10/21/2013

1

And what can we learn from our

own highway departments

Giving Cyclical Run

Strategies the Green

Light

Presenter

Steve Johanson

•President, Supply Chain Toolworks

•Experience in food and other CPG

manufacturing

•Develop methods and applications for

cyclical run strategy planning

10/21/2013

2

Objectives

• Look outside and inside the manufacturing

world for lessons and inspiration

• Explore the impacts of variability on

production plans

• Understand the benefits and challenges of

cyclical production planning

What can we learn from our highway

systems?

A Story of Mathematics and

Politics

A Story of Mathematics and

Politics

Photo: FHWA

10/21/2013

3

Does this sound familiar?

• You have a large investment in manufacturing

facilities and equipment

• Your product portfolio changes and increases

in complexity

• You struggle to satisfy your demand with your

existing capacity

Highway Departments Empathize

Photo: SociologyIU9

10/21/2013

4

In the 1950’s President Eisenhower

bequeathed us our infrastructure

Photo: FHWA

A National Highway SystemA National Highway SystemWith High Capacity InfrastructureWith High Capacity InfrastructureDesigned to Meet the Designed to Meet the Needs of Travel and Needs of Travel and Commuting for the Commuting for the

FutureFuture

In the 1960s and 1970s Things

Changed

• People expanded the suburbs

• Logistics companies leveraged

truck delivery

• The system suffered from

chokepoints and

• People expanded the suburbs

• Logistics companies leveraged

truck delivery

• The system suffered from

chokepoints and

… And performance issues… And performance issues

Photo: FHWA

10/21/2013

5

Metropolitan Highway Authorities

Responded by Expanding

Photo: SFGate.com and FHWA

Adding LanesAdding LanesAdding RoutesAdding Routes

The Result…

Not enough increased

capacity – and a lot of

government debt

Not enough increased

capacity – and a lot of

government debt

Photo: FHWA

10/21/2013

6

Minneapolis found themselves in this

position in the 1990’s

Situation: They had enough lanes and corridors

to satisfy their peak demand

Complication: They had throughput issues

• Traffic jams

• Variability in travel times

• Accidents

Does this sound like rough cut capacity planningDoes this sound like rough cut capacity planning

What did they do?

Actions:

�Studied their “system” using statistical models

�Identified variability as the culprit

�Found a solution to their problem that was

�Economical

�Quickly implemented

�Utilizing existing technology

10/21/2013

7

Their solution was to set the frequency

of EVERY car entering the system EVERY

hour of the day, EVERY Day of the week

Photo: FHWA

How did it turnout?

• Throughput: + 14% in peak hours / + 9%

overall.

– Free capacity with very little capital investment!

• Reliability: ½ variability in travel time.

– Think reduction in safety stock or queue time!

• Safety: 26 % percent fewer crashes.

– Less scrap, less down time!

Source: “Twin Cities Ramp Meter Evaluation”, Minneapolis DOT 2001

10/21/2013

8

And the Net Benefit

Annual savings: $40 million

Capital cost: $3 Million

Comparatively, a project to expand a 9 mile

section of highway 31 in Michigan costs

$10.1MM

Source: “Twin Cities Ramp Meter Evaluation”, Minneapolis DOT 2001

Is Minneapolis still reaping this benefit

today?

. . . Let’s return to the story later

10/21/2013

9

How can we apply the lessons learned

to the manufacturing planning world?

Manufacturing:1. Demand signals

2.Sourcing3. Cycling

4. Sequencing

Buffer warehouse: 5. Safety stock(service levels)

Distribution center:8. Safety stock(service levels)

Deployment:6. Replenish mode7. Replenish cycle

What is a Cyclical Run Strategy

�A set of fixed production cycles and sequences

�An inventory policy of safety stock targets

�A playbook to allow for eventualities

�Capacity shortages and surpluses

�Unscheduled down time

�New product introductions

10/21/2013

10

What Makes Cyclic Run Strategies

Economical?

It targets variability:

�Demand and flows are smoothed

�Changeover costs are minimized

�Inventory stabilizes on targets

�Planning coordination is made easier

”When you fix your cycles, good things happen”

What return can I expect?

• 50 plant average annual savings of $1MM

• 10% to 50% reduction in overall inventory

– Safety stocks go up

– Cycle stocks stabilize

– The “other stuff” goes away

• Service levels and distressed numbers match goals

• Schedule adherence goes up

• Kaizan lists are reduced or reprioritized

• Discussions revolve around roadmaps rather than goals

Source: Supply Chain Toolworks, Inc.

10/21/2013

11

What is the fundamental change?

Time

Pro

du

ctio

n Q

ty

Time

Economic order quantity (EOQ)- Triggered by Inventory Level- Fixed quantity- Variable cycle

Economic production cycle (EPC)- Triggered by Production Calendar- Variable quantity- Fixed cycle EPC

EOQ

Pro

du

ctio

n Q

ty

Economic Order Quantity Vs.

Economic Production CycleEOQ

Fixed Order Quantity

EPC

Fixed Cycle

Pros - Easy to do

- ERP works that way

- Treat each SKU independently

- Predictability

- Rhythm

- Smoother Demand Signal

- Economical for complex changeovers

Cons - Random Schedule

- Math is usually wrong

(what is the correct changeover cost?)

