Manufacturing's Holy Grail: A Practical Science for Executives and Managers
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Strategy. Execution. Profit. Manufacturing's Holy Grail: A Practical Science for Executives and Managers Mark L. Spearman, PhD President Factory Physics ® is a registered trademark. All rights reserved.
Manufacturing's Holy Grail: A Practical Science for Executives and Managers
Mark Spearman, President and CEO, Factory Physics In this session we will discuss: -Manufacturing Myths that Muddle Management: -Bottlenecks and non-bottlenecks—meeting demand -One Piece Flow—what is the real cost? -ABC Inventory Policies—how low can you go? And many more! Mark L. Spearman is President and CEO of Factory Physics, Inc., a firm that provides management consulting, training, and software to improve manufacturing and supply chain management. In his former life as an academic, he was Head of the Department of Industrial and Systems Engineering at Texas A&M University and also a professor at Georgia Tech and Northwestern University. He is coauthor, with Wallace J. Hopp, of the book, “Factory Physics” that was named the IIE Book of the Year. He has helped more than one hundred companies over the last twenty five years apply the principles of factory physics to improve operations by increasing productivity, reducing cycle times and inventories by developing integrated supply chain approaches that are both simple and effective.
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1. Manufacturings Holy Grail:A Practical Science for Executives
andManagersMark L. Spearman, PhDPresidentFactory Physics is a
registered trademark. All rights reserved.
3. Strategy. Execution. Profit.If medical devices companies
want to continue tomake money as prices face continuedpressure,
their only option is to take cost out McKinsey and Company Design
to Value 2010
4. Strategy. Execution. Profit.The Medical Device Tax: Stop
Dreaming andStart Planning Forbes, April 9, 2013
7. Strategy. Execution. Profit.Strategy. Execution. Profit.Seek
the Holy Grail Higher efficiency leading to lower cost Better
customer service creating greater sales Less inventory yielding
more cash High profitability! OR, you could
8. Strategy. Execution. Profit.Strategy. Execution. Profit.Cant
Do That Must reduce costsincrease utilization of labor andequipment
Can you decrease cost by meeting demand with fewershifts? Postpone
CapEx? Must increase cash flowconvert inventory intocash Is it
possible to reduce inventory? Improve customer service? Must
maintain (increase) customer servicehigh ontime delivery Give
customer anythinganytime?
9. Strategy. Execution. Profit.Strategy. Execution.
Profit.Before you can answer the hardquestions Can you answer the
easy questions? If you change X in your supply chain, what
happensto important measure Y? Does the important measure Go up? Go
down? Stay the same? Simple! Just answer the five questions
(threequestions)!
10. Strategy. Execution. Profit.Strategy. Execution.
Profit.Question 1: Throughput and Revenue In a push production
system controlled by MRP thathas utilization of 90% What happens to
the long term output rate (throughput)when we speed up a bottleneck
machine?
11. Strategy. Execution. Profit.Strategy. Execution.
Profit.Question 2: Throughput and Cycle Time In a push production
system controlled by MRP thathas utilization of 90% What happens to
the throughput when we install a one-piece-flow system?What happens
to cycle time?
12. Strategy. Execution. Profit.Strategy. Execution.
Profit.Question 3: Inventory and Cash In a make-to-stock system
using a reorder quantityof 100 units, with an imperfect forecast
What is the fill rate (% on hand) if the safety stock is zero?
Somewhat less than 50% Around 50% Greater than 50%
13. Strategy. Execution. Profit.The Hard Questions Customer
Deliveryo How long do theywait?o Do they wait at all? Capacityo
Ours or outside?o 24/7 or have backup capacity? Inventoryo How
much?o What?o Where? Classes of producto Standard quick-ship?or
Custom?o Anything they wantany time they want it?
