Archive for the ‘Lean manufacturing’ Category

If you were to walk the halls of Kinaxis headquarters in Ottawa these days, you’d notice something a bit different. It might take you a few moments, but it’s there. There seems to be a lot of guys sporting hair on their upper lip. No, we’re not living in the 70’s (we leave that to the ERP vendors). No, it’s not a weird Canadian approach to dealing with the cold. Nope, it’s Movember!

Movember is a movement that was started in Australia with a group of friends – you can watch a TED talk with one of the founders here.

The idea behind Movmeber is best described on the Movember website, but here’s a good quote:

“Movember is responsible for the sprouting of moustaches on thousands of men’s faces, in Canada and around the world. With their “Mo’s”, these men raise vital funds and awareness for men’s health, specifically prostate cancer and male mental health initiatives.

On Movember 1st, guys register at Movember.com with a clean-shaven face. For the rest of the month, these selfless and generous men, known as Mo Bros, groom, trim and wax their way into the annals of fine mustachery. Supported by the women in their lives, Mo Sistas, Movember Mo Bros raise funds by seeking out sponsorship for their Mo-growing efforts.

Mo Bros effectively become walking, talking billboards for the 30 days of November. Through their actions and words, they raise awareness by prompting private and public conversation around the often ignored issue of men’s health.”

Since its inception in 2003, Movember has raised $301 Million CAD and has driven many men (myself included) to take their health more seriously.

This is the second year that Kinaxis has had a Movember team. In our first year, we were able to raise over $2000 and had a lot of fun with various events throughout the month, not to mention growing some really cool ‘staches.

This year promises to be even better. We’ve already had a couple of events and we are well on our way to exceeding last year’s donations. My personal favorite event was the bagel breakfast kick-off, which included the “Shave the Scott” event, where some lucky person got to shave the famous beard from our documentation writer, Scott. And no, we didn’t really use the straight razor.

Movember has been a lot of fun so far, but we shouldn’t forget the underlying reason for Movember.  According to the Movember page, men die 5 – 6 years younger than women, have 4 times higher suicide rates. Further, more than 5 men die prematurely each hour from potentially preventable illnesses. Movember is about changing these stats, one mustache at a time.  If you are interested in helping raise money for men’s health awareness and research, feel free to donate to team Kinaxis!

As if earthquakes, tsunamis and floods aren’t enough, now car companies need to deal with a worldwide shortage of PA-12, a special nylon used by almost all auto companies. According to Businessweek, PA-12 (polyamide resin) is a form of nylon that is used for plastic pipes, tubes and hoses to carry vapors, fuels and other liquids. It also used in plastics used in car seats. An explosion at the end of March at a chemical plant in Germany knocked one of the few companies that manufacture this resin out of production. Not only does this company (Evonik) manufacture this chemical, it also manufactures almost 70% of CDT (cyclododecatriene) which is used by other companies to make PA-12. Ouch.

What makes this worse is that car companies following the tenants of just-in-time have very little inventory, especially of component parts. Just-in-time practices consider inventory to be one of the wastes that should be relentlessly targeted and eliminated. This has resulted in billions of dollars of savings due to reduced inventory levels and more streamlined operations. However, that inventory reduction means that there is no buffer to carry companies when a significant supply disruption occurs.

The explosion at the plant in Germany, the earthquake and resulting tsunami in Japan, and the floods in Thailand are causing automakers to rethink their approach to just-in-time. The world has changed since just-in-time was developed by Toyota in the 1970s. Factors like increasing globalization, reliance on specialized parts (where one factory makes a large percentage of the world’s supply) have increased the risk associated with the zero inventory principle.

Having lived through several Lean implementations, I used to be a strong believer in zero inventories. But I’ve come to realize that while inventory reduction is still a goal to be striven for; the RIGHT amount of inventory is going to be some quantity greater than zero. I’m not going to go into mathematical theories about how much. I’d probably get most of it wrong anyway. What I will say is that you need to look at your component part sourcing and pick the right amount of inventory for those components;

• Do you have parts that are sourced through a single supplier? When doing this assessment, don’t just look at the supplier. If you can, look at the supplier’s supplier. With the flood in Thailand, not only was the drive assembly impacted, but several component part manufacturers were co-located with the assemblers. When the flood hit the assembly plant, the component plant got hit to. Assembly plants not affected by the flood were still impacted because they couldn’t get parts.
• If you have multiple sources, are those sources in the same geographic area? If an event like the Japan earthquake were to happen, it is likely that both suppliers would be taken down.
• If your source is on the other side of the world, what would happen if there was a major interruption to shipping? A large storm, a significant event at a busy port could delay the shipment of goods by weeks.

