Business Forecasting and Analytics Forum: Combining Lean and Agility to Manage Demand Uncertainty

Combining Lean and Agility to Manage Demand

UncertaintyBUSINESS FORECASTING AND ANALYTICS FORUM

Boston, MAJune 14-15, 2016

Richard Goyette, C.P.MRIWGO Supply Chain Services

Session OverviewExplore the Lean and

Agile supply strategies and the potential to

incorporate aspects of both strategies into a new model that can

provide benefits to both your company and your

customers.

© RIWGO Supply Chain Services

Lean and Agile Supply Definitions The Lean and Agile Paradigms Attributes of Lean and Agile Supply Systems “Leagile” Hybrid Supply Options

Agenda


Lean is defined by the elimination of waste (muda)◦ Waste is anything does not add value to the

process, product, or service. Anything the customer is unwilling to pay for.

◦ In a perfect system inventory would only exist at the point and time it is needed. Demand “pulls” the process. Supply Chain is forecast driven, but activated by

actual demand.

Lean Supply


Agile Supply is defined as positioning all means of supply so that they can quickly adapt to changing situations.◦ Must be able to withstand market changes,

demand fluctuations, variable customer requirements, etc.

◦ Requires rapid flow of information from markets and customers throughout entire supply chain. Market responsive versus forecast driven.

◦ In a perfect system, the customer can get exactly what they want at its’ required time.

Agile Supply


Traditional Agile – Lean Matrix

AGILE

LEAN

HIGHLOWVOLUME

HIGH

VARI

ABIL

ITY


• Lean Supply Chains can function well when demand uncertainty is low and product variety is minimized.• Principle means to win an order is

lowest cost.

Lean Paradigm


Agile Supply Chains can function well when production and fulfilment cycle times are short and materials are readily available.◦Principle means to win an order is

customer value enhancement – Giving them exactly what they want.

Agile Paradigm


Lean:◦ Function well when demand uncertainty is low

and product variety is minimized. “Any color you want, as long it is black” Production is level loaded and slow to react to

demand shifts. Only as strong as it’s weakest link. Heavily relies on historical information to set

capacity, avoid overproduction, and prevent excess issues.

Missed opportunities!

Problems with the Paradigms


Agile:◦ Agile Supply Chains can function well when

production and fulfilment cycle times are short and materials are readily available. SKU Proliferation Utilize inventory to buffer uncertainty Large number of changeovers. Higher costs Missed opportunities!

Problems with the Paradigms


Elements of a Lean Production System

Pull ProductionKanban

5S/ Visual Control

Poke Yoke

Leveling

SMED Cellular Mfg

Jidoka

Standard Operations

Line Balancing

TPM

Green Boxes are highly useful in Agile Systems


Distinguishing Attributes

Lean Supply Agile Supply

Typical Products Commodities, Consumer Electronics

Fashion GoodsConsumer Electronics

Marketplace Demand Predictable VolatileProduct Variety Low HighProduct Lifecycle Long ShortCustomer Drivers Cost AvailabilityProfit Margins Low HighDominant Costs Physical Costs Marketability CostsStockout Penalties Long Term

ContractualImmediate and Volatile

Purchasing Policy Buy Materials Assign CapacityInformation Enrichment Highly Desirable ObligatoryForecasting Mechanism Algorithmic Consultative

Lean And Agile Attributes

Source: Mason-Jones, Naylor, and Towill “Engineering the Leagile Supply Chain” 2000


Product Value Factors

•Time to Market•Concept to Delivery

•Order Entry to Delivery•Response to Market Forces

•Lead Time•Design, Conversion, Eng.

Delivery•Materials, Inventory

•Design and Engineering•Conversion•Quality Assurance•Distribution•Administration• Inventory•Materials

•Customer Support•Product Service•Product Support

•Flex to Meet Customer Demands

•Flex. to Meet Market Changes

•Meeting Customer Requirements•Fitness for Use•Process Integrity•Minimum Variances•Elimination of Waste•Continuous Improvement

Quality

Service

Lead TimeCost


Agile Supply

1.Quality2.Cost3.Lead-Time

1. Service Level

Lean Supply

1.Quality2.Lead-Time3.Service

Level

1. Cost

Market Qualifiers

Market Winners

Agile Vs Lean Market Matrix

Source: Mason-Jones, Naylor, and Towill “Engineering the Leagile Supply Chain” 2000


Leagile: A hybrid solution combining elements of both lean and agile supply systems to better meet the needs of the market AND the organization.

The “Leagile” Supply Chain


Pareto Analysis

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Pareto Distribution

% of Products

% o

f To

tal D

eman

d

Lean

Agile

• Linear Demand

• Standard Work

• Pull Systems• Automation• Dedicated

Lines• Analytical

Based S&OP

• Customization• Quick

Response• Flexible

Production Lines

• Safety Stock• Consultative

S&OP


Customer and SKU Pareto

Customer ID Sum of Net Sales % of Total Cum Total Quad Class689875 $2,870,983.00 18% 18% A688769 $729,941.00 5% 23% A688204 $670,000.00 4% 27% A688125 $666,683.00 4% 32% A689209 $538,000.00 3% 35% A690135 $450,584.77 3% 38% A688139 $420,040.00 3% 41% A689375 $410,030.02 3% 43% A

…

.

…

.

…

.

…

.27017 $150,053.05 1% 78% A27382 $149,000.00 1% 79% A687987 $148,000.00 1% 80% B689537 $142,383.00 1% 81% B677227 $140,060.45 1% 82% B687699 $132,173.22 1% 83% B688092 $131,780.00 1% 84% B26675 $131,567.00 1% 84% B

…

.

…

.

…

.

…

.688560 $9,345.45 0% 98% B683874 $7,656.00 0% 99% B687293 $2,868.25 0% 99% B683746 $972.20 0% 100% B

Customer Pareto

SKU Sum of Net Sales % of Total Cum Total Quad ClassACUP-10695 $2,606,581.22 15% 15% ATWEN-11841 $2,517,050.00 14% 29% AACCE-10184 $2,130,917.70 12% 41% ABECH-66509 $1,553,293.00 9% 50% AVect-10696 $1,063,677.06 6% 56% AXYCF-11842 $1,058,875.77 6% 62% ASEVE-10185 $670,000.00 4% 65% AAPPE-66510 $629,588.02 4% 69% A

…

.

…

.

…

.

…

. AVect-14135 $329,526.00 2% 77% AXYCF-15281 $304,526.00 2% 79% AYPLO-16427 $279,526.00 2% 81% BONMI-17573 $254,526.00 1% 82% BMICW-18719 $229,526.00 1% 83% B

…

.

…

.

…

.

…

. BAQAU-66514 $36,983.00 0% 99% BSPMM-10701 $35,237.00 0% 99% BGEMM-11847 $30,669.00 0% 100% BFORT-10190 $26,101.00 0% 100% BECON-66515 $21,533.00 0% 100% BMICW-10702 $16,965.00 0% 100% B

Customer ParetoSKU Pareto


Sales: $2.5MOrders: 82GM%: 31%$ Per Inv: $30.2K

Sales: $9.8MOrders: 123GM% 33.7%

$ Per Inv. $79.3K

Sales: $.785M

Orders: 63GM%: 29%$ Per Inv: $12.5K

Sales: $2.6MOrders: 31GM%: 26%$ Per Inv: $84.9K

Quad Analysis

A

B

AB

Product Classification

Customer

Classification

Perform Quad Analysis by crossing customer classification to SKU classifications.

Takeaway: Make sure your efforts are placed on the customer and items that truly impact your business

B customers and products contribute

only 4% of revenue but consume >20% of

fulfilment resources.

Inventory Breakdown Example

Purchased Parts Inventory

Cost Per Unit Total % of Total Parts

Active % of Total Active Inventory Value % of Total

Inventory

Unit Cost <= $3 862 33% 725 34% $ 199,415 2%

Unit Cost $3>X<$10 508 20% 418 20% $ 197,563 2%

Unit Cost >=$10 1,219 47% 992 46% $ 9,807,508 96%

Total Inventoried Parts 2,589 2,135 $ 10,204,486

54% of all active purchased parts cost less than $10, yet only account for 4% of total inventory.

Total Transaction Impact

45% of all PO receipts and 50% of total transactions are related to parts that cost less than $10.

Resource allocation in nearly even between parts making up only 4% of Inventory valuation and the remaining 96%.

Frequency of PO receipts for low value parts makes it likely that shortages could occur that will impact ability to meet customer requirements.

Cost Per Unit Inventory Transfers (*)

PO Receipts

Total Inv Trans.

Xaction Per Part

Xaction Per Active Part

(**)

PO Rec Per Act

PartUnit Cost < $3 13,880 3,608 17,488 20 24 5.0Unit Cost $3>X<$10 8,840 4,618 13,458 26 32 11.0Unit Cost >$10 19,962 10,253 30,215 25 30 10.3

Totals 42,681 18,479 61,160 24 29 8.7(*) = 50% of actual transactions to offset issue and receipt transaction(**) = Active part = activity in last 12 months.

Plan for every part where resource allocation and return on effort is part of the consideration.


De-Coupling / Postponement: ◦ Utilize lean principles to produce to common

level.◦ Customize to final configuration.◦ De-Coupling points can vary based on product

and needs of company.◦ Goal should be to push de-coupling point as close

to completion of product as possible. Incorporate postponement / de-coupling potential

into design criteria. Develop Flex Stations to minimize waste while

providing for multiple manufacturing options.

Hybrid “Leagile” Solutions


De-Coupling PointsMake to Order/ Standard Product

Product is completed to established process from start to finish.•Custom products•Make to Stock

Base Level Assembly

Utilize standard base assembly and complete to final configuration.•Modular products•Add-on configurations•Higher complexity finished configuration

End Stage CustomizationProduct is 90%+ complete and is finished to order•Custom covering•Software programming•Accessory kits•Simple bolt on configurations.

Lean Decoupling

Point 1

Lean Decoupling

Point 2

Flex

Flex

Flex

Flex

Flex

Flex

Flex

Flex

Flex Points have multiple

configuration options that can be done in-line.


Cellular Manufacturing:◦ Establish Agile cells dedicated to high service

level requirements. “Don’t Sweat the small stuff”

◦ Expand stocking parameters of the non-trivial / many items to offset uncertainty and best utilize resources. Breadman Kanban Systems VMI

Hybrid Solutions


“Everything but the kitchen sink”◦ Include multiple options for final configuration with

the product to allow customer to configure to their needs.

Technology Based Solutions:◦ Software configurations◦ 3D Printing

Hybrid Solutions

Plugs for multiple regions included, limiting the need

to adjust for specific demand.


Upselling / Order Conversion◦ Monitor demand and create plans to incentivize

customers to purchase targeted products. ◦ Specials / Promotions

Outsourcing◦ Move production of non-core products to 3rd

parties. Turnkey Finished Goods Sub-Assemblies

◦ Partner with 3rd party distributors to hold stock to increase availability and mitigate inventory risk.

Hybrid Solutions


Richard Goyette

http://www.riwgo.com

[email protected]

https://www.linkedin.com/in/rickgoyette

Contact Info

http://www.riwgo.com/

mailto:[email protected]




Data & Analytics

Business Forecasting and Analytics Forum: Combining Lean and Agility to Manage Demand Uncertainty