14. Strategy. Execution. Profit.Answers from science What to
make? When to make it? How much to make? How many people
andmachines do I need? How much inventoryshould I have?High On-time
delivery, low cost, low inventory
15. What are the right questions?What structure works best for
your business?HighProfitabilityLowCostsLow
UnitCostsLessVariabilityHighUtilizationLowInventoryQualityProductHighSalesManyproductsFastResponseMoreVariabilityHighInventoryLowUtilizationShortCycle
TimeHigh CustomerServiceHighThroughputThe Goal
16. Strategy. Execution. Profit.The Fundamental Factory Physics
FrameworkTwo essential componentsDemandTransformation Flows
StocksAs variability decouplesdemand and transformationOnly three
buffers:1. Inventory2. Time3. CapacityFactory Physics Framework
links financial and operational
goals.ProductionAssemblyDistributionMarket Demand Market
DemandPlannedDemandPlannedDemandDemand Stock Flow Diagram- Work In
Process (WIP)- Flow- Stock (Inventory)PROFIT DROPS
17. Strategy. Execution. Profit.Operations Strategy: Choose the
future! Operations strategy is selecting the portfolio of:
Inventory Buffermoney tied up in inventory Time
Bufferresponsiveness to customer (backorder time, fill rate)
Capacity Bufferreplenishment frequency (setups, purchase orders)
Variabilityin demand, forecast, and replenishmentInventorySuppliers
CustomersCapacity InventoryVariabilityTimePortfolio management
determines performanceand profitability.
18. Strategy. Execution. Profit.Application of Practical
Science
19. Strategy. Execution. Profit.Some Basic Factory Physics
Principles Littles Law Relates basic plant performancemeasures VUT
Equation Quantifies queueing effects Relates variability, capacity,
andtime buffers Variance of Lead Time Demand Drives inventory and
service Accounts for variability in demandAND
supplyeeaqtuucctUV12CT22Appropriate use provides predictive
controland optimal performance.2222LD
dughput)Time)(Thro(CycleWIP
21. 7.2 parts per day with 3 day cycle time, 16 hour work
days.DemandGraph showing WIP, cycle time,demand, utilization.
22. Strategy. Execution. Profit.Strategy. Execution. Profit.One
Piece FlowOnePieceTakt Time = 30 seconds30 seconds30 seconds 30
secondsStation 1 Station 2 Station 3OnePieceOnePiece
23. Strategy. Execution. Profit.Takt Time and Mean TimeMean of
25 sec, takt time of 30 sec, 95% done in
time.0.00000.02000.04000.06000.08000.10000.12000.14000 10 20 30 40
50 60SecProbdensity
24. Strategy. Execution. Profit.Strategy. Execution.
Profit.Assembly Line CapacityWidgetAssemblyTakt Time = 30
secondsStandard Work= 25 secondsStandard Work= 24 secondsStandard
Work= 22 secondsStation 1 Station 2 Station 3Capacity Buffer =1
24/30 = 20%Capacity Buffer= 16.7 %Capacity Buffer= 26.7 %25 sec in
30 takt is the same as working 6 days to do 5 days of
demand.WidgetAssemblyWidgetAssembly2 hour make-up period for every
10 hour work period.
25. Strategy. Execution. Profit.Graph showing WIP, cycle
time,demand, utilization.7.2 parts per day, with 0.7 day cycle
time, 23 hour work dayDemandShorter cycle time at the cost of7
extra hours per day
26. Strategy. Execution. Profit.Strategy. Execution.
Profit.Optimal Inventory Policies?Traditional Methods Many times
are too simple or simply wrong1. Too simple: EOQ does not
considerrandomness2. Wrong: Traditional safety stock model,Safety
Stock = z SD(Lead Time Demand)where z is from normal table
27. Strategy. Execution. Profit.Example:Large ROQ, No Safety
Stock0204060801001200 10 20 30 40 50 60 70DayQuantityIP(t) I(t)
IO(t) B(t) DATA: ROQ = 60, ROP = 50, AvgLT = 10, AvgDmd = 5 DmdWhat
is the customer service level?What is the cycle service
level?~96%~60%
28. Strategy. Execution. Profit.Back to the Hard Questions
Customer Deliveryo How long do theywait?o Do they wait at all?