If you answer yes to any of these questions, then maybe you should consider holding more inventory on these components. Even if you have multiple sources, you may need to hold enough inventory to cover the lead time needed to get these other sources ramped up to cover the full demand. This might be a good exercise for the Chaos monkey. (Pick a part and simulate what would happen if you couldn’t get this part for a week…or a month…or 3 months). Another related exercise would be to simulate the effect of disabling all suppliers in a given region for 2 months. What would be the impact on your supply chain? How would you recover?

I certainly don’t recommend drifting back to the bad old days of building inventory for the sake of building inventory. I also still think that unnecessary inventory is waste. However, there is the right quantity of inventory for each part and those that can figure it out will be better able to survive a significant supply chain event.

Are you planning on changing your inventory strategies as a result of recent events? If so, comment back and let us know.

Welcome to the first blog post in the SCM30 series. Throughout 2012, Kinaxis will be exploring the past 30 years—as well as the future—of supply chain management. Though supply chain management concepts have been in practice since the turn of the last century, it is widely agreed that the term was created by Keith Oliver in 1982—you’ll find more details on that in the post below.

Watch for the SCM30 posts on alternating Fridays over the next few months. These blog posts will be fueled by conversations on the Supply Chain Expert Community discussion forum. Look for the next discussion to start there on Monday, March 26.

There is an interesting post on the Lean Six Sigma LinkedIn Group titled “How Can We Make Manufacturing Sexy Again?” started by Karin Lindner. Some may say that manufacturing was never sexy but Karin does a great job explaining what’s behind the question and why we would want to answer this. I think it goes for all of supply chain that getting our youth excited about all things manufacturing and supply chain will secure its future in North America. There were many great posts, but of course I couldn’t resist the opportunity for a top ten list!

1. MTV Cribs Show – Manufacturing Edition (What better way to promote those 5S programs?)
2. The Annual Manufacturing Awards Show, The Leanies…and the winner in the best set up reduction program in a job shop environment goes to…?
3. More Commercials. “I’m a material planner, and this is my Supply Chain!”
4. The 2010 Manufacturing Calendar – Swimsuit Edition
5. Paint those NC machines the color of your town’s top sports teams. Philadelphia Flyers orange is always a good bet.
6. Are you delivering product on time? Well, let your customer know by including a balloon-o-gram…ok, that’s not sexy, just annoying.
7. Get Carrie Underwood to sing the anthem before the start of each shift.
8. Manufacturing Tours, Universal Studio style. (This was actually taken from a serious suggestion and a great one at that. What better way to get youth exposed to manufacturing, lean and supply chain?)
9. Suggestion from Erik Fuessel, remake Justin Timberlake’s “Bringing Sexy Back”…to manufacturing!
10. Missing delivery or revenue target? Into the dunk tank you go…

I came across the following blog post at The Manufacturing Blog that gives a plain English description of pull-model production methods – how to be lean and demand-driven.

I particularly like Stephen’s analogy of push vs. pull manufacturing:

By trying to guess potential demand, manufacturers often found themselves in the same situation as someone carrying an umbrella on a sunny day because the forecast predicted rain: extra effort for no reason. Modern manufacturers prefer to stick their head out the window and check for rain before grabbing their umbrella, so to speak, limiting waste and maximizing efficiency.

As Stephen points out,

Understanding the many complex strategies behind these new manufacturing methods can be as difficult as predicting the weather, as they have brought along with them a series of three-letter acronyms that dominate jargon-filled conversations about current manufacturing trends, like JIT, TPM, QRM, and JIS. These letters don’t exactly help to explain the basic ideas behind pull-production manufacturing, which actually make a lot of sense when spoken in plain English.

Thus, Stephen gives us a plain English guide to the ‘alphabet soup’ and breaks things down to the key concepts of lean manufacturing, Six Sigma and flexible manufacturing. It’s a good overview.  And the long list of acronyms in the post reminds me of our Suitemates “Suites are Sour” comedy video episode – the acronyms in our industry are not just limited to manufacturing and supply chain terms, but also applies to the associated technology applications!

Without a doubt, Lean Manufacturing has been a transformative idea that has its genesis in the Toyota Production System.  Many companies have been able to reduce inventories and reduce order-to-delivery times simultaneously.  There is nothing new in this statement.

What is interesting is an article in Business Week discussing how Deere & Co is struggling to satisfy customer demand because of their adoption of Lean.  While undoubtedly, as stated in the Business Week article, there has been a big emphasis on Lean adoption in Deere which has led to large reductions in inventories, I think there is more that can be drawn from the story. The question is whether you can get too Lean?

