Implementing Synchronized Planning in a Complex

Manufacturing Environment A Case Study

April 13, 2010

Terry Cook, CFO – Delkor Systems Inc. Rick Bernett, Partner -3sixty solution llc.

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Thank You! for Supporting our APICS Chapter

  Our goal is to share a real story along with a few insights we gained along the way: 1.  Appreciation of the differences between the goals

of education and training 2.  Ways to eliminate the ‘islands’ of information to

improve enterprise planning 3.  Formalizing an effective agreement between the

sales function and operations 4.  Creating the drum schedule based on the

strategic constraint and synchronizing MRP and final assembly to the drum schedule

5.  A few tips on overcoming pitfalls of implementing change

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Agenda

I.  Overview of Delkor – Terry C II.  Why We Started – Terry C III. How We Approached the Situation – Rick B IV.  Results/Key Insights – Terry C V.  Next Steps – Terry C

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I. Overview of Delkor Systems   Manufactures end of line packaging equipment   Originally started in mid 1970’s   Majority of business sold in 1990 with retirement of owner

  The name ‘Delkor’, an idea, and 3 employees   The idea turned out to be patentable - Spot-Pak®   And the company grew to $37M averaging 20% per year

  Employee count grew to 90   2 Buildings, one 35K Sq. Ft. and the other 22K Sq. Ft.

used for sub assembly and storage   Key customers include Fortune 500 food companies   Innovation and operating cost reduction is a key offering

to our customers

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Trayfecta ® S Former Spot-Pak® Loader

  Delkor Systems designs and manufactures end-of-line automated packaging systems

  Our equipment provides robust, innovative solutions for carton forming and closing, top load case packing, tray packaging, and robotic palletizing

Overview of Delkor Systems (Con’t)

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 Historically, Delkor custom engineered, machined, assembled, tested and installed

 Lead times were 18 – 22 weeks  Machine prices vary from $10K to over $500K  Typical machine consists of 3,000 parts  About 30,000 items in Item Master File  Internal machine shop  Strong supplier network, most local  Several Patents

Overview of Delkor Systems (Con’t)

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  Started first Company-wide strategic planning process (with guidance from Fred Green)   Completed our first draft of key process maps and

SOP’s   Completed first Corporate strategy meeting

  Strengthened our management team with a new Director of Engineering and a new Director of Marketing

  We had expanded our product lines beyond Spot-Pak®   The economic uncertainty had finally caught up to

Delkor in Q2 08 – we had incoming orders, but they were declining, compared to the usual 20% growth we had become accustomed

II.  Why We Started Spring 2008 -The Context

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Why We Started (Con’t)   This lull was seen as an opportunity to improved planning

functionality in our existing ERP system along with other strategic initiatives

  Purchased the ERP system in 2003   Microsoft Dynamics NAV (Navision)   Good handle of inventory status and cost information   However not using MRP as a planning tool

  Purchased Solid Works 3D CAD system in 2000   Several report writing tools available   But as the company grew, the impact was felt in

numerous ways   Inventory crept to unacceptably high levels   Expediting activity increased   Rework in assembly increased to unacceptable levels   Overall work environment became overly reactive

  Current planning processes limiting continued growth

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  Engaged 3sixtysolution to guide the overall project   Retained our Navision support (Solution Dynamics) for

key technical support   Following the initial 3sixty solution assessment, we

agreed on phase 1 scope – Material Planning fundamentals

  This included:   Standard vocabulary (using APICS as reference point)   Educational workshops (key assumptions, necessary

conditions, limitations etc.)   Viable Master Scheduling process   Full MRP functionality in test database

  Goal to complete by 6/30/2008

Why We Started (Con’t)

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III.  Our Approach

  Kicked off with a full day offsite education session with Senior Management

  Fully utilized the existing MRP project team including:   Terry Cook - CFO and project sponsor   Dirk Norgaard - Inventory mgr.   Jenny Mate - Business Analyst   Tom Tetzlaff - Production mgr.   Met twice weekly – maintained action registry and project plan etc.

 Next, held a series of educational workshops covering all relevant topics (i.e. MRP mechanics etc.)

