Presentation on theme: "Finding & Testing SIMPLE Solutions for COMPLEX Problems"— Presentation transcript:
1 Finding & Testing SIMPLE Solutions for COMPLEX Problems CASE STUDY 1 Helping achieve “One-Simple-ABB” with “TOC in SAP” within Complex Manufacturing EnvironmentCASE STUDY 2Finding & Testing a solution to SHORTAGES & SURPLUSES within Book Publishing Supply ChainPresenter: Dr Alan Barnard, CEO Goldratt Research LabsDate: 27th August
2 Case Study 1 Helping Achieve “One-Simple-ABB” with TOC in SAP Presenter: Dr Alan Barnard, CEO Goldratt Research LabsContributors: Dr Katja Rajaniemi, Improvement Manager ABB BUFredrik Nordstrom, Regional Manager ABB Ops Development GroupLukasz Krupa, Leader, ABB Manufacturing IS SolutionsAlex D’ ’Anci, Regional Manager, ABB Ops Development GroupEli Schragenheim, Goldratt Schools
3 Presentation Outline Research Background ABB Case Study: Facts about ABBABB’s Continuous Improvement Evolution at ROIThe “One-Simple-ABB” Challenge for Operations ExcellenceConflict in leveraging and standardizing on best practices across ABBConflict in leveraging and standardizing on a single IT Platform and ERP systemFinding a Solution to the “One-simple-ABB” ChallengeDefining a simple yet robust TOC solution for 300+ different factoriesDefining “TOC in SAP” using Goldratt’s “Strategy and Tactic” (S&T) processTesting “TOC in SAP” solution through series of PilotsResults achieved to date & next stepsResearch Conclusions
4 Research Background RESEARCH PROBLEM Most companies today, have left the final choice of which which Planning, Execution and Continuous improvement (PECI) methods and which IT systems to support these to Business Units because BUs are:Responsible for continuously improving on their result.In the best position to decide which methods & systems best meet their specific requirements.Normally responsible for pay for these.No wonder BU’s have resisted most attempts to standardize or centralize IT and PECI’s …
5 Research Background RESEARCH PROBLEM However, not standardizing and leveraging Best Practices and a common IT platform, has major negatives for the Company as a whole…Providing Support to multiple IT platforms and different Improvement methods is a nightmare for Centralized functions and very costlyEnsuring fast and reliable integration of data between different systems is a major challenge and occupies valuable management time every monthBusiness Processes cannot be standardized to enable fast and accurate transactions.Best Practices are not shared and results achieved are not duplicated
6 Research Background RESEARCH QUESTIONS Q1: Is it possible to find a "one-solution-fits-all" both in rules and ERP technology when it comes to planning, execution and improvement of operations especially considering the many specific local considerations resulting in "we are different”)?Q2. Even if it was possible to theoretically find such a solution that could meet most business requirements, would it be possible to get buy-in from regional and plant managers under pressure to improve performance & reduce costs to test such a solution?
7 Research Background RESEARCH METHOD Literature Review to identify which companies have tried and succeeded and which not and Why?Consultation with Experts to determine if a “One-Solution-fits-all” solution design was possible and then whether such a solution can be implemented within a standard ERP System (the hypothesis to be tested)Followed Action Research method using “Plan, Do, Review & Act” cycles to validate and continuously improve hypothesis
8 Case Study: Facts about ABB Power ProductsPower SystemsAutomation ProductsProcess AutomationRoboticsABB is the world’s leading provider of power and automation technologies with strong market positions in core businessesABB’s goal is to create value for their stakeholders by helping customers Use Electrical Power more Efficiently, Increase Industrial Productivity, Lower Environmental impact in a sustainable wayRevenues in 2007: $29.2 billion and Orders for $34.3 b (large backlog)Headquarters: Zurich, SwitzerlandAbout 107,000 employees in 100 countries with Market-leading positions in most key productsRobust global value chain to serve established and emerging markets300+ factories around the world
9 Why Operational Excellence is critical to ABB… 4Competitors also have aggressive operational excellence programsCompetitorsCustomersSubSubSuppliers3Supply Partners expectBetter visibility (and prices) for Improved reliability and responseRevenuesCOPQEBIT2Shareholders expectIncrease EBIT (growth)Reduce COPQ (stability)PT1Customers expect more for less faster each year
10 ABB’s Continuous Improvement Evolution Number of factories using TOCBy 2008 ~100Trained in “Advanced TOC”~500 in TOC through OEP2007TOC in SAP2008OEP for Controllers2005Test TOCDistributionSolution2007OEP for IS1998 Corp R&D Program forManufacturingTechnologies1992 Production Technology Organization partof Corp. R&D in Finland2006MT R&D Program becomes Operations Development Group. 50 consultants in 4 centers2001Eli Goldrattvisits ABB199912 Jonahs trained2003Operational Excellence Program (OEP) launched as CP31993 first DBR implementation2002ConWIP19882010TOC + Lean Thinking + OEP = Operational Excellence
11 Was the investment in Operational Excellence worth it for ABB? A study of ABB’s Operations Improvement projects (TOC+LEAN) confirm an average payback time of less than 3 months !1) Source: Copenhagen Institute for Futures Studies and Larry Keeley: (3000 projects examined)
12 Sample TOC & Lean success stories in ABB (1/2) Distribution Transformers production unit2005TPT (Line1) - 75%TPT (Line2) - 65%TPT > - 50%Delivery time > - 25%Total inventory reduction 1,2 MUSD while 40% volume increaseLV Motors manufacturing unitProductivity +38%TPT -17%Tap Changer manufacturing unitTPT %Delivery time > - 60%HV Bushings manufacturing unitCapacity +30%TPT - 50%OTD from 8 to 93%Value chain from a component factory in Europe to a product factory in AsiaReplenishment time %Total inventory turns %On Time Delivery from 83 to %Technology Development CentreProject OTD from 45 to 87% withsignificantly reduced cycle timeFunctional Completion Rate incr. to 100%Cables manufacturing unit2004TPT - 80%WIP - 60%TPT - 70%Delivery time - 48%OTD from 70 to 96%while 245% increase in orders receivedHV SwitchgearCapacity +43%
13 Sample TOC & Lean success stories in ABB (2/2) Power Transformers production unit2007WIP and LT - 40%OTD (On Time Delivery) from 86 to 100%Capacity % without planned expansionDistribution Transformers production unitWIP - 45%TPT - 70%OTD from 45% to 98%Distribution protection and control products manufacturing unitDelivery time %OTD from 40 to 100%Capacity % with existing resourcesMCB production unitDelivery time - 50% for stock and non-stock itemsOTD from 84% to 97%2006Productivity +30%Delivery time - 50% (from 6 to 3 months)WIP %Capacity +30%TPT - 64%Delivery time - 32%Inventories - 44%OTD from 66 to 98%MV Circuit Breakers manufacturing unitCapacity +260%TPT - 60%Delivery time - 60%OTD from 77 to 100%LV Breakers and Switches production unitCapacity +25%Delivery time - 80%OTD from 23 to 90%
14 Sanmina-SCI Case Study What is the benefit of using TOC as a focusing tool for LEAN & Six Sigma vs. using each in isolation?Sanmina-SCI Case StudyLeading global electronics manufacturing services (EMS) company employing over 48,000 people and revenue of $11.7 BillionSet-up experiment over 2.5 years to test financial impact of LEAN, Six Sigma and TLS (TOC focusing LEAN & 6S)21 Participating plants with:11 Plants on Six Sigma4 Plants on LeanPlants on TLSTLS, Lean, and Six Sigma all offered benefitsTLS showed times greater financial benefit delivering 89% of total benefits achieved from only 6 out of 21 plantsSource: Apics Magazine, May 2006 and TOCICO 2007 presentation by Dr Russ Pirasteh, Sanmina-SCI,
15 = Standardize, Do, Check, Act But how do you achieve Step-Change AND Continuous Improvement within any organization?SDCA= Standardize, Do, Check, ActContinuous (Evolutionary) Improvement through institutionalizing Best PracticesPDCA= Plan, Do, Check, ActStep-Change (Revolutionary) Improvement through Constraint Focused interventions (Kaizen)Source: ‘Kaizen: The Key to Japan’s Competitive Success’, by Masaaki Imai
16 Operational Excellence Acceleration Challenge What blocks a company such as ABB from identifying and spreading best-practices, learnings and results effectively in a big organization?The “Best Practice” Standardization DilemmaNeedHave a way to Roll-out best-practicesefficiently & effectivelyActionStandardize ourimprovementapproachEach BU/Factories is different which mean there are no “one-solution-fits-all” that can be rolled outBecause:ConflictObjectiveEnsure leverageof Best-Practices in all Business unitsNeedHave a way to ensure out-standing resultin each BUActionCustomize an improvement approach for each business unitReally?