Source: AGCO Corp. http://www.AGCOcorp.com

Before I start though, here are some caveats:  I am not a Lean practitioner, I am not a financial analyst, and I do not know the strategies of the companies I will discuss below.  But I am a farm boy, and had a Massey Ferguson, one of the AGCO brands.  I spent many happy hours ploughing fields and reaping crops on “big red”.  I learned to drive the tractor when I was 5 and had to pull down on the steering wheel because I wasn’t heavy enough to push the clutch down.  Going to the tractor dealer was infinitely more interesting than going to the car dealership or toy store.  However, I digress.  As a child I experienced the side of the buyer, and as an adult I have been inside more than one of the Ag equipment manufacturers as a consultant, so I know a little of their operations too.

As the Business Week article states, this is a highly seasonable business.  One thing that has changed dramatically since my father bought tractors is that they are now highly configurable with all sorts of options that include air conditioning and GPS.  Combining seasonality with configurability is a toxic mix for getting Lean wrong.  A central tenet of Lean is “level loading” which is all about keeping a regular cadence in production.  This is fine when you can predict the demand very well, but outside of these tight boundaries, it is really easy to get into trouble either in terms of missing customer shipments (as is the case at Deere), or in terms of not making best use of capacity. From the numbers, it appears that Deere has focused on reducing inventories without implementing an adequate postponement plan to reduce the order-to-delivery cycle.  Let’s go and look at the numbers.

The data in the table above is based upon the 2009 financial results.  (You can do the same analysis using our free benchmarking service.) From this, we can see that Deere & Co has by far the lowest days of inventory (DOI).  However, look at their cash-to-cash (C2C) and days of sales outstanding (DSO).  Their DSO is 7 times more than that of AGCO, which is best-in-class.  What I suspect is that the Deere DSO represents a lot of inventory sitting on dealer floors for which Deere has extended long payments terms to the dealers.  I don’t know this for a fact, but from what I know of the relationships between OEM’s and dealers in the Ag Equipment industry, I suspect this is the case.

More interesting from an operational perspective, is to analyze Deere’s inventories, especially in comparison with those of AGCO.  We see that Deere has roughly double the finished goods (FG) inventory of AGCO and roughly half the raw material (RM) inventory of AGCO.  The work-in-progress (WIP) inventories are roughly the same, though in real terms, AGCO’s are 33% lower.  The conclusion I come to is that Deere makes FG and stuffs the channel.  If the FG values don’t convince you, what about the DSO?  It would appear that AGCO has worked out how to forecast dependent demand – components and sub-assemblies – so they buy a bunch of stuff and then do late stage assembly to meet market demand.  I come to this conclusion because they have the highest RM yet the lowest WIP and FG.  Compare that to Deere which is organized the other way around with more FG and relatively little WIP and RM.  My conclusion is that AGCO is the company that has truly embraced Lean.  Simply reducing inventories without a good postponement strategy is a recipe for poor performance. Where we see the real benefit to the AGCO investors in the return on invested capital (ROIC). Clearly there is a lot that Deere is doing that is correct.  Of the big Ag Equipment companies they have the highest margin values, all the way from gross margin through to net margin.  So I hope they get this right.

Let me repeat at this point that none of my analysis is based upon deep knowledge of how these companies operate.  I could be wildly wrong, but I don’t think I am.  What do the Lean experts out there think?

I came across a great blog post by Atul Chandra Pandey from Infosys titled “Y2010 & Ahead – value chain trends in emerging economy” in which Atul emphasized the following trends in the first part of a 2-part series:

• Customer side equations will take prominence over rest of value chain
• Supply chains will get more integrated with marketing and service chains
• Speed and responsiveness will be key drivers for spend on new initiatives
• Cost will continue to play critical role in decision making
• Asset Management will gain more prominence and will help in accelerating “green” initiatives

I responded to Atul in the following manner:

We too are experiencing that prospects and customers are focusing a lot more attention on customer satisfaction as it pertains to on-time delivery of orders, but also to the enquiry-to quote and quote-to-order processes.

I couldn’t agree more with your third point about speed and responsiveness. Overall the trend we are observing is that consumer behaviour is pervading B2B transactions with ever shorter lead times. Coupled with the adoption of Lean and postponement strategies, companies have to be very responsive to changing demand, blurring the lines between planning and execution. These are the business drivers for your third point about agility and responsiveness.

Cost will always be a driver in supply chain management. If we adopt any of the Lean concepts it should be the elimination of waste. All too often I come across situations where the information and decision lead time exceeds the physical lead time to manufacture and/or deliver the order.

But this got me thinking about several other reports and observations that have come across my desk over the past 12 months.

First and foremost must be the article by Dan Gilmore at Supply Chain Digest highlighting the work done by Supply Chain Digest’s research arm CSCO (Chief Supply Chain Officer) Insights.  There is an excellent report titled ”Next Generation Supply Chain Management: Integrating Planning and Execution” available from this link. (Subscription required).  In the article, Dan Gilmore observes that “For many years, analysts and others have offered separate models of ‘supply chain planning’ and ‘supply chain execution’ processes, and the technology vendors were generally organized in that sense as well. You can find many diagrams that show hierarchical planning processes with no connection at all to execution, for example. The report argues, and the research supports, that this gap must be closed from a process perspective to meet the challenges of today’s supply chains.” I added the bolding because this is the key to being able to provide the speed and responsiveness to which Atul at Infosys refers.  Not only that, but also managing to contain if not reduce supply chain costs will depend on being able to reduce this gap between planning and execution.