Capacityo Ours or outside?o 24/7 or haverecourse? Inventoryo How
much?o What?o Where? Classes of producto Standard quick-ship?o
Custom?o Anything they wantany time they want it?
29. Strategy. Execution. Profit.Strategy. Execution.
Profit.Inventory Issues Replenishment frequencycapacity buffer
Order quantity determines replenishment frequency Stock out
frequencytime buffer Safety stock determines stock out frequency
Inventory Investmentinventory buffer Inventory depends on order
quantity and safety stockand item cost
30. Efficient Frontier for StockMinimum inventory for given
service andcapacity levels.OptimalPoliciesConvert strategyto
tactics!
33. Strategy. Execution. Profit.Strategy. Execution. Profit.How
much capacity do you need? Plan to run 25 days per month Total
inventory required: $6,016,000 On-time delivery: 96% Cycle Time: 12
days Plan to run 26 days per month Total inventory
required:$3,948,000 On-time delivery: 96% Cycle Time: 8 days
Strategic Decisioncost vs. inventory
35. Strategy. Execution. Profit.Cash Flow Optimization Before
optimization Cycle Times: 49, 71 days WIP & FG value
=$4,330,000 After optimization Cycle Times: 24, 15 days WIP &
FG value =$1,290,000Same capacity in both situations.
36. Application to Particular SituationRaw
MaterialInventoryDemandProductionFG DemandHow do we tie this all
together?
37. Strategy. Execution. Profit.Strategy. Execution. Profit.The
S&OP Process: Three Basic Steps StrategyAssess demand and
capacity What is the demand? Is it sufficient? More than we
canhandle? Do we meet financial objectives? PolicyBalance
inventory, response time, and capacity Policies reside in the ERP
system Optimize policies to maximize cash flow Control Achieve
financial and service performance through executionof optimally
defined processes. Continually improve.S&OP is where we
implement Factory Physics
38. Strategy. Execution. Profit.Framework provides link between
theCurrent and the PossibleEfficient frontiers provide executive
view, connect to daily execution.A three plant supply chainor a
three machine production line.Five SKUs or 5,000 SKUs.Flows
Stocks
39. So, how did you doThree questions
40. Strategy. Execution. Profit.Strategy. Execution.
Profit.Question 1 In a push production system controlled by MRP
thathas utilization of 90% What happens to the long term output
rate (throughput)when we speed up a bottleneck machine?Throughput
is set by demand or the bottleneck, whicheveris less. At 90%
utilization, it is demand No change to long term throughput if you
speed up thebottleneck
41. Strategy. Execution. Profit.Strategy. Execution.
Profit.Question 2 In a push production system controlled by MRP
thathas utilization of 90% What happens to the throughput when we
install a one-piece-flow system?One piece flow:Low WIPShort cycle
timeLower throughputMore overtime to meet same demand
42. Strategy. Execution. Profit.Strategy. Execution.
Profit.Question 3 In a make-to-stock system using a reorder
quantityof 100 units, with variability in replenishment times,and
an imperfect forecast What is the fill rate (% on hand) if the
safety stock is zero? Somewhat less than 50% Around 50% Greater
than 50%Greater than 50% The cycle fill rate (the probability of
running out at leastonce during the replenishment cycle) will be
around 50% The customer fill rate (what the customer sees) will
begreater than 50% if the lot size is greater than one.
43. Strategy. Execution. Profit.Strategy. Execution. Profit.So,
how did you do? Got them all
44. Strategy. Execution. Profit.
45. Strategy. Execution. Profit.Or not so well
46. Strategy. Execution. Profit.Strategy. Execution. Profit.Go
have a drink and call me in themorning [email protected]
(979) 846-7828