1 Lean Operations: Process Synchronization and Improvement Lean Operations Initiated by Japanese automaker Toyota. Adopted in USA by the aerospace industry

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Lean Operations: Process Synchronization and Improvement

Lean Operations

Initiated by Japanese automaker Toyota. Adopted in USA by the aerospace

industry in 1990’s

Some turnaround times were lowered by 30-50%. Maintenance

productivity improved by 25-50%

Improved performance in all four dimensions in Plants and Supply Chains

» Plant: any singly owned, independently managed and operated

facility (i.e., manufacturing site, service unit, storage warehouse)

» Supply Chain: a network of interconnected facilities with diverse

ownership, and flows of information and materials between the

facilities (i.e., raw materials suppliers, finished goods producers,

wholesalers, distributors, retailers)

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What is an Ideal Process? Synchronization + Efficiency

Process Synchronization: The ability of the process to meet customer demand in terms of their quantity, time, quality and location requirements.

Process Efficiency: Measured in terms of the total processing costs. Less cost, more efficient!!.

» Exactly what is needed (not wrong or defective products)

» Exactly how much is needed (neither more or less)

» Exactly when it is needed (not before or after)

» Exactly where it is needed (not somewhere else)

At the lowest cost

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The Process ideal: Synchronization & Efficiency

Just-In-Time (JIT)» When the four “just rights” come together—

» Action is taken only when it becomes necessary!!!

» In Manufacturing - production of only necessary flow units in

necessary quantities at necessary times!!!

Synchronized Networks:» Outflow of one process is the inflow to another process!!!!

» Requires precise matching of supply & demand

» All stages are required to be tightly linked with flow of information and

product

» Ideally – the processing stages are achieved for lowest possible cost!!!!

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Waste and Its Sources

ANYTHING LESS THAN IDEAL PERFORMANCE IS AN

OPPORTUNITY FOR IMPROVEMENT!!!

Low Efficiency = High Processing Costs

Lack of Synchronization

Defective products, high inventories, delays, stock outs

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Buzz-words for managing and achieving efficiency within a plant

Other names connected to lean operations; JIT production, Zero

inventory program, Synchronous manufacturing, Agile

manufacturing, Toyota Production System (TPS)

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Waste and Its Sources

Sources of Waste:

» Producing defective products

» Producing too much product

» Carrying inventory

» Waiting due to unbalanced workloads

» Unnecessary processing

» Unnecessary worker movement

» Transporting materials

Waste: producing inefficiently, producing wrong or defective products, producing in quantities that are too small/large, delivering early/late

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Waste Reduction

Short term strategies:

» Cycle & Safety inventories

» Safety capacity

» Non-Value adding activities (transportation, inspection, rework,

process control)

Long term strategies:

» Improve the overall processes

» Build in flexibility, predictability, stability to eliminate temporary

fixes. i.e., Reduce setup costs to make it more economical to produce small

batches.

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The River Analogy

The boat can sail in shallow water (lean operations) if we are able to find ways

to remove the imperfections on the river bottom!!!

FM WIPFG

Defective Materials Machine Breakdowns

Defects

Long Setups

Long Lead Times Unsuitable EquipmentUneven Schedules

Unreliable Suppliers

Inefficient LayoutsAbsenteeism

Rigid Work Rules

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Four Objectives of Lean Operations

Improve process flows (Process Synchronization)

– Efficient plant layout

– Smooth flow of materials and information

Increase process flexibility (Process Synchronization)

– Low equipment changeover times

– Cross-functional training

Decrease process variability (Process Synchronization)

– Flow rates

– Processing times

– Quality

Minimize processing costs (Process efficiencies)

– Eliminate non-value adding activities

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Efficiency/Synchronization for mass production:Henry Ford’s Rouge, Michigan plant

Totally integrated with – steel mill, glass factory, machine tools,

electrical systems, assembly line, well-trained (well-paid) workers

Minimal time & cost

Everything in place except

product variety!

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10.4.1 Improving Process Architecture: Cellular Layouts

Process Architecture: the network of activities

and resources

One method:

FUNCTIONAL LAYOUTS

Different product types follow different routings through the

resource pools…enabling each flow unit to be sent to any

available station in the pool.