 Needed to integrate this initiative with the new strategic planning process

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Order Fulfillment Process

Assembly

Assembly

Assembly

Assembly

Ship

Assemble to Order

Kitting

Machine Shop

Suppliers

Make to Stock 25%

Order Engr.

Machine Shop

Suppliers Make to

Order 75%

  Delkor was predominately engineer–to-order   About 75% MTO & 25% MTS

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A Few Pinch Points!

Assembly

Assembly

Assembly

Assembly

Ship Stores

Machine Shop

Suppliers

Order Engr.

Machine Shop

Suppliers

Highly skilled Techs!

Excellent Inventory Accuracy

Make to Stock items

Based on Min-Max

Shortages/ Stealing/

Rework / Excess $$

Late Drawings

The Green Blob!

Hand-Offs

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New Direction   As part of the new Strategic Plan, Delkor decided to

greatly increase Product Standardization   From 25% to 75% Standardized items   From 75% to 25% Custom Items

  A Major Engineering initiative!   More important, a major culture change!   But it created a new opportunity on how to proceed

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1. Training vs. Education

Education   Deals with understanding underlying concepts and

principles   Helps to understand how various functions relate to

each other   Answer the ‘why’ questions   Connecting the dots   Provides context

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Education at Delkor

 A key objective was education!  Directors and key managers attended most of the

workshops!  Workshops included time for dialogue!

  Solidify understanding and acceptance  Worked to get agreement on:

  The specific problems we were addressing (scope)   The reasons why the proposed direction would

solve the problems   Recognize possible negative consequences and

address directly

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Education & Constancy of Purpose   Deming Point #1 - Constancy of Purpose

  Repeat, repeat and repeat until the “aha’s” happen!   Discipline to avoid the easy ‘outs’ or ‘controversy’   A few eggs must be broken to make an omelet!

  Communicate “Formally”   Quarterly company reviews   Weekly status reports to CEO and Directors   Bulletin boards etc.

  More importantly, communicate “Informally”   Not over hyping, but honestly explain what and why we

are doing this transformation   Explain the likely organizational changes/roles

personally to individuals

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2. Creating the Bridges to the ‘Islands’ of information

Assembly

Assembly

Assembly

Assembly

Ship

Assembly had info

Kitting

Inventory Control had

Info

Order Engr. Machine

Shop

Suppliers Engineering

had Info

The machine Shop had

info

Purchasing had Info

Sales had Info

Sr. Mgt had Info

  There were tons of data, but little credible “information!”

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  Engineering has full design authority   A 3D software product (Solid Works) was used to

accomplish their work – the initial BOM resides in Solid Works

  ERP system resides in Navision   Bills of Material must be transferred from Solid Works

to Navision   Initially, this was a manual process!

Engineering Solid Works

BOM

ERP (Navision)

BOM

Bridge 1 Solid Works CAD to Navision ERP ®

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  A critical information interface had to be created   Delkor IT (Paul C) worked to create electronic

transfer from Solid Works to Navision’s BOM file   This “BOM Push” was a major and critical IT effort

  We decided to wait until this was complete before going live with full MRP   It also forced us to improve the ECN process

Bridge 1 (Con’t)

Engineering Solid Works

BOM

ERP (Navision)

BOM

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  While MRP was ‘installed’, it was configured in a basic Min/Max mode – i.e. treated dependent items as independent demand

  To get full MRP benefits, we had to re-configure it   Updated numerous planning parameters

  With the new standardization effort, agreed to master schedule at the key option level   Planning BOM

  Agreed to test full MRP functionality using a pilot product line (Trayfecta) in the test data base   To reduce internal effort we got assistance from Solution

Dynamics

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Planning BOM Example BOM’s could be as deep as 5-7 levels

SP-12345 Spot Pak Loader

XYZ Food Inc.

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  Using Planning BOM’s, the MPS is manually entered into Navision   Custom parts, of course, are build to order

  With MPS, Inventory File and BOM’s, the MRP calculates all dependent material needs (i.e. planned orders)   Agreed to floor stocking where it was practical

Full MRP Functionality

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  Custom items are designed and built to order, thus the process starts with a Request for Proposal (RFP)   If customer accepted the proposal, had to create a Sales

Order in Navision - a manual process   Agreed to purchase a product configurator that is a

bolt-on application to our Navision ERP System   This project is still in process!

