John Darlington_VATX_10 TOCPA_Feb 2014_India - FIN

10th International Conference of the TOC Practitioners Alliance - TOCPA

Feb 21-22, 2014 Noida, India

10th International Conference of the

TOC Practitioners Alliance - TOCPAwww.tocpractice.com

VATX Flow Analysis: Core

Problems and Customised

Solutions

John DarlingtonValueflow, ManagementUniversity of Buckingham, UK

21 February, 2014


John Darlington

John Darlington is originally an accountant. John

qualified as a "Lean and Six Sigma Expert" through

the Renault Institute of Quality Management and as

a "Jonah" through the Goldratt Institute. He

worked for Allied Signal for thirteen years in the

Turbocharger division. His roles varied from

Financial Controller and IT Manager to Plant

Manager of the European Aftermarket. He spent

two years as Kaizen Director of the largest Forging

Group in the UK, where his role involved him

heavily in the systematic application of Lean

Manufacturing and Supply Chain Management. He

combines application with teaching for the

University of Buckingham on their MSc in Lean

Enterprise, specialising in Mapping, Capacity

Planning and Costing. John has been a guest

speaker at APICS, and SAPICS where he won the

Toyota Prize for Best New Idea

Contact details: [email protected]

+44 (0) 7811 440847


VATX Analysis

Plants classified by the BOM shape/ material flow.

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VATX is a constraint management method for determining the general flow of parts and products from raw materials to finished products.

Through conceptualisation it enables the identification of typical areas for improvement.

VATX Flow Analysis


VAT Analysis - Dominant Characteristics and Issues

(1 of 4)

Metals Food Chemicals

V plant.

Few raw materials

Wide variety of finished products

Points of divergence/differentiation

Specialised plant and machinery

Often process flow orientated

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Issues:

V Plants

Plant utilisation important, often run campaigns

WIP too high

Lead time too long

Due date performance spread, late and early

Perceived to be not cost competitive

Always trying to reduce operating expense



(2 of 4)

A plant.

Assembles products

Assembly driven

Many raw materials & bought out components

Process time a fraction of lead time

General purpose machines often in cells

Capital goods Aerospace

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Issues:

A Plant

Labour utilisation important, keep them busy

syndrome

WIP too high

Lead time too long

Due date performance poor, usually late

Lots of expediting, massive overtime



(3 of 4)

T plant.

Wide range of products customised at assembly

Core of common components

High bought-out content

Market/customer service orientation

The modern assembly plant

Vehicle manufacture Electronics

TMaterial

flow

Issues:

T Plants

Component supply important, cannot forecast accurately

Usually problems with purchased parts lead times

Due date performance very spread, very late very early

Very high component stocks

Shortages everywhere, shortage steal shortage vicious circle

Wandering bottlenecks

Overtime everywhere


Aftermarkets Repair & Overhaul Remanufacture

X plant.

Wide variety of components and finished products

Often short lead time response required

Different ratios of bought out and made in house

Contractual arrangements regarding product life

cycle support

Hub and local distribution issues

Issues

X Plants

Trade off between service and carrying costs

No statement of policy regarding target customer

service

Sourcing from suppliers

Inter company rivalries

Aged profile of stock

Pricing and copiers

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(3 of 4)


VAT Analysis

Plants classified by the BOM shape.

Typical: Food / Metal / ChemicalSPECIALISED MANUFACTURING

CAPABILITIESM

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USUALLY A WELL DEFINED PROCESS FLOW FOLLOWED BY MOST PRODUCTS

ISSUES*COST*CAPACITY*DELIVERY


VATX Analysis

SPECIALISED MANUFACTURING CAPABILITIES

One way or another spare capacity is sold and a balanced plant emerges causing due

dates to be missed and creating extra unplanned operating expense

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Opportunities for products to be sold at various stages of production