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10.4.1 Review of Process Architectures: Job Shop

AC

BD

Product 1

Output

Input

Product 2

Functional Layout: Resources that perform the same function are physically pooled together–

JOB SHOPS

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Alternate to Process-based Functional Layout:

CELLULAR LAYOUT

All workstations that perform successive operations on a given product are grouped

together to form a “CELL”

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OutputInput A CB

Product 1

Example: Henry Ford’s Assembly Line for the Model T

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Improving Process Architecture: Cellular Layouts

Facilitates synchronous flow of

information and materials between

processing stations

Physical proximity of cells reduce

transportation of flow units

Moves small batches of flow units

quickly

Encourages teamwork & cross

functional skill development

Improved communication between

stations

Improves synchronization where each

station produces parts only if the next

station needs them

Easier to recognize and report

problems

Quicker ability to correct defects

ADVANTAGES+ +

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Resources are dedicated to specific

cells

Resources cannot be used by other

cells

Lose advantage of resource pooling

Worker incentives must be “team”

oriented, not individual performance

based

REMEDIES:

» Use flexible resources that are

cross functional

» Peer pressure to control

productivity of team members

DISADVANTAGES- -

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Push Strategy

Push Production: Input availability triggers production where emphasis is

on maximization of resource utilization (as long as there is work)

» Planning Tool is Material Requirements Planning (MRP)

» MRP: End-Product demand forecasts are “exploded” backwards to

determine parts requirements at each station

PUSH works well if and only if

» All information is accurate

» Forecasts of finished goods are correct

» There is no variability in processing times

Otherwise, it will disturb the planned flow, and destroy synchronization

throughout the process!!

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Pull Strategy

Push Production: Where demand from a customer station

triggers production. Each station produces only on demand

from its customer station

The demand is actually “downstream”

PULL works well if and only if

» There is a well-defined customer/supplier process.

» The process can produce the quantity needed only when signaled to do

so by its customer

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10.4.2 Improving Information & Material Flow: Demand Pull

SUPPLY PUSH: Input availability triggers production

DEMAND PULL: Output need triggers production

Supplier

Supplier

Inputs

Inputs

Process

Process Outputs

Outputs Customer

Customer

Information Flow: Material Flow:

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Demand Signaling: Customer needs a way to signal (inform) the

supplier of its need.

Customer’s demand starts a chain reaction –

For withdrawals and replenishments of intermediate parts

EOQ-ROP system is a “Pull” system where ROP triggers

production at the supplier and EOQ determines the quantity

produced

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Synchronized Pull: When the delivery of parts are in sequence

[Suppliers must have greater ability and capability to achieve a

synchronized pull effectively]

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10.4.3 Improving Process Flexibility: Batch-Size Reduction

Each station must know HOW MUCH TO PRODUCE AT A TIME

Level Production: where small quantities are produced frequently to mach

customer demand

[i.e., if demand is 10000 sedans and 5000 SUVs, the production would call for

producing 2 sedans and then 1 SUV, and then repeat the sequence]

Changeover Costs and Batch Reduction: Goal of level production is

reduction of changeover costs (fixed setup or transportation costs of each

batch)

I.E. In auto production expensive parts like seats are produced in batches of

one, wipers in larger batches Study the Changeover process to: use special tools to speed it up, customize

some machines, keep some machines already set up.

Consider “small-batch” production

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10.4.4 Quality at Source: Defect Prevention & Early Detection

Defective flow units increase average flow time and cost!!!

WHY?

It necessitates inspection and rework!!!

Anticipate and then Compensate for the problem:

» Hold extra safety inventory in the buffer

» This increases avg. flow time and cost

Plan and control Quality:

1. Prevent defects for occurring in the first place

2. Detect and correct them as soon as they appear

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Defect Prevention» Careful design of both product and process

» Simplification & standardization

» Mistake-proofing (poka yoke)

Parts are designed to halt automatically when defective units are fed into

them (parts are designed to minimize chances of incorrect assembly)

Defect Visibility» Early detection/corrections more effective &

economical

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Defect visibility (cont’d)

» Early detection helps tracing to the source

» Contribution to better synchronization and lower costs

» Early detection requires constant vigilance and monitoring!!

Decentralized Control

» Employees must be empowered

with authority and the means to

identify & correct problems at the local level

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Decentralized Control (cont’d)

» In typical plants, line workers don’t feel the responsibility,

motivation or security to point out problems.

