Best of the Best Sales and Operations Planning Conference Using S&OP in Companies with Lean Manufacturing Bill Kerber, CFPIM

A few thoughts about Executive S & OP and Takt Time Executive S & OP Strategies : 1.Level 2.Chase 3.Hybrid Material Procurement practices Push versus Pull Negotiations and planning Questions and Answers

Lean & Executive S&OP Do Different Things Lean Manufacturing Lean emphasizes/focuses on flow. Lean emphasizes/focuses on flow. It also has a focus on eliminating waste from processes It also has a focus on eliminating waste from processes Strong on execution Strong on execution Drives improvements to the operating environment Drives improvements to the operating environment Flow works best with stable and linear demand Flow works best with stable and linear demand Executive S&OP Tools for forward decision-making Tools for forward decision-making Strong on planning Strong on planning Long future horizon Long future horizon Balances demand and supply across the supply chain Balances demand and supply across the supply chain Can be used in many different environments Can be used in many different environments They work best when they work together!

Takt time Demand rate? or Production Rate?

Takt time and Executive S & OP Current Lean definition has Takt time as effective working time divided by demand 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) In most circumstances, we would be better off making it effective working time divided by Production rate (from S&OP plan)

What does Takt Time Do? Sets the Beat in the form of pitch for production. Sets the Beat in the form of pitch for production. Determines how many people work in assembly jobs. Determines how many people work in assembly jobs. Provides the bar for operator balance charts for line balancing. 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. For all of these, takt would be better represented by the production rate from S&OP.

Traditional Executive S&OP Strategies Make to Stock Make to Order Finish to Order

We have also have three production strategies Level- Most often associated with Make to Stock. To achieve a level production, a buffer against variable demand must be used. 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. Chase –Most often Make to order. Also could be called variable capacity. Hybrid-used in both environments Hybrid-used in both environments Learning to See has couched this as making to shipment or making to supermarket. Learning to See has couched this as making to shipment or making to supermarket.

Level Buffer with finished goods inventory (al a TPS) Make to Stock

In this strategy there is no correct level of inventory Stock Amount

BOM Shape helps dictate strategy 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

How Lean fits in: Make to Stock Supermarket Here Replenish Finished Goods on pull signal Or create mix leveled Heijunka schedule and push to finished goods Pull or Push to finished goods

Mix and Volume variability definitions Mix variability is a measure of how often the models and their variants actually are sold. Mix variability is a measure of how often the models and their variants actually are sold. Volume variability is measured by simply determining whether the total amount of work required in the factory by the customer orders varies significantly from period to period. Volume variability is measured by simply determining whether the total amount of work required in the factory by the customer orders varies significantly from period to period.

Leveling Production mix versus sales mix Forecast = 100 A, 50 B and 50 C this month Forecast = 100 A, 50 B and 50 C this month At 20 days in month, this is 10 per day At 20 days in month, this is 10 per day Production sequence = A B A C A B A C A B A C etc Production sequence = A B A C A B A C A B A C etc The actual sales may not equal the forecast. The actual sales may not equal the forecast. A finished goods inventory handles this. A finished goods inventory handles this.

Leveling Mix Pull systems work better when mix is leveled Pull systems work better when mix is leveled Shared resources can be synchronized based on the production pattern. Shared resources can be synchronized based on the production pattern. Capacity requirements for the value stream will fit the average requirements during each interval. Capacity requirements for the value stream will fit the average requirements during each interval. FIFO lanes are kept to a minimum with regards to the need to balance operations for mix. FIFO lanes are kept to a minimum with regards to the need to balance operations for mix.

Leveling mix in a high mix environment High inventory investment High inventory investment Potentially high obsolete inventory Potentially high obsolete inventory Potential poor customer service (reliant on forecast accuracy) (The forecast will most likely be inaccurate, due to the high mix variability) Potential poor customer service (reliant on forecast accuracy) (The forecast will most likely be inaccurate, due to the high mix variability)

Leveling only volume The buffer for the value stream may (or needs to, or should) contain only high volume items The buffer for the value stream may (or needs to, or should) contain only high volume items We need to have separate strategies for high volume and low volume items when creating the schedule. We need to have separate strategies for high volume and low volume items when creating the schedule. Interval should be based on a time slice of volume and the number of items sold during the time slice. Interval should be based on a time slice of volume and the number of items sold during the time slice.

Leveling only volume, Cont. More elaborate capacity planning is necessary due to work content variations caused by varying mixes of products being sold. More elaborate capacity planning is necessary due to work content variations caused by varying mixes of products being sold. Cross training of operators is needed to handle required flexibility from various mixes as well as for absentees Cross training of operators is needed to handle required flexibility from various mixes as well as for absentees

Level Buffer variability with lead-time Make to Order

Backlog

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.

How Lean fits in Make to Order Order Supermarket here You must make the lead time fit market requirements!

Managing Backlog Market Lead Time Variable Backlog Production Lead Time

Managing Backlog Promised dates must be managed one of two ways Promised dates must be managed one of two ways Fixed lead time, vary capacity if backlog exceeds allotted timeFixed lead time, vary capacity if backlog exceeds allotted time Variable lead time, governed by an aggregate view of sold versus capacityVariable lead time, governed by an aggregate view of sold versus capacity

Chase Buffer variability with: more flexible and agile manufacturing resources more flexible and agile manufacturing resources

Chase Strategy Production Demand Inventory (Backlog)

Takt time and Chase Takt time has a different connotation in this strategy Takt time has a different connotation in this strategy Think in terms of units of capacity, such as with adding production in chunks of lines, or adding time at the same rate Think in terms of units of capacity, such as with adding production in chunks of lines, or adding time at the same rate

Chase requires: Cross training Cross training A way to know when to switch jobs during the workday (controlling flow) A way to know when to switch jobs during the workday (controlling flow) Adding or subtracting labor by using Adding or subtracting labor by using Temporary employeesTemporary employees OvertimeOvertime SubcontractorsSubcontractorsOr Staff for peak periods and work on improvements when slow Staff for peak periods and work on improvements when slow

Hybrid Buffer variability with: common component inventory (produce to stock) common component inventory (produce to stock) finish-to-order with flexible finishing capacity finish-to-order with flexible finishing capacity(Postponement)

BOM Shape 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.

How Lean fits in : Postponement Supermarket Here Pull Components based on usage Assemble to order Backlog management here Stock management here

Supply chain issues from Executive S & OP Buying capacity or items in the long term? Buying capacity or items in the long term? If capacity, rough cut capacity from the Executive S & OP plan should be usedIf capacity, rough cut capacity from the Executive S & OP plan should be used If items, must decide how to reconcile plan with short term actualIf items, must decide how to reconcile plan with short term actual

Supply Chain Issues Choices for material purchasing Choices for material purchasing PullPull MRPMRP Rough Cut PlanningRough Cut Planning All will make have problems on long lead time items All will make have problems on long lead time items Mix sensitivity matters here Mix sensitivity matters here

Question & Answer

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