Or bought in for additional processing

Plant lurches from under activity and cost saving mode when sales are low, to

bottleneck status and lates when sales are high


VATX Analysis

Unlikely to have a conventional MRP system(What for? Doesnt address our needs)Will Have:

-RAW MATERIAL STOCK (IN STORES)-CUSTOMER ORDERS

SHOULD HAVE:-ROUTINGS-WIP TRACKING

UNIQUE CAPACITY IS THE KEY (This is what you sell)GOOD SERVICE CAN OFFER SIGNIFICANT COMPETITIVE ADVANTAGE


VATX Analysis

Many materials and parts few finished products

Parts manufacture Often organised by type of machine

Sometimes by part type in cells

Separate Assembly and sub assembly areas

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VATX Analysis

Plants classified by the BOM shape.

SHIPS AIRCRAFT AERO WINGS BODIES

Typical material flow:

PRODUCT OR COMPONENTSYNCHRONISATION IS THE KEY

ISSUES:*STOCK*SYNCHRONISATION*LEAD TIME


TMaterial

flow

Many finished products assembled from common components

Models options variants specials

Parts often purchasedCompetitive market

VAT Analysis

Plants classified by the BOM/Route shape.


Automotive, Electronic Instruments, Furniture, Hydraulic Controls, Telecommunications

SUPPLIERS

CUSTOMERS

VAT Analysis


PRE ASSEMBLY BUFFER

PRODUCTION ASSEMBLY


MARKET ORIENTATEDPRODUCT ORIENTATED

Customisation to maintain volume/price

COMPETITION

On time delivery (DAS)

Procurement planning problems

Shortages* Kit Robbing/Stealing

ISSUESDelivery On time Lead Time

VAT Analysis



What are the implications of

these models on planning and

scheduling?


Terminology: Planning and Scheduling

Planning

A set of longer term actions that define the desired demand

profile, and capacity required to deliver it, such that the purpose

of the organisation is satisfied. Planning tends be to over longer

horizons and the buckets of times are often in months or

quarters or years

Scheduling

The critical difference distinguishing scheduling is that it also

involves sequencing of work and the time horizon is much shorter.

Depending upon the organisation and business the time buckets

can be hours or days but often not much more than a couple of

weeks


Planning and Scheduling: Process Characteristics

Strategic

Tactical

Operational

Planning

Planning

Scheduling

Constrained

Least

Most

Horizon Bucketed Purpose

Months/Quarters

Weeks/Months

Days/hours/minutes Bucket less

Years

Months

Days

Acquisition and DisposalsMajor plant investmentMarket strategy

To ensure there is sufficient capacity and materials to meet customer demandTo Resolve conflicts

To execute the planTo meet specific due datesTo optimise resource utilisation within the constraints of the plan


Process Flow

Forecast & Customer Orders

Management Policy The RulesWorking CapitalHeadcountOvertimeCustomer Service

Planning

SchedulingMRP or DBR

Material availability

Capacity availability

Stock,

Orders,

BOM

Resources,

Routes,

Calendars

Schedules

Drum Buffer Rope, Heijunka, Kanban

Conwip


How does it apply to VATX

plants?


Scheduling For Flow In a true V Plant

300

120

8060

40 50 100 70

Schedules Essential At:ConstraintsPoints of DifferentiationDespatch

Shipping Buffer

Raw Materials


Scheduling For Flow In a true V Plant

300

120

8060

40 50 100 70


Shipping Buffer

Raw Materials

InvInv

Inv

Buffering of Constraint Processes


Scheduling For Flow In a true V Plant:

understanding the constraint characteristics

300

120

8060

40 50 100 70


Shipping Buffer

Raw Materials

InvInv

Inv

Buffering of Constraint Processes

The size of the required buffers are a function of process variation AND issues around the points of divergence


