Giving Cyclical Run Strategies the Green Light. Presenter. Steve Johanson

Transcription

1 Giving Cyclical Run Strategies the Green Light And what can we learn from our own highway departments Presenter Steve Johanson President, Supply Chain Toolworks Experience in food and other CPG manufacturing Develop methods and applications for cyclical run strategy planning 1

2 Objectives Look outside and inside the manufacturing world for lessons and inspiration Explore the impacts of variability on production plans Understand the benefits and challenges of cyclical production planning What can we learn from our highway systems? A Story of Mathematics and Politics Photo: FHWA 2

3 Does this sound familiar? You have a large investment in manufacturing facilities and equipment Your product portfolio changes and increases in complexity You struggle to satisfy your demand with your existing capacity Highway Departments Empathize Photo: SociologyIU9 3

4 In the 1950 s President Eisenhower bequeathed us our infrastructure Designed to Meet the A With National Needs High Capacity of Highway Travel Infrastructure and System Commuting for the Future Photo: FHWA In the 1960s and 1970s Things Changed And performance issues People expanded the suburbs Logistics companies leveraged truck delivery The system suffered from chokepoints and Photo: FHWA 4

5 Metropolitan Highway Authorities Responded by Expanding Adding Adding Routes Lanes Photo: SFGate.com and FHWA The Result Not enough increased capacity and a lot of government debt Photo: FHWA 5

6 Minneapolis found themselves in this position in the 1990 s Situation: They had enough lanes and corridors to satisfy their peak demand Complication: They had throughput issues Traffic jams Variability in travel times Accidents Does this sound like rough cut capacity planning What did they do? Actions: Studied their system using statistical models Identified variability as the culprit Found a solution to their problem that was Economical Quickly implemented Utilizing existing technology 6

7 Their solution was to set the frequency of EVERY car entering the system EVERY hour of the day, EVERYDay of the week Photo: FHWA How did it turnout? Throughput: + 14% in peak hours / + 9% overall. Free capacity with very little capital investment! Reliability: ½ variability in travel time. Think reduction in safety stock or queue time! Safety: 26 % percent fewer crashes. Less scrap, less down time! Source: Twin Cities Ramp Meter Evaluation, Minneapolis DOT

8 And the Net Benefit Annual savings: $40 million Capital cost: $3 Million Comparatively, a project to expand a 9 mile section of highway 31 in Michigan costs $10.1MM Source: Twin Cities Ramp Meter Evaluation, Minneapolis DOT 2001 Is Minneapolis still reaping this benefit today?... Let s return to the story later 8

9 How can we apply the lessons learned to the manufacturing planning world? Manufacturing: 1. Demand signals 2.Sourcing 3. Cycling 4. Sequencing Buffer warehouse: 5. Safety stock (service levels) Deployment: 6. Replenish mode 7. Replenish cycle Distribution center: 8. Safety stock (service levels) What is a Cyclical Run Strategy A set of fixed production cycles and sequences An inventory policy of safety stock targets A playbook to allow for eventualities Capacity shortages and surpluses Unscheduled down time New product introductions 9

10 What Makes Cyclic Run Strategies Economical? It targets variability: Demand and flows are smoothed Changeover costs are minimized Inventory stabilizes on targets Planning coordination is made easier When you fix your cycles, good things happen What return can I expect? 50 plant average annual savings of $1MM 10% to 50% reduction in overall inventory Safety stocks go up Cycle stocks stabilize The other stuff goes away Service levels and distressed numbers match goals Schedule adherence goes up Kaizan lists are reduced or reprioritized Discussions revolve around roadmaps rather than goals Source: Supply Chain Toolworks, Inc. 10

11 What is the fundamental change? Economic order quantity (EOQ) - Triggered by Inventory Level - Fixed quantity - Variable cycle Production Qty EOQ Time Economic production cycle (EPC) - Triggered by Production Calendar - Variable quantity - Fixed cycle Production Qty EPC Time Economic Order Quantity Vs. Economic Production Cycle Pros Cons EOQ Fixed Order Quantity - Easy to do - ERP worksthat way - Treat each SKU independently - Random Schedule - Math is usually wrong (what is the correct changeover cost?) EPC Fixed Cycle - Predictability - Rhythm - Smoother Demand Signal - Economical for complex changeovers - You have to Design a Run Strategy - Requires forethought and leadership 11

12 Case: Frozen Dinner Manufacturer EOQ + Dynamic EPC CASE: Fruit and Nut Packaging Company Case Study Focus: Single packaging line Portfolio: 43 SKUs Drivers of complexity: - Bag size changeovers (6 sizes) - Color/flavor cleanup (4 flavor types) - Allergen clean up (15 Allergen combinations) 12

