Demand Driven. Performance. Using Smart Metrics. Debra Smith. Chad Smith. Mc Graw Hill Education

Transcription

1 Demand Driven Performance Using Smart Metrics Debra Smith Chad Smith Mc Graw Hill Education New York Chicago San Francisco Athens London Madrid Mexico City Milan New Delhi Singapore Sydney Toronto

2 CONTENTS Foreword Preface Acknowledgments Introduction: Deep Truth xi xviii xxi xxiii CHARTER 1 The Need to Get Smarter 1 Are We Even Playing by the Right Rules? 1 Area 1: Planning and Materials Management 2 Area 2: Costing Systems 5 Area 1 + Area 2 = Big Problems 6 The Rise of the New Normal 8 The Push-and-Promote Problem 10 The Need for Flow 10 Variability Enemy Number One of Flow 13 The Types of Variability 17 Demand Variability 17 Supply Variability 19 Operational Variability or "Murphy" 19 Management Variability 20 Getting Smarter A Basic Blueprint for Change 20 Step 1: Install the Right Thoughtware in the Organization 21 Step 2: Become Demand Driven 21 Step 3: Deploy Smart Metrics Rules for the Smarter Way 21 CHARTER 2 Install Thoughtware in the Organization 23 Can Our Organizations Think Systemically? 24 Modern Organizations Conflict Factories 28

3 vi [ Contents Conflicts and Oscillation 38 A Short Story about Oscillation 41 The Real Definition of Waste 42 CHARTER 3 Becoming Demand Driven 43 Push and Promote to Position and Pull 43 Accepting the Changes Inherent in the New Normal Embracing Flow and Its Implications 44 Designing the Demand Driven Operating Model Placing Decoupling Points 44 Placing Control Points 48 A Decoupling and Control Point Example 54 Protecting Decoupling and Control Points 58 Demand Driven Stock Buffers 58 Demand Driven Time Buffers 59 Demand Driven Capacity Buffers 61 Bringing the Demand Driven Model to the Organization 64 Operating and Sustaining the Demand Driven Model 68 CHARTER 4 Introducing Smarter Metrics 69 The Search for a Deeper Truth 69 Quantifying the Performance Gap 71 Smarter Metrics 72 Company 1: Oregon Freeze Dry 73 Company 2: Jamestown Container Company 74 TheResults 74 Company 3: LeTourneau Technologies, Inc. 74 Company 4: M.C. Gill Corporation 75 Lessons from the Four Companies 76 CHARTER 5 HowDo WeKnowWhat'sTrue?. 79 The Scientific Method 80 Monthly Meeting of "Company Normal" 81 Using Consistent Terminology 83

4 What Is a Scientific Fact? 83 What Is a Theory? 84 WhatlsProof? 84 What Is Scientific Proof? 86 Back to the Scientific Method 90 Unit Cost-Centric Efficiency A Deep and Universal Truth 93 CHARTER 6 Efficiency, Flow, and the Right Measures 97 The "Right" Measures 97 DefiningCost 103 CHARTER 7 Our Current Accounting Measuring Mess 113 Reason 1: The Proliferation of ERP/MRP II 117 Reason 2: The Growing Distance between the Front Office and Operations 120 Reason 3: The Fading Away of Management Accounting 120 Gap Explanation 1: An Increase in Complexity 122 Gap Explanation 2: The Shiftfrom Linear to Nonlinear Systems 122 Silo Thinking 123 Challenging a Deep Truth by Definition Shakes Up the Status Quo 125 CHARTER 8 The Evolution of Flow and ROI as Strategy 127 The Birth of Product Costing 128 The Birth of Decentralized Management 129 An Accelerant Andrew Carnegie 130 The Rise of Wholesale Distribution and Large-Scale Retail 132 The Birth of Conglomerates and Management Accounting 133 Automation and the Death of the Craftsman 134 Ford versus General Motors A Lesson ofrelevancy 138

5 How Did GM Beat Ford? 142 The Birth of Push and Promote 145 Systemizing the Management of ROI 151 The Emphasis on GAAP and the Rise of Unfocused Improvement and Outsourcing 153 CHARTER 9 A Gase Study The Boeing Dreamliner 155 The Boeing Dreamliner 156 CHARTER 10 Complexity Science and Supply Chains 183 The Newtonian Way 184 The Push beyond Newton 186 Complexity 187 Chaos and Complexity Theory Maturation 189 Supply Chains as Complex Adaptive Systems 190 The Simplicity in Complexity 191 Understanding Complex Systems 192 What Makes a System Complex? 193 Complex Systems Are Nonlinear 194 The Move beyond Complexity Theory Complex Adaptive Systems (CAS) 195 Boundaries 196 Coherence 197 The Edge of Chaos 197 Self-Organization and Emergence 198 Emergence and Innovation 199 Self-Balancing Feedback Loops Maintain Stability Resilience and Rigidity 200 A Complex Adaptive System Example Company Normal 201 A Reference Example for Complex Adaptive Systems Connections and Interactions in Nonlinear Systems 206 CAS and the Demand Driven Operating Model Data Collection and Feedback Loops 209 Demand Driven and Resiliency versus Rigidity 210 Summary 212 Conclusion 213

6 CHARTER 11 Smart Metrics 215 Managing in a Pareto World Calls for NewThinking 215 The Power of Pareto and Strategie Buffers 217 Stock Buffers, Pareto Analysis, and Smart Metrie Objectives 218 The Purpose and Size of Each Strategie Stock Buffer Zone 223 Strategie Stock Focused Improvements 226 Flow Indexes 230 Capacity Buffers, Pareto Analysis, and Smart Metrie Objectives 232 A Paretian View of Resource Capacities 234 The System and Paretian View of Resource Capacity 235 The Implications of the Sales and Operating Plan for Strategie Capacity Investment 238 Cost, Volume, Profit Relevant Range Is Defined by the Scarce Capacity Resource 240 Allocating Scarce Capacity to the Market Based on Strategie Contribution 240 Prioritizing the Product Mix by Throughput Dollar Rate Changes the CVP Graph 244 Calculating the Value of Finding More Lathe Capacity 245 Relevant Information for Strategie Outsourcing The Case for Acquiring Internal Lathe Capacity A Summary of the Financial and Nonfinancial Factors of Outsourcing or Capital Investment The Third Alternative Using Smart Metrics to Find Capacity 252 Summary on Strategie Investments in Capacity and Stock 256 The Scheduling Implications of Stock Buffers 256 Stock Buffers' Role in Execution 259 Control Points and Resource Scheduling 260 Time Buffers and Reliable Schedule Execution 262

7 X I Contents Time Buffers as the Execution Feedback Loop for Manufacturing 263 Time Buffers Require Ten Zones 264 Time Buffers Düring Work Order Execution 266 Minimizing Control Point Disruption 267 Schedule Execution Coherence and Priority Alignment 268 Assigning Roles and Responsibilities 270 Larger, More Complex, Multisite System Control Requirements 273 The Cheat Sheet for a Demand Driven Performance System 274 Ask and answerfive key questions hourly, daily, weekly, and monthly. 274 Ensure thefive critical data capture points to provide the smart metric answers are timely. 275 Plan an executable schedule focused on system flow and the market lead-time strategy 276 Expect reliability, stability, and speed 277 Remove cost-centric competing measures 279 CHARTER 12 Summary 281 Performance Measurement Built on a New Deep Truth 282 The Need for Steady Feedback 283 Focus on Improvement 284 A Final Thought on Information Technology 286 APPENDIX A More on the Strategie Replenishment Buffers of Demand Driven MRP (DDMRP) 289 Index 301