  Will create the demands (Options) in Navision   Reduce RFP complexity   Reduce manual data entry

RFP Process Stand alone

Order Entry Navision)

Sales Process

Bridge 3 RFP’s to Order Entry

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  The next bridge, the S&OP process, took more than software!

S&OP a necessary

bridge

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  Value is created when we sell something – the process starts with Sales!

  Delkor provides capital equipment thus sales process is long & complex   1-2 years not uncommon

3. Sales Buy-In A Necessity for ERP Success

  Sales involves other groups   Applications engineering – Quotes, Proposals & Changes   Engineering – Is design viable?   Assembly – Can we actually build it?   Finance – Are we going to make money?

  Sales staff is technically capable, but focus on sales, not forecasting

  What we needed for effective planning was a ?

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 Conceptually S&OP is easy!  Even the details are not too involved

Sales & Operations Planning Version 1.0

Initial Sales Forecast

Formal S&OP Meeting

Recommendations

Pre-Meeting

Capacity Check

Updated Sales & Production

Plan

The real challenge is changing old nasty habits!

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 Required CEO’s direct involvement (with a key push from the CFO!)

 This took several iterations!  We back slid at least several times   But we pushed forward

 Sales Customer Mgt. System (ACT) re-implemented  Guidelines on inclusion to sales forecast agreed   Forecasting is still more art than science!

 New Approach – if something ‘big’ happened, no hallway orders-meet as a team and agree from there  Discipline! Old habits die slow & must be driven from the

top!  Note, if the above is not possible

– It’s a Show Stopper!!

Creating the S&OP Process at Delkor

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Summary thus Far 1.  Provided educational workshops 2.  Bridged many ‘information islands’

  BOM Push   Full MRP capability   Order Entry Configurator (in process)

3.  Formal S&OP in place (i.e. Bridge #4)

  But we did not want bridges to nowhere!   Still had not yet fully

synchronized the order fulfillment process

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4. The Strategic Constraint - Drum Beat   The Theory of Constraints (TOC) includes the 5

Focusing Steps: 1. Identify 2. Exploit 3. Subordinate 4. Elevate 5. Start Over

  In 2008 the true system constraint was obviously external - the ‘market’   The sales team worked to ‘exploit’ this constraint,

but this is another story unto itself   Internally, however, we needed to identify the

strategic constraint – a logical control point to synch up all other activities

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  A daily “Engineering Release” meeting was held to provide downstream resources as what they could work on the next few days   Engineers were rushed and stressed   Someone was always waiting for some information from

engineering-specifically, mechanical engineering)

Design Engineering

Assembly Machine Shop

Purchasing

A new drawing

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Step 1 – Determine the Strategic Constraint   Where should the internal constraint be located?   It depends!

  E.g. what is the natural constraint of a Boeing 767?

Kitting Order Entry Engr.

Machine Shop

Suppliers

Assembly

Assembly

Assembly

Assembly

ECN’s

  Recall, Delkor designs and builds machinery

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Step 2-Exploit How to Best Utilize Engineering?

  What actions would allow us to get the biggest bang for the buck in engineering?   New Director of Engineer – Adam Koller   Training in updated Solid Works CAD system   New roles – e.g. have tech run interference between

assembly, machine shop etc. to cover the most common design issues

  Improved ECN process

  Improved upfront scrutiny of sales order proposals – validate we can do what customer wants

  Stop the bad multi-tasking (huge urban myth!)

  Create a finite schedule for Mechanical Engineering which would be used to synch up all other operations- “Drum” Schedule

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How to Schedule Engineering?

July Aug Sept Oct Nov Dec

Project ABC

  Create a finite schedule (drum beat) based on mechanical engineering capacity and customer needs   We had several false starts   Agreed on a simple Gantt Chart – using MS Project

Project 123

Project XYZ

•  Stagger Mech. Engr in the most effective way to assure capacity not exceeded

•  Time Estimates based on complexity of project

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Step 3 – Subordinate by Synching Up   Once we had created the Drum, we could easily

forward schedule all key downstream tasks

Mech. Engr. Review

Elect. Engr.