Scheduling For Flow In a T Plant

Schedules Essential At:ConstraintsAssemblyDespatch

Shipping Buffer

Buffering of Constraint Process

A detailed schedule would try to get to a status where a non constrained parts should never hold up a constrained part in the Pre-Assembly Buffer. Assemble to order or finished goods. Manufacture by replenishment to the pre assembly buffer

Inv

300

78

120

100

48

38

75

Pre

Assembly

Buffer

Raw Material

280 300

120

100

Raw Material

Raw Material

46 Assembly


Scheduling for Flow in an A Plant

A Plants: Complex MRP essential to nett of demand

per BOM level Likely to be many manufacturing

centres BOM accuracy vital MRP NOT used for scheduling,

maybe sequence Even APS systems are not

dynamic enough

Best to produce an MPS for each centre, and use

appropriate pull system for scheduling

For the centre a good description of the capacity

constrained resource is essential


ERP/MRP have taken modern organisations as far as they can go in terms of

delivery of short lead time manufacturing. It should be retained for: -

Netting against current inventories and showing future demands

For rough cut capacity planning but for the most part Without the lead time

offsets applied first

In A plants manufacturing centres should be effectively decoupled compared

with today.

Each centre should become autonomous at a tactical level and completely

responsible for achieving the due date required by the customer centre(s).

Each centre should become responsible for what it buys and when

Each centre should determine when to launch work into work in progress

using the DBR or appropriate methodology, taking all constraints into account

simultaneously

The Manufacturing Centres should become responsible for their capacity planning

Requiring greater precision regarding product process characteristics

The planners need to get back to BEING PLANNERS not administrators of ERP

Summary : - Planning and Scheduling


VATX Analysis Applied:Case Examples

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A Case Study example Its too expensive to stop


ControlCooled

Heat Treatment

Finish North Line

Finish South Line

Joy Mining Line

Die Shop

Cutting

Induction Heating

ForgeShotblast

Shotblast

The Schedule for the Forge is sensitive to batching.

Finishing only pulls what is required for the immediate

week ahead

DBR solution fits V plants very well: there are

often multiple scheduling points

Scheduling Points

Raw material

28.10 days

Finished goods

11.30 days

Work in Progress

34.70 days


Measure of Improvement:

More Sales & lead time

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

Closing WIP (Pcs) 10409113441250712693 8812 9360 7336 8739 7633 6781 6159 5136 7352 4945 4207

Sales (Pcs) 111071174814275130851440113945110101144013700156002075912476151041647316216

WIP Days 28.1 29.0 26.3 29.1 18.4 20.1 20.0 22.9 16.7 13.0 8.9 12.4 14.6 9.0 7.8

28.1 29.0

26.3

29.1

18.420.1 20.0

22.9

16.7

13.0

8.9

12.414.6

9.07.8

0

5

10

15

20

25

30

35

0

5,000

10,000

15,000

20,000

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Period

Manufacturing Lead Time as Measured by Days Inventory in WIP


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Russian Factory


Russian Factory Background

Core Problems

Low Delivery performance

High level of stock in finished goods and work in progress

Shortages of parts holding up main builds

Contributing Factors

Tendency to stick with manufacturing to an annual plan no matter what was really happening to demand

Large batch sizes compared to demand driven quantities made in the belief it saves cost of set up

Some Piece Part Payments

DOS based system but had been sold Advanced Production Software


Complex Flow

Assembly Shop 26

Finished StockShop 61

Purchased Parts

Mechanical Shop 2

Base Elements Shop 15

Preparing Shop 11

Raw Materials

Orders

Assembly Shop 13


Russian Factory Mapping Exercise


The quantity of parts required is

lower because planning was set

for lot to lot. However the range

of parts required is likely to be

bigger

2009 Planned with batching2009 Planned lot for lot

Phase 1 Batching & Prioritising Shortages


Phase 1

Phase 2

Phase 3

Primary MRP using XXX software at Shop/Area level to generate a Prioritised List

Gathering sufficient data at M/C centre level to develop Capacity Planning and more accurate Schedules (see sample Slide 27)

Identify logical constraints and apply a combination of APS if required, sensible buffering and pull/replenishment systems

Months 3 6 Months 7 15 Months 16 24

The stages of the improvement implementation journey

This is practical: we cannot leap to APS immediately!


