By Eli Schragenheim Supporting TOC implementations worldwide

Transcription

1 By Eli Schragenheim Supporting TOC implementations worldwide

2 The idea of value-days The idea of using value-days is common in the banking systems But not much elsewhere For Eli Goldratt the idea came from the concept of Moment of Force in Physics The term refers to a multiplication of two values of different entities that are not in the same dimension Thus, multiplying money by time creates a new entity The idea is to measure the impact of a delay combining the throughput value of money with the time it has been delayed And this serves as a measure of lateness Then the idea was used also to form a new measure for investments

3 Using TDD for measuring due-date-performance The first and most common use of value-days is a periodical measure of due-date performance (DDP) Every day any order that is late adds to the periodical measurement the worth of its T In this way the DDP is very sensitive both to the total T of the shipment to the client and the number of days is it delayed This seems to be superior than the measure of percentage of orders that were late By adding both the economic worth of the order to the supplier and taking into account the lateness itself Are there any negative branches to the use of TDD???

4 My view of the negatives of TDD as a measurement of DDP Value-days are NOT intuitive and could easily cause false impression leading to flawed decisions! It seems like a huge amount of money! There is no clear reference value of what is acceptable The theoretical best result is zero, but this is not a practical reference Suppose the monthly TDD for a medium size manufacturing company is 4,000,000 dollar-days how would you rate it? The following month the company had zero dollar-days How dramatic is the improvement? Suppose that in the first month a very large shipment, worth of $1M of T, was delayed by 4 days due to last minute quality problems And the client did not complain at all All the other 400 orders went out on time

5 More negative branches We know that measurements drive behavior Is it good to prioritize orders based on their T level? Any day of delay of an order with high-t worth more than a delay for an order with low T Buffer management does not rate orders based on their T level Should we develop a different buffer management scheme? This would mean that an order with 100 time the T value than the average would be expedited even when it is in green! If buffer management is the only priority scheme then what kind of decisions we expect from the TDD measurement? When some orders would be definitely late and we can only decide which should we base the decision only on the T value? Why not on the revenues?

6 Obstacles in implementing TDD as DDP measurement It definitely requires software Using TDD for Make-to-Availability (MTA) is tricky How do consider lateness for stocked items? There are two alternative ways to deal with this obstacle: 1. Penetration into the red is interpreted as late Then the TDD only measures possible damage as no sales are currently delayed Would all the users understand the meaning of 4M dollar-days when no real shortages have occurred? 2. When there is a shortage then we assume that the average daily sales are delayed Actually they might have been lost! There are difficulties in assessing the relevant average daily sales

7 TDD and the quality of the planning The reference for TDD is the planning date for delivery The TDD is the measure of the execution given the plan What if the plan was unrealistic to start with? We get all the focus on the execution! The question of flawed planning is not asked And one ultimate NBR: When we manage a mix of MTO and MTA then what we get from TDD does not reflect a balanced measurement

8 TDD as a local performance measurement We all are aware of the huge difficulty to measure the performance of a local function or department First difficulty is to be able to observe what is relevant just to local department and what is the impact of dependencies with other departments Another difficulty is to make sure the measurement leads to the right actions TDD of a department looks on the following: Every order that is late and the department has still to finish its task for that order the full T of the order multiplied by the number of days is added to the local measurement counter - until the department finishes whatever it needs to do for that late order Does this measurement solve the difficulty to measure the performance of a local area?

9 TDD as a local performance measurement the difficulties When several orders are already late They should have been expedited already when they turned red Is it clear that the order with the highest T is the first? What about a low T order to the most important client? Is the local measurement fair? Departments that are closer to the completion of orders collect more TDD than those at the beginning of the routing Time to process vary with departments some might even have long touch times! When we only look on actual lateness then the measurement fluctuates heavily The high fluctuations of TDD makes it very unfair indeed!!!