- You have to “Design” a Run Strategy

- Requires forethought and leadership

10/21/2013

12

Case: Frozen Dinner Manufacturer

EOQ + Dynamic EPC

CASE: Fruit and Nut Packaging Company

Case Study

Focus: Single packaging line

Portfolio: 43 SKUs

Drivers of complexity:

- Bag size changeovers (6 sizes)

- Color/flavor cleanup (4 flavor types)

- Allergen clean up (15 Allergen combinations)

10/21/2013

13

Case: Changeover Complexity

Characteristics:- Complex product portfolio

- Parametric changeovers

- Optimum solution is to be

found in “clustering”

Size Change

(180 min/$2,700)

Flavor Cleanup

(60 min / $1,120)

Allergen Cleanup Major

(60 min/$550)

Pack Change

(30 min/$360)

Label Change

(15 min)

Case: Allergen TreeAllergen rule: - If you add an allergen, it is a minor changeover (10-30 Min). - If you remove an allergen it is a major cleanup (60-100 Min)

None

Pnut

Pnut

Salt

Pnut

Salt

Pnut

Tnut

Pnut

Tnut

Pnut

Tnut

Dairy

Soy

Salt

Pnut

Tnut

Salt

Pnut

Tnut

Wheat

Dairy

Soy

Salt

SaltSoy

Soy

Salt

Soy

Salt

Tnut

Tnut

Dairy

Soy

Tnut

Salt

Tnut

Salt

Tnut

Soy

Tnut

Soy

Tnut

Wheat

Dairy

Soy

Salt

10/21/2013

14

CASE: How often do I run SKU

309020101110?Size Cluster(13 SKUs)

Flavor Cluster (6 SKUs)

Allergen Sequence(3 SKUs)

SKU: 309020101110 – Crnbery Nut 10/12

Size: 5.75_2.75

Flavor: Dark

Allergen: Tree Nut- Salt

Demand = 1.5 hours/Week

Picture of how you would break it

down

Cluster # SKUs Volume Changeover Costs Inventory

Holding Costs

EPC

1. Size Cluster 13 ### Sum of all Change

Costs

### 1 Week

2. Flavor 6 ### Sum of all Change

Costs

### 2 Week

3. Allergen

Cluster

3 ### Sum of all Change

Costs

#### 2 Week

10/21/2013

15

The Big Epiphany

After over 10 years of implementing cyclical run

strategies….

• Great benefit in having a predictable schedule

• Plants wanted to prove the method before reducing cycles

• Good idea to start with high safety stock targets and bleed off

over several cycles

50% of the benefit was in fixing the cycles…Not in getting the exactly correct cycle

Strategies to put into your playbook

• Flexible manufacturing

• “Flex SKU”

• “Job shop” time or “job shop” line

• Demand Shaping

10/21/2013

16

Critical Success Factors

1. Safety Stocks reflect all sources of variability

2. Capacity is not over committed

3. Cycles are followed

Critical Success Factor #1 – All sources of

variability are included in Safety Stock

Inventory Profile

Forecast Error

Trans Schedule Adherence

Service Level

Planning Lead Time

Mfg Time + Variability

Transit Mode/Time

Cycle Time

Ship Life

Mfg Schedule Adherence

Transit Time + Variability

Capacity Loading

Demand Variability

Supply Chain Performance

Supply Chain Decisions

Demand Environment

Constraints

Homework Assignment:

See how many of these factors are included in your safety stocks

10/21/2013

17

Critical Success Factor #2: Do not over-

commit capacity

The 100% loading hypothesis

“If my equipment can make 1,000 cases per week, can plan for it

to make 52,000 cases per year?”

No – week over week variability and changes in mix require flexibility and adjustment.

If you load lines to 100% of their effective capacity, you have no means to compensate for

variability

Critical Success Factor #2: Do not over-

commit capacity

Frozen Dinners Processing Line Loaded to 100% Capacity

0

50

100

150

200

250

Week

Capacity Shortage

Capacity Surplus

Production Time

Changeover Time

Scheduled Down Time

Random periods

of sequential

shortage

1 Week(168 hrs)

Homework Assignment:

See how rough cut capacity allows for weekly variability in demand

10/21/2013

18

50% 60% 70% 80% 90% 100%

Inv

en

tory

Capacity Commitment

Cycle StockTransportation Stock

Safety Stock:Lead time – Demand Side Variability – Supply Side Variability – Forecast Error

Safety Stock:- Trapped Capacity

Think of lean as balancing your

capacity and inventory

Safety Zone (Fill Rate > Target)

Lean Horizon

50% 60% 70% 80% 90% 100%

Inv

en

tory

Capacity Commitment

Finding that “lean horizon”R

ough

Cut

Cap

Pla

nnin

g

Simplified Safety Stock

Safety Zone (Fill Rate > Target)

Danger Zone (Fill Rate < Target)

Lean Horizon

It is disturbingly easy to find yourself here with all your systems saying it is OK

10/21/2013

19

Critical Success Factor #3: Following

the Cycle

The other Epiphany… Back to

Minneapolis

• The city executed their 100% metered ramp

strategy

• The city got the quantifiable results

• The city and population saved boatloads of

money…

10/21/2013

20

What did the drivers think?They hated it!!!

�They felt meters were inconvenient

�They waited at meters when traffic was

flowing freely

�They felt “big government” was oppressing

them

�Drivers did not emotionally connect meters to

shorter-predictable-safer commutesEnd Result: Politicians required meters to only operate at peak hours

—the effect of metered on ramps was marginalized

The lessons learned from breaking

cyclesInterfering with production cycles:

�Invalidates safety stock calculations

�Invalidates capacity calculations

�Adds variability to the system

�Adds cost

�Defeats the point of following cycles

10/21/2013

21

Conclusion

I encourage your organization to:

�Embrace cyclical planning at all leadership

levels

�Establish and track metrics for success—build

confidence

�Don’t cheat, even if it “feels” right—have faith

in your metrics

Questions?

Source: USHWA

Steve Johanson -- steve@sctw.com -- 415.533.9275

10/21/2013

22

Survey

www.tinyurl.com/lc3s3fm