From To Move

Shop Shop 40 hours

Shop Area Shop Area 8 hours

Within Area Within Area 2 hours

Phase 1 Creating the prioritised list

Exceptions where XXX Co feel this is not sufficient

From To Move Time Based

Minimum

Batch Qty

Shop Shop 40 hours

Shop Area Shop Area 8 hours

Within Area Within Area 2 hours E.g. Batch size not less than 120 minutes of

processing time


Route From To Lead Time for

Prioritisation ONLY

RC0201 RC0201 RC0202 8 HOURS

RC0202 RC0202 RC0401 40 HOURS

RC0401*2 RC0401 RC0402 8 HOURS

RC0402 RC0402 RC0403 8 HOURS

RC0403 RC0403 RC1001 40 HOURS

RC1001 RC1001 RC1002 8 HOURS

RC1002 RC1002 RC1099 8 HOURS

RC1099 RC1099 RC1101 40 HOURS

RC1101*1 RC1101 RC1102 8 HOURS

RC1102 RC1102 RC1103 8 HOURS

RC1103 RC1103 RC1307 40 HOURS

RC1307 RC1307 RC2601 40 HOURS

RC2601 RC2601 RC6099 40 HOURS

RC6099 RC6099 RC6199 8 HOURS

RC6199

TOTAL 304 HOURS




RC1101*1 Part 6B8680374-05 Current Batch Size 220 Covers Demand for 5 months

RC0401*2 Part 6B8126085 Current Batch Size 200 Covers Demand for 1 month


Phase 1 What would the Prioritised list look like?

Note that as we are working lot for lot the quantities are those really required by the customer work centre

Note that lists are in prioritised Job Order

Note that the start dates are likely to be in the past at first because of arrears. So the schedule start date is from now but the prioritisation is valid

Note current batch sizes are a waste of capacity, money & get in the way of more urgently needed parts


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High Level Concept Tplant

PRE

ASSEMBLY

BUFFER

PRODUCTION

ASSEMBLY

3rd PARTY

SUPPLIERS

Order Book

(due date sequence)

Order 1

Order 2

Order 3

1234

42

32

Kanban movementsKanbans card(?)

Significant

characteristic:

Commonality of

parts

Scheduling options:

DBR

Kanban

Hybrid systems


Introduction

Workshop 26th & 27th March 2007

Venue: Conference Suite

The objective was to have a common understanding

by all of the "Current State information systems

describing Demand Management, Capacity

Management, Inventory Management and the

Systems approach including measurements.

The following areas were represented to help

achieve this objective:

Forecasting and order entry

Sales

Production

Planning and scheduling

Purchasing

IT

Finance

Engineering


Questions to be answered by the maps

Order Fulfilment system: How do we offer a delivery date? Order Forecasting and management: Do we achieve the

promised delivery date? Inventory: What inventory do we have where, for how long,

for who? Financials: What sales did we achieve, with what working

capital, at what operating expense? What was the throughput?

Do we have a joined-up system? Is the system predictable?


Questions to be answered by the

Forecasting and Order promising map

How do we forecast future demand?How do we set inventory levels for make to stock items?How do we offer a delivery date?Do we achieve the promised delivery date?



order fulfilment map

How well does production perform?How well is capacity described in assembly and primaries?How are batch sizes calculated?How frequently are batch sizes reviewed?



Inventory and Financial Maps

What inventory do we have?Where is it?How long has it been there?Why are we holding it?For whom?Did we achieve required levels of sales?Was the throughput as expected?Was the working capital as expected?Was the operating expense as expected?Are results predictable?