17 Operational Excellence Acceleration Challenge Despite the many differences between the plants where TOC+LEAN were implemented, it seemed to deliver similar results without any significant differences in the “what” and “how to”…Resolving the Standardization Dilemma:NeedRoll-outbest practiceseffectivelyActionStandardize ourimprovementapproachDirection of solution:Use TOC to focus & synchronize Planning, Execution & Cont. Improvement solution (TOC + LEAN) and an participative engagement approach for getting contribution and consensusObjectiveEnsure leverageof Best-Practices in all unitsNeedEnsure out-standing resultin each unitActionDevelop approachwith target unitpersonnel each time
18 ABB Gate Model for Process Improvement projects of Best Practices using a holistic TOC approach …. addressing resistance to change as an organizational constraint:ProjectscopedefinitionExecutionPlanFinalsolutionagreementHand-overPilotresultsCloseprojectValidateStartAgreement2345167DevelopmentPilotingImplementationAnalysisPlanningSustain6. Agreement by all collaborators including management that we can move forward with confidence4. Agreement that no disastrous side effects will result5. Agreement on the implementation requirements and the plan itself3. Agreement that the solution will yield the desired results2. Agreement on the direction of the solution1. Agreement on the problemBut how do a standardize “Best Practices” without standardizing the IT Platform?Source: ABB developed (based on Cooper´s Stage-gate model).
19 ABB’s ERP System reality after years of acquisitions and empowered BU and Regional IT decision making..As a result of numerous acquisitions, ABB at one time had more than 500 ERP systems and 70 different ERP brands in operation across its businesses.Most of the factories and distribution centres were also using in-house developed Spreadsheets and Databases for supporting their preferred Planning, Execution and Continuous Improvement MethodsIntegration of systems and data (and support) had become a nightmare and major risk to the business.In late 2006, a decision was made at the ABB board, to embark on a (challenging) journey of standardization on a common IT / ERP Platform (or at least range of platforms) and simplification based on “best-practices”.The initiative was titled “One-simple-ABB” or “OsA”.
20 ABB’s “One-simple-ABB” decision and consequences... Press Release in March 2007“Today, ABB signed a strategic agreement with the German-based ERP provider, SAP to help deploy common SAP ERP software through its global operations to help unify and simplify some of ABB’s most important business processes. The OsA initial target is one ERP per country, and ultimately one ERP platform per region for all of ABB that would enable a high degree of standardization in the human resources, finance and administration and corporate governance functions as well as in the operational excellence “best-practices”Yes, BUT....Would it really be possible to find and get agreement that a “One-simple-ABB” solution was possible for managing the diversity and complexity of ABB’s 300+ factories?
21 The Operations dilemma in supporting ABB’s global “One-Simple-ABB” objective? The “One-Simple-ABB” DilemmaNeedEfficient and fully integrated Finance, HR & OPS business processes across ABBActionDeploy a common ERP platform across ABB and limit selection of SCM & MES systemsEach BU/Factory is unique and using a common ERP platform or limiting choices in SCM / MES methods & systems will jeopardize results and or ownershipBecause:ObjectiveCreate long term competitive edge in our industryNeedContinuously Improve customer service and sales through efficient & effective operationsActionAllow each site to develop own / use 3rd party ERP, SCM & MES systemsNot updating ERPERP inaccurateDon’t trust ERPUse Legacy / 3rd PartyViscious Cycle of D’: IF 3rd Party or Off-line systems are used for planning & Execution mgt and these are not integrated with ERP and operations people are time constrained, THEN it means ERP is not always (and in some cases never) updated which means ERP data is inaccurate causing people to distrust ERP system giving more justification for using 3rd Party or in-house developed spreadsheets & databases
22 The Operations dilemma in supporting ABB’s global “One-Simple-ABB” objective? The “One-Simple-ABB” Solution for OperationsNeedEfficient and fully integrated Finance, HR & OPS business processes across ABBDirection of win-win solution:Get agreement that TOC can provide “one-solution-fits-all”Find a way to Modify SAP R3 to support TOC (TOC Planning, Execution & POOGI rules).ABB to launch a “TOC in SAP” initiative to validate above hypothesisObjectiveCreate long term competitive edge in our industryNeedActionContinuously Improve customer service and sales through efficient & effective operationsYes, BUT…Q1: Would it really be possible to define a TOC “One-solution-fits-all”?Q2: Would it really be possible to modify SAP to support this solution?