10 IDD is it really the twin of TDD? Inventory-dollar-days is always presented together with TDD but its function and added value are quite different IDD measures the value of any piece of inventory multiplied by the days it is stuck in that area of inventory If there are items in inventory that are stuck there for very long time their contribution to the IDD are very large Does it lead us to make better decisions? Note, the cost of the on-hand inventory is sunk cost! IDD measures the momentary value of the investment in inventory in value-days So, in order to do an analysis we need to watch the behavior in time, as the instant value has very little to offer

11 IDD as a local performance measurement Implementing IDD, on top of TDD, on the level of a function of department is even more problematic: Do you really want that the function will try to push out inventory that is not at all urgent only because it is more expensive? And if inventory was pushed into the shop floor by mistake why the poor manager of the specific function has to be punished? Note also that calculating IDD forces keeping track of every move of inventory, which makes the software much more complicated than maintaining TDD As IDD is a momentary glance we should expect it to lead an immediate decision to improve the situation Like pushing old expensive inventory out is this important?

12 The merit of using TDD to measure suppliers Measuring the potential damage of delays in supply Not necessarily this is the fault of the supplier Thus, the measurement is of our relationships with the suppliers Recording delays in supply that cause shortages of enditems OR delays in the release of production orders The merit is that the supplier gets a signal what is the relative damage for the client of not supplying on time The meaning of on time depends on the actual situation at the client and not on the regular lead-time for supply This might be very useful for the supply chain to radiate the real importance of expediting one specific item and not the other A major obstacle is determining the T of the customer order

13 Discussing TDD as a DDP performance measurement What do you think is the added value of using TDD to measure our own DDP or our supply management? What decisions would it improve? Can we trim the negative branches? A proposition by Eli Schragenheim for global DDP performance: Using item-days as a DDP measurement Not using any monetary values but getting the impact of the length of delay Should we use TDD as a local performance measurement?

14 The vision of the integrated supply chain and the relevance of TDD/IDD to it Goldratt s vision for the supply chain is to share the full T when the items are sold to the final consumer So, the members of the supply chain are investing in inventory that move downstream towards the selling point And the payback is done only upon real sales Under this vision, IDD is a performance measurement of the selling points We had to invest IDD to enable our part of the T The negative branch is again that the momentary IDD does not add value It does not lead, so it seems to me, to good immediate decisions For the longer term we d need anyway averages of inventory and time like the common inventory turns

15 Do we need IDD at all? Open discussion What is the practical value of IDD? Any decisions to take in the near future? Any decisions in the longer term that we could not reach using much easier to obtain financial measures? If we do not see value in IDD, but see some value in TDD shouldn t we use, instead of throughput dollar-days revenues-value-days (RDD)? The financial delay harms also the payback of the cost of materials!

16 Value days as investment justification Goldratt came with the concept of Flush : Any investment scheme has a predicted list of money to be spent and then money to be gained, hopefully, later in time Every time we put money in we add it into a money-out-counter For every money we get we reduce the counter by that sum Every day we add the money-out-counter to the value-dayscounter Note, when we start to get money back the money counter goes down, but as long as the money-out-counter is positive - the value-dayscounter goes up Only when the money-out-counter is negative - the value-dayscounter go down When the value-days-counter becomes zero the total TIME from the first day of the investment is a measurement of the investment. The longer the time the less desirable it is

17 Comparing Flush with the existing investment justifications The common paradigm is that there is a price to giving away $1 for a year This is called the interest-rate! This price of money concept is in conflict with Goldratt s view of time and money as totally different dimensions! The concept of price of money allows a simple mechanism of giving loans and assessing the net-value of an investment for a specific point in time Note, the Flush concept does not justify the investment it just points that one investment is better than the other Even though payback that comes later than the time to return the value-days is not considered at all! Also, Flush does not consider compound-interest

18 What is wrong with the common existing paradigms for investments? The concept of Net-Present-Value (NPV) is taking the impact of time, as well as of money, into full consideration But, it assumes a certain interest-rate However, different values of interest-rate might yield different rating of investments Without the concept of interest-rate any money you spend for yourself is causing infinite value-days because it ll never be returned Thus, we should never go on vacation or even go to a movie because this is the worst use of money! Is this what you feel intuitively? Considering the above is there ANY added value in the concept of Flush???

19 Discussion Let s discuss the topic further using the LinkedIn discussion group: TOC4U Theory of Constraints group