Workshop 26th 27th March 2009

World Wide Lock Maker


Introduction

ASSA ABLOY Thinkflow Workshop 26th & 27th March

2007

Venue: Portobello Conference Suite

The objective was to have a common understanding

by all of the "Current State information systems

describing Demand Management, Capacity

Management, Inventory Management and the

Systems approach including measurements.

The following areas were represented to help achieve

this objective:

Forecasting and order entry

Sales

Production

Planning and scheduling

Purchasing

IT

Finance

Engineering

G.Morgan (IT), K.Andrews (Logistics), R.Essom (Mul T Lock Logistics), L.Wales (Thinkflow), J.Darlington (Thinkflow), L.Powers, Logistics) S.Newlands (Operations), Ian Turner (Planning) Dave Richards (Primaries) K.Bajwa (Logistics), A.Killip (Logistics), l.Robbins (Cylinders), M.Woodhouse (Padlocks), J.Cooper (Planning), N.Harkness (Purchasing), D.Chambers (Planning), L.McCourt (Bus Improvement), S.Firmstone (Planning), T.Brittle (Mortice), S.Allen (Bus Improvement), T.Neale (operations), R.Simpson (Planning), L.Philp (Engineering), I.Bartlett (Union Sales), T.Morton (Abloy Sales), K.Barry (Yale Sales), R.Tame (Thinkflow), P.Deans (Cyl RIM), D.Gilbert (Export), P.Curtis (Purchasing), I.King (Planning), D.Perry (Operations Director)


Questions to be answered by the maps

Order Fulfilment system: How do we offer a delivery date?

Order Forecasting and management: Do we achieve the promised delivery date?

Inventory: What inventory do we have where, for how long, for who?

Financials: What sales did we achieve, with what working capital, at what operating expense? What was the throughput?

Do we have a joined-up system? Is the system predictable?

How do we forecast future demand?

How do we set inventory levels for make to stock items?

How do we offer a delivery date?

Do we achieve the promised delivery date?

How well does production perform?

How well is capacity described in assembly and primaries?

How are batch sizes calculated?

How frequently are batch sizes reviewed?

What inventory do we have?

Where is it?

How long has it been there?

Why are we holding it?

For whom?

Did we achieve required levels of sales?

Was the throughput as expected?

Was the working capital as expected?

Was the operating expense as expected?

Are results predictable?


Forecasting Map Order Fulfilment Map

Work In Progress Map Financial Map


The Final Forecasting and Order

Management Map


The Final (?) Finished Goods Map

Source

Average

Finished

Goods

Inventory

overall in

Days

Average

Finished

Goods

Inventory

last 3

months in

Days

Overall

Saving /

(Additions)

's

Min

Order

Qty

Lead

Time

Review

Time

Target

Service

Level Over 's Under 's Nett 's

UKMANUF 51.24 55.00 320,152 10 7 7 95 1,148,195 (828,043) 320,152 FACTORED 205.24 211.46 3,637,292 100 84 7 95 5,113,549 (1,476,257) 3,637,292 FACT_PACK_UK 56.23 62.39 (94,860) 20 14 7 95 271,461 (366,321) (94,860) Check total 4280314Grand Total 147.37 152.12 4,280,314 6,533,205 (2,670,620) 3,862,584

Assumptions Uneveness


The Final Financial Map


Features of the Future State

1. Analyse the demand profile to determine which are suitable formake to stock and make to order

2. Develop a forecasting system for finished goods (UK Manufactured, Factored and Fact-Pack)*

3. Develop a forecasting system for the pre assembly buffers*(components located around the cells whether they be sourced from primaries, or bought out components)

4. Develop a time based capacity planner for areas/cells which is easy to use

1. Technical1. Mass update to BPCS for routings

5. Design the pull mechanism to finished goods replenishment or make to order such that it appears to be one system on the shopfloor