Integ. Machining

Engr. Release

Pick

Assemble

MPS

MRP

Orders

BOM

Suppliers

Drum

• Use the Pick Date to trigger MPS due dates

• Lot size set at L4L • True demand pull for

all dependent items

• The buffer is the backlog

• Only release if ALL conditions are a ‘GO’!

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Example of MS Project Drum & Load Report

•  Mechanical Engineering is the control point for capacity, but secondary view in assembly is also checked

Load Report

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Step 3 – Dealing with Murphy   Murphy lives in a plant, Delkor was no different   We needed to buffer against Murphy

1. Between Engineering and Production 2. Between Production and Shipping

  We used two time buffers

Mech. Engr. Review

Elect. Engr.

Integ. Machining

Engr. Release

Pick

Assemble Suppliers

Drum

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Summary   Created the Drum based on finite capacity and

customer needs at Mechanical Engineering   Schedule downstream action accordingly   Synchronize the MPS/MRP to the release and pick dates

established

Mech. Engr. Review

Elect. Engr.

Integ. Ship Machining Assemble

BOM Release & load MPS

Parts Due Date

  Protect against Murphy – add 2 buffers

Drum

Engr. Completion Buffer

Shipping Buffer

  New policy - No order until specifications understood and engineering samples in-house

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 Step 3 of TOC - “Subordination” - is the toughest nut to crack!

 Requires new habits e.g.   Push back on sales until idea can be validated   Using different measures for decision making

  Explore Throughput Accounting vs. GAAP based   Avoiding the temptation to pull work ahead to keep

everyone ‘busy’   Cannibalizing material from one project to another   Trying to ‘save’ set ups by using large lot sizes   Leaning out too much-resulting in lack of protective

capacity

Challenges

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  A weekly production status meeting held   Review Drum Schedule and Buffer Consumption

  Master Scheduler facilitates meeting, actions and issues entered real time (& hyper-linked to production log)

  Application Engineers provide project management support

  The use of the Drum provides a enterprise-wide easy to view picture of all engineering and operational activities

Drum

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5. Tips on Implementing Change  CEO must be educated and understand this is not a

software thing – but a new way to conduct business  CFO must be on-board!

 Do not assume the nodding of heads implies understanding

 Assure all agree on the problem at hand – don’t assume this is true!

 Gain agree on the general direction of the solution first

 Acknowledge concerns on possible negative consequences – provide viable workarounds with their involvement

 Maintain constancy of purpose - plan to repeat this many times!

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From 1.  Decentralized information 2.  Questionable information 3.  Informal hallway decision

making 4.  Manually interface between

CAD & ERP 5.  Project schedules informally

and inconsistently updated 6.  Unaware of strategic control

point

Results & Key Insights To

1.  Centralized Information 2.  Confident information 3.  Formal decision making

(S&OP) 4.  Electronic interface from CAD

to ERP 5.  Project schedules formally

and consistently updated 6.  Leveraging of strategic

control point

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 Education  We tried to do it ourselves, but we did not understand the

underlying principals  Needed to learn the underlying concepts to see how to apply to

Delkor  Moved to thinking of Delkor as an assemble-to-order company and

how to structure processes to support that type of manufacturing  Visibility

 There is a central repository of information, (Navision and the Drum schedule)

 Formalization of communication  Dramatic Reduced Hallway meetings   Installed and executed SOP meetings to make decisions based upon

input from all functions which then can be executed (I.E. setting ship dates while addressing load and customer requirements)

  BOM Push  Had been started but really it took action to support MRP project

 We now have accurate data in Navision with little manual input thus freeing up a FTE to address other needs in the production/purchasing department

Results

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Productivity Improvements

Comparing 2008 to 2009 we:   Reduced Engineering

time ≈ 25%   Reduced Assembly

time ≈ 33%

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  We doubled throughput capacity with only a 10% headcount increase

  Reduced Inventory 18%   Improved Pick % from high 80% to high 90%   Less Chaos

Overall

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 Hold the gains!  Complete product configurator process  Continue to improve ECN process  Continued strategic growth

V. Next Steps

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Questions?