23 “TOC in SAP” Project at ABB Getting Agreement & testing TOC Solution Design & SAP functionality Project Start“TOC in SAP” Intro W/Shop In ZurichSAP Development & TestCollaboration of ABB, TOC & SAP ExpertsTOC Solution Validation & Pilot SelectionWeb-call with Dr. Eli GoldrattRoll-out & ValidationCont. To validate robustness & resultsTOC Solution Design“Go-Live”At Pilot Site In BrnoSAPBlueprintExperts convert Solution Design into Functional ReqsW/ShopsIn Brno to specify the solutionW/Shop in Krakow reviews ABB diversityJan 2007March 2007Jun 2007Aug 2007Oct 2007Nov 2007OngoingSo, what was the process we used to find and test a “SIMPLE & ROBUST” solution......introducing Goldratt’s Strategy & Tactic Tree
24 Finding a simple & robust SCM solution for ABB that is generic enough to be used by all factories Using Goldratt’s Strategy & Tactic tree method to find a simple & robust Planning, Execution & Cont. Improvement solution…1ABB Goal:Profitable Growth2.1Reliability/Availability Competitive Edge2.2Rapid Response Competitive Edge3.1.1Remarkable Due Date Perf & Availability3.1.2Selling Reliability/Availability Selling as Comp. Edge3.1.3Coping with Sales Growth3.2.1Remarkable Rapid Response3.2.2Protective Capacity for RR orders3.2.3Selling Rapid Response as Comp. Edge3.2.4Expanding RR Client Base“The best solutions start with the right questions…”
25 Finding a simple & robust SCM solution for ABB that is generic enough to be used by all factories 1ABB Goal:Profitable Growth2.1Reliability/Availability Competitive Edge2.2Rapid Response Competitive Edge3.1.1Remarkable Due Date Perf & Availability3.1.2Selling Reliability/Availability Selling as Comp. Edge3.1.3Coping with Sales Growth3.2.1Remarkable Rapid Response3.2.2Protective Capacity for RR orders3.2.3Selling Rapid Response as Comp. Edge3.2.4Expanding RR Client BaseOther “Hidden” Disruptions to FlowPotential PerformanceWhat really causes low Tput, poor DDP / Availability & Long LT?Unsynchronized Priorities in OperationsReleasing Too much / Too earlyMaterials / Purchased Parts not availableOver- / Under-committing CapacityCurrent Performance
26 Finding a simple & robust SCM solution for ABB that is generic enough to be used by all factories 1ABB Goal:Profitable Growth2.1Reliability/Availability Competitive Edge2.2Rapid Response Competitive Edge3.1.1Remarkable Due Date Perf & Availability3.1.2Selling Reliability/Availability Selling as Comp. Edge3.1.3Coping with Sales Growth3.2.1Remarkable Rapid Response3.2.2Protective Capacity for RR orders3.2.3Selling Rapid Response as Comp. Edge3.2.4Expanding RR Client BaseSalesHow to QUOTE reliable due dates with internal Constraint?i.e. Not over-/under-commitProcurementHow do we maintain High RM Availability with Low Inventory?PlanningHow do we control release of ETO, MTO & MTS WO’s for Low WIP/high CCR utilization?ExecutionHow do we maintain right priority of ALL WO’s on shop floor?Ongoing ImprovementHow do we continuously Improve flow by identifying & removing local optima & other “hidden” disruptions/ CCRs to improve flow?
27 Finding a simple & robust SCM solution for ABB that is generic enough to be used by all factories 1ABB Goal:Profitable Growth2.1Reliability/Availability Competitive Edge2.2Rapid Response Competitive Edge3.1.1Remarkable Due Date Perf & Availability3.1.2Selling Reliability/Availability Selling as Comp. Edge3.1.3Coping with Sales Growth3.2.1Remarkable Rapid Response3.2.2Protective Capacity for RR orders3.2.3Selling Rapid Response as Comp. Edge3.2.4Expanding RR Client Base(Sales)TOC’sPLANNED LOAD (PL)for Quoting Safe Due Dates(Buying)TOC’sDYNAMIC BUFFER MGT (DBM) & TOC Replenishment (TOCR) for Inventory Mgt(Planning)TOC’sRELEASE CONTRO (S-DBR)to control WIP and improve Flow(Execution)TOC’sSINGLE PRIORITY SYSTEMBuffer Mgt (BM) to keep priorities synchronized(Improve)TOC’sBUFFER ANALYSIS to Focus Process Improvements & Capacity Elevation
28 Defining, communicating & validating the proposed ERP changes using S&T structure 1ABB Goal: Profitable GrowthTOC’s PLANNED LOAD DETAILSWhy is the change needed?Necessary AssumptionWhat is the objective of the change?StrategyWhy will the change achieve the objective?Parallel AssumptionsHow will the change be implemented?Tactic4.11.1Quoting Safe Due Dates using CCR(s) Planned Load2.1Reliability/Availability Competitive EdgeWhen Sales/Planning accept an order due date which the factory cannot achieve, it jeopardize ABB’s Reliability CE.Even if the constraint is in the market, fluctuations in demand or supply can cause specific resources (CCRs) to be overloaded. Under such circumstances, quoting fixed lead times is very likely to result in missed due dates resulting in poor DDP.Due-dates given by the sales force/planning are (almost) always met even during periods of capacity overloads (Target: 99% DDP)3.1.1Remarkable Due Date Perf & AvailabilityIt is relatively easy to meet all due-dates when the commitments are given based on actual planned loads on the CCR(s) and S-DBR and BM are in place to control release & align priorities.The ERP systems can be modified to provide (within mins) a safe due date based on CCR(s) planned load + ½ Production Time Buffer (if CCR is about in middle of flow)(Sales)TOC’s PLANNED LOAD (PL) for Quoting Safe Due DatesSafe Due-date are given according to first available slot on CCR(s) + ½ Production Time BufferThe ERP system is modified to provide Safe Due Date based on CCR Planned Load + ½ PTB within minutes and Sales/Planning is trained to use it.