6. Assist in the design of training required to prepare the plant for the new system.


How much and where should we hold inventory? We need finished goods if customers will not tolerate manufacturing lead times We need intermediate inventories e.g. pre-assembly buffers to indicate by

consumption what must be replenished by upstream processes

Flow of Parts out of Kanban SiteFormal Kanban SiteFlow of Parts between Secondary opsKanban Replenishment Signal

Key

Flow of Parts out of Kanban SiteFormal Kanban SiteFlow of Parts between Secondary opsKanban Replenishment Signal

Key

PADLOCKSASSEMBLY

PADLOCKSMACHINING

CYLINDER RIM

ASSEMBLY

CYLINDERSASSEMBLY

SPECIAL MORTICE

ASSEMBLY

VOLUME MORTICE

ASSEMBLY

CYLINDER RIM

MACHINING

CYLINDERSMACHINING

SPECIAL MORTICE

MACHINING

VOLUME MORTICE

MACHININGPainting

PlatingPRESSED

PARTS

CASTING

BO PARTS

TURNED PARTS

Subcontract

Whse = [W2]

RAW MATERIAL

Sequencing Board/Planner

Temporary Kanban Card Printing Station

PADLOCKSASSEMBLY

PADLOCKSMACHINING

CYLINDER RIM

ASSEMBLY

CYLINDERSASSEMBLY

SPECIAL MORTICE

ASSEMBLY

VOLUME MORTICE

ASSEMBLY

CYLINDER RIM

MACHINING

CYLINDERSMACHINING

SPECIAL MORTICE

MACHINING

VOLUME MORTICE

MACHININGPainting

PlatingPRESSED

PARTS

CASTING

BO PARTS

TURNED PARTS

Subcontract

Whse = [W2]

RAW MATERIAL

Primaries Secondary Ops

Operational Kanban Structure

Primaries Final Assembly

Operational Kanban Structure

Sequencing Board/Planner

Temporary Kanban Card Printing Station


KANBAN CARD Example

Supermarket shelf is permanently identified in fixed location.

Each container contains a card, which are passed to the replenishment process kanban board and a copy to planning for keeping the w/o ERP system up to date when consumed by final assembly


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Demand Categories

Type DescriptionNormal Continuous history with relatively high volumes, can be

forecast with confidenceErratic Intermittent history with medium to high volumes, can be

forecast with reasonable confidenceLumpy Very intermittent history with medium to high volumes, can

be forecast but with limited confidence. Preferably not made to stock

Slow Low volumes with some intermittent history, can be forecast with limited confidence. More suitable to make to order

Management Control

New

Very intermittent and unpredictable demand. Should not be made to stock

More than 6 periods with zero demand but with 4 most recent periods with demand greater than zero

All Demands Zero No demand in the last 12 months


Sales Analysis Y Co

Demand Class No of PartsNo of

Parts as a %

Demand Demand as %

Normal 56 36.13% 18514 95.4%Erratic 29 18.71% 611 3.1%Lumpy 30 19.35% 280 1.4%Management Control 40 25.81% 5 0.0%New 0 0.00% 0 0.0%Active Demand 155 100.00% 19410 100.0%

No Demand last 12 months 63Total 218


Y Sales Analysis (Sample of Normal Demand)


Y Sales Analysis (Sample of Normal Demand

with Seasonality spotted)


Y Sales Analysis (Sample of Lumpy Demand)


Safety stock data requirements


Summary:

For real optimum results, the One schedule fits all strategy is not true

To optimise results and flow, planning and scheduling has to use the most

appropriate solution for the department/ plant/ supply chain

The VATX concept is a simple way to understand typical characteristics and

issues of the systems

By studying the demand profile carefully and understanding the type of

plant you work in you can make an informed decision about which pull

system to adopt to deliver high customer service with less inventory which

will significantly improve bottom line performance.

Documents

John Darlington_VATX_10 TOCPA_Feb 2014_India - FIN