Traditionally we have used inventory to buffer against what we would like to happen (the plan) and what actually happens (execution).  But this is no longer possible.  As the graphic below illustrates, as long ago as 2004 postpone strategies had pushed much of the inventory up the supply chain to the suppliers.  They too have adopted Lean and postponement strategies, leading to even lower inventories.  And then there is the effect of the recent recession.  Nearly all the OEM’s I speak to are struggling to secure supply of components, clearly indicating reduced inventory levels in the suppliers. I wish I had equivalent inventory figures for 2009.  Anyone willing to provide these figures?

Then there is the excellent blog written by Lora Cecere recently titled “Tackling the Black Hole in the Center of Your Supply Chain” in which she states “We now know that fixed data integration, one-dimensional rules mapping, and traditional master data techniques from ERP to Supply Chain Optimization are insufficient.  As a result, plans are created and consumed in isolation, and transactional systems hum along with little– to no — guided intelligence.”  So as the speed of business has increased – some would describe this as volatility – the supply chain systems have not kept up.

And most of the information is now external to your organization.  Companies have being trying desperately to get point-of-sale information to get early trend analysis of sales.  At the same time, many brand owners have largely outsourced manufacturing, not only lengthening the physical supply of goods, but also the time and effort it takes to make a decision.  All of these factors are only making the gaps between planning and execution even wider.  But the business need is to close this gap; to respond to demand changes quickly and effectively.  As Lora Cecere, states, the solutions from the 1990’s have not kept pace with the business needs.  Throwing more ERP at the problem isn’t the solution.  At their heart, all ERP systems are essentially accounting packages.  They deal with your data – financial and operational – but provide very little help in dealing with the majority of the information, which now exists outside of your organization.

What are your thoughts?  Do you experience this gap?  Are your systems able to cope.  Will your next breakthrough in performance come from learning to plan better, or learning to respond to plan variance?  In other words, closing this gap between planning and execution.  Robust debate encouraged.

I’ve been thinking about this post for some time.    I’m a Toyota customer.  Our family has owned four Toyota Corolla’s over the past twenty years and we’ve always been very happy with them.  Our most recent purchase, a 2010 Corolla S, has been a great car for my daily 160 Km (100 mile) commute.  With a fuel mileage of 5.6 litres per 100 km (35 mpg) on the highway, I’m not cursing the oil companies with the vehemence I once did.   On the other hand, this is the first time I can recall in all the years that we’ve owned Toyotas that I’ve had to deal with a recall. And so far, I’ve had two (brakes, accelerator pedal)…with a possible third (power steering?) rumoured to be in the works.

The Toyota quality problems have disappointed me.   I learned about the Toyota production system when I was studying Industrial Engineering in college.  At that time, it was held up as the future in manufacturing - a model that other manufacturers around the world should follow. It still is.  At Toyota, defects are considered to be MUDA (waste) when they occur, the root cause is found and eliminated. This is the cornerstone of their system.   Since then, my studies in lean manufacturing have taken me deeper into the Toyota manufacturing system and my faith in the quality of their products has only improved.

I expect better from Toyota…and I suspect Toyota feels the same way.

Toyota has made mistakes: first the error that caused the problem in the first place, then the shoddy handling of the first incidents (which could be the result of disbelief that the problem could be caused by a manufacturing defect).  They seem pretty confident now that they have the problem figured out.  Let’s hope so.

What got me thinking is this…  Here is this vaunted company, renowned for the fine quality of its products, with systems specifically designed to prevent quality problems from happening and especially from getting out of the factory.   Yet, this company is running into some serious quality problems.

Think about Toyota and their processes.  Think about your company and your processes.  Which company do you think would be less likely to run into this type of problem? What processes do you have in place to ensure that this doesn’t happen?  Here’s something more interesting.  On February 1st, Toyota announced that they had figured out the gas pedal problem.  On February 11th, I had my car in for an oil change and they told me they had the kit to fix the accelerator pedal so they would do that while my car was in.  Toyota had the parts to address the sticking pedal recall days after announcing the fix.  How long would it take your company to respond?

I’m not trying defend Toyota.  Like I said, they made mistakes – and it’s costing them.  What I’m trying to do is to have us learn from what Toyota has done wrong, and from what Toyota has done right.   Who knows…  The next time it might be your company facing a problem of this magnitude.   Will you have the capabilities in place to respond?

What do you think?