29 Supply Time Buffer (STB) 4.11.1Quoting Safe Orders Due Dates using CCR(s) Planned LoadTactic1. Safe Due-date are given according to first available slot on CCR(s) + ½ Production Time BufferCCRBack OrdersOverdueMaterial Order DateMaterial Release DateSafeDue DateSupply Time Buffer (STB)½ PTB ½ PTBProduction Time Buffer (PTB)Quote this “safe” due date to customerWO #112WO #132WO #114WO #111WO #131WO #15WO #116WO #117WO #120WO #118WO #119WO #122WO #123WO #113WO #124WO #125WO #126WO #127WO #128WO #130WO #129WO #133WO #134WO #135WO #136WO #137WO #138WO #139WO #140WO #141WO #142MAINTENANCEPLANNEDNEW ORDERTotal Load in Time on CCR
30 Identify Next Avail slot on CCR 4.11.1Quoting Safe Orders Due Dates using CCR(s) Planned LoadTactic2. The ERP system is modified to provide Safe Due Date based on CCR Planned Load + ½ PTB within minutes and Sales/Planning is trained to use it.Identify CCR OverloadIdentify Next Avail slot on CCR
31 Defining, communicating & validating the proposed ERP change using S&T structure 1ABB Goal: Profitable GrowthTOC REPLENISMENT & DBM DETAILSWhy is the change needed?Necessary AssumptionWhat is the objective of the change?StrategyWhy will the change achieve the objective?Parallel AssumptionsHow will the change be implemented?Tactic4.11.2Maintaining Optimum RM & PP Inventory Levels2.1Reliability/Availability Competitive EdgeHaving too much Raw Material (RM) and or Purchased Parts (PP) in the stores or ordering too early can easily drain the company’s cash /WH space.Having too little RM, PP can and most frequently do cause delays that can cause lost production and potentially missed due dates (jeopardizing building of a “Reliability” Comp. Edge).The target levels of RM & PP inventories held are continuously monitored and when needed are suitably modified (not too much/too little)3.1.1Remarkable Due Date Perf & AvailabilityTOC;s Dynamic Buffer Management & Replenishment of RM & PP Inventory, is a robust mechanism that enables setting, replenishing & adjustment of inventory targets, according to the actual level of demand & supply ensuring low levels of inventory& high availability.Most ERP systems do not provide a mechanism for auto resizing inventory target levels based on actual changes in demand/supply(Buying)TOC’s DYNAMIC BUFFER MGT (DBM) & TOC Replenishment (TOCR) for Inv MgtTarget Levels are sized based on Max Demand within Reliable Replenishment time (Rt=OLT + SLT)Inventory levels are maintained by replenishing on actual consumption & resizing on buffer penetrationThe ERP system is modified to enable DBM & TOCR functionality
32 TOC Replenishment & Dynamic Buffer Management Rules 4.11.2Maintaining Optimum RM & PP Inventory Levels with DBM / TOCRTacticTarget Levels are sized based on Max Demand within Reliable Replenishment time (Rt=OLT + SLT)Inventory levels maintained by replenishing on actual consumption & resizing on buffer penetrationTOC Replenishment & Dynamic Buffer Management RulesWhat are the New TOC Planning, Execution & Feedback Rules…Stock in PipelineStock on HandTOC Planning Rule: Size Buffer Target Level based on “Peak Demand within Reliable Replenishment Time”TOC Execution Rule: Order daily & Replenish up to Target Level frequently (e.g. daily) on actual demandTOC Feedback Rule: Re-size buffers based on red-zone penetrationAuto Up-size Buffer based on level of Red-zone penetrationAuto Down-size Buffer based on no Yellow Zone penetration400300200100Actual DemandMonth 1Month 2Month 3
33 4.11.2 Maintaining Optimum RM & PP Inventory Levels with DBM / TOCR TacticThe ERP system is modified to enable DBM & TOCR functionalitySAP TOC DBM & Repl. GUI2. Graph showing resizing of Stock BuffersTOC DBM & Replenishment3. List of Buffers requiring Resizing (proposals to purchaser, not automated until validated)
34 Defining, communicating & validating the proposed ERP change using S&T structure 1ABB Goal: Profitable GrowthTOC RELEASE CONTOL (S-DBR) DETAILSWhy is the change needed?Necessary AssumptionWhat is the objective of the change?StrategyWhy will the change achieve the objective?Parallel AssumptionsHow will the change be implemented?Tactic4.11.3TOC Release Control to prevent Over-production2.1Reliability/Availability Competitive EdgeHaving too many orders on the shop floor masks priorities, promotes local optima behavior and therefore prolongs the lead-time and significantly disrupts due-date-performance (DDP).Having too little orders on the shop floor will cause starvation of CCRs and cause lost production and potentially missed due dates (jeopardizing building of a “Reliability” Comp. Edge).The shop floor is populated ONLY with orders that have to be filled within a predefined horizon.3.1.1Remarkable Due Date Perf & AvailabilityIn traditionally run plants touch time is a very small fraction (<10%) of the lead time.Vast experience shows that, in traditionally run plants, restricting the release of materials, to be just half the current lead time before the corresponding due date, leads only to good results and to no negative ramifications* (lead time shrinks to less than half, DDP improves considerably, throughput goes up and excess capacity is revealed). These results are achieved irrespective of whether or not a bottleneck exists.* Except for environments which are dominated by heavily dependent set-up matrixes. Those environments have to be dealt in a different way.(Planning)TOC’s RELEASE CONTROL (S-DBR) to control WIP and improve T, DDP & LTFor each group of products currently having similar lead times, a buffer time is set to be equal to 50% of the current avg lead-time. Orders are released to the floor only a buffer time before their committed due-date, and if all materials are available. (WIP frozen until its time arrives).The ERP system usage is modified to support S-DBR release control and automatic material availability check.
35 S-DBR Planning (Release Control) Solution 4.11.3Controlling the Release in Manufacturing (MTO/ATO)TacticTarget Levels are sized based on Max Demand within Reliable Replenishment time (Rt=OLT + SLT)Inventory levels maintained by replenishing on actual consumption & resizing on buffer penetrationS-DBR Planning (Release Control) SolutionShipping Buffer for MTOGREEN ZONERED ZONEYELLOW ZONE1. Raw Materials for Stock Manuf Parts Release based on “Replenish Frequently on Actual ConsumptionShipping Buffer for ATO2. Raw Material for Non-Stock Manuf Parts Release = DD – MTO Shipping BufferGREEN ZONERED ZONEYELLOW ZONEManuf Parts Release Date= Due Date – ATO Shipping BufferRAW MATRL RELEASE (ROPE)Part # Qty OD DD Buffer TypeP /2 04/ % TimeP /2 07/ % StockMANUF PARTS RELEASEPart # Qty OD DD Buffer TypeM /2 04/ % ATOM /2 07/ % CustMPS = DRUM = ORDERSPart # Qty Due Date BufferFG / %FG / %Stock Manuf (Common) PartsRM11.11.2MP1MP1RM1Part sales to customers“Customer” OrdersQuote LT’s on Planned CCR LoadRM2RM188.8.131.52.44.1CCR5.15.2FG SHIPPINGNon-Stock (Unique) Manuf Parts184.108.40.206RM3GREEN ZONERED ZONEYELLOW ZONEDefinitionsBuffer Status = (Buffer Time – Remaining Duration) / Buffer TimeRed Zone = Time req’d for expediting a medium-sized orderPP1PP1PP2PP2