BEST STRATEGIES OF LEAN OPERATIONS ARE:

1. Preventing problems through better planning

2. Highlighting problems as soon as they occur

3. Delegating problem solving to the local level

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10.4.5 Reducing Processing Variability: Standardization of Work Maintenance, and Safety Capacity

Reduce Variability:

» Standardize work at each stage and specify it clearly

Advantages to Standardization:

» Reduces variability from changing personnel

» Reduces variability from one production cycle to the next

» Makes it easier to identify sources of waste that can be

eliminated

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10.4.5 Reducing Processing Variability: Standardization of Work Maintenance, and Safety Capacity

Lean Operations try to:

» Minimize carrying safety inventory due to increased flow

time

» Maintain some safety capacity as production against

variability

These could be extra machines, workers, overtime

These forms of safety capacity should be flexible so that it can be

used as needed!!

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10.4.6 Visibility of Performance

A company needs to “see”“see” (measure) process performance from

the customer’s perspective

» I.E. Time per call

Measure Percentage of Customers that had a problem resolved

with one call

Actual performance (along with expectations) should be visible at

each work cell

Not for punishment, but to provide quick feedback for corrective

action

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10.4.7 Managing Human Resources: Employee Involvement

SYNCHRONIZATION WITHIN A PLANT REQUIRES:

1. Cooperation

2. Contribution

3. Commitment

Elton Mayo’s “Hawthorne Experiments” at Western Electric

showed that:

Research has shown that workers involved in the decision-making process

are better motivated and productive

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10.4.7 Managing Human Resources: Employee Involvement

In Companies with Lean Operations:

• Workers are cross-trained to provide the company with flexible workers.

• Workers are in work teams in cells and may perform certain managerial duties such as material ordering, hiring, scheduling

• Great importance on recruiting and training of workers

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10.4.8 Supplier Management: Partnerships

Outsourcing: Provides a flexible alternative to producing in-

house

BUT- - - purchased materials account for a major portion of

product cost and are a major source of quality problems!!

Lean approach:

» Choose only a few capable suppliers

» Cultivate cooperative, long-term relationships

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In Lean Operations:

» Suppliers are an extension of the plant

» Processing without inventories or quality inspection

» Synchronization requires defect-free material

» Frequent deliveries, small batches

» Supplier’s process be able to produce small quantities on

demand

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YOU ARE TREATING THE SUPPLIERS AS

PARTNERS

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10.4.1 – 10.4.8 SUMMARY

Lean Operations aim to sustain continuous

flow processing in an economical manner:

1. Synchronize material and information

flows

2. Increase flexibility

3. Reduce variability

4. Decrease processing costs

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Chapter 10

Lean Operations:

Process Synchronization and Improvement

Questions??

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Operations Management:

Lean Operations (JIT) Module

MBPF House Manufacturing Game

The transition to Lean Ops

The Paradigm of Lean Operations: The ideal Methods for synchronization & waste reduction

Increasing visibility for continuous improvement

Approaching the ideal with Product Variety: TPS

Managing variety & flexibiltiy

Toyota Production System (TPS)

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Paradigm of Lean Operations:The Ideal Process

Synchronization of all flows

1 x 1

production on demand

defect free

At lowest possible cost

Waste = Gap between ideal and actual

How do we set up a system to continually reduce waste ?

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Toyota’s waste elimination in Operations

1. Overproduction

2. Waiting

3. Inessential handling

4. Non-value adding processing

5. Inventory in excess of immediate needs

6. Inessential motion

7. Correction necessitated by defects

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Synchronize to reduce waste: Cut Batch Sizes

Batch Mfg (Lotsize = 5) Flow Mfg (Lotsize = 1)

012345

10

15

20

Space

Time

Example Process: A

1 min/job

B

1 min/job

C

1 min/job

D

1 min/job

A B C D

5

5

5

5

012345

10

15

20

A B C D

1

5

55

555

55555

Space

11111

111111111

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How to run Lean Operations:Managing Variety

Monthly Production Requirement:

Model Sedan StationWagon

Quantity 10,000 10,000

How should production be scheduled for the month?

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Synchronize to reduce waste: Heijunka Mixed Level/Balanced Production

Batch Production Schedule Mixed Production Schedule

(AAAABBBB..) (ABAB...)

Product Apr/12.................15...........................30 Apr/12....................15.......................30

A

B

time

FGI

time

FGI

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Synchronize to reduce waste: Reduced Setup Times

Can we shrink batch sizes with long setup/changeover times?