13 Case: Changeover Complexity Size Change (180 min/$2,700) Flavor Cleanup (60 min / $1,120) Allergen Cleanup Major (60 min/$550) Pack Change (30 min/$360) Characteristics: - Complex product portfolio - Parametric changeovers - Optimum solution is to be found in clustering Label Change (15 min) Case: Allergen Tree Allergen rule: - If you add an allergen, it is a minor changeover (10-30 Min). - If you remove an allergen it is a major cleanup ( Min) None Tnut Soy Pnut Salt Tnut Soy Tnut Salt Soy Salt Pnut Tnut Pnut Salt Tnut Dairy Soy Tnut Wheat Dairy Soy Salt Pnut Tnut Dairy Soy Salt Pnut Tnut Wheat Dairy Soy Salt Pnut Tnut Salt 13

14 CASE: How often do I run SKU ? Size Cluster (13 SKUs) Flavor Cluster (6 SKUs) Allergen Sequence (3 SKUs) SKU: CrnberyNut 10/12 Size: 5.75_2.75 Flavor: Dark Allergen: Tree Nut- Salt Demand = 1.5 hours/week Picture of how you would break it down Cluster # SKUs Volume Changeover Costs Inventory Holding Costs 1. Size Cluster 13 ### Sum of all Change Costs 2. Flavor 6 ### Sum of all Change Costs 3. Allergen Cluster 3 ### Sum of all Change Costs EPC ### 1 Week ### 2 Week #### 2 Week 14

15 The Big Epiphany After over 10 years of implementing cyclical run strategies. 50% of the benefit was in fixing the cycles Not in getting the exactly correct cycle Great benefit in having a predictable schedule Plants wanted to prove the method before reducing cycles Good idea to start with high safety stock targets and bleed off over several cycles Strategies to put into your playbook Flexible manufacturing Flex SKU Job shop time or job shop line Demand Shaping 15

16 Critical Success Factors 1. Safety Stocks reflect all sources of variability 2. Capacity is not over committed 3. Cycles are followed Critical Success Factor #1 All sources of variability are included in Safety Stock Supply Chain Decisions Planning Lead Time Cycle Time Transit Mode/Time Inventory Profile Supply Chain Performance Demand Environment Constraints Mfg Time + Variability Transit Time + Variability Mfg Schedule Adherence Trans Schedule Adherence Forecast Error Demand Variability Service Level Ship Life Capacity Loading Homework Assignment: See how many of these factors are included in your safety stocks 16

17 Critical Success Factor #2: Do not overcommit capacity No week The over 100% week loading variability hypothesis and changes in mix require flexibility and adjustment. If my equipment can make If 1,000 you load cases lines per to week, 100% can of their plan effective for it capacity, to make you have 52,000 no means cases per to compensate year? for variability Critical Success Factor #2: Do not overcommit capacity Week (168 hrs) 150 Frozen Dinners Processing Line Loaded to 100% Capacity Random periods of sequential shortage 100 Capacity Shortage 50 Capacity Surplus Production Time 0 Changeover Time Homework Assignment: Scheduled Down Time See how rough cut capacity allows Weekfor weekly variability in demand 17

18 Think of lean as balancing your capacity and inventory Safety Zone (Fill Rate > Target) Lean Horizon Safety Stock: - Trapped Capacity Safety Stock: Lead time Demand Side Variability Supply Side Variability Forecast Error Inventory Transportation Stock Cycle Stock 50% 60% 70% 80% 90% 100% Capacity Commitment Finding that lean horizon Safety Zone (Fill Rate > Target) Lean Horizon Rough Cut Cap Planning Inventory Simplified Safety Stock Danger Zone (Fill It Rate is disturbingly < Target) easy to find yourself here with all your systems saying it is OK 50% 60% 70% 80% 90% 100% Capacity Commitment 18

19 Critical Success Factor #3: Following the Cycle The other Epiphany Back to Minneapolis The city executed their 100% metered ramp strategy The city got the quantifiable results The city and population saved boatloads of money 19

20 What did the drivers think? They hated it!!! They felt meters were inconvenient They waited at meters when traffic was flowing freely They felt big government was oppressing them Drivers did not emotionally connect meters to shorter-predictable-safer commutes End Result: Politicians required meters to only operate at peak hours the effect of metered on ramps was marginalized The lessons learned from breaking cycles Interfering with production cycles: Invalidates safety stock calculations Invalidates capacity calculations Adds variability to the system Adds cost Defeats the point of following cycles 20

21 Conclusion I encourage your organization to: Embrace cyclical planning at all leadership levels Establish and track metrics for success build confidence Don t cheat, even if it feels right have faith in your metrics Questions? Source: USHWA Steve Johanson -- steve@sctw.com

22 Survey 22