36 Defining, communicating & validating the proposed ERP change using S&T structure 1ABB Goal: Profitable GrowthTOC SINGLE PRIORITY SYSTEM DETAILSWhy is the change needed?Necessary AssumptionWhat is the objective of the change?StrategyWhy will the change achieve the objective?Parallel AssumptionsHow will the change be implemented?Tactic4.11.4Single Priority System to Synchronize Execution2.1Reliability/Availability Competitive EdgeHectic priorities (hot, red-hot and do-it-NOW) cause chaos on the floorEven when material release is properly choked, not having a priority system can cause some orders to still be late..The shop floor is governed by a simple, yet robust, priority system3.1.1Remarkable Due Date Perf & AvailabilityVast experience has shown that when work is released according to set time buffers, excellent results are obtained by using a crude priority system that is based solely on the time lapsed since the release.Buffer Management (BM) is setting priorities only according to the degree the buffer-time is consumed (four color code system - green: less than one third of the buffer time passed is lowest priority and black: more than the time buffer passed is the highest).(Execution)TOC’s Buffer Mgt (BM) as synchronized SINGLE PRIORITY SYSTEMTOC Buffer Management is the ONLY priority system used on the shop floor.The ERP system (and MES/RFID systems) are modified to ensure the Purchase Order List, “Work-to-List” and Distribution Shipment List are prioritized based on buffer status (1st Black, 2nd Red, 3rd Yellow, 4th Green)
37 4.11.4Single Priority System to Maintain Execution SynchronizationTacticTarget Levels are sized based on Max Demand within Reliable Replenishment time (Rt=OLT + SLT)Inventory levels maintained by replenishing on actual consumption & resizing on buffer penetrationSAPCustomer Production Orders do have “Due Dates”Sample Screen for showing Buffer status (Priority) of each order and enabling capturing of reason codes for “black” and “red” ordersStock Replenishment Orders do not have “Due Dates”
38 Defining, communicating & validating the proposed ERP change using S&T structure 1ABB Goal: Profitable GrowthTOC BUFFER ANALYSIS (POOGI) DETAILSWhy is the change needed?Necessary AssumptionWhat is the objective of the change?StrategyWhy will the change achieve the objective?Parallel AssumptionsHow will the change be implemented?Tactic4.11.5Focusing Mechanism for Process Improvement/Elevation2.1Reliability/Availability Competitive EdgeMost local improvement initiatives in manufacturing, which use good tools (Root Cause analysis, Lean and Six Sigma techniques) do improve the local performance but, many times, those local improvements do not translate into global improvementsNot having sufficient protective capacity results in long LT & poor DDPAll local improvements initiatives in manufacturing do contribute meaningfully to the global performance and there is enough protective capacity for high DDP3.1.1Remarkable Due Date Perf & AvailabilityIf a CCR exists, work-in-process piles up in front of it. When materials release is restricted, the only work centers that have work-in-process piling up in front of them are the real CCRs.CCRs can be identified also by recording “what black & red orders were waiting for?”In most of the cases additional capacity can be exposed by better EXPLOITATION like:- Ensuring that CCRs do not take lunch or shift change breaks,- Offloading work from the CCRs to less “effective” work centers that have ample excess capacity,- Using LEAN /Six Sigma techniques to shrink the set-up time/reduce variation on the CCRs,- ELEVATING capacity with overtime or capex approval for the CCRs, etc.(Improve)TOC’s BUFFER ANALYSIS to Focus Improvements & Capacity ElevationFor all Red & Black Orders and Stock Buffers, Production Supervisors/workers/purchasers record “what was black/red order waiting for?”CCRs are identified and effectively removed through focused process improvement / elevation to the extent that most loaded resource has at least 20% protective capacity.The ERP (and MES) systems are modified for POOGI.
39 4.11.5 Focusing Mechanism for Process Improvement/Elevation Tactic For all Red & Black Orders an Stock Buffers, Production Supervisors record “what was black/red order waiting for?”CCRs are identified and effectively removed through focused process improvement / elevation to the extent that most loaded resource has at least 20% protective capacity.
40 TOC in SAP at ABB “TOC in SAP” solution design: Order Processing Part I
41 TOC in SAP at ABB “TOC in SAP” solution design: Order Processing Part II
42 TOC in SAP at ABB “TOC in SAP” solution design: Determination of Earliest Due Date
43 TOC in SAP at ABB Results from Brno (Czech Republic) and Vaasa (Finland) “After analyzing SAP recommendations and data from nearly 2 months, we are confident that the the TOC rules were implemented correctly and that we are now confident that we can switch of our Off-line & 3rd Party systems.The new Dynamic Buffer Management Functionality enables us to react quickly to changes in inventory values, which was not possible earlier, as we didn’t have time to monitor values manually.We are very happy, are continuing to use the functionality and will be expanding it to other product lines”Operations ManagersFactories in Brno and Vaasa
44 TOC in SAP at ABB Next Steps Implemented "TOC and SAP” now in 8 factories:in Brno, Czech Republicin Chonan, Korea, 2 factoriesin Vaasa, Finland, 2 factoriesin Baroda, Indiain Przasnysz, Poland, 2 factoriesAnd planning the implementations (in the work queue)In Vaasa, Finland, 3rd factoryin Dalmine, Italyin Ratingen, Germany. Has “SDBR in MES”in Xiamen and Beijing Chinain Skien, Norway.…until all 300+ factories are reached…Stefan Forsmark, Operations Excellence Manager for ABB:s Power Product DivisionThomas W. Schmidt, IS Manager for the Power Products DivisionKarol Kaczmarek, Operational Excellence coordinator, BU TransformersErich Beeler,IS Manager, BU Transformers, Engineering ISKatja Rajaniemi, Global Process Improvement Manager, BU Medium Voltage ProductsBill Vick, Operational Excellence coordinator, BU Medium Voltage ProductsMay-Jing Li, Project Manager, Group Function IS, 'One Simple ABB' and SAP R/3Miroslaw Bistron, Manufacturing IS coordinator, Power Products DivisionKrzysztof Sowa-Pieklo, Project Manager, Power Products Division, Software FactoryMartin Korthaus, SCM II Consulting, SAPFredrik Nordstrom GF Q&O / ODGAlan Barnard, CEO, Goldratt Research LabsEli Schragenheim, Principal, Goldratt Schools
45 Research ConclusionThe “TOC in SAP” initiative, showed that the ambitious goal of “One-Simple-ABB” can be achieved even in the management of operations (Planning & Execution and Continuous Improvement) in complex and different operational conditions.The partnership between ABB and Goldratt Research Labs made it possible to:Define a ROBUST enough TOC Planning, Execution and Continuous Improvement solution that could cope with all the variations and complexities of 300+ factoriesDefine a SIMPLE enough TOC Solution which could be supported with relatively small modifications within a standard ERP system such as SAP.Break new ground by using the Strategy & Tactic Tree to define, communicate and get buy-in for the new TOC solution in a way that focused and accelerated the achievement of consensus and development of the required SAP functionality…which is also accelerating all new SAP implementationsDeliver this project and its associated results in a record time for SAP solution design, development and testing in less than 9 months….
46 Acknowledgments to Project Team Contributions Stefan Forsmark, Operations Manager for ABB’s Power Products Division/BU Transformers.Thomas W. Schmidt, IS Manager for ABB’s Power Products DivisionGoethe Wallin, Operations Manager for ABB’s Power Products Division/BU Medium VoltageKarol Kaczmarek, Global Project Manager Operational Excellence, ABB BU TransformersErich Beeler, IS Manager, ABB BU Transformers, Engineering ISDr Katja Rajaniemi, Global Process Improvement Manager, ABB BU Medium VoltageBill Vick, Global Operations Improvement Manager, ABB BU Medium VoltageMiroslaw Bistron, Leader of Manufacturing IS program, ABB’s Power Products DivisionLukasz Krupa, Leader of Manufacturing IS program, ABB’s Power Products DivisionFredrik Nordstrom, ABB GF Q&O / ODGVesa Enestam, Eliaps Oy, SAP SCM ConsultingMay-Jing Li, Project Manager, ABB Group Function IS, 'One Simple ABB' and SAP R/3Martin Korthaus, SCM II Consulting, SAPJohn Trip, Goldratt-TOC LtdDr Alan Barnard, CEO, Goldratt Research LabsEli Schragenheim, Principal, Goldratt SchoolsDr Eli Goldratt, Chairman, Goldratt Group
47 CASE STUDY 2 Finding & Testing a solution to SHORTAGES & SURPLUSES within Book Publishing Presented By: Dr. Alan Barnard (CEO Goldratt Research Labs, TOCICO Chairman )Date: 27th August 2009
48 Presentation Outline Generic Research Problem Extent and Consequences of Shortages & SurplusesCause(s) & Direction of SolutionCase Study: Random House PublishingPublishing Industry BackgroundRandom House Company OverviewPhase 1: Quantifying the Extent, Consequences & CausesPhase 2: Finding a SolutionPhase 3: Testing the SolutionResearch FindingsFuture Research
49 Research Problem Extent & Consequences of SHORTAGES How many of YOU frequently don’t find what you want at a SHOP? *Either because the retailer was “Out-of-Stock” (OOS) or it decided not to carry the item you wanted?What is YOUR (consumer) response to this SHORTAGE?Come back later to same retailer to buy same product?Buy a similar product from same retailer and same supplier?Buy a similar product from same retailer but different supplier?Go to other retailer to buy same product?Do not buy anything?What is the consequences of this SHORTAGE on:SHOPBANKCONSUMERSUPPLIER
50 Consequences of SHORTAGES on Profitability For Book Publisher and Retailer…Quantifying impact of 1% Lower Sales Volume on Net ProfitINSIGHT: 1% Lost Sales = 10% reduction in ProfitsBELIEF: Lost Sales is not significant (2 – 3%) since today, consumers that want our products can in most cases find it somewhere.FEAR: Is it really worth it to invest in trying to further reduce Shortages?CHECK: How do we know shortages (out-of-stock) is really “only” 2-3%?Does it match our experience as Consumers?
51 INDUSTRY RESEARCH: Extent, Consequences & Consumer Response to SHORTAGES Results from International GMA Research Study (2002)Title: “Retail Out-of-Stocks: A Worldwide Examination of Extent, Causes and Consumer Responses”Scope: 661 Retail Outlets, 32 Product Categories, 71,000 Consumers Interviewed, 29 CountriesImpact on Lost Sales & ProfitabilityRetailers Lost Sales8 to 9% OOS x (9+31=40%) Consumer Response = 3 to 4%Supplier Lost Sales8 to 9% OOS x (9+26=35%) Consumer Response = 3 to 4%But at 1:10 Leverage, 3 – 4% Lost Sales = Lost Profitability of 30 to 40%What about SURPLUSES?
52 Research Problem Extent & Consequences of SURPLUSES How many of YOU have recently gone into a SHOP and bought something you did not really want / need simply because the shop offered a BIG discount?How frequently does this happen to YOU?Once a year?Once a month?Once a week?What is the consequence of this SURPLUSES on:SHOPCONSUMER?SUPPLIERBANK
53 Consequences of SURPLUSES on Profitability For Book Publisher and Retailer…Quantifying impact of 1% Discount (Lower Price) on Net ProfitINSIGHT: 1% Discount in Price = 20% reduction in ProfitsBELIEF: Consumers are VERY sensitive to pricing...and discounts is necessary since lower prices = more salesFEAR: Reducing discount / increase in price WILL reduce sales much moreCHECK: Are consumers REALLY that sensitive to Price?Is it not possible to significantly reduce SURPLUSES (that lead to discounts)?
54 Research Problem Another important consequence of SURPLUSES Where is the real Constraint in the Consumer Goods Supply Chain (e.g. for printed books)?Number of Customers willing to buy (books)……and what limits customers to buy more of the available books (OR what prevent retailers to sell more books)?Shortages (Out-of-Stocks) ORShelf Space available in Book Shops to display all available books that would sell if they were available to buy...What is the consequences of SURPLUSES on “Exploiting” the Retailer’s shelf space?Surpluses is like having BRICKS on the Shelf……and BRICKS = LOST SALES of non-stock items selling elsewhere
55 Research Problem Previous attempts to solve the problem More Sophisticated (and expensive) Forecasting Systems to predict consumer Demand…and more Collaboration efforts to share forecasts and supply problemsImplementing Central & Regional Distribution Centers (CDC / RDC) to improve availability and responsivenessBar Coding, High Tech Materials Handling & EDIWhat was the result?Significant improvements in availability at CDC and RDC’s (95 – 98%) and in responsiveness (daily deliveries)…But…did it really improve Shortages and Surpluses at Retail level and if not, WHY?
56 Research Problem Challenges in reducing SHORTAGES & SURPLUSES What makes reducing Shortages and Surpluses so difficult in Consumer Goods?Large number of “Stock-Keeping-Units (SKUs)Unpredictable and High Variation in Demand and SupplyInter-dependencies between SKUsSo, off-course, with this complexities, it is a very difficult decision on what to order, when to order and how much?This decision determines not only the success of retailer, but also the success of the distributor, manufacturer and material supplier.So, who do we leave this critical & complex decision to?…and Are these people really in the best position to decide?
57 Research Problem Cause(s) of SHORTAGES and SURPLUSES Order LTStock Level based on customers ordering large batches typically monthly (based on inaccurate F/Cast)Supply LTSurpluses100Order LTSupply LTROPActual DemandStock Level based on customers ordering daily or weekly based on with actual consumption25Month 1Month 2Month 3ShortagesThe KEY to achieve “profitable availability of more SKU’s” is to get each link to ORDER LESS MORE FREQUENTLY (START)….rather than the traditional practice of,,,ORDER MORE LESS FREQUENTLY (STOP)Yes, BUT…the Cause and Solution has been known for long time, so why don’t we see MORE Supply Chains adopting this…especially BOOK Publishing57
58 Case Study Publishing Industry Background The publishing industry, due to slow or even declining sales, has been under SEVERE pressure to find ways to improve for many years…The book publishing industry think shortages is low but has experienced very high returns (surpluses) for many years (no-sale-return policy)* A Typical Book Publisher have 30% - 50% returns of all books printedMany Book Publishers & Retailers assumed that high returns was simply the “price you pay” to not lost any sales…but most still considered it as an improvement opportunity* A Typical Book Publisher’s Print & Distrib. Costs is only 30% of Selling PricePile’em high…. Watch’em fly…”
59 Case Study Random House Publishing In February 2008, Goldratt Research Labs was approached by Random House Publishing.They are considered one of the best in managing returns, and still have 28% of every book printed returned to be shredded.There were no reliable data about the level of surpluses (and or shortages within retailers), and it appeared as if the consequences of these were not fully understood.Could Theory of Constraints help to quantify the extent, consequences and causes of the problem… and help to find a solution?
60 Case Study Random House Key Facts Market Position: Random House is the world’s largest general-interest book publisher, with ore than 11,000 new books issued a year and 500 million books sold annuallyEmployees: 5,779 (as of December 31, 2008)Revenues: € 1.7 billion (Fiscal Year 2008)Shareholders: Bertelsmann AG (100%)Published Authors include: F. Scott Fitzgerald, Ernest Hemingway, John Gresha, Danielle Steel, Dan Brown and Barack Obama…
61 Case Study Random House Publishing The Pressure to improve….Random House Income Statementin € millionsRevenues 1,721 1,837 1,947 1,828 1,791Operating EBITEBIT % of Sales 8.0% 9.4% 9.3% 9.1% 7.8%Employees (in absolute numbers) 5,779 5,764 5,804 5,395 5,383What would be the impact of a significant reduction in Surpluses on profitability …?
62 IMPACT of Reducing Returns on Profitability For Book Publisher… Quantifying impact of Reducing Returns from 30% to 15% on Net ProfitINSIGHT: 50% reduction in returns = 50% increase in ProfitsFEAR: But what if Changes to reduce Returns causes Sales Volume to drop?Lets use Theory of Constraints to analyze the situation…
63 Random House Publishing Research Questions Is it possible to reduce returns without reducing sales?Is “High Returns” the only “cost” of surpluses at retail level?What is the “real level” of unavailability (shortages) of books at retail level?Is it possible to do much better…?… and if so, what changes would be needed in the way the links in the Book Publishing Supply Chain is managed?
64 Cost of Avoidable Returns Lost Sales (Non-Stocked) Impact of Shortages and Surpluses on Publisher and Retailer ProfitabilityPROFITABILITYPotentialAVAILABILITYPrice lower than PoVAvoidable DiscountsPotentialProfitabilityGAPCost of Avoidable ReturnsSurplusesLost Sales (Non-Stocked)AvailabilityGAPShortagesLost Sales (Stocked)CurrentCurrentBut how do we quantify the impact of Surpluses / Returns (and Shortages) on Profitability?
65 What conditions block better exploitation? Applying TOC’s 5 Focusing Steps to the Book Publishing Supply Chain…Step 1: IDENTIFY the System’s Constraint“Until the consumer has bought, nobody has really sold…”The System Constraint therefore is the No. of Consumers willing to buyStep 2: Decide how to EXPLOIT the System’s Constraint“Exploiting the System Constraint” means “Having the Right Product, at the right place and right time (when consumer is ready to buy).What conditions block better exploitation?Shortages of Products already stockedUnavailability of Products that sell elsewhere but which is not stocked due to shelf-space constraints (occupied by Surpluses).Actually Surpluses in a retail shop is like having bricks on the shelf…Step 3: SUBORDINATE everything to the above decisionChange any Policy, Measurement and or Behaviour that contribute to current high level of both Shortages and SurplusesYES, BUT, how to we find these and will it really be a win:win to change these…
66 Random House Research Projects Project Timeline Project StartConference Call to share real damage & extent of Surpluses & ShortagesSimulationDevelop simulation to validate damage of PUSH and benefits of PULLTestTest impact of “Less more Frequently” with 12 Test Shops and with B&N dataTOC EvaluationShare generic TOC analysis & solution to shortages & surplusesAnalyse Test ResultsAnalyse Test Results for 12 Test vs. Control Shops and agree on next stepsCustomized S&TDr. Goldratt with Exco construct customized S&T and plan TestFeb 2008March 2008April 2008June 2008July 2008Nov 2008So, what was the process we used to find and test a “SIMPLE & ROBUST” solution to the problem of SHORTAGES and SURPLUSES…
67 Book Publishing Research Challenge #1 Case StudyBook Publishing Research Challenge #1What makes quantifying the Extent, Consequences and Causes of Surpluses & Shortages so difficult?Despite excellent “Point-of-Sale” data available from most retailers, Publishers do not have visibility of actual shortages and surpluses at retails.Retailers can buy directly from Publishers (to get best price) or from Wholesalers (to get best availability and response).Therefore, knowing the availability (or unavailability) at one Publishers and Wholesalers do not give a true picture of unavailability at retail level.Is there a simple way to quantify the likely level of shortages and surpluses at retail level?
68 Quantifying the Opportunity for reducing SHORTAGES & SURPLUSES Benefit of “flagging” the stock-outs in red...
69 Quantifying the Opportunity for reducing SHORTAGES & SURPLUSES Stock-out Lost Sales= Stock-out Days x Sales Velocity/day= 8%Surpluses Lost Sales= Surplus Days x Replacement Sales Velocity/day= 7%
70 Typical Book Store – Concentration Analysis Two major lessons from B&N historical analysis:1. 25% of RH titles carried had zero sales. These titles should have been replaced MUCH earlier since they occupied space and cash that could have been used to sell RH titles that sell elsewhere.2. Even a SuperStore like this B&N Santa Monica, never carried about 18,000 of RH titles in a 3 years time period.This shows the potential for surplus replacement.NOTE: Above Data for period of 185 Weeks (1/1/ /18/2008)10% of Titles generates 65% of Total Sales95% of Titles sell at less than 1unit/wk25% of titles had ZERO sales over the 3 year periodVERY Large opportunity to replace “SURPLUSES”Where “Surplus” = Zero Sales Titles and Titles with Sales Velocity of <1/month with display of >1unit
71 Book Publishing Research Challenge #2 Overcoming the challenges to reduce shortages & surpluses in Book PublishingBook Publishing Research Challenge #2What makes reducing Surpluses & Shortages so difficult?Uncertainty of consumer demandWeak incentives for retailers & distributors to improve returns…due to an industry policy of “No Sales-Return Any time” creates an incentive to rather order too much than too little..Distributors & retailers create buffers for the same “end-consumer demand.Printing & Binding economies of scale that drive large batches.A strong held belief that “Title visibility in the marketplace drives demand (but there is little research to quantify this relationship)Supply chain constraints like warehouse proximity and limited rush reprint capacity at printersThe goal is to print & distribute closer to what sells to the end consumer
72 Research Problem Cause(s) of SHORTAGES and SURPLUSES Order LTStock Level based on customers ordering large batches typically monthly (based on inaccurate F/Cast)Supply LTSurpluses100Order LTSupply LTROPActual DemandStock Level based on customers ordering daily or weekly based on with actual consumption25Month 1Month 2Month 3ShortagesThe KEY to achieve “profitable availability of more SKU’s” is to get each link to ORDER LESS MORE FREQUENTLY (START)….rather than the traditional practice of,,,ORDER MORE LESS FREQUENTLY (STOP)Yes, BUT…the Cause and Solution has been known for long time, so why don’t we see MORE Supply Chains adopting this…especially BOOK Publishing72
73 Change in Inventory Profile in moving from PUSH to PULL (less more frequently) SKU Target Level = Maximum Demand with Reliable Replenishment TimeWhere RRt = Order LT + Supply LT)OLT = DailySLT = 1 to 4 weeksOLT = DailySLT = 1 to 4 daysOLT = DailySLT = 1 to 2 daysPUSHInventory Profile1-4wksNo. of Days of Inventory in Supply ChainPULL Inventory Profile1 - 4daysPRINTERPUBLISHERCDCPUBLISHERRDCs orRETAILER CDCRETAILERS
74 4:25Sizing Stock Buffers with Uncertainty and variability in demand and supplyKeeping correct inventory levelsPlanning Rule: “Be Paranoid but not Hysterical”Target Stock Level for each Title at each Storage Location = Maximum Demand within Reliable Replenishment TimeToo littleToo muchGood EnoughExecution Rules: Replenish up to Target level in sequence of buffer status more frequently (e.g. daily)Goal UnitsFeedback Rules: Adjust Target Level (Buffer Size) based on Level of Buffer PenetrationTime / Stock BufferAuto Upsize Buffer based on level of Red-zone penetrationAuto Downsize Buffer based on lack of Yellow zone penetration400300200100Actual DemandMonth 1Month 2Month 3
75 Testing Robustness of TOC’s Dynamic Buffering regardless of Demand Pattern Stable SalesLaunch EventSpecial EventSeasonality Events
76 Results from Past TOC’s Replenish-to-Consumption (RTC) Implementations In general, Goldratt Research Labs have found that if a company reports formally a 1-3% “Lost Sales” due to unavailability of product, improving availability to close on 100% (to end consumer) typically will result in increase in sales of 10 to 30%The Table below shows the results from actual implementation tests:IndustryOfficial Lost SalesAvailability before TOCAvailability after TOCAvg Increase in Sales within 1st year of TOC rolloutFruit Supplier2-5%85 -90%>98%30% (worst 5%, best 200%)Bread & Flour Supplier80-95%>99%20% (worst 5%, best 300%)Cosmetic Supplier90-98%10% (worst 2.5%, best 50%)Sportswear Supplier10-20%80 – 85%>97%(Total Inv down 60%)25%(worst 10%, best 100%)Note: In reality, most “lost sales” are not recorded. The dramatic increase in sales achieved with improved availability verifies this.
77 Testing the Solution with 12 Test vs. Control Shops Research Questions:1. Acceptance Rate?% of Shops accepting the offer for the Publisher to “Replenish Daily on Actual Consumption2. Difficulty to setup up RTC system?How difficult would it be to set up a system for a shop to share daily sales with the publisher and to receive daily deliveries?3. Really Win:win (Value = Benefits – Costs)?What will be the impact “Less more Frequently” on Shortages (Out-of-Stock) and Surpluses and on Lost Sales…?
78 Impact on Shortages (OOS) Typical Control Shop – Before vs. After Similar level of “Stock-outs” before and after the Launch of Test
79 Impact on Shortages (OOS) Typical Test Shop – Before vs. After Zero “Stock-outs” after the Launch of Test !
80 Results Achieved and Lessons Learned so far? Importance of knowing how to answer simple question of “By how much has Sales gone up?” due to this change...Very high level of acceptance rate of offer to replenish daily based on actual sales (>80%)“Replenishing Daily on Actual Consumption” can help significantly reduce Shortages & Surpluse:Sales Increase by preventing Shortages around %Sales increase by replacing Surpluses (if done on wide enough scale) can be 5-20%.Implementing Dynamic Buffer Management (with so many SKUs) and frequent bad decisions is expected to increase Sales even moreReplacing a BRICKS with any Item that sells will increase Sales (BRICKS = More than Needed / Really Slow Runner)Major leverage opportunities to reduce SURPLUSES & SHORTAGES are the really HIGH Runners and the LOW Runners (1’s, 2’s & 3’s that should be 0’s,1’s & 2’s)…What is the chances on a specific day that a book selling at 1/month will be sold1/30 = 0.03What is the chances that on a specific day we will sell TWO books, is 0.03 x 0.03 =What SURPLUSES must be replaced?- Anything for which shop carries more than 1 unit which is NOT on a formal DISPLAY promotion that sell less than 1/month.Eli said he is disappointed RH team did not attend Realization conference where company after company (similar in size) was showing what results is possible on a company level within just 12 months.
81 Results Achieved and Lessons Learned so far? RANDOM HOUSE STRATEGY & TACTIC L1-5Results Achieved and Lessons Learned so far?AchievingViable VisionBASE GROWTHENHANCED GROWTH2:1High Availability2:2The Digital World2:3Word-of-Mouth2:4Resurrecting Dead Horses2:5Sales per Shelf (SPS)2:6Editorial SectionStrategy; Book titles are always available at the stores in which market demand exists for those titlesTactics: The Co. provides replenishment to daily consumption to the shops it services directly and persuades the intermediate carriers* to provide such services its customersNEXT STEP3:1: RH Test – Impact on Book Shops3:1:2Parallel Test - Impact on B&N3:1:3 Rollout to directly serviced Shops in CDC area3:1:4Spread to all Book Shops3:1: Change Chains & Wholesalers’ order patterns3:1:6Spread to all Non-Bookshop Outlets3:1:7Achieving Ongoing ImprovementEli Goldratt : Remember, the real reason for conducting the test mentioned in is to see if there were any mistake in our logic? We need to check whether we we over-estimate or under estimate the expected increase in sales by reducing shortages and replacing surpluses…Unlike other industries, the data from the RH tests and from B&N historical analysis showed that there seems to be MUCH more opportunity for increasing RH and Retailer sales from replacing surpluses than preventing shortages.Why? The real constraint in the Publishing Industry is the Shelf Space at the retailer (and sometimes also the cash available).Carrying Surpluses – books that will never sell or more books than needed to ensure no loss in sales – is a MAJOR waste of CONSTRAINT capacity.What else have we proven with the test?We can achieve significant result (increase in Sales of 5-20%) within short period of time with minimum risk…4:11:1Define test sample4:11:2Launch Tests4:11:3Analyze the resultsStrategy: RH has good enough* estimate of the resulting benefits from providing better availability (“Good Enough”: The reliability of the estimates enables a clear decision)Tactics: RH carries out a carefully monitored test of “high availability” on a statistically representative sample
82 “Your FOCUS (or lack of it) will determine your reality…” Always Remember…“Your FOCUS (or lack of it) will determine your reality…”Thank you!For more information….visit