl & Bill Kerber Solving the Family Feud Plastic Toys Wooden Toys Die Cast Toys Supply Wagons Sleds Vehicles Demand Typically NOT! LeanExec. S&OP

59 Bob Stahl & Bill Kerber Non-Aligned to Markets Better than Job Shop! Rough Cut on Pacemaker only! Plastic Toys Wooden Toys Die Cast Toys Supply Wagons Sleds Vehicles Demand LeanExec. S&OP

60 Bob Stahl & Bill Kerber Job Shop... Market Families Production Resources A A B B C C Aligned D D E E F F Non-Aligned

61 Bob Stahl & Bill Kerber Market Forecasts to Lean Production Plastic Toys Wooden Toys Die Cast Toys Wagons Sleds Vehicles LeanExec. S&OP 100% 30% 40% 70% 60%

62 Bob Stahl & Bill Kerber Managing Assumptions... (Control Charts)

63 Bob Stahl & Bill Kerber Demand Forecasts

64 Bob Stahl & Bill Kerber Wooden Demand Rate

65 Bob Stahl & Bill Kerber Rough-Cut Capacity Planning

66 Bob Stahl & Bill Kerber 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.

67 Bob Stahl & Bill Kerber 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.

68 Bob Stahl & Bill Kerber 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)

69 Bob Stahl & Bill Kerber People vs. Takt Time 7 5 min 8 5 min 9 5 min 10 5 min 11 5 min 12 5 min 6 5 min 5 5 min 4 5 min 3 5 min 2 5 min 1 5 min Time = 480 min Units = 16 Takt = 30 min Operators = 2 In Out Lead time = 60 min BA Balanced Line 6 5 min 5 5 min 4 5 min 3 5 min 2 5 min 1 5 min 7 5 min 8 5 min 9 5 min 10 5 min 11 5 min 12 5 min Time = 480 min Units = 24 Takt = 20 min Operators = 3 In Out CBA Lead time = 60 min Balanced Line

70 Bob Stahl & Bill Kerber Operator 1 Operator 2 Operator 3 Operator 4 Operator Takt Time Better Improvement Takt Time Example of Unbalanced Line Values in Bars = Cycle Time; Takt Time = 1.78 Minutes 1.78 Takt Time More Improevment Operator Balance Chart

71 Bob Stahl & Bill Kerber Agenda... 1)Introduction The many tools for improving effectiveness Lean focus versus S&OP focus 2)How does the Toyota Production System work? 3)What are the problems? Market Forecasting versus Production Leveling FG Inventory as the only buffer 4)What are the solutions? Solve the Family Feud Buffer without Finished Goods Inventory Backlog buffer (Lead Time) Component Inventory - Postponement Flexible resources 5)Questions and Answers.

72 Bob Stahl & Bill Kerber Make-to-Order Flow Assembly Demand Pull Schedule (to forecast/customer order) Schedule (to forecast/customer order) Order Backlog Backlog Buffer Backlog Buffer Customers Variable Demand Variable Demand Suppliers Plant Standard Parts Standard Parts Unique Parts Unique Parts Plant

73 Bob Stahl & Bill Kerber 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.

74 Bob Stahl & Bill Kerber How Lean fits in : Postponement Scheduling Here Pull or Schedule Components based on usage Assemble to order Customer Lead Time

75 Bob Stahl & Bill Kerber Finish-to-Order Flow (Postponement) Assembly Customers Order Backlog Demand Pull Schedule (to forecast) Schedule (to forecast) Backlog Buffer Backlog Buffer Variable Demand Variable Demand Suppliers Plant Standard Parts Standard Parts Schedule (to Order) Schedule (to Order) Planning BOMs

76 Bob Stahl & Bill Kerber Agenda... 1)Introduction The many tools for improving effectiveness Lean focus versus S&OP focus 2)How does the Toyota Production System work? 3)What are the problems? Market Forecasting versus Production Leveling FG Inventory as the only buffer 4)What are the solutions? Solve the Family Feud Buffer without Finished Goods Inventory Backlog buffer (Lead Time) Component Inventory - Postponement Flexible resources 5)Questions and Answers.

77 Bob Stahl & Bill Kerber 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.

78 Bob Stahl & Bill Kerber How Lean fits in Make to Order Make to Order Schedule here You must make the lead time fit market requirements! Speed Customer Lead Time

79 Bob Stahl & Bill Kerber Chase Strategy Production Demand Inventory (Backlog)

80 Bob Stahl & Bill Kerber This requires: 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

81 Bob Stahl & Bill Kerber ConclusionConclusion S&OP and Lean work best when they work together!

82 Bob Stahl & Bill Kerber Agenda... 1)Introduction The many tools for improving effectiveness Lean focus versus S&OP focus 2)How does the Toyota Production System work? 3)What are the problems? Market Forecast versus Production Leveling FG Inventory as the only buffer 4)What are the solutions? Solve the Family Feud Buffer without Finished Goods Inventory Backlog buffer (Lead Time) Component Inventory - Postponement Flexible resources 5)Questions and Answers.

83 Bob Stahl & Bill Kerber Thanks for Listening Bob Stahl Bill Kerber


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