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Synchronize to reduce waste: customer demand pulls product

Supplierinputs outputs

Process Customer

PUSH: Inputs availability triggers execution

Supplierinputs outputs

Process Customer

PULL: Outputs need triggers execution

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Implementation: Kanban Production Control Systems

Kanban

Processing center i

Processing center i + 1

WIP

Job

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Synchronize to reduce waste:Quality at the Source

DefectsFound at:

Own Process Next Process End of Line FinalInspection

End User’sHand

$ $ $ $ $

Impact to theCompany

VeryMinor

MinorDelay

Rework Resched.

of work

SignificantRework

Delay inDelivery

AdditionalInspection

Warrantycosts

Administrative costs

Reputation Loss of

MarketShare

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Synchronize to reduce waste:Quality at the Source

Quality at source also improves time and throughput performanceFool-proof/Fail-safe design (Poka-Yoke)Inspection

» Self» Automated (Jidoka)

Line-stopping empowerment (Andon)

Human infrastructure

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Synchronize to reduce waste: From Functional Layout to Cells

ProductionControl

ProductionControl

ProductionControl

RoofCut

RoofCut

RoofCut

BaseCut

BaseCut

BaseCut

FA BaseAssyFA FA Base

AssyBaseAssy

QC QC QC

ProductionControl

FA

BaseCut

RoofCut

BaseAssy

ProductionControl

FA

BaseCut

RoofCut

BaseAssy

ProductionControl

FA

BaseCut

RoofCut

BaseAssy

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Synchronize to reduce waste: Just-In-Time operations

JIT = have exactly what is needed, in the quantity it is needed,

when it is needed, where it is needed.

Reduce transfer batches

Level load production

Pull rather than push work

Quality at source

Set up cells

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Reducing waste: Increase Problem VisibilityLower the Water to Expose the Rocks

Scrap &Rework

Missed Due DatesToo Much Space

Late Deliveries

Poor Quality

Machine Downtime

Engineering Change Orders

Long queues

Too much paperwork

100% inspection

Inve

ntor

y

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Source: Lieberman and Demeester

Lean Operations: Causal Link Diagram

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Time plays the role of Inventory in Lean Service Operations

TIME

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Continuous Improvement: Kaizen

Increase visibility of waste

Targeted improvements

» Active worker involvement

» Time for experimentation

» Supplier involvement

Exploratory stress

Human infrastructure

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....

Lean Operations:Best Implementation is TPS

TPS is a production management system that aims for the “ideal” through

continuous improvement

Includes, but goes way beyond JIT. Pillars:

» Synchronization

Reduce transfer batch sizes

Level load production

Pull production control systems (vs. push): Kanban

Quality at source

Layout: Cellular operations

» Continuous Improvement (Kaizen): through visibility & empowerment

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Learning ObjectivesBasic Lean Operations

Paradigm of Lean Operations:Strive for the ideal by eliminating waste

Synchronize» Reduce transfer batch sizes» Level load production» Pull production control systems (vs. push): Kanban» Quality at source» Layout: Cellular operations

Improve» Increase problem visibility (river analogy)

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Operations Management:

Supply Chain ManagementImproving Supply Chain Performance (The bullwhip effect)

Causes of bullwhip effect

Managerial implications

ECR and QR

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Information Distortion:The Bull Whip Effect

What is the Bull-Whip Effect?

» The variance of orders is greater than that of sales, and the

distortion increases as one moves upstream.

Causes

Managerial Implications

Source: “Information Distortion in a Supply Chain: The Bullwhip Effect”, Lee, Padmanabhan, and Whang, July 1996.

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Causes of Bull Whip Effect:Order Batching

Economies of Scale in Ordering

Quantity Discounts

Short Term Discounting (Trade Promotions)

Periodic Review System with Review Period T > 1 period (Order at

least T period demands). Correlation of order timing.

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Causes of Bull Whip Effect:Price Variations

Short Term Discounting (Trade Promotions)

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Causes of Bull Whip Effect:Demand Signal Processing

Demand is non-stationary over time.

Demand forecasts are updated based on observed demand.

Order Policy: Dynamic Order Upto Points

» implies that a large demand this period will lead to an estimate of higher

order-upto point for next period

» Implies, Order quantity for next period will be greater than demand

realized for this period

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Causes of Bull Whip Effect:Rationing Game

Suppose, limited production capacity, say during peak season

Supplier / Manufacturer will ration the supply to satisfy retailers’ orders.

Retailers’ know this.

They exaggerate orders in order to secure a larger share of the limited capacity.

During off-peak, no capacity limits. So orders are back to normal.

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Causes of Bull Whip Effect: Behavioral Issues*

Misperceptions of feedback

» Stages do not see how their actions affect others

» When problems arise they blame others

» when they get “proactive” and place more orders, they male

matters worse

» They don’t learn from their experience since consequences

of their actions occur elsewhere

* Source: The Fifth Discipline

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Managerial Implications of the Bull Whip Effect

Cause» Order Batching

Contributing factors» High Order Cost» Full TL economies» Random or correlated ordering

Counter Measures» EDI & Computer Assisted Ordering (CAO)» Discounted on Assorted Truckload, consolidated by 3rd party logistics» Regular delivery appointment

State of Practice» 3rd party logistics in Europe, emerging in the U.S.» P & G

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Cause Fluctuating Prices

Contributing factors High-Low Pricing Sell-in and Sell-thru not synchronized

Counter Measures EDLP Special Purchase Contract

State of Practice

P&G (resisted by some retailers)

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Cause» Demand Signal Processing

Contributing factors» No visibility of end demand» Multiple forecasts» Long lead-time

Counter Measures» Access sell-thru or POS data» Single control of replenishment» Leadtime reduction

State of Practice

» Sell-thru data in contracts (e.g., HP, Apple, IBM)

» VMI (P&G and Walmart)

» EDI and Cross docking

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Cause» Shortage / Rationing Game

Contributing factors» Proportional rationing scheme» Ignorance of supply conditions» Unrestricted orders & free return policy

Counter Measures» Allocation based on past sales.» Shared Capacity and Supply Information» Flexibility Limited over time, capacity reservation

State of Practice» Saturn, HP» Schedule Sharing (HP with TI and Motorola)» HP, Sun, Seagate

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Efficient Consumer Response

Supplier WarehouseDistributorWarehouse

RetailStore

Consumer Household

Demand Flow

Product Flow

Unlinked ReplenishmentIn Supply Chain

A Single ECR Grocery Supply Chain

Supplier WarehouseConsumer Household

Demand Flow

Product Flow

DistributorWarehouse

RetailStore

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Comparison of Cycle Times Before and After ECR

DRY GROCERY CHAIN BEFORE ECR

Supplier Warehouse

38 days

Distributor Warehouse(Forward buy 9 days,

Inventory turn 31 days)40 days

Retail Store

26 days

104 days

PackingLine

Consumer Purchase

PackingLine

Supplier Warehouse

27 days

DistributorWarehouse

12 days

Retail Store

22 days

Consumer Purchase

61 days

DRY GROCERY CHAIN AFTER ECR

Source: Kurt Salmon Associates

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ECR Investments by Manu-facturers were less than planned.

ECR investments as a percentageof sales: - Actual ‘94 = .45

- Plan ‘95 = .60- Actual ‘95 = .34

Fastest GrowingECR Components

Average Industry Implementationof ECR Elements

Manufacturers 39% (up 3pp from YAG)Brokers 52% (up 8pp from YAG)Wholesalers 48% (up 4pp from YAG)Chains 70% (up 26pp from YAG)Indepdendents 46% (up 14pp from YAG)

• Cross-Docking Displays +21%• Cross-Docking ‘Turn’ +20%• Cat. Mgmt. Partnerships +19%• Scan-based Promo/Pymnt +15%• Cat. Mgmt. Org. Struct. +14%

46%

55%

46%

54%

34%

47%

EfficientAssortment

EfficientPromotion

EfficientReplenishment

ECR IMPLEMENTATION

ECR Industry Update:Evidence of Change Through 1995


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Payback on ECR Investment is Excellent

Chain 1.9 yearsWholesalers 2.2 yearsManufacturers 3.0 yearsBrokers 3.0 years

Retailer Investment Priorities

• Headquarter Systems: IS/IT• Education/Training• Category Management Discipline• Business Process Re-engineering• Store Level Systems

Manufacturer Investment Priorities

• Information Technology• Education/Training• Customer Alliances• Business Process Re-engineering• Sales and Sales Promotion

ECR Industry Update: Investments


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Key Learning Objectives

Bullwhip effect introduces information uncertainty

Causes of bullwhip effect

Managerial actions to counter bullwhip effect

Documents

1 Lean Operations: Process Synchronization and Improvement Lean Operations Initiated by Japanese automaker Toyota. Adopted in